Arizona State University

W.P. Carey School of Business

COURSE OVERVIEW;
LEGAL SYSTEMS AND
NATURE OF PROPERTY

1
Class Goals
• Terminology – What does that mean?
• Legal Framework at All Levels of Government
– Federal
– State
– Local (County/City)
• Practical Applications
– Understanding the legal framework that underlies the
business of real estate
– Identifying possible legal issues before they become a
problem in a real estate transaction
– Working with lawyers or other legal professionals in real
estate transactions 2
Administrative Matters
• PowerPoints
• Text Book and Reading Materials
• Grading:
– Attendance/Class Participation = 20%
– Assignments (2) = 20% (10% each)
– Quizzes = 20%
– Midterm = 20%
– Final Exam = 20%
• All Topics Covered are Fair Game

3
Administrative Matters (cont’d)

• Team Teaching Approach

• Access to Faculty:
– E-mail
– Before Class
– By Appointment

4
Overview
• Legal Systems and Nature of Property
• Contracts/Letters of Intent/Purchase Agreements
• Title Insurance and Title Review
• Surveys
• Escrows and Closing
• Real Estate Finance
• Leases
• Agency and Brokerage
• Zoning
• Environmental
• Easements and Licenses
5
Contracts, Letters of Intent, and
Purchase Agreements
• Legal Requirements for a Contract
• Elements of a Contract
• Letters of Intent
• Purchase and Sale Agreements
• Real Estate Due Diligence

6
Title Insurance and Title Review

• Making Sure The Deal Is What You Intend

• Title Review
• Title Insurance
• Title Industry Overview
• Title vs. Escrow
• Title Insurance Policies
• Preliminary Title Reports / Title Commitments
• Title Insurance Endorsements
• Title Objection Letter
7
Surveys

• Overview of the Survey System

• Survey Review
• Boundary Surveys
• ALTA/ACSM Surveys
• Main Elements of a Survey
• Technical Survey Components

8
Escrows and Closings
• Escrow
– Why Needed
– How Established
• Duties of Escrow Agent
• Close of Escrow
– Closing Checklists
– Common Conditions to Closing
– Closing Settlement Statement
– Closing Instruction Letter
– Closing Documents
– Closing Funds
9
Escrows and Closings (cont’d)

• Cancellation of Escrow
• Escrow Disputes
• Working Effectively with your Escrow Agent

10
Real Estate Finance

• Overview of Secured Real Estate Lending

• The Keys to Credit:
– The Four Cs: Character, Credit, Capital, Collateral
• Construction Lending vs. Permanent Financing
• Underwriting
• Loan Documents
• Guarantees

11
Leases
• Leasehold Estates
• Types of Leases
• Ground Leases
• Lease Provisions
• Lease Guarantees
• Lease Due Diligence
• Laws Governing Landlords and Tenants

12
Agency and Brokerage
• Brokers
• Listing Agreements
• Authority
• Duties

13
Zoning and Land Use
• Private Restrictions
• Public Restrictions
• Police Power
• Constitutional Limitations
• Variances

14
Environmental
• CERCLA
• Liability
• Defenses
• Damage

15
Easements and Licenses
• Easements vs. Licenses
– Defining the Nature of Interests
• Types of Easements
• Creation of Easements
– Express
– Implied
– Prescriptive Easements
• Typical Easements Used in Development
Process
• Reciprocal Easement Agreements
16
Legal System & Nature of Property

• Theoretical Framework for the Remainder of the

Topics
– The Importance of Context
– Understanding Legal Terminology
– Identify Legal Issues

17
Legal System
Constitution

Executive Legislative Judicial

Administrative Supreme
Agencies Court

Intermediate
Appellate Court

Trial Court

18
Legal System (cont’d)
• Sources of Law
– Constitution – three functions:
• Allocates power between states and federal gov’t.
(i.e., “federalism”)
• Allocates power among branches of federal gov’t
(i.e., “separation of powers”)
• Protects individual rights, including private property

19
Legal System (cont’d)
• Sources of Law
– Case Law (precedent) – judge-made law
• Written opinions decided by appellate courts
• Stare Decisis – judges follow principles established in prior cases
– Lower courts are bound to decisions by higher courts in their
state
– A court need not follow precedent established in another
state, but may find it persuasive if none exists in state
– Gives certainty and predictability to the law
– Considered to be effective and fair
• “Holding” – that part of the court’s opinion necessary to resolve
the dispute between the parties; creates precedent for future
cases; everything else is only dictum (or dicta)

20
Legal System (cont’d)
• Sources of Law
– Statutes
• Federal/State – Established by Legislative Branch
• Has become the chief source of real estate law over
past 100 years
• Often codifies appellate judge-made law (case law)
• More comprehensive than case law, can modify the
law rapidly, can treat an entire problem rather than
just a part
• Courts are still needed to interpret statutes
• “Never assume the absence of statutory legislation”

21
Legal System (cont’d)
• Sources of Law
– Ordinances – Established at local level
– Administrative Rules and Regulations
• Federal/State – Established by Executive Branch
• Agency has authority to make rules and regulations
that have force of law
• Agency’s authority is granted in the legislation that
created the agency
• Agency must not exceed the power and authority
granted to it by the legislature

22
Legal System (cont’d)
• Court Structure – Trial and Appellate Courts
– Trial Courts
• Determine the facts (jury or judge is the “factfinder”);
apply the relevant law
• Jury usually makes factual determination (with jury
instructions determined by what the law is, and provided
by the judge); in some cases parties are not entitled to a
jury or they waive this right – judge is then the factfinder
• Findings are based on evidence presented at trial
• Law determines what evidence can be presented, but not
what evidence can be believed
• If there is contradictory evidence (as there often is) the
factfinder is entitled to believe whomever they wish

23
Legal System (cont’d)
• Court Structure – Trial and Appellate Courts
– Appellate Courts
• Higher courts that review the trial court case and correct
legal mistakes made by trial courts
• Do not decide disputed facts – they determine the
answer to discrete legal questions
• Opinions constitute judge-made law that establishes
precedent
• Decisions and their legal reasoning supporting those
decisions are “published” and available for review

24
Legal System (cont’d)
• Court Structure – State and Federal Courts
– State Courts – Jurisdiction is over all matters
except those that the Constitution or Congress
has given exclusively to the federal courts
• State’s criminal statutes
• Most civil matters, including most property,
contract, and personal injury cases

25
Legal System (cont’d)
• Court Structure – State and Federal Courts
– Federal Courts – Jurisdiction is limited to that
given to them by the Constitution and federal
statutes
• Federal Question Jurisdiction: cases involving
constitutional questions, federal statutes, and
treaties between U.S. and a foreign nation
• Diversity Jurisdiction: cases involving citizens of
different states (dispute must involve more than
$75,000)

26
Legal System (cont’d)
• Federal Preemption Doctrine
– Dual Government Structure: Federal and State
– Supremacy Clause (Art. IV, Sec. 2 of US Const.) –
“Constitution, and the Laws of the United States
… shall be the supreme Law of the Land.”
– Federal law preempts (takes precedence over) a
state law (or local regulation) when:
• Congress expressly states so in the statute,
• Congressional intent to preempt is inferred from
comprehensive federal regulatory scheme, or
• State law conflicts with federal law or its purposes

27
Nature of Property
• What is “Property”
– Lawyers think of “property” as “rights in
property” – ownership is never absolute
– Bundle of Rights (aka “Bundle of Sticks”)
• Possession
• Disposition/Alienation
– Sell; Mortgage; Option; Future Interest
• Use/Subdivide
– Still always limited by statute and local ordinance
(e.g., you cannot burn your house down)
• Burden; Restrict Others (i.e. covenants)
28
Nature of Property (cont’d)

• Real Property vs. Personal Property

– Land (RP)
– Chattel (or goods) (PP)
– Intangible – represents control or ownership of
something of value (PP)
• Stock certificates; patents; copyrights; intellectual
property rights (i.e. software)
– Real Property: transferred by Deed, and generally
governed by unique state law governing RP
– Personal Property: transferred by Bill of Sale, and
generally governed by uniform state law – the
Uniform Commercial Code 29
Nature of Property (cont’d)

• Fixtures: Is it real or personal property?

– Trade Fixtures – personalty attached to real estate
in order to carry on a trade or business
• Tenant may generally remove
– Practice Pointer: Specify in contract

30
Nature of Property (cont’d)

• Estates in Real Property:

– Fee Simple Interest
– Freehold Estates (all that not leasehold)
– Leasehold Estates
– Life Estate: own the property upon someone’s life
– Future Estates

31
Nature of Property (cont’d)

• Acquiring Estates in Real Property

– Purchase – Deed
• Full or Partial Interest
– Inheritance and Devise
– Gift
• Anticipatory
• Completed
– Delivery of the Deed
– No Consideration Required

32
Nature of Property (cont’d)

• Acquiring Ownership of Real Property (cont’d)

– Adverse Possession
– Concurrent Ownership
• Community Property
• Joint Tenancy with Right of Survivorship
• Tenancy in Common
• Tenancy by the Entirety
– Incidents of Common Ownership
• Repairs and Contribution, and Improvements
• Mortgages and Taxes
– Partition 33