Real and Personal Property

Real and Personal Property

Real and Personal Property 19 The term property is used to describe anything that is capable of ownership. Property is nor-mally divided into two types: real and personal. Real property consists of land and anything permanently attached to it, called fixtures. Personal property is “all other property” or any- thing else that is capable of ownership. What distinguishes real from personal property is that real property is fixed and unmovable, whereas personal property (both tangible and intangible) is mov- able. The terms personal property, goods, and chattels all refer to the same type of property and are interchangeable.

In general, an ownership right in property, regardless of its nature, gives the owner rights that the government sanctions and protects. For instance, the owner has the right to use the property, sell it, give it away, rent it, possess it, prevent others from possessing or interfering with it, and, with some exceptions, even destroy it. Put another way, ownership of property carries with it the exclusive right to use, possess, and dispose of the thing over which one has an ownership interest. Govern- ment sanctions property rights by recognizing the rights of individuals to use their property. It does so exclusively through criminal statutes that make interfering with the property rights of others (e.g., through theft, arson, criminal mischief) a punishable offense, as well as by allowing individu- als to use the courts to defend their property rights and to seek civil damages against those who interfere with them (e.g., actions in tort and contract). In this chapter, we will explore personal and real property rights and how to obtain title to real property.

19.1 Personal Property

Personal property can be divided into both tangible and intangible types. We have already learned about tangible personal property in our discussion of Article 2 of the Uniform Com-mercial Code, which covers the sale of goods. Intangible personal property, on the other hand, covers ownership rights over things that do not have physical existence, such as intellectual prop- erty (copyrights, patents, trademarks, and the like; see Chapter 20), stocks, bonds, contract rights, and commercial paper (see Unit IV).

Acquiring Title to Personal Property

As you are doubtless aware, nearly everything on earth is capable of ownership. Even at early com- mon law, where all real property and wild animals in England were deemed to belong to the crown (which, in turn, could gift parts of it to favored nobles as it saw fit), serfs were allowed limited rights to own personal property. Among the ways to acquire rights to personal property are by possession, by purchase, and by gift.

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By Possession Title by possession refers to instances such as shooting a wild animal like a deer. The hunter then “owns” the wild animal by virtue of possessing it. Similarly, one can also acquire title to abandoned property, such as property left on the curb, by taking it into pos- session, thus the adage “finders, keepers.” Possession alone in both instances can result in ownership.

By Purchase Title by purchase is by far the most common way to acquire rights to personal property. Recall that the purchase of goods is covered by Article 2 of the Uniform Commercial Code (see Chapter 10). Once property has been delivered and paid for pursuant to a binding agreement for its sale, the item’s ownership passes from the seller to the buyer, and the buyer acquires whatever ownership interest the seller had to give. This is true whether a cash, credit, or barter transaction is involved. If an electrician agreed to purchase a paint- er’s painting in exchange for wiring the painter’s home, title to the painting would pass as soon as it was turned over to the electrician, subject to the latter keeping up his her end of the bargain and properly wiring the painter’s home. The same would be true if the electrician paid $1,000 in cash for the painting, gave a check for $1,000 for it, or charged the painting on a credit card.

When title is acquired through purchase, the purchaser obtains exactly whatever title the seller had to give; thus, if the seller is a thief, the purchaser will generally acquire no title to the goods. The general rule is that a seller passes exactly the title he or she has to the goods being sold. Therefore, since a thief has no title to the goods sold, he or she can pass no title to them.

By Gift Rights to personal property may also be established through title by gift. This involves the transfer of personal property from the donor, the owner of the property, to the donee, the receiver of the gift. There must be actual delivery of the gift and acceptance of the gift by the donee. Where physical delivery is impossible or impractical, a valid constructive delivery can be made by the donor, who takes some affirmative step to deliver either the property itself or the means of obtaining the property to the donee. For example, if a donor wishes to make a gift to the donee of a gold watch that is in the donor’s safety deposit box in a bank, giving the donee the key to the safety deposit box along with writ- ten authorization to the bank to allow the donee to access the safety deposit box would construe a valid constructive delivery of the watch itself. Likewise, giving the keys and signed registration to a car to the donee constitutes constructive delivery by the donor of the automobile, regardless of where the automobile is located at the time that the keys and registration are transferred.

Lost, Misplaced, and Abandoned Property Personal property that is not in the owner’s possession may be lost, misplaced, or aban- doned. When such property comes into the possession of a third party, not the owner, issues sometimes arise as to whom in fact has ownership in the property. Table 19.1 char- acterizes these three types of dispossessed property.

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Table 19.1: Dispossessed property

Definition Who Owns It

Lost Unintentionally placed; owner forgets where it is.

Title vests in the original owner.

Misplaced Intentionally placed; owner forgets where it is.

Title vests in the original owner. If the original owner never claims the goods, title vests in the premises where left, not in the finder.

Abandoned Intentionally placed; owner knows where it is.

Title vests in the person who finds it.

Under common law, the general rule always holds that title to property is in the original owner: the person who originally acquired title to the goods before they were lost or mis- placed. In the case of lost property, if the original owner loses the goods, it means that he or she unintentionally placed the goods somewhere. Think of a lost wallet that falls out of a purse and falls onto a street curb. It is obvious to anyone who sees it that it was not intentionally placed there, but somehow got there by accident. Thus, if a stranger picks up the wallet, that person does not acquire title to it but instead has a duty to take it to the police and leave the property in their possession for the statutory period of time, if the finder wishes to acquire title. Although this time period varies, essentially, the police retain possession of the goods until a certain time has passed and notice of the loss has been published in the newspaper. Then and only then does title to the lost goods vest in the finder.

Misplaced property is quite different in character because it was intentionally placed. Imagine a busy store on a rainy day and a customer who places his or her umbrella by the counter while looking at something to buy. The customer leaves the store, and the umbrella remains next to the counter until a store employee finds it that evening. The umbrella was placed there on purpose, but the customer cannot remember where. In this case, the owner of the store has a legal duty to keep the goods reasonably safe. The law imposes this duty with the idea that the customer will return to the store to claim the goods; and, because the store is obligated to keep the goods there, the customer will be reunited with them. Here, a third-party finder does not acquire any rights to the goods, and if they are never returned to the true owner, title vests in the store.

Abandoned property, on the other hand, comprises goods that the owner has purpose- fully placed and obviously given up rights to, such as a refrigerator left on a curb with the door taken off. One must be careful, of course, that the goods are truly abandoned, lest the taker be accused of theft.

In Grande v. Jennings, the court considered who owned property found in the walls of a house. Excerpts from the case follow.

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Cases to Consider: Grande v. Jennings

Grande v. Jennings, —-P.3d.—-, 2012, 635 Ariz. Adv. Rep. 19 (May 2012)

This case asks us to resolve who owns the money found in the walls of a Paradise Valley home: the estate of the home’s former owner or the couple who owned the home at the time of the discov- ery. . . . Robert A. Spann lived in his Paradise Valley home until he passed away in 2001. His daugh- ter, Karen Spann Grande, became the personal representative of his estate. She and her sister, Kim Spann, took charge of the house and, among other things, had some repairs made to the home. They also looked for valuables their father may have left or hidden. They knew from experience that he had hidden gold, cash, and other valuables in unusual places in other homes. Over the course of seven years, they found stocks and bonds, as well as hundreds of military-style green ammunition cans hidden throughout the house, some of which contained gold or cash. . . .

The house was sold “as is” to Sarina Jennings and Clinton McCallum (“Jennings/McCallum”) in Sep- tember 2008. They hired Randy Bueghly and his company, Trinidad Builders, Inc., to remodel the dilapidated home. Shortly after the work began, Rafael Cuen, a Trinidad employee, discovered two ammunition cans full of cash in the kitchen wall, went looking, and found two more cash-filled ammo cans inside the framing of an upstairs bathroom. After Cuen reported the find to his boss, Bueghly took the four ammo cans but did not tell the new owners about the find, and tried to secret the cans. Cuen, however, eventually told the new owners about the discovery and the police were called. The police ultimately took control of $500,000, which Bueghly had kept in a floor safe in his home.

Although elementary school children like to say “finders keepers,” the common law generally catego- rizes found property in one of four ways. Found property can be mislaid, lost, abandoned, or treasure trove. Property is “mislaid” if the owner intentionally places it in a certain place and later forgets about it. “Lost” property includes property the owner unintentionally parts with through either care- lessness or neglect. “Abandoned” property has been thrown away, or was voluntarily forsaken by its owner. . . . [citations omitted] Property is considered “treasure trove” if it is verifiably antiquated and has been “concealed [for] so long as to indicate that the owner is probably dead or unknown.”

A finder’s rights depend on how a court classifies the found property. Under the common law, “the finder of lost or abandoned property and treasure trove acquires a right to possess the property against the entire world but the rightful owner regardless of the place of finding.” A finder of mislaid property, however, must turn the property over to the premises owner, “who has the duty to safeguard the property for the true owner.” (“The right of possession of mislaid property belongs to the owner of the premises upon which the property is found, as against all persons other than the true owner.”)

Significantly, among the various categories of found property, “only lost property necessarily involves an element of involuntariness.” The remaining categories entail intentional and voluntary acts by the rightful owner in depositing property in a place where someone else eventually discovers it. . . . For example, the Iowa Supreme Court has stated that “[m]islaid property is voluntarily put in a cer- tain place by the owner who then overlooks or forgets where the property is,” and that one who finds mislaid property does not necessarily attain any rights to it because possession “belongs to the owner of the premises upon which the property is found,” absent a claim by the true owner. In Benjamin (Benjamin v. Lindner Aviation, Inc., 534 N.W.2d 400, 406 (Iowa 1995) (citing Ritz v. Selma United Methodist Church, 467 N.W.2d 266, 269 (Iowa 1991)), the court determined that packets of money found in a sealed panel of a wing during an inspection of a repossessed airplane were mislaid property because the money was intentionally placed there by one of the two prior owners.

(continued)

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Cases to Consider: Grande v. Jennings (continued) Arizona follows the common law. In Strawberry Water Co. v. Paulsen, we stated that in order to aban- don personal property, one must voluntarily and intentionally give up a known right. (“Abandonment . . . is the owner’s relinquishment of a right with the intention to forsake and desert it.”) Abandon- ment is “a virtual throwing away [of property] without regard as to who may take over or carry on.” In fact:

While personal property of all kinds may be abandoned, the property must be of such a character as to make it clear that it was voluntarily abandoned by the owner. In this connection, it has been said that people do not normally abandon their money; and, accordingly, that found money will not be considered as abandoned, but as lost or mislaid property. [25 Am.Jur.2d Abandonment of Tangible Personal Property §2 (1981)]

Here, it is undisputed that Spann placed the cash in the ammunition cans and then hid those cans in the recesses of the house. He did not, however, tell his daughters where he had hidden the cans before he passed away. His daughters looked for and found many of the ammo cans, but not the last four. In fact, it was not until the wall-mounted toaster oven and bathroom drywall were removed that Cuen found the remaining cash-filled cans. As a result, and as the trial court found, the funds are, as a matter of law, mislaid funds that belong to the true owner, Spann’s estate.

Read the full text of the case here: http://azcourts.gov/Portals/89/opinionfiles/CV/CV110148.pdf.

Questions to Consider

1. Was the found property lost, misplaced, or abandoned? 2. Does it make any difference in your determination that the property was hidden in the walls? 3. If his employee had not told the sisters about the discovery of the money, this case would have

never gone to trial. Under those circumstances, do you think the contractor should be pros- ecuted for larceny of the $500,000?

19.2 Real Property

Real property can be defined as land and anything that is permanently attached to land, including buildings, trees, and growing crops. The owner of real estate owns not only the land itself and anything permanently attached to it, but also everything below the land, including minerals and precious metals, as well as the space above the land up to a height set by local ordinances (typically up to several hundred feet above the highest structure: so-called air rights).

With few exceptions, such as easements (discussed below), the owner of real estate has the right to exclusively use the property and to prevent others from using it without per- mission. As we’ve seen in our discussion of criminal law (Chapter 6) and torts (Chapter 7), the willful entry into the real estate of another without the owner’s consent can constitute trespass, which is both a crime and a tort.

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Fixtures

Some property begins its life as personal property and transforms into real property. Whenever personal property is permanently affixed to real property, such as in the instal- lation of a ceiling fan or dishwasher, it becomes a fixture, and its nature changes from per- sonal to real property. Suppose that a homeowner purchased a dishwasher for the home. This particular dishwasher connects to the sink faucet with a hose but is portable—able to roll around on four casters. It is movable, tangible, and classifiable as personal property. However, if the homeowner took that same dishwasher and installed it into the kitchen cabinets and wired and plumbed it such that pulling it out would leave a hole, that dish- washer would have changed its character from personal property to real property. Fix- tures are so attached to real property that they become an integral part of it, and therefore, when the homeowner sells the house (real property), all the fixtures are sold with it, as they too are real property.

Easements

An easement is a right to use the property of another for a limited purpose. The most com- mon kinds of easements involve the right to travel over the property of another to gain access to one’s land, as well as those granting public utilities the right to transport power, water, gas, or phone lines over or under the land in order to provide needed services. When an easement is granted over one piece of land for the benefit of another, the benefited land is called the dominant estate, and the land that is burdened by the easement is called the servient estate. Generally speaking, easements can have perpetual existence or be created to last for a specified period of time. Easements are recorded in the county clerk’s office and become part of the land’s history so that anyone can see that an easement is attached to the property. Filing the easement gives notice to the world that such a claim exists on the property; thus, when it is sold, the buyer receives the property with the same easements attached to it, or “subject to” the easements. Obviously, if the landowner wants electricity on the property, then an electric easement is beneficial, but other types of easements can be problematic, such as the grant allowing someone to cross the privately owned land.

Profits à Prendre

A profit à prendre is another type of right in real estate that gives its holder the right to go onto the land of another and to remove something from it or to make some use of anoth- er’s soil. Common profits à prendre involve mining rights, logging rights, and water rights in another’s land. The characteristic that distinguishes a profit à prendre from an easement is that the former involves the right to remove something from the land, whereas the lat- ter merely involves the right to go onto or pass through the land of another for a specific purpose. Because profits à prendre confer an interest in real property, they must be created subject to the same formalities as any other real property interest.

Licenses

A license is a revocable, temporary privilege to go on another’s land for a specific pur- pose. Unlike easements and profits à prendre, licenses are not considered interests in land. Because they are not interests in real estate, licenses can be created and revoked orally or in writing without any special requirements or formalities. Because a license is revocable at any time by the owner or person in lawful possession of the real property, a person who

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is on another’s land as a licensee must leave as soon as the license expires or is revoked; otherwise, that person becomes a trespasser.

A movie theater is a good example of a license, with the moviegoers being the licensees who must leave when the movie is over and who are subject to termination of the license if they misbehave. If a licensee who has given consideration for his license (e.g., the patron of a movie theater) is asked to leave the premises without cause, he is entitled to a refund under a theory of breach of contract. If a license for which a fee has been paid is revoked for cause, such as for theater patrons talking loudly during the movie, throwing popcorn, talking on a cell phone during a performance, or engaging in other disruptive conduct that interferes with the enjoyment of the movie, then no refund need be made by the grantor of the license since no breach of contract is involved.

Obtaining Title

When you purchase personal property, you are not usually concerned about who has title to the goods. In most situations, a sales receipt is enough proof of ownership. In contrast, when you purchase a car, that is one type of personal property in which ownership is rep- resented by a piece of paper called a title. This piece of paper represents ownership in the car, including the right to sell it to someone else, insure it, leave it in a will, or change its color. Just as no one can purchase a car without receiving a valid title, you cannot purchase real property without receiving a deed. A deed represents the owner’s right to occupy, sell, give away, or change the property, just as a car title does. The following section explains in more detail how deeds are created and transferred as well as their legal significance.

Transfer by Deed The creation and transfer of an interest in land is almost always accomplished by the execution and delivery of a valid deed to the property from the grantor (the owner/seller) to the grantee (the buyer). When a valid deed is delivered to the grantee, title to the under- lying real estate likewise passes; delivery of the deed is the legal equivalent of delivering the land itself.

In order to be valid, a deed must meet the following requirements:

1. Be in writing; 2. List the name or names of the grantor(s) and the grantee(s); 3. Contain words that unequivocally show an intent to transfer land; 4. Offer a clear description of the land being transferred; and 5. Contain the signature(s) of the grantor(s).

As long as these five requirements are met, a deed will be valid. Even though most deeds are executed by filling in the blanks of ready-made forms, in most jurisdictions there is no requirement that a specific form be used, so a handwritten deed would be perfectly valid as long as it fulfilled the five requirements.

Warranty Deed In a warranty deed, the grantor gives assurances to the grantee that he or she has valid title to the land being transferred. The grantor also creates an obligation to make

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reparations to the grantee or anyone to whom the grantee may subsequently transfer the land if the title is found to be defective. Unless there is some plausible reason, one should never accept title unless it is in the form of a warranty deed. This is because a warranty deed guarantees “good title,” that is, that there are no claims against the property that are not fully disclosed.

Quitclaim Deed Suppose that a piece of property has been bequeathed to generations of a family but the descriptions in the deed changed over the years. The heirs to that property would not want to sell it with a warranty deed because they would be honestly unsure of what they own. In a case such as this, grantors will offer a quitclaim deed: a deed in which the grantor transfers to the grantee whatever title he or she has, if any, to a given piece of land. Unlike a warranty deed, a quitclaim deed contains no assurance that the grantor has good title and no promise to make any future reparations if the title is defective. Such deeds are typically granted when a defect in the transferor’s title is suspected or when the transferor purchased the land as an agent for a third party and subsequently needs to transfer title to the third party. The use of a quitclaim deed is also common during a divorce. In this way, one of the spouses can forfeit any interest in jointly owned property and grant full rights of possession to the other owner spouse.

As you might suspect, there is an element of risk in purchasing property with a quitclaim deed, which usually adversely affects its selling price. In addition, title insurance is gener- ally unavailable for property purchased with a quitclaim deed, and most banks will not issue a standard mortgage for such a property. Therefore, if the buyer wishes to acquire the property, a bank will not approve a loan, and the buyer must either pay cash or seek to borrow from a private lender, who will likely charge a much higher rate of interest.

The Contract of Sale Although a contract of sale is not necessary for transferring ownership of real estate, it is customary in the United States to have one (see Figure 19.1 for a sample). Such contracts are ruled by the applicable contract law: either in the jurisdiction where the contract was entered into or in the jurisdiction where the real estate is situated. Recall from our dis- cussion of the Statute of Frauds in Chapter 10 that to have a valid contract for the sale of real estate, the contract must be in writing and signed by the party to be charged. If the parties enter into a signed, written contract for the sale and purchase of real estate, and one of the parties to the contract reneges, the courts offer a unique remedy. Instead of suing for monetary damages, courts will award a remedy named specific performance. This means that the court will order the parties to do what they said they were going to do under the contract. So, for example, if the plaintiff agreed to sell her house, the remedy of specific performance would order the plaintiff to transfer the property to the defendant. The reason is that all land is considered unique. And, since it is unique, no amount of money would make the defendant whole. Of course, the defendant would have to pay for the house, but the fact remains that the plaintiff will have to follow through on the promises in the contract. In the event the parties did not reduce the contract to a writing, but instead had an oral agreement, such a contract would not be enforceable in the courts if either party refused to go through with the verbal agreement. Oral contracts for the sale of real estate are not enforceable.

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Figure 19.1: Sample contract of sale

REAL ESTATE CONTRACT

The undersigned (herein “Purchaser”) hereby offers to purchase from the owner (herein “Seller”) the real estate

located at 5678 Roberts Road in the city of Bergen, County of Lincoln, State of Illinois, the legal description of which

is a single-family dwelling with detached garage upon the following terms and conditions:

1. The purchase price shall be Four Hundred Thousand Dollars ($400,000.00) to be paid in accordance with subpara-

graph two (2) below:

2. The buyer hereby agrees to pay the purchase price in cash at the time of closing the sale; however, this agreement

is subject to Purchaser’s ability to obtain a first mortgage loan within 20 days after the acceptance of this offer in

the amount of $300,000.00 at the best available rate of interest. The remaining $100,000.00 shall be payable by

certified check made payable to the seller at the closing. If such financing cannot be obtained within the time

specified above, then either Purchaser or Seller may terminate this agreement and any earnest money deposited

by Purchaser will be promptly refunded.

3. The buyer hereby pays to the seller by certified check the amount of $5,000.00 as earnest money to be deposited

with the real estate agent for the seller and applied to the purchase price at the time of closing the sale. In the event

that this offer is not accepted by Seller, this earnest money deposit shall be promptly refunded to Purchaser by the

broker. In the event that this offer is accepted by Seller, and Purchaser shall fail to perform the terms of this agree-

ment, the earnest money deposit shall be forfeited as and for liquidated damages suffered by Seller. Seller is not,

however, precluded from asserting any other legal or equitable remedy which may be available to enforce this

agreement.

4. Real estate taxes accrued against the property shall be prorated through the date of closing the sale, and Seller

shall pay all taxes allocated to the property through that date of acceptance of this offer to purchase.

5. CONDITIONS AND TERMS OF CONTRACT

This purchase agreement shall be subject to the following terms and conditions:

a) A water test performed on the seller’s well showing potable water at a specific flow rate to be determined by

the bank within 20 days of signing of this contract.

b) A test for infestation of termites by an inspector of the buyer’s choosing. Buyer shall pay for all costs for said

tests and will make arrangements for said inspection at a mutually agreeable time with seller.

c) An inspection of the dwelling by an inspector of the buyer’s choosing. Buyer shall pay for all costs for said

tests and will make arrangements for said inspection at a mutually agreeable time with seller.

d) An inspection of the dwelling for radon gases. Buyer shall pay for all costs for said tests and will make

arrangements for said inspection at a mutually agreeable time with seller.

e) Review of this agreement by the buyer’s attorney.

In the event that any of the above tests or approvals do not meet with the approval of the buyer, the buyer shall have

the right to cancel this agreement and promptly receive the earnest money deposited pursuant to paragraph 2, above.

6. Seller shall provide purchaser prior to the closing and promptly after the acceptance of this offer, at Seller’s

expense, an abstract of title to the property brought down to date, said abstract of policy to show marketable or

insurable title to the real estate in the name of Seller subject only to easements, zoning, and restrictions of record

and free and clear of all other liens and encumbrances. In the event that the property has placed on it any oil and

gas leases, or if there are any oil and gas leases on contiguous property, the buyer may cancel this contract and

immediately receive back the earnest money in paragraph 3. If the abstract or title policy fails to show marketable

or insurable title in Seller, a reasonable time shall be permitted to cure or correct defects within 30 days. Seller shall

convey title to Purchaser at the time of closing by a good and sufficient general warranty deed free and clear of all

liens and encumbrances except as otherwise provided in this offer and subject to easements, zoning, and restric-

tions of record.

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Eminent Domain One highly unusual way to effectuate a transfer of real estate without need for a con- tract of sale is a transfer to the state or federal government under its powers of eminent domain. Eminent domain is the power of the federal, state, or local government (origi- nally the sovereign or crown) to seize private property for public use, upon paying its owner the property’s market price. In the United States, the federal government is given the power of eminent domain by the Fifth Amendment to the U.S. Constitution. Such a power is also found in the constitutions of the individual states. If the government wishes to take private land for public use, its owners (with few exceptions) have no choice but to deed over to the government all or whatever part of the land it requires.

7. Purchaser shall be given possession of the property on May 30, 2013. A failure on the part of Seller to transfer

possession as specified will not make Seller a tenant of Purchaser, but in such event, Seller shall pay to Purchaser

$1,111.00 per day as damages for breach of contract and not as rent. All other remedies, which Purchaser may

have under law, are reserved to Purchaser.

8. RISK OF LOSS

The risk of loss by destruction or damage to the property by fire or otherwise prior to the closing of the sale is that

of Seller. If all or a substantial portion of the improvements on the property are destroyed or damaged prior to the

closing and transfer of title, this agreement shall be voidable at Purchaser’s option and, in the event Purchaser

elects to void this agreement, the earnest money deposited shall be promptly refunded.

9. IMPROVEMENTS AND FIXTURES INCLUDED

This offer to purchase includes all improvements, buildings, and fixtures presently on the real estate including but

not limited to electrical, gas, heating, air conditioning, plumbing equipment, built-in appliances, hot water heaters,

screens, storm windows, doors, Venetian blinds, drapery hardware, awnings, attached carpeting, radio and

television antennas, trees, shrubs, flowers, fences, and the riding lawn mower.

Time for Acceptance and Closing

This offer is void if not accepted by Seller in writing on or before November 3, 2012, at 6 p.m.

Closing of the sale shall take place on May 30, 2013. This offer is made at Chicago, Illinois, this 31st day of

October, 2012.

____________________________

(PURCHASER)

____________________________

Acceptance by Seller

The foregoing offer to purchase real estate is hereby accepted in accordance with the terms and conditions specified

above. The undersigned hereby agrees to pay a brokerage fee of $_______________________

to________________________, broker, in accordance with the existing listing contract.

Dated this ____________________________ day of _____________________________, 20_____.

____________________________

(SELLER)

____________________________

(SELLER)

Louise Chadouez

10.

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Typical exercises of the government’s eminent domain powers extend to the building of roads, enlargement of parks, and the construction of similar public projects. But the use of eminent domain has expanded in recent years, and the courts have upheld the govern- ment’s right to seize private land for private development if it does so for a valid public purpose. Valid purposes include creating jobs, stimulating economic activity, increasing tax revenues, attracting tourism, or otherwise improving the quality of life for its citizens pursuant to a development plan. Not only individuals, but entire towns may be called upon to transfer their land to the government (usually quite unhappily) for such projects as new construction or expansion of reservoirs, dams, and similar public works.

Eminent domain is also relied upon in granting necessary easements for power and tele- phone lines that must pass over private lands. The same is true for government expro- priation of partial real estate rights, such as the subsurface rights to private land in order to build a subway system. When such a partial taking of private land for private use is involved, the landowner is compensated for the interest in the property at market value but is otherwise free to use or sell whatever portion of the land was not seized for public use.

Adverse Possession Adverse possession is a means of acquiring property by maintaining possession of it during a statutorily defined period and meeting certain additional criteria. Unlike more common means of obtaining property, which require the transfer of a deed, with adverse possession, title is obtained by meeting the following statutorily defined criteria:

• The possession must be actual and exclusive; • The possession must be continuous for the entire statutory period (commonly 10

years, but as short as three or as long as 30 years); • The possession must be open and notorious; and • The possession must be hostile and adverse.

Put another way, in order for title to a property to pass by adverse possession, the posses- sion must be actual, open, notorious, and exclusive during the statutory period. Also, the possessor of the property must show that he or she held it without the owner’s permission. The requirement that possession be “actual and exclusive” means that the adverse pos- sessor must exclusively occupy the land during the statutory period without the owner having access to it or joint use of it. The requirement that possession be “continuous” means that the adverse possessor cannot stop using the land for the entire statutory period.

For example, let’s say the period of adverse possession in a state is 10 years, and an adverse possessor uses land belonging to another for five years and then stops using it for a year (or allows the owner to make use of it again for a period of time after five years). If the adverse possessor later resumes the possession, the statute begins to run again, and he or she must continue to use the land exclusively for another 10 years uninterrupted before owning it under adverse possession. The requirement that the possession be “open and notorious” means that the adverse possession must be out in the open for the whole world to see. Finally, the requirement that the possession be “hostile and adverse” means that the adverse possessor must use the land, holding it to be his or her own without the per- mission of the true owner, throughout the statutory period. If the owner gives permission

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to use the land, of course, there can be no adverse possession. (For an interesting story regarding squatters trying to obtain title to someone’s house, see http://realestate.aol .com/blog/2012/07/31/squatters-refuse-to-vacate-couples-home.)

Adverse possession presents a particularly serious problem for absentee landowners, especially in states with relatively brief statutory periods, such as five or 10 years. The law requires property owners to take affirmative steps to protect their property from others’ infringement by taking timely action against trespassers before the latter can perfect their interest in the land under the adverse possession statute. One could say that adverse pos- session is really a statute of limitations that requires landowners to protect their property rights within a certain period of time or risk losing them. Keep in mind that not all adverse possession claims are nefarious in nature, and that many arise out of honest mistakes, such as a landowner building a structure that is in whole or in part on a neighbor’s land because of a mistake in interpreting the land boundaries. In any case, whether the adverse possession is innocent or willful, the claim of the adverse possessor extends only to the land actually occupied and used by him or her during the period of adverse possession. Thus, if Henrietta builds a homestead on one acre of Harry’s 10-acre land, she will eventu- ally own only the one acre she has exclusively used throughout the statutory period and not the entire 10-acre tract.

Use of Recording Statutes

Every jurisdiction provides a system for recording deeds. These systems exist in order to give notice to subsequent purchasers of the property of previous transfers of the property. Although deeds are not generally required to be recorded in order to effectively pass title to land, recording a deed offers protection to the purchaser of real property from previous or subsequent fraudulent transfers of title or attachment of liens to the same land by a pre- vious owner or by his creditors (see Chapter 16, Creditors and Debtors, for more detail). A typical problem in this area arises when a grantor executes multiple deeds to the same property, with the intention of defrauding the grantees. Because there can be only one true owner of real estate in such circumstances, the question becomes: Who has the greater interest? At common law, the answer was simple: “First in time, first in right.” Thus, the first grantee of the land would be entitled to it. Today, the problem has been addressed by states through the adoption of recording statutes that provide a simple means of notify- ing third parties about the real estate’s owners of record. This system provides a means of resolving multiple claims by innocent grantees to the same land.

19.3 Concurrent Ownership

Like personal property, real property can be owned individually or jointly by two or more persons or companies. There are three distinct types of concurrent ownership options of which businesses should be aware: joint tenancy, tenancy in common, and tenancy by the entirety.

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Joint Tenancy

Joint tenancy is a means of two or more persons owning real estate together. The most significant feature of joint tenancy is that the property owned by the joint tenants passes automatically to the survivor upon the death of the cotenant. If two people own real estate as joint tenants, then the survivor automatically owns the whole upon the other joint ten- ant’s death. If more than two persons own real estate as joint tenants, the share of any joint tenant who dies is distributed equally among the survivors. For example, if four friends own a home equally as joint tenants, and one dies, the share of each survivor in the prop- erty increases from a 25% interest to a 33.33% interest.

It is not necessary that each joint tenant have an equal share in the property. It is possible to have two joint tenants with vastly different ownership interests in the underlying real estate; nevertheless, if any one of them dies, that share passes to the survivors in equal shares. Thus, if two friends owned property as joint tenants, and one held a 95% interest and the other a 5% interest, the survivor would automatically obtain title to the whole property regardless of the original investment in it.

Joint tenants share in the responsibility for keeping up a home and paying taxes and other expenses that naturally result from the ownership of real property in proportion to their ownership interest in the property. Thus, a 10% joint owner of property pays 10% of the property’s expenses and receives 10% of any rent or other income that the property produces. Note, however, that the right of joint tenants to occupy or use real estate is not related to their ownership interest; that is, a 10% owner has the right to occupy 100% of the house at all times. This potential problem can be resolved by creating a separate contrac- tual agreement between the joint owners detailing their rights of occupancy.

The interest of a joint tenant to real property is freely transferable during the joint tenant’s life. It can be sold, leased, or given away at will. This presents another potential problem for joint tenants, since any one of them has the power to freely dispose of the property interest to any person or persons desired. For this reason, joint tenants often have a sepa- rate contract detailing restrictions on the transfer of the property. Such a contract may include a clause about the cotenants’ right of first refusal to purchase the interest of a joint tenant who wishes to sell an interest in the property before an offering is made to the general public. If a joint tenant’s interest is transferred, the new tenant becomes a tenant in common rather than a joint tenant. This tenant’s interest then passes to his or her heirs upon his or her death rather than to his cotenants.

A joint tenancy is generally severable at any time by any one joint tenant, who can petition a court to partition the property or to force its sale.

Tenancy in Common

Tenancy in common is similar in all respects to joint tenancy with one important exception: The interest of a tenant in common who dies passes to his or her estate rather than to the surviving tenants in common. In other words, tenants in common enjoy the same rights and responsibilities as joint tenants except that there is no right of survivorship provision in the tenancy.

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Tenancy by the Entirety

Tenancy by the entirety is a form of joint tenancy reserved for husbands and wives. The main difference between joint tenancy and tenancy by the entirety is that, unlike tenants in common or joint tenants, a tenant by the entirety cannot transfer his or her interest in the underlying property without the signature of the cotenant—in this case, the spouse. The creditors and holders of unsatisfied judgments against each spouse may, however, attach a lien on the spouse’s interest in a tenancy by the entirety.

19.4 Public and Private Restrictions on Land Use

Generally speaking, owners of real estate have the right to use their land in any way they see fit, provided that the use is permitted by law. However, limits to these rights can be imposed by the government and through private agreements among landowners.

Zoning

Governments exert control over private land through zoning regulations. States have the power to control the private use of land under their general police powers, through which states regulate private conduct in order to promote the general welfare of citizens in such areas as health, safety, and welfare. Public land use regulation is carried out primarily at the local level, with the state empowering local city or town zoning boards to regulate local land use through zoning regulations. Zoning regulations affect architectural and structural building design as well as limit allowed land uses. For example, zoning ordi- nances might divide communities into areas that permit farming, heavy and light indus- try, and residential use of real estate, or any combination of these.

When an existing land use classification is changed by a zoning board, persons who had previously used their property in a way that has become illegal are typically allowed to continue their nonconforming use of their land, at least for a period of time (usually for as long as the existing owner retains title to the land and continues to use it in the non- conforming way). In addition, zoning authorities have the power to grant a variance to any person or business that petitions the authority for an exemption to the zoning regula- tions. Variances permitting deviation from the zoning ordinance are typically not granted unless the petitioner can convince the local authority that the zoning ordinance represents an undue hardship.

Private Restrictions

In addition to the zoning ordinances in a given area, individuals have the ability to restrict otherwise permissible uses of land through private agreements. One way of accomplish- ing such voluntary restrictions on land use is by means of negative easements. For instance, if a given community wants to make sure that some permissible land uses they find dis- agreeable are not carried out by any of its members, they can execute a negative ease- ment preventing such use of their land. A condominium association is a good example

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of a group that uses this sort of voluntary zoning restriction. This is often done in new subdivisions and in planned communities. Such restrictive covenants can be included in the original deeds to land as appurtenant easements that “run with the land” so that all subsequent owners of the property are bound by them.

Key Terms

abandoned property Intentionally placed property given up by the debtor.

adverse possession A means of acquiring property by maintaining possession of it during a statutorily defined period and meeting certain additional criteria.

chattel Tangible, movable personal property.

concurrent ownership When two or more people own the same real property.

contract of sale The agreement entered into between the seller and the buyer setting out the terms of the sale of real property.

deed The document that conveys title to real property.

dominant estate The land that benefits from an easement.

donee Person who receives a gift.

donor Owner of property who transfers it to another.

easement Right to use private property of another for a limited purpose, e.g., as a thoroughfare.

eminent domain The right of the govern- ment, granted by the U.S. Constitution, to take property from an owner for a public purpose but requiring the government to pay the owner reparations.

grantee The purchaser of real property.

grantor The owner of real property who transfers the property to the grantee.

joint tenancy A form of concurrent own- ership in which the last survivor obtains title to all the property.

license In real property, a temporary, revocable privilege to enter onto the lands of another for a limited time and purpose.

lost property Belongings unintentionally placed whose owner forgets where they were left.

misplaced property Property intention- ally placed whose owner forgets where.

nonconforming use The continued use of private land for a nonzoned purpose after the zoning laws have changed; usually this use expires with the owner’s loss of title.

profit à prendre In real estate, a right that gives its holder the ability to go onto the land of another and to remove something from it or to make use of another’s soil.

quitclaim deed A deed that transfers what- ever interest the grantor has in the property but without guaranteeing good title.

recording statutes Rules that vary from state to state about how to file a deed and who has priority ownership with regard to when the deed was filed.

restrictive covenant A voluntary, private limitation on otherwise legal land use by a community or association that applies to its member landowners.

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right of survivorship In a joint tenancy, the concept that the last surviving tenant acquires title to all the property regardless of interest share.

servient estate The land over which an easement crosses.

statute of limitations A law that sets the specific time in which parties must bring a lawsuit to protect or enforce their rights. The statute of limitations is different for each cause of action. For example, for breach of contract, it might be six years in one state and four in another.

tenancy by the entirety A form of joint tenancy reserved for husbands and wives in which a tenant cannot transfer his or her interest in the underlying property without the signature of the cotenant, or spouse.

tenancy in common A form of joint own- ership of real property.

title Having the right to legal ownership, e.g., of a car. Also, the instrument (paper) that gives evidence of that right.

title by gift Transfer of personal property from the donor to the donee with intent to transfer.

title by possession Acquiring title by taking property into one’s possession, e.g., by capturing a wild animal or taking over abandoned property.

title by purchase Acquiring title to per- sonal property pursuant to UCC Article 2.

treasure trove Property that is verifiably antiquated and has been concealed for a sufficiently long time to indicate that the owner is probably dead or unknown.

valid constructive delivery The donor’s affirmative steps to deliver property, or the means of obtaining it, to the donee.

variance Permission given by a govern- mental entity to use property in a way that violates zoning laws.

warranty deed A deed that transfers title in the grantor’s property and guarantees that there are no claims against the property.

zoning Local governmental regulation of approved uses of private property.

Critical Thinking and Discussion Questions

1. What is a warranty deed? What is a quitclaim deed? Which is more desirable? 2. May property be transferred without a contract of sale? How? 3. What are the five requirements for a valid deed? 4. What is adverse possession? What are the criteria for establishing title through

adverse possession? 5. Define joint tenancy, tenancy in common, and tenancy by the entirety. 6. What is a variance? What is generally required for a variance to be granted? 7. Fred purchases a 42-inch LCD television set for his friend Gina and has it

shipped to her home as a surprise gift. On the day that the set is to be delivered, Fred has a falling out with Gina and tells her: “I had bought a large-screen televi- sion as a birthday gift for you that was supposed to be delivered today, but I’ve changed my mind and I’m going to have the delivery canceled.” Gina immedi- ately retorts, “Too late—I accept your gift.”

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a. Can Fred cancel the delivery, or is he too late to rescind the gift? Explain. b. If the television set had already been delivered and accepted by Gina before

the falling-out but Fred had stopped payment on the check he’d used to pay for the set, would the gift have been revoked?

8. Greg Grantor wishes to make a gift of a one-acre tract of land he owns to his friend Gina. He orally tells her in front of 10 reliable witnesses that the land is hers forever and that she may dispose of it at will. Gina promptly accepts the gift and takes possession of the land. A month later, Greg dies and his executor serves notice on Gina that she must vacate the land. Gina refuses to do so, claiming the land is rightfully hers. What will the result be?

Now assume that, after making the oral statement of his intention to give Gina the land, Greg writes on a piece of paper with a pen the following:

I, Greg Grantor, hereby give to Gina Grantee all my rights and interest in a one-acre tract of land I own called Blackacre with the intent that she will be the owner of the land forever. [signed] Greg Grantee

Greg then gives the paper to Gina and dies a month later. a. Based on these facts, if Greg’s executor demands that Gina quit the premises,

what will the result be? b. What interest, if any, does Gina have after the transfer of the paper to her? c. Will she be able to record the instrument as a deed? If so, what type of deed is it?

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