Real Estate Law , Seventh Edition (South-Western Legal Studies in Business Academic)

703 Pages·2008·4.18 MB·English

by  Robert J. Aalberts

SOUTH-WESTERN LEGAL STUDIES IN BUSINESS
R E L
eal state aw
Seventh Edition
Robert J. Aalberts
University of Nevada
Las Vegas
•
George J. Siedel, III
University of Michigan
L
B4510-Aalbert-FM 3/5/08 9:48:35pm 1of30
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P R E F A C E
An understanding of real estate law is valuable in one’s personal and professional
lives.Realestatelawisimportantwhenapersonacquiresrealestate(throughpur-
chaseorlease),engagesinestateplanning,orinvestsinanddevelopsrealestate.
Real estate, from a business perspective, represents an important but frequently
undermanaged asset. In the UnitedStates alone, land and structures make upabout
two-thirds of the nation’s wealth.1 Therefore, management of real estate assets has
achievednewprominenceinthecorporateworld.
The law of property has achieved prominence in international business be-
cause of its relationship to the success of market economies. As governments in
former communist lands have learned, a market system cannot be established
“without first creating a legal system that protects the right of all individuals to
lend, buy and sell property. . . .”2 The study of real estate law is especially impor-
tantforthosewhowanttounderstandandparticipateinthefreemarketsystem.
Thisbookwaswritteninresponsetoaneedforarealestatelawtextbookthat
combines text, short case summaries, longer teaching cases, and problems. This
seventheditionofRealEstateLawcontainsseveralnewfeatures.
One new feature is the text companion web site at academic.cengage.com/
blaw/aalberts; it provides a variety of real estate forms and other important infor-
mation from the Internet. Traditional forms such as a mortgage, a deed of trust,
deeds,leasesandpurchaseagreementsareincludedasarespecializedformssuchas
an Agreement for Light and Air Easement and Restriction of Building Height to
Current Level and a plat and zoning map. The discussion of public policy issues
also was expanded. The “Ethical Issues” features, renamed “Ethical and Public
PolicyIssues,”discussthefollowingtopics:
(cid:129) Splitmineralestatesandtheproblemscausedbyoilandgasexploration
(cid:129) Privateownershipoflargewatersupplies
(cid:129) Primaryresidenteasementsinhistoricalpreservationdistricts
(cid:129) Abroker’sdutiestoinformbuyersaboutchildsexoffendersinthe
neighborhood
(cid:129) Proposedcitylawsoutlawingthefeedingofthehomelessinparks
(cid:129) Proposalstoregulatethetitleinsuranceindustry
(cid:129) Subsidizingfloodinsuranceinhigh-riskareas
(cid:129) Policiesthatencouragehomeownershipandregulatesubprimemortgage
lendingpractices
(cid:129) Thepolicyofallowingmortgageinterestdeductiononincometaxreturns
(cid:129) Proposalstopreventlandlordsfromrentingtoillegalaliens
(cid:129) The“CastleDoctrine”anddeadlyforceagainsthomeintruders
1. C.FloydandM.Allen,RealEstatePrinciples7(6thed.1999).
2. G. Melloan, Coase Was Clear: Laws Can Cure or Kill, The Wall Street Journal A21 (October 21,
1991).
v
vi Preface
(cid:129) Exclusionaryzoninglawsandenvironmentalgoals
(cid:129) Theethicsofnationalandinternationaltradingofpollutioncredits
Moreover, the features introduced in recent editions have been continued and, in
some cases, expanded in this edition. These include (1) revision of the text to re-
flect changes in the law, (2) references within the text to the end-of-chapter cases,
(3) margin definitions for key legal terms appearing in the text, (4) links to the
World Wide Web, and (5) substantial revisions that bring legal principles to life
forstudentsandrealestateprofessionals,withnewmaterialoncommercialreales-
tatepractices.
Two fundamental assumptions guided the preparation of this book. The first is
that legal principles and terms are closely intertwined with business practices in the
real estate industry. The broker, the lender, the architect, the planner, the contrac-
tor,theappraiser,thedeveloper,andothersmustunderstandfundamentallegalprin-
ciples in their professional practices. Second, most individuals handle their own real
estate transactions without the assistance of an attorney. It is simply too time-
consuming and expensive to consult an attorney every time a legal question arises.
Yet anindividual must have some basis for recognizing when an attorneyshouldbe
consulted. A person acting without an attorney must pay the financial—or even
criminal—consequences of a mistake being made. Ignorance of the law is rarely an
excuse. Given these assumptions, all parties in a real estate transaction must recog-
nize when legalproblems aresignificantenough tojustify professional legal counsel
andtocommunicateeffectivelywithattorneyswhoseadviceissought.
This book is not written or intended to provide specific legal advice and should not be
usedasasubstitutefortheadviceofprofessionalcounsel.
C
OVERAGE
All major areas of real estate law are covered in this book. Part I describes the na-
tureofrealproperty,includingfixtures,airrights,waterrights,andeasements.
Part II covers the real estate transaction, including forms of ownership, the
role of real estate professionals, real estate contracts, title, financing, the closing,
and landlord and tenant law. The real estate transaction—known as the “deal” in
everydayparlance—isanareaofspecialconcerntorealestateprofessionals,parale-
gals,homeowners,lenders,andrealestateinvestors.
ThechaptersinPartIIhavebeenorganizedinchronologicalorderfromthein-
itial step of selecting a form of ownership through the closing to illustrate the rela-
tionship between the various topics. The book is meant to tell the “story” of real
estate acquisition from start to finish. The same approach is used within certain
chapters.Forexample,Chapter9,"FinancingtheRealEstatePurchase,"beginswith
themortgageapplicationandfollowsthemortgageprocessthroughforeclosure.
Finally,PartIIIcoverslanduseandregulation,includinglandownerrightsanddu-
ties,eminentdomain,dedication,zoning,landuseplanning,andenvironmentallaw.
C T R C S
HAPTER EXT EVISIONS AND ASE UMMARIES
Eachchapterhasbeenupdatedtoreflectnumerouschangesinrealestatelawsince
publication of the sixth edition. These changes and additions include oil and gas
law and practices and alternative energy sources, legal rights regarding navigable
waters, the emergence of tenancy in common (TICs) as a form of real estate syn-
dication, the National Association of Realtors’ conflicts with the Department of
Preface vii
Justice and Federal Trade Commission over its multiple listing services, discount
brokerage and other new brokerage types, the stigma caused by houses in which
crimeswerecommitted,truthinlendingand advertising,subprimelendingandits
effectsonforeclosureanddeficiencyjudgments,theeffectofinflatedappraisalson
theloanprocess,workoutstoavoidforeclosure,taxbenefitsinrealestateinvesting,
electronic wills, the impact of the new Bankruptcy Reform Act of 2005 on the
homestead exemption, landlord liability for methamphetamine labs, assumption of
risk and disclaimers, “Right to Farm” laws to protect farmers from nuisance suits,
restrictive covenants and Hurricane Katrina, discussion of new eminent domain
laws, recent developments in inclusionary zoning, new requirements on environ-
mental due diligence, the regulation of brownfields and their expanding develop-
ment, the relationship between the Clean Air Act and global warming and climate
change, and the role of the private sector in preserving endangered species. The
textisfilledwithshortcasesummariesthatprovidereal-lifeexamplesoflegalprin-
ciples. These summaries include decisions that determine the antitrust liability of
realestateprofessionals,theextenttowhichgovernmentcantakeprivateproperty
byregulationorresellittoprivateparties,thevalidityofrentcontrolordinances,a
broker’sdutytodisclosedefectstoabuyerthatwereunknowntothebrokeratthe
timeofsale,andthestrictliabilityoflandlordsfortheirtenants’injuries.
New short summaries include cases on trade fixtures and tort liability, legal
rightstocelestialbodies,ownershipofwindandgeothermalsteam,revocationofa
license to attend sporting events, legal requirements for those conducting real es-
tateclosings,thelandlord’sdutytoexcludepotentiallydangeroustenants,assump-
tion of risk from activities at professional sporting events, fraternity house liability
for nuisances, premises liability to drivers injured when vegetation blocks views,
“mode-of-operation”laws and self-servicebusinesses,theright ofacitytoexclude
big-box stores, andthe standing of endangeredspeciesto commence legal actions.
The text contains three special features designed to assist students in understand-
ingrealestatelaw:
1. Referencestotheend-of-chaptercasesappearatappropriatepointsinthetext.
Thesereferencesaredesignedtofacilitateintegrationofthecaseswiththeir
governinglegalprinciples.
2. Keytermsappearinboldfacedtypeuponfirstmentioninthetext,andmostof
thekeytermsaredefinedinthemargin.Atfirstexposure,thesetermsmayap-
peartobeforeignandnovel;yettheyareimportanttounderstandingreales-
tatelawandpractice.
3. ThetextcontainsreferencestotheWorldWideWeb,whichisarichsource
ofresearchinformationanddata.
Theseventheditionalsoincludestwonewtablesthatexplaincomplexlegalcon-
cepts:CharacteristicsofSyndicationsinRealEstateandDefensesUnderCERCLA.
T C P
EACHING ASES AND ROBLEMS
Unlike students in many other courses, real estate law students have the opportu-
nity to study primary source material in the form of actual court cases. With the
exception of Chapter 1, each chapter is followed by an average of six teaching
cases. These cases provide insights into the development of the law and the im-
pact of legal theories on everyday real estate transactions. The seventh edition
contains a number of new teaching cases that have been concisely edited so that
viii Preface
students can appreciate the flavor of the law without becoming enmeshed in details
of legal procedure. Asterisks are used to indicate where sections of the original
opinion were deleted, although no asterisks are used to indicate omission of case
citations.
Threecriteriawereusedinselectingtheteachingcases:
(cid:129) Doesthecasecoverfundamentalprinciplesofrealestatelaw?
(cid:129) Doesthecaseillustratetheimpactofthelawoncurrentrealestatepractices?
(cid:129) Arethefactsinthecaseinterestingandlikelytogeneratelivelyclass
discussion?
Usingthosecriteria,teachingclassicshavebeenretained,suchastheKatkocase
involving the liability of a farmer to a criminal trespasser and the Fountainebleau air
rightsbattlebetweentwoluxuryhotels.
New cases include Adamson v. Sims (trade fixture law); Mission Resources,
Inc. v. Garza Energy Trust (hydraulic fracturing and the capture doctrine); Ace
Equipment Sales, Inc. v. Buccino (riparian rights to non-navigable lake); Saiz v.
Horn(fiduciarydutiesofabuyer’sagent);FairHousingCouncilofSanFernando
Valleyv.Roommates.com(conflictbetweentheCommunicationsDecencyActand
the Fair Housing Act over advertising for tenants); Uzan v. 845 UN Limited
Partnership (fear of a terrorist attack as basis for rescission of a contract to pur-
chaserealestate);InRe:KatrinaCanalBreachesLitigation(whetherall-riskpoli-
cies apply to the New Orleans flood caused by defective levees); Delta Rault
Energy 110 Veterans, L.L.C. v. GMAC Commercial Mortgage Corp. (exit fees
andprepaymentpenaltiesincommercialmortgages);InreEstateofGoyette(prob-
lems with interpreting a holographic will); Gym-N-I Playgrounds, Inc. v. Snider
(waiver of the implied warranty of suitability in a commercial building); Tenet
HealthSystemSurgical,L.L.C.v.JeffersonParishHospitalServiceDistrictNo.1
(reasonablenessstandardsinthe assignmentofacommerciallease); Burchv.Ned-
Power Mount Storm, LLC (windmills and nuisance); City of Edmonds v. Oxford
House,Inc.(familyrelationsrequirementsunderzoninglawsandtheFairHousing
Act); Kelo v. City of New London (condemning private property for private eco-
nomic development); Massachusetts v. Environmental Protection Agency (EPA
and enforcement of laws that may affect global warming); and Rapanos v. United
States (navigable waters under the Clean Water Act). The cases are supplemented
withnumerousend-of-chapterproblems.Theseproblemsprovideadditionalillus-
trationsoflegalprinciplesdiscussedinthetext.
A
PPENDICES
Appendicesincluderealestateformsandchecklists,includingachecklistforusein
drafting shopping center leases that illustrates key issues arising in commercial
leasing generally. In addition to the forms in the appendices, a complete short ab-
stractoftitleisreprintedinChapter8.
S
UPPLEMENTS
Instructor’s Manual with Test Bank
The new edition of the Instructor’s Manual is available electronically on the text
companion web site academic.cengage.com/blaw/aalberts. The manual includes
(1) a chapter outline that incorporates cases, end-of-chapter problems, and teaching
Preface ix
suggestions; (2) the answers to text problems; (3) additional essay, true-false, and
multiple-choice questions, with answers; and (4) numerous transparency masters.
When combined with problems in the text, the additional questions provide more
than 500 problems and questions for use in lectures, examinations, and student re-
searchassignments.Youalso can findadditionalteaching resourcesonthe compan-
ionwebsiteatacademic.cengage.com/blaw.aalberts.
PowerPoint® Slides
Availabletoadopters,asetofPowerPoint®slidesoutlineseachchapter.
Text Companion Web Site
A text companion web site at academic.cengage.com/blaw/aalberts is available to
instructors and students. It contains case updates, links to web sites referenced in
thetext,andlinkstoformsoftenusedinrealestate.
Business Law Video Library
Featuringmorethan60segmentsonthemostimportanttopicsinbusinesslaw,the
video library helps students make the connection between their textbook and the
business world. Four types of clips are represented: (1) Legal Conflicts in Busi-
ness clips feature modern business scenarios; (2) Ask the Instructor clips offer
concept review; (3) Drama of the Law clips present classic legal situations; and
(4) LawFlix features segments from widely recognized, modern-day movies. To-
gether theseclipsbringbusinesslawtolife.AccesstoBusinessLawVideoLibrary
isfreewhenbundledwithanewtext.IfDigitalVideoLibraryaccessdidnotcome
packaged with the textbook, students can purchase it online at academic.cengage
.com/blaw/dvl.
I
A
CKNOWLEDGMENTS
We want to thank the following individuals for their helpful comments and sug-
gestionsregardingthecurrentandearliereditionsofthistext.
AcknowledgmentsforPreviousEditions
RobertH.Abrams MartinConboy
WayneStateUniversityLawSchool UniversityofNebraskaatOmaha
E.ElizabethArnold JamesR.Cooper
UniversityofSanDiego GeorgiaStateUniversity
JohnBost JudithCraven
SanDiegoStateUniversity NewburyCollege
HeidiM.Bulich ThomasEnerva
MichiganStateUniversity LakelandCommunityCollege
DanielR.Cahoy L.FallashaErwin
ThePennsylvaniaStateUniversity CommercialLawCorporation
CoreyCiocchetti C.KerryFields
UniversityofDenver UniversityofSouthernCalifornia
KatherineCobb ThomasGuild
BrevardCommunityCollege UniversityofCentralOklahoma