Real property includes:
- land,
- buildings and fixtures, and
- rights in the land of another.
Land means more than the surface of the earth. It includes the soil and all things of a permanent nature attached to the ground such as trees. Land also includes the waters on the ground and things beneath the surface such as minerals. Technically, land is considered as extended downward to the center of the earth and upward indefinitely. However, while the owner of land owns the space above, this ownership right is subject to the right of aircraft to use the air space in such a way that is not dangerous to persons or property lawfully on the land.
A building includes any structure placed on the land or beneath the surface of the land. A fixture is personal property that has been attached to the property or placed in a building in such a way or under such circumstances that it is deemed to be part of the real property. Examples would be a central air conditioning system or a radio tower.
EASEMENTS
An easement is a right in the land of another. An oral promise to create an easement is not binding because of the statute of frauds since this involves a contract regarding the sale or transfer of land. An easement may be created in several ways. The clearest and simplest way to create an easement is by deed. An easement may also be created by implication when part of land is conveyed. For example, if water or drain pipes run from the property conveyed through the property that is retained, there is an implied right to have the use continued. In other words, it is implied that the person selling the land did not mean for the new owner to have the right to dam up the water.
An easement may also be created by implication when it is necessary to the use of the land conveyed. This is the case when property is “landlocked.” In many states, you can petition the governing body of the county to grant an easement by necessity when your property is landlocked. An easement may also be created by adverse possession (prescription) which is covered below.
Once an easement has been granted, it cannot be revoked by the grantor without the easement owner’s consent. However, an easement may be lost by lack of use when circumstances show an intent to abandon the easement. An example could be a transit system which had an easement to maintain trolley tracks. If the tracks were removed, this would be evidence that the easement had been abandoned.
PROFITS
Profits are the rights to remove something from another person’s land, such as the right to remove timber or coal or use the water from another’ land.
LICENSES
A license is not an interest in land, but is a privilege to do something on the land of another person. For example, an advertising company that has permission to paint a sign on the side of a barn near a highway has a license. A license can be terminated at any time by the person giving the license (unless a license agreement states otherwise) and will continue only as long as the person giving the license is the owner of the land. Upon the sale of the property, the license terminates unless the new owner agrees to continue the license.
LIENS
Real property may be subject to liens such as the lien of a mortgage that is created when the owner borrows money. The land is made security for the repayment of the debt. Liens may also come into being involuntarily, such as judgment liens, mechanic’s liens, and tax liens. In the case of tax and judgment liens, suit can be brought pursuant to these liens and force the owner to satisfy the taxes or the judgment, or his property will be sold to satisfy the taxes or judgment. Mechanic’s liens give similar such rights to have a Court-ordered sale. Mechanic’s liens involve liens of persons furnishing labor or materials, or both, regarding the improvement of real estate (for example, a contractor’s lien).
FIXTURES
A fixture is personal property that is attached to the earth or placed in a building in such a way or under such circumstances that it is deemed to be part of the real property. The question of whether an item is a fixture and, therefore, part of a building can arise in a variety of situations. For example, suppose a person buys an air conditioner or a furnace and has this item installed. The tax assessor may assess the building and add in the value of the item on the theory that it is part of the building. Another situation would be if the buyer of the item owns a building and then sells the building, the new owner may claim that the item stays with the building. Another example would be if the owner places a mortgage on the building and the mortgagee then claims that the item is covered by the mortgage. A final example could be if the buyer of the item is a tenant in the building in which the item is installed, and the landlord claims that the item must stay in the building when the tenant leaves. The buyer of a window air conditioner would argue that this item was not a fixture, but was personal property. The determination of whether or not something is a fixture depends on the common law of fixtures, which is sometimes modified by statute.
Tests of a Fixture
Unless there is an express agreement between the parties, the Courts will apply three basic tests to determine whether personal property has become a fixture.
- Annexation: Generally, personal property will become a fixture if it is so attached to the realty that it cannot be removed without materially damaging the realty or destroying the personal property itself. For example, wall-to-wall carpet would be a fixture since removing the carpet would destroy the carpeting.
- Adaptation: Personal property which is especially adapted to the use made of the building may constitute a fixture. For example, a custom-made door would be such a fixture.
- Intent: The true test is the intention of the person who installs or has the fixture installed. The Wisconsin case of Premonstratensian Fathers v. Badger Mutual Insurance Company is an example of this principle. In this case, the question was whether or not five walk-in coolers or refrigerators were fixtures or personal property. The Court held that they were fixtures since it was obvious that the intent was that they be permanently attached to the building.
Another example is when machinery is installed in a plant in such a way that it would be very difficult and expensive to move, and the moving would cause damage to the machinery. However, machinery and equipment that is movable is ordinarily held to not constitute fixtures. This is true even though it may be necessary to unbolt the machinery or equipment from the floor or disconnect the electrical wires. Ordinarily, refrigerators and freezers, as well as gas and electric ranges, are not fixtures. Portable air conditioners are usually not fixtures.
Trade Fixtures
Equipment that is attached by a tenant to a rented building and used in connection with a business is ordinarily removable by the tenant when the tenant vacates the premises. This type of equipment is called a trade fixture.
Cindy owned and operated a jewelry store and moved the store into a new building which she rented for five years. She moved her showcases, lighting fixtures, and other equipment from her original store to the new store. When the lease expired, she moved out and was about to take these showcases, lighting fixtures, and other equipment with her. The landlord objected, claiming that these items had become fixtures, and therefore Cindy was required to leave them. The court held that since these items were used by Cindy in the trade or business of running a jewelry store, they were considered trade fixtures. They could therefore be removed by her when her lease expired. The ordinary rules governing fixtures do not apply to trade fixtures. However, it is best to specify in a lease what does and what does not constitute trade fixtures.
NATURE AND FORM OF REAL PROPERTY OWNERSHIP
A person’s interest in real property can be defined in terms of the period of time for which the person will remain the owner of the property.
Fee Simple Estate
A fee simple estate lasts “forever” in the sense that it lasts until it is sold and then the grantee has the fee. The owner of a fee simple title (also known as fee simple absolute) has the absolute and total interest in the land, although it may be subject to liens. The important characteristics of this estate are:
- Ownership may be transferred during the owner’s lifetime;
- Ownership may be transferred by will;
- If it is not transferred by a will, ownership passes to the heirs of a deceased owner;
- It is subject to the rights of the owner’s surviving spouse upon the death of the owner; and
- It can be sold by creditors to satisfy the debts of the owner.
A fee simple defeasible is the same as a fee simple interest except that ownership can be lost if restrictions placed on the use of the property are not followed. For example, if you convey property to First Baptist Church as long as the property is used as a church, the church will lose ownership if the property is ever used for anything other than a church. The property would revert back to the grantor. The grantor’s interest is called a possibility of reverter.
Life Estate
A life estate (or life tenancy) lasts only during the life of a person, ordinarily its owner. For example, a man may convey a life estate in property to his wife, with the property to pass to his children upon his death. The children’s interest would be called a remainder interest. The person with the life estate can not pass ownership of the property pursuant to a will. However, the life estate and the remainder interest can be sold. But an owner would lose the property upon the death of person on whose life the estate is based. The life estate owner can lease the property, but the lease will terminate on the death of the person on whose life the estate is based.
Future Interests
A future interest is an interest in land that will vest at some time in the future. Both a remainder interest and a possibility of reverter are examples of future interests.
Liability to Third Persons for Condition of Real Property
In the case of real estate, liability is ordinarily based on who is occupying the property. The person in possession may be liable for harm to a third person caused by the condition of the property even though the person in possession is not the owner, but is merely renting the property.
Status of Plaintiff – Common Law Rule
Under common law, the liability to a person injured on real estate is controlled by the status of the injured person. A different duty is owed by the occupier of the land depending upon whether or not the injured person was a trespasser, a licensee, or an invitee.
As far as trespassers are concerned, the occupier ordinarily only owes the duty of refraining from causing intentional harm to the trespasser. The occupier is under no duty to warn the trespasser of dangers or make the property safe to protect trespassers from harm. The main exception to this rule arises in the case of small children, who, although trespassing, are provided greater protection through the attractive nuisance doctrine. Under this doctrine, the owner of a private residential swimming pool could possibly be held liable for the drowning of a five-year-old trespasser if the owner did not maintain adequate fencing around the pool.
Regarding licensees, they are on the premises with the permission of the occupier. The occupier therefore owes them a duty of warning them of dangers which are not obvious and which are known to the occupier. A host must warn a guest of danger, such as a sliding glass door which is “invisible” if the patio lights are on and the house lights are off. The occupier, however, does not owe a duty to the licensee to take any steps to learn the presence of unknown dangers and is under no duty to foresee and guard against every possible hazard.
Invitees are such people as customers whose presence is sought by the occupier to further the business interests of the occupier. Another good definition of invitee is a person who goes on the premises of another in answer to an expressed or an implied invitation of the owner for their mutual advantage. There is a duty in this case to take reasonable steps to discover any danger, and there is a duty to warn the invitee or correct the danger. For example, a store must make a reasonable inspection of the premises to make sure there is nothing on the floor that would be dangerous such as a slippery substance that might cause a customer to fall. The store should either correct the condition or rope off the area, or, at least, give a warning of a wet floor.
In most States, the Courts have expanded the concept of invitees to include people who are invited when it is apparent that they could not be reasonably expected to do their jobs without coming on the premises. A letter carrier would be an example.
Status of Changes – Modern Changes
A number of courts have begun to ignore these common law distinctions and hold the occupier liable according to ordinary negligence standards. In other words, if the occupier, as a reasonable person, should foresee from the circumstances that harm would be caused to a third person, the occupier has the duty to take reasonable steps to prevent this harm. Some courts have taken a middle-of-the-road position and have abolished the distinction between licensees and invitees so that the occupier owes the same duty of care to all lawful visitors.
Recreation Use Statutes
Most States have adopted a statute commonly referred to as a recreational use statute. These statutes basically say that a landowner has no duty to warn others of dangers or keep property safe for persons who are allowed to use the property for recreational purposes without charge.
Co-Ownership of Real Property
Co-ownership of real property can be in the following forms:
- Tenancy in common, in which the interest of each owner may be transferred or inherited;
- Joint tenancy, in which the tenants each have a right of survivorship;
- Tenants by the entirety, in which a husband and wife own property and have a right of survivorship; or
- Community property, which applies in some States to property acquired during the period of a marriage.
Condominiums and Cooperatives
A condominium is a combination of co-ownership and individual ownership. Those who own an apartment house or buy a condominium are co-owners of the land and of the halls, lobby, and other common areas, but each apartment in the building is individually owned by its occupant. In some States, the owners of the various units in the condominium have equal voice in the management and share an equal part of the expenses. In other States, control and liability for expenses are shared by a unit owner in the same ratio as the value of the unit bears to the value of the entire condominium project. The bigger condominium owners would have more say-so than the smaller condominium owners.
A cooperative is different from a condominium. An apartment cooperative will typically be a corporation renting apartments to people who are also owners of stock in the corporation. The apartment complex is owned by the corporation.
Transfer of Title and Deeds
A deed is an instrument by which an owner (the grantor) transfers an interest in land to a new owner (the grantee). No consideration is required to make the deed effective. The deed is necessary to transfer title to land even if it is a gift. It has no effect, and title does not pass until the deed has been delivered. The recording of the deed is not required to make the deed effective to pass title between the buyer and the seller. However, recording is necessary so that the public will know that the buyer is the present owner.
Classification of Deeds
A quitclaim deed transfers whatever interest, if any, a grantor may have in the property, without specifying the interest in any way. No warranty of ownership is given. This type of deed is commonly used to clear title to property. A warranty deed transfers a specified interest and warrants or guarantees that this interest is transferred. The grantor warrants that the title is good, that the transfer is proper, and that there are no liens other than stated in the deed. The grantee can sue if the warranty is breached.
Execution of Deeds
A deed must be signed, and, in order to have a deed recorded, statutes generally require that two or more witnesses also sign the deed or that the grantor acknowledge the deed before a notary public or other officer. This is very important since in most States, if the deed is not properly witnessed or acknowledged, even if you record it, it does not give notice. The law treats the deed as if it were not of record. It is binding between the grantor and the grantee, but it is not notice to bona fide purchasers or lienholders who do not have actual notice of the transfer.
A deed must be executed and delivered by a person having capacity. For example, a minor child cannot execute and deliver a valid deed.
Delivery and Acceptance of Deeds
A deed has no effect, and title does not pass, until the deed has been delivered. Delivery can be shown by words and conduct. The grantor must deliver the deed with the intent that it should take effect as a deed and convey an interest in the property. A deed is ordinarily made effective by handing it to the grantee. A delivery may also be made by placing the deed in the mail addressed to the grantee or giving it to a third person with directions to hand it to the grantee. A delivery in escrow occurs when a deed is delivered to a third person (e.g., an escrow agent) for the purpose of the agent delivering the deed to the grantee after an event or contingency occurs. No title passes until the event or contingency occurs. For example, a deed may be handed to an attorney to hold in escrow until a prior lien has been satisfied. When the lien has been satisfied, by payment of the underlying debt, the deed can be transferred to the new owner.
Recording of Deeds
The owner of the land may record the deed in the office of the appropriate public official. The name of this official varies from state to state. In some states, like Mississippi, it is the Chancery Clerk. In other States it may be the Recorder of Deeds or the Commissioner of Deeds. Recording is not required to make the deed effective to pass title, but it must be done so that the public will know that the grantee is the present owner. The former owner is therefore prevented from making any other transaction regarding the property. A person purchasing land from the last record title owner will take title free from any unrecorded claim to the land as long as the purchaser did not have notice or knowledge of this claim. The fact that a deed is recorded is notice to the world, even though a person did not know of the deed because they failed to examine the public records. As earlier mentioned, the recording of a deed is notice to the world only if it is properly executed. An improper acknowledgment before a notary public will cause the deed to not have the effective notice. For example, in Mississippi, if the words “signed and sealed” are used rather than the words signed and delivered or executed in the acknowledgment, this can cause the acknowledgment to be invalid.
Additional Protection of Buyers
A buyer may generally also protected from title defects by acquiring title insurance from a reputable title insurance company or a title opinion of an attorney certifying ownership of the property (e.g., who owns the property and what liens, if any, are on the property).
Grantor’s Warranties
The warranties of the grantor relate to the title transferred by the grantor. The more important of these covenants or warranties of title that a grantor may make are (1) a guarantee that the grantor owns the estate (fee simple or life) conveyed; (2) a guarantee that the grantor has the authority to make the conveyance (either personally or, for example, by power of attorney); and (3) a guarantee that the land is not subject to any right or interest of a third person, such as a lien or an easement.
Courts in most States hold that when a builder or real estate developer sells a new house to a home buyer, an implied warranty arises that the house and foundation are fit for occupancy. This warranty will not usually be implied against the first buyer when the house is resold, but there is authority that the second buyer can sue the original contractor for breach of implied warranty.
Grantee’s Covenants
In a deed, a grantee may agree to do something or refrain from doing certain acts. This agreement will become a binding contract between the grantor and the grantee. An example would be an agreement to maintain fences on the property or that the property will only be used for residential purposes. This kind of covenant is binding, not only between the grantor and the grantee, but it also runs with the land. This means that anyone acquiring the land from the grantee is also bound by the covenant of the grantee. A covenant that provides that the grantee will refrain from certain conduct is called a restrictive covenant. For example, there may be a covenant that no mobile home shall be placed on the property.
A restrictive covenant may limit the kind of structure that can be placed on the property and may also restrict the use that can be made of the land. When a tract of land is developed for individual lots and homes to be built, it is common to use the same restrictive covenants in all of the deeds in order to cause uniform restrictions and patterns on the property. For example, the developer may provide that no home may be built under a certain number of square feet. Any person acquiring a lot within the tract will be bound by the restrictions if they are placed in the deed or a prior recorded deed. Also, these restrictive covenants may be placed in a document at the outset of the development entitled “Restrictive Covenants,” and list all the restrictive covenants that will apply to the tracts of land being developed. Any subsequent deed can then refer back to the book and page number where these restrictive covenants are recorded. Any person owning one of the lots in the tract may bring suit against another lot owner to enforce the restrictive covenants. However, restrictive covenants may be deemed abandoned or unenforceable due to estoppel if the restrictive covenants are violated openly for a sufficient period of time for a Court to declare that the restriction has been abandoned.
Other Methods of Transferring Real Property
Title to real property can also be acquired by eminent domain and by adverse possession.
Eminent Domain
By eminent domain, property is taken from its owner and title is acquired by the government or some other public authority. For example, property may be condemned by this State in order to build a highway. The legality of taking property by eminent domain turns upon two questions: (1) whether there is a taking of the property, and (2) whether the property is taken for public use. Regarding the first question, it is not necessary to show that the owner has been physically deprived of the property. It is sufficient to show that the normal use of the property has been seriously impaired or lost. For example, if land is taken for a highway, and the side of the highway runs within one foot of the door of someone’s house, the normal use of the property will have been seriously impaired, and the owner is entitled to compensation.
Regarding whether or not the property has been taken for public use, it is usually sufficient to just show that the property has been taken for the public benefit.
Any property taken by eminent domain must be paid for by the governmental body. The owner must receive the fair market value for the property, and this is the question that is often litigated – what constitutes fair market value.
Adverse Possession
Title to land can be acquired by holding it adversely to the true owner for a certain period of time. In this case, the person in possession gains title by adverse possession. The person in possession automatically becomes the owner of the property even though the person had no lawful claim to the land. In order to acquire title in this manner, possession must be actual, visible, exclusive, and continuous for a period of time. In many states, the period of time is ten years. State statutes vary with regard to this period of time.
MORTGAGES
An agreement that creates an interest in real property as security for an obligation, such as the payment of a note, and that is to cease upon the performance of the obligation, is called a mortgage. The person whose interest in the property is given as security is the mortgagor. The person who receives the security is the mortgagee (e.g., lender). Deeds of trust are used mostly in many states, and these are similar to mortgages.
Characteristics of a Mortgage
Two key characteristics of a mortgage are (a) the mortgagee’s interest terminates upon the performance of the obligation secured by the mortgage such as payment of the note secured by the mortgage; and (b) the mortgagee has the right to enforce the mortgage by foreclosure if the mortgagor fails to perform the obligation (such as defaulting on the note payments). Any interest in real property can be mortgaged, even a leasehold interest. A mortgage must be in writing because of the statute of frauds since it is, technically, a conveyance of an interest in land.
Creative Forms of Financing
In the past, the only available home mortgages were based on loans charging simple interest amortized over a certain period of time like 20 or 30 years. A new type of mortgage developed 15 to 20 years ago called an adjustable rate mortgage (ARM). A lower interest rate than market rates is usually available for the first few years, but then the rate adjusts at certain intervals to the market rates. This type of financing carries some risk, e.g., the market rate may rise sharply.
A reverse mortgage allows a person who has paid off their mortgage loan to get their equity back over a period of time. This is done by having a mortgage company take a mortgage out on the property and pay the owner over a period of time. Upon the owner’s death, the house will revert to the mortgagor unless the loan is paid.
Balloon financing is having payments amortized over a longer period of time than the actual loan. This causes the monthly payments to be lower. For example, a 10 year loan could have is payments amortized over a 25 year period (as if it were a 25 year loan), with a balloon payment of the gross amount due at the end of 10 years. This type of loan also carries the risk of being financially able to make a lump sum payment at the end of the loan term or refinance the loan.
Recording or Filing a Mortgage
An unrecorded mortgage is valid and binding between the parties to it. However, recording statutes in most States provide that the purchasers or creditors who act in good faith and ignorance of an unrecorded mortgage can enforce their rights against the property regardless of the existence of the unrecorded mortgage. The purchaser of land in good faith for value from a mortgagor holds the land free of an unrecorded mortgage. Mortgages and deeds of trust should always be recorded, and deeds of trust and mortgages must be properly acknowledged, or the recording will not constitute notice.
Responsibilities of the Parties
Unless otherwise agreed, a mortgagor has no duty to make improvements. The mortgagor/owner has the duty to pay taxes and assessments. Neither the mortgagor nor the mortgagee has the duty to insure the property unless the mortgage provides otherwise. It is common practice for the mortgagor to obtain a single policy on the property which is payable to the mortgagee and the mortgagor as their interests may appear. This is a common requirement of mortgages.
A mortgagor may be liable to the mortgagee if the mortgagor damages the mortgaged property in such a way as to make the value of the property go down. Then a mortgagor would have a duty to repair.
Transfer of Interest
The mortgagor may ordinarily transfer the land without the consent of the mortgagee. However, consent often is required by language in the mortgage or the deed of trust. A transfer of property upon which there is a mortgage does not do away with the mortgage if it has been properly recorded. The transfer of the property does not affect the liability of the mortgagor to the mortgagee. Unless the mortgagee has agreed to substitute the new owner for the mortgagor’s debt, the original mortgagor remains liable. The purchaser of the mortgaged property does not become personally liable for the mortgage debt to the mortgagee unless the purchaser expressly assumes the debt. An assumption of the debt does not release the mortgagor from liability to the mortgagee unless the mortgagee agrees to substitute the new party. Unless there is a substitution, the mortgagee can sue the original debtor for any deficiency after foreclosure.
In most States, a mortgage may be assigned by the mortgagee, and this is often done by one financial institution assigns the note and mortgage to another financial institution.
Rights of Mortgagee after Default
Upon the mortgagor’s default, the mortgagee may enforce the mortgage by foreclosure which involves making a public sale of the property. The mortgagee may also sue to enforce the mortgage debt by suing on the promissory note. Generally it is provided that upon any default under the terms of the mortgage, the mortgagee has the right to declare the entire mortgage debt due, even though default relates only to one installment or the doing of some particular act such as failure to maintain insurance on the property. A foreclosure does not destroy the debt that was secured by the mortgage. The mortgagor remains liable for any unpaid balance or deficiency. After default, the mortgagor may seek to stop foreclosure by paying the arrearage on the note. There is a time limitation on doing this. For example, in some states, the mortgagor must pay the deficiency prior to the property actually being sold.
Rights of Mortgagor after Default
In some states, a mortgagor may redeem the property after foreclosure for a certain period of time by paying the arrearage and any costs of foreclosing. This is not true in all states.
