Complete set of Notes for Real Estate Law: Final Study Guide
Complete set of Notes for Real Estate Law: Final Study Guide 333
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This 113 page Study Guide was uploaded by Austin Siemion on Sunday May 1, 2016. The Study Guide belongs to 333 at University of Miami taught by Rene Sacasas in Spring 2015. Since its upload, it has received 24 views. For similar materials see Real Estate Law in General at University of Miami.
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1 Real Estate Law BSL 333 Chapter 1 – Introduction and Sources of Real Estate Law 1. Federal Legislative Enactments All constitution enactments are found in a series of volumes call the United States Code (U.S.C) Found in the U.S.C The Mortgage Reform & AntiPredatory Lending Act pass in 2010 as Part of the DoddFrank Wall Street Reform & Consumer Financial Protection Act Protects mortgagers, including appraisals and subprime mortgage loans. The Real Estate Settlement Procedures Act (RESPA) Deals with the maximum closing cost and good faith estimates of closing cost The American Recovery and Reinvestment Act of 2009 (ARRA) Provides federal funds to stimulate the economy. Including financial assistance for residential mortgagers. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Federal Act that authorizes the clean up of disposal sites for hazardous waste and permits the government to collect clean up cost from current and former property owners. 2. Federal Administrative Regulations For each federal legislative enactment passed by Congress, a new agency is created or an existing agency is assigned to implement and enforce the law. The Bureau of Consumer Financial Protection (BCFP) New laws on mortgage lending and disclosures are handled and enforced by the BCFP The BCFP is located within the Federal Reserve and is required to develop regulations on credit counseling as well as new disclosure forms for consumer mortgage lending. Code of Federal Regulations (CFR) 2 All federal regulations appear in a series of volumes, which are referred to as the CFR. The CFR is printed new every year due to changes in administrative agency regulations Chapter 2 – Land Interests: Present & Future 1. Freehold Estates The terms freehold and fee are adopted from the English Common Law. They are significant terms in the methods of land ownership. Freehold Means that an interest in land is uncertain or unlimited in duration Fee Means that an interest in land is inheritable Fee Freehold Estates Means that an interest in land is both uncertain or unlimited in duration and inheritable by others when the interest holder dies. 2. Fee Simple Absolute Ownership (Fee Simple) Is the greatest type of interest in property ownership available It means that they have absolute ownership and are free to transfer their interest to others at anytime (inter vivos/alive), even upon death. 3. Fee Simple Defeasible Is an interest in land that is uncertain or unlimited in length and has the potential of being terminated. There are two types of Fee Simple Defeasible Estates, (The Fee Simple Determinable & Fee Simple Subject to a Condition Subsequent.) Fee Simple Determinable & Possibility of Reverter This land interest is uncertain in length and inheritable. The grantor is giving the grantee full title & right to the property so long as the grantee complies with an attached restriction. The language used in a Fee Simple Determinable is “ To A so long as the premises are used for school purpose” 3 The distinguishing characteristic of a Fee Simple Determinable is that A’s interest will terminate if the property isn’t used for school purposes. If A’s interest is terminated the interest of the property reverts back to the grantor In a Fee Simple Determinable the grantor (grantor’s heirs) holds a potential loss of title, which is, a future interest called the Possibility of Reverter. The grantor has the right to transfer their possibilities of reverter at any time either alive or dead. They can pass their rights on to either their heirs or devisees. Some states have placed a maximum time limit of 40 years on the Possibility of Reverter Fee Simple Subject to a Condition Subsequent The difference between a Fee Simple Subject & a Fee Simple Determinable is that with a Determinable once A violates the restrictions the A’s interest terminates automatically. With a Fee Simple Subject for A’s interest to terminate the grantor is required to take action to show a violation of the restriction. The Language in a Fee Simple Subject is as followed, “ To A on the condition that the land be used for school purposes, and if the land is ever not used for school purposes, [the grantor] may reenter and repossess the land.” 4. Right of Entry/Power of Termination Within a Fee Simple Subject, the grantee creates a future interest in the grantor. For the grantor to obtain this future interest they must take steps/actions showing that there was a violation of the restriction in order to have the right of entry or power to terminate the existing contact. The most common way the take action is through a quiet title action. The right of entry/power of termination can be written into the original contact between the grantor and grantee. 4 “ To A on the condition that drugs never be used on the premises, and should drugs be used, I reserve the right to reenter and take possession of and title to the property.” Under common law the right of entry/power of termination cannot be transferred to another outside party while alive but can be transferred upon death However, the grantor can transfer their future interest to the grantee, which would allow the grantee to no longer have a Fee Simple Subject to a Condition rather a Fee Simple. 5. Fee Tail Ownership Is an interest that is uncertain or unlimited estate that is inheritable but only by lineal descendant or direct descendant of the grantee. Since finding lineal descendants can be hard most states, creditors are not subject to the Fee Tail restrictions they can treat the interest like a Fee Simple. In Delaware, Maine, Massachusetts, & Rhode Island they recognize the Fee Tail but they allow for a process called disentailing. Which is the process of converting a Fee Tail into a Fee Simple 6. Life Estate Ownership A type of Freehold Estate. The interest of the land is only valid for the life of the holder (grantor) or for some other measure of life. The interest terminates when the person whose life is used as the measure dies. It can be used for estate planning tool so that estate taxes may be postponed or reduced. Those who hold life estates are referred to as life tenants. They have the right to undisturbed possession during the time of their estate. However they cannot waste or destroy the property interest for future holders. While alive the life tenant can transfer their interest, the interest only last as long as the measured life is still alive. The transfer of interest after the death of the measured life is invalid. 7. Reversions 5 When a life estate is made in someone else’s life other than the grantor then the grantor has a future interest, which is called a reversion. Once A’s life is over the interest is transferred back or revertered to the grantor. 8. Remainders Is a future interest created in someone other than the grantor All remainders are transferable both inter vivos & death. The language of remainders is as followed “To A for life, then to B.” B holds the remainder interest B can only get the interest once A dies. There are two types of remainders Vested & Contingent Vested Remainders Is one given to someone identified & in existence that has the immediate right to the land interest upon the termination of the freehold estate. B has been identified and is alive at the time of the grant. Once A dies, B will have immediate right to the estate. B’s remainder is one that is absolutely vested. There are two types of vested remainders (Subject to partial divestment & subject to complete divestment) Vested Remainder Subject to Partial Divestment “To A for life, then to the children of B.” If B has only one child during A’s life estate then the child would have a vested remainder If B has 3 children during A’s life estate then the interest would be split into 1/3’s. The potential for loss of part of the interest is referred to as divestment Partial Divestment is when B stands to lose his/hers investment Vest Remainder Subject to Complete Divestment “To A for life, then to B, but if not married, then to C.” This is complete divestment because B stands to lose all the interest if B is not married before A’s death. Complete Divestment is when B stands to lose all of his/hers investment. 6 Contingent Remainders Is the opposite of a vested remainder Contingent remainders is one in which the taker of the interest is unascertained or the interest has a condition precedent to its existence and will not pass automatically “To A for life, remainder to the children of B [a bachelor with no children].” It is possible for B to have children before the death of A and they would be entitled to the interest. But at the time of the grant the takers (B’s Children) are unascertained If a contingent remainder fails the interest would be reverted back to the grantor 9. Executory Interest “To A for life, then to B, but if B does not survive A, then to C.” If a third party holds a future interest that is not a remainder but is created in one other than the grantor it is an executory interest. An executory interest is not vested at the time the grantor makes the grant and is considered to be vested only when the grantee (third party) takes possession Executory Interest usually arise in one of three circumstances st 1 – when a fee simple determinable or a fee simple subject to a condition subsequent is given to two parties at the same time. “To A, so long as the premises are never used for commercial purposes and if they are, then to B.” A simple defeasible interest to A Executory interest to B 2 – when the grantor creates a gap between present and future interest. “To A for life, then one year after A’s death, to B” B does not have a remainder because there is no immediate vesting of B’s interest. The oneyear gap means B holds an executory interest. 3 – when the grantor creates some future freehold estate “To A in 10 years.” 7 No present interest is created and the 10year interest cannot be classified as a grantor’s interest because A is not the grantor. The interest is not a remainder because it does not follow another estate. A holds an executory interest. 10. Doctrine of Worthier Title Applies to grants with the language “To A for life, remainder to the heirs of the grantor.” Following the general future interest rules, A holds life estate and the heirs would have either a vested remainder or contingent remainder Under Doctrine of Worthier Title the heirs have no interest and the grantor holds a reversion Legislation in some states has eliminated this doctrine. 11. Rule Against Perpetuities (RAP) Basic idea of RAP is to limit the length of time during which grantors may control the transfer, conveyance, and vesting of land interest The rule is arbitrary & applies to contingent remainders & executory interest The rule provides that an interest is good only if it vests no later than 21 years after the death of the last individual who is part of the group measuring lives for the grant. If the 21year vesting rule is violated the grant becomes voided/invalid Application of the rule “To my children for life, remainder to any and all of my grandchildren who reach age 21.” Step 1 Determine the type of interest involved The children have life estate The grandchildren are unascertained More can be born during the life of the last child so the grandchildren hold a contingent remainder. 8 Because there is a potential gap between the life estate of 21years the grandchildren’s interest can also be an executory interest Step 2 Determine if RAP can be applied Because the grandchildren have both contingent remainder & executory interest RAP can be applied Step 3 Determine when the interest would be vested. The interest would be vested once the last grandchild reached 21 Step 4 Determine the measuring lives in being At the time of the grant the children are alive therefore they are the measuring lives for the purpose of the 21year rule for vesting Step 5 Determine whether all interest will vest within 21 years after the death of the last measuring life The interest would vest within 21 years of the last measuring life because no grandchildren can be born after the last child dies. Step 6 Determine if RAP is violated Because all grandchildren will have the interest vested within 21 years after the death of the last child RAP is not violated and the grant is valid Chapter 3 – Extent of Real Estate Interest 1. Land Interest Above the Surface Air Rights can be divided into two areas Who can use the air and to what extent? Landowners have limited protection with air rights because everyone around the property uses the air. What air interest can be transferred? The air above a property is divided into two sections/areas The Column Lot & The Air Lot The Column Lot is everything between the surface and 23ft above the surface The Air Lot is everything above the 23ft line Landowners can transfer their interest in both the column & air lots. 9 2. The Right to Light There is no right to light as a landowner/property owner Some states have solar easement laws Negative easement that prevents the servient estate from doing anything that would block the sunlight access of the dominant tenant 3. Right to a View There is no right to a view in the US constitution 4. Rule of Capture In Mineral Rights First in time is First in rights The first to take subsurface minerals has title regardless of property boundary lines Applies to Oil & Gas 5. Protection of Property Rights Trespass Invasion of the property of another by a person or object It can be intentional or unintentional Under Tort Law if there are damages to your property by the trespasser(s) you can seek compensation Trespassing is both Tort & Criminal Law Trespassers Are persons on the property of another without permission Landowners may take appropriate action to have the trespasser(s) removed The only responsibility a landowner hold with trespassers is that they cannot intentionally cause harm to them They cannot set mantraps to injure or kill trespassers The protection of property that results in taking a human life is illegal Landowners cannot place traps or intentionally injure any trespasser in pursuit of protecting property Licensees Are persons on the property of another who have some form of permission to be there 10 Most states consider Fire Protectors, Police Officers, Medical Professionals as licensees, so that if the landowner needs their service they are allowed on the property Landowners owe licensees a greater duty of care than trespassers They must inform licensees of any defects on the property in which the landowner has knowledge of. As well as the duty to not to intentionally injure Defects of property consist of broken steps, cracked concrete, etc. They must also inform licensees of dangerous animals Invites Are persons on the property of another by expressed invitation Every public place offers an expressed invitation to all members of the public Customers are always invitees in a place of business Repair persons on the premise to fix something are at the landowners expressed invitation Invitees are afforded the greatest degree of care by landowners They must warn invitees of defects, but they also must inspect their property for defects and take reasonable steps to correct such defects, as well as not intentionally injuring them 6. Nuisance Is an unreasonable interference with others’ use and enjoyment of their property Nuisances can be classified as private, public, or frequently a cross between the both Private A nuisance affection one property owner or a small group of property owners Public 11 A nuisance affecting a large group of property owners or an entire community Remedies for Nuisances Monetary Relief Is compensation for the reduction in property values because of the nuisance Equitable Relief Is injunctive relief where a court orders the nuisance creating party to cease the nuisance activity Chapter 4: Nonpossessory Interest in Real Estate 1. Easements Is a liberty, privilege, or advantage in another’s property It is nonpossessory but can run with the property 2. Types of Easements Appurtenant vs. Easement in Gross Appurtenant Is one that attaches to or benefits a particular tract of land The purpose is to provide benefit to the landowner Easement in Gross Is not created to benefit the landowner with respect to a particular tract of land. Rather it belongs to the holders regardless of whether they own any adjacent property Generally public utilities hold easement in gross through residential properties Under Common Law easements in gross were not transferable, but in most states they are now transferable if they are commercial in nature Affirmative vs. Negative Easement Affirmative The owner of the easement right can use another’s land that is subject to the easement Negative Easement The holder of the easements prevent other property owners from using their property in a particular way or prevent particular acts by the landowners Such as an easement restricting the heights of buildings on adjoining properties 12 Negative Easements are often called Scenic Easements & can have a two fold tax advantage Conservation Easements are a type of Negative Easements One is granted by a landowner who owns property with historical, cultural, or architectural significance They grant them from tearing down buildings on the property to preserve the historical, cultural, or architectural significance 3. Parties in an Easement Dominant vs. Servient Estates Dominant Estate The property who owns the easement Servient Estate The property the easement runs through 4. Creation of Easements Easements by Express Grant or Express Reservation Is one in which the parties actually draw up papers as if transferring an investment in land The transfer of the easement must comply with all the requirements for transferring land interest because an easement is a land interest Whether an easement is created by Express Grant or Reservation depends on the physical layout of the land transferred Express Grant The original landowner has the easement on their property The original landowner becomes the servient estate Express Reservation The original landowner has the right to access the easement on the newly transferred land The original landowner becomes the dominant estate 5. Easement by Necessity 13 Is one that can arise solely on the basis of necessity and the requirement of prior use is not needed to establish The easement last only as long as the necessity last 6. Easement by Prescription Obtaining an easement by prescription is somewhat similar to obtaining title of property through adverse possession An easement by prescription requires the following The Easement Must be Used for the Appropriate Prescriptive period The prescriptive period will vary from state to state, but generally corresponds to the state’s adverse possession period, which ranges from 520 years The Use of the Easement Must be Adverse (not permissive) If the landowner has given the prescriptive taker an oral license, such use is permissive and does not qualify for prescription The permissive use must be orally agreed upon The Use of the Easement Must be Open & Notorious In most states, this requirement means that the prescriptive taker must use the property in such a way that a landowner would (under ordinary circumstances) be aware of use Actual knowledge of use is not required Landowners who do not periodically check their property run the risk of having a prescriptive use accumulate The Use of the Easement Must be Continuous & Exclusive This requirement forces the prescriptive user to confine use to a particular area The user is required to use the same strip of land or access route consistently Parties acting together cannot create a prescriptive easement by ganging up on the property owner to obtain regular use To Stop a Prescriptive Easement A Landowner may take several prevention steps Written Protest Physical Interruption Putting up a gate Court Obtained Injunctive Relief 14 Provides record of an established cut off of the prescriptive period 7. Rights & Obligations of Estate Holders in an Easement Each party in an easement relationship has a certain legal responsibility and rights The Dominant Estate must keep the easement on the Servient Estate on repair This responsibility of repair exists even if the Servient Estate owner is responsible for the damages or the state of despair in the easement The Dominant Estate has the right to enter the Servient Estate for repair purposes The easement can be improved with pavement or gravel when the easement is for right of passage The Servient Estate has the right to use their property in anyway that does not interfere with the Dominant Estate use of the easement Servient Estates may also construct fences along the easement & install gates so long as there is no interference with the use of the easement 8. Termination of Easements The termination of easements can be done in several ways, depending on the type of easement All easements are terminated when the owner of the Dominant Estate & Servient Estate become one owner/estate All easements can be terminated through abandonment Two elements establish abandonment (occurs thought prescriptive nonuse) The easement owner must posses the intent to abandon The intent to abandon must be accompanied by the conduct indicating the intent to terminate 9. Profits Is an easement plus the right of removal It gives someone the right to access another’s land with the right to remove real property from their land such as: oil, minerals, water, etc.… 15 It can be limited by the types of minerals that can be taken, or the time allowed for taking Profits are not the same as ownership of subsurface rights Profits can be appurtenant or gross 10.Licenses Is a right to use land in the possession of another, but it passes no land interest & does not alter or transfer property Licensee holds a privilege to be on someone else’s land & may be revoked at any time by the landowner Can be created by an oral agreement 11.Covenants Is a restriction placed in a deed that is, in effect, a nonpossessory interest in land Restricts or controls some aspect of land use They can sometimes run with the land Most commonly seen in residential areas Chapter 5: Fixtures A fixture is real property that was once personal property 1. Degree of Annexation Test Is the first factor to be considered in determining the status of an item of property & its purpose is to examine the fixture’s degree of attachment The higher the degree of annexation the harder it is to remove from the property without destroying the property 2. Nature & Use of Property The unique nature of property attached & its necessity in relation to the effective functioning of the building are also factors in determining whether something is a fixture 3. Relationship Between Annexor & Premises Another factor courts examine in determining whether an item is a fixture is what type of land interest the party attaching the personal property (the annexor) owns. The higher degree of interest in the land, the more likely the item will be treated as a fixture Two Questions to Examine Did the tenant intend for the item to be a gift to the landlord? Did the tenant intend to leave it on the property after the lease ended 16 Will removal of the item cause substantial damage to the property? 4. Intent The intent of the parties can also be a controlling factor in cases where the issue of fixture vs. personal property in a close decision, as well in cases where there is an agreement Both parties should have a provision going through the property stating what is personal property or a fixture before transferring interest 5. Trade Fixtures Are machines, equipment, & other personal property used in a trade or a business They do not remain with the property even if they have a high degree of annexation They remain the property of the business, not the land/property 6. Attachments There are many other attachments to the land besides fixtures Most property contains trees, bushes, & grass which are referred to as Fructus Naturales & are considered part of real property If a property is growing crops or Fructus Industriales (emblements) the crops are not treated as part of the property They are personal property & can be removed by the tenant or whoever planted them The right of removal of the crops planted by a tenant is called the Doctrine of Emblements 7. Transfer of Title to Fixtures & Personal Property If an item is classified as a fixture, then the title will pass For items not classified as fixtures, some method of transferring title is necessary. A Bill of Sale will assure the complete transfer of title 8. Creditor’s Right in Fixtures Creditor’s rights in fixtures carry some unique complexities Each state has its own provision to protect the creditor’s interest in personal property that becomes a fixture Their protection is afforded under Article 9 of the UCC (Uniform Commercial Code) 17 9. Scope of Article 9 Permits the creditor to obtain a security interest in the collateral, which provides the creditor with certain rights, opportunities, & priorities 10.Creation (Attachment) of Security Interest (9203) There are three requirements for creating a valid security interest A Security Agreement A Debtor with Rights in Collateral Value given by the Creditor 11.Security Agreement (9105) A security interest begins with the execution of a security agreement by the creditor & the debtor (9203) A Security Agreement has several requirements It must be evidenced by record It must be signed by the debtor (Under Article 9, the requirement must be “authenticated” which allows for the signing via electronic record) It must contain language indicating that a security interest is being created It must contain a description of the collateral that reasonably identifies it 12.Debtor’s Right in Collateral (9202) A debtor can have collateral if the security agreement is made in advance before the buyer obtains possession of the item The debtor has rights in the collateral at the time of delivery so that the pledge can be properly made 13.Value Given by Creditor (9203) The creditor gives value through the binding commitment to extend credit In some cases of fixtures, the promise to extend credit is the most frequently given as value by the creditor Secured Creditors Always have priority over Unsecured Creditors The creation of a security interest entitles the creditor to repossession of the secured property in the event the debtor defaults on payment for the collateral 18 14.Purchase Money Security Interest in Fixture (9103) Creditors of a purchase money security interest (PMSI) obtain more complete protection Is given to secure all or part of the purchase price of the item purchased The PMSI creditor is entitled to certain priorities in the event the debtor defaults on payments for the future 15.Perfection of Security Interest (9301) Filing a Financing Statement (9502) gives the creditor perfection (when fixtures are involved) A financing statement is a record that will vary from state to state but must include Names of the Debtors & Secured Party Signature of the Debtor Address of the Secured Party from which information can be obtained Mailing address of the Debtor A statement describing the items of collateral Fixture financing statements must be filed in the real estate records 16.Filing the Financing Statement A valid financing statement must be filed for fixtures locally, usually at the county level Need a legal description of the property Once everything is filed in the right courts the creditors interest is perfect 17.Length of Perfection (9515) A filing under the UCC is good in most states for 5 years If the debt is paid before that time period the interest is terminated If the debit is not paid before that time period the creditor can refile starting 6 months prior to the ending date of the current time period to obtain a brand new time period (5 yrs.) 18.General Rules of Priority Among Secured Creditors (9317) Secured Creditor has priority over an Unsecured Creditor A Perfected Creditor has priority over an Unperfected Creditor 19 A Perfected Creditor has priority over Subsequent Real Estate Interest A Prior Real Estate Interest has priority over a Subsequently Filed Security Interest Between Perfected Secured Creditors, the date of filing is controlling with the first creditor to file having priority 19.Exceptions to General Rules PMSI Exceptions (9324) & (9334) PMSI may take priority over prior real estate encumbrances if the financing statement is filed before the goods become fixtures or within 20 days after they become a fixture Construction Mortgage Exceptions Has priority over fixture security interest for those fixtures that are installed during construction Readily Movable Exception Secured creditors with perfected interest in readily removable office or factory machines or in replaced consumer goods & appliances have priority over conflicting real estate interest Tenant Exceptions Creditors of tenants who have attached fixtures to leased property have priority over other prior & subsequent real estate encumbrances so long as the tenant has the right to remove such items when the lease ends GoodFaith Purchaser Exceptions GoodFaith purchasers (9320) who purchase real property or fixtures in the ordinary course of business will have priority over secured parties so long as they purchase for value Purchasers of real estate with fixtures covered by security interests are protected regardless of whether the creditor or secured party files the required financing statement 20.Default by Debtor & Rights of Secured Party (9604) Revised Article 9 includes a specific section for default procedures with regard to security interest in fixtures Clarifies many issues that debtors with fixture collateral raised 20 First, secured party can use either the real property remedies (foreclosure) or the Article 9 remedies (non judicial but commercially reasonable sale) Second, the secured party can remove the fixture & while liable for any damage caused by removal, is not responsible for any diminution in value Third, the secured party has a choice as to proceeding against the real property itself or the fixture However, the effect of this new section on fixtures is to overrule all those previous cases which held that the only remedy a secure party with fixture collateral had was to remove the fixture Neither the debtor nor the secured party is responsible for paying any decrease in value caused by the removal of the fixture Chapter 6: Liens Is a special encumbrance that makes real property the security for the payment of debit or obligation 1. Types of Liens Statutory Liens Is a lien that exists because of an enabling statute Mechanic’s Liens are a type of Statutory Liens, because they are created by statutes California affords these liens as constitutional protection Some states statutes permit the attachment of a lien when taxes aren’t paid Equitable Liens Is created through a mortgage Sometimes referred to as a Contractual Lien or Voluntary Lien Is created to secure the repayment of money borrowed to purchase the property Also can secure repayment of money borrowed against the property Voluntary vs. Involuntary Liens Voluntary Liens Created by both parties; a mortgage is an example 21 Both parties agree to place a lien on the property as security for the advance of money to purchase the property or simply as security for a loan Involuntary Liens Is attached to the property but is not done under a contractual agreement Tax Liens are a form of involuntary liens that are placed on property for satisfaction of property, state, or federal taxes Judicial Liens Arises from some action taken by a court To collect judgments that have been awarded by the courts, plaintiffs must attach the defendant’s property Plaintiffs can attach wages, bank accounts, equipment inventory & real property Judicial Liens allow the sale of defendant’s property to satisfy the plaintiff’s judgment Once a judgment is recorded against real property, it becomes a creditor’s lien If property is sold the plaintiff has secured credit in the proceeds from the sale The priority is determined by “First in Time, First in Rights” In some cases the plaintiff can initiate sale action by foreclosing the lien, even without foreclosure The lien is recorded against the property & title cannot be transferred or insured until the lien has been paid or the parties reach an agreement Most states permit either a judgment that awards damages or an abstract of the judgment to be recorded in land records, so the lien is effective against any property owned by the debtor Mechanic’s & Material Liens Arises because companies or individuals have supplied labor, material, or both for the construction, improvement, alteration, or repair of real property or real property statutes The laws on mechanic’s liens vary significantly among the states 22 In 1987 the National Conference of Commissioners on Uniform State Laws adopted its Uniform Construction Lien Act The act answers three basic questions Who is entitled to lien? Who has priority among lien holders? What are the landowners right with respect to payment & liens? The Act has not yet been adopted by any state 2. Creation of Mechanic’s Lien Who is Subject to Lien Any property owner who contracts expressly or by implication with another for the improvement of land or 23 furnishing materials is subject to provisions of the state’s mechanic’s lien provisions Only the property owner or someone acting as an agent or representative of the owner, has authority to contract for improvements that can be the basis for a mechanic’s lien Most state liens statutes require that the lienor have an underlying contractual agreement to enforce the lien The degree & type of contractual agreement varies significantly from state to state Some states only require expressed or implied agreement before a lien can be attached (consent states) Other states require a signed contract & consent for the work & materials (contract states) Basic Items that Should be in a Contract Amount due under the contract (for labor, materials, etc.…) Amount of time within which work is to be completed Amount of time permitted for payments & any schedule of payments Description of real property involved Description of the work to be completed Signature of the parties If the property being repaired or improved is consumer property Regulation Z requires the following disclosure “The buyer may cancel this transaction at any time prior to midnight of the third business day after the date of transaction” Provisions for breach of the agreement 3. Who is Entitled to a Lien These people can all place liens on property Original Contractors/General Contractors Subcontractors Persons supplying labor to real property Persons supplying materials to real property To provide payment assurances for subcontractors, suppliers, & laborers not in privity with the landowner, state statutes usually 24 permit them to place a lien on property, provided they meet some notice & other preliminary requirements prior to the time the lien is filed Some states provide an exemption for residential property That is the owners of residential property cannot have liens in excess of the contract price with the general contractor 4. What Property is Subject to Lien Once a lien is obtained, it applies to the whole property Not just the part subject to the lienor’s work, labor, or materials; rather the whole building & the lot it is on A lienor can lien individual lots in a subdivision for work performed on each of those lots Government property is exempt from liens 5. Procedural Aspect of Obtaining a Lien Because mechanic’s liens are statutory, the procedural aspects for creating & enforcing a lien vary from state to state, but the fundamentals are the same Since the lien is a land interest, it must be recorded in the appropriate governmental landrecord office to be valid Most states, liens are recorded probably in the same office as the financing statements for fixtures Times for filing, perfection, & period of validity for liens also differ among states Some statutes begin the 60 or 90 day period for filing the lien on the date the work is completed or on the date the supplies have been delivered Even completion of work is defined differently from state to state It may mean the end of work, or completion of the project with the issuance of an architect’s certificate Many states follow a prenotification procedure especially for those performing work who do not have a direct contractual relationship with the property owner Those without a contract who want lien protection must file a preliminary notice within a certain period of time after their work has begun or their supplies have been delivered 25 This notice serves to alert all concerned to the possibility of a lien Because this notice gives a right to an eventual lien, the party giving notice must be able to prove That notice was sent To whom it was sent When it was sent Some states require the notice to be served personally or through certified mail This notice is not a lien, simply makes all three parties aware of those working on the project, what they are doing & the supplies & costs involved The preliminary
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