Real Estate Law

SOUTH-WESTERN LEGAL STUDIES IN BUSINESS

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B4510-Aalbert-FM 3/5/08 9:48:35pm 1 of 30

Real Estate Law

Robert J. Aalberts

University of Nevada

Las Vegas

•

George J. Siedel, III

University of Michigan

Seventh Edition

Real Estate Law, 7E

Robert J. Aalberts/George J. Siedel, III

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DEDICATIONS

To Joe, Katie, and John as you

embark on life’s journey.

G.J.S.

To my daughter Amy as she begins a new

and exciting college experience.

R.J.A.

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PREFACE

An understanding of real estate law is valuable in one’s personal and professional

lives. Real estate law is important when a person acquires real estate (through pur￾chase or lease), engages in estate planning, or invests in and develops real estate.

Real estate, from a business perspective, represents an important but frequently

undermanaged asset. In the United States alone, land and structures make up about

two-thirds of the nation’s wealth.1 Therefore, management of real estate assets has

achieved new prominence in the corporate world.

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￾tant for those who want to understand and participate in the free market system.

This book was written in response to a need for a real estate law textbook that

combines text, short case summaries, longer teaching cases, and problems. This

seventh edition of Real Estate Law contains several new features.

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, leases and purchase agreements are included as are specialized forms such as

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

Policy Issues,” discuss the following topics:

• Split mineral estates and the problems caused by oil and gas exploration

• Private ownership of large water supplies

• Primary resident easements in historical preservation districts

• A broker’s duties to inform buyers about child sex offenders in the

neighborhood

• Proposed city laws outlawing the feeding of the homeless in parks

• Proposals to regulate the title insurance industry

• Subsidizing flood insurance in high-risk areas

• Policies that encourage homeownership and regulate subprime mortgage

lending practices

• The policy of allowing mortgage interest deduction on income tax returns

• Proposals to prevent landlords from renting to illegal aliens

• The “Castle Doctrine” and deadly force against home intruders

1. C. Floyd and M. Allen, Real Estate Principles 7 (6th ed. 1999).

2. G. Melloan, Coase Was Clear: Laws Can Cure or Kill, The Wall Street Journal A21 (October 21,

1991).

v

• Exclusionary zoning laws and environmental goals

• The ethics of national and international trading of pollution credits

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

for students and real estate professionals, with new material on commercial real es￾tate practices.

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, the appraiser, the developer, and others must understand fundamental legal prin￾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 an individual must have some basis for recognizing when an attorney should be

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 legal problems are significant enough to justify professional legal counsel

and to communicate effectively with attorneys whose advice is sought.

This book is not written or intended to provide specific legal advice and should not be

used as a substitute for the advice of professional counsel.

COVERAGE

All major areas of real estate law are covered in this book. Part I describes the na￾ture of real property, including fixtures, air rights, water rights, and easements.

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

everyday parlance—is an area of special concern to real estate professionals, parale￾gals, homeowners, lenders, and real estate investors.

The chapters in Part II have been organized in chronological order from the in￾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. For example, Chapter 9, "Financing the Real Estate Purchase," begins with

the mortgage application and follows the mortgage process through foreclosure.

Finally, Part III covers land use and regulation, including landowner rights and du￾ties, eminent domain, dedication, zoning, land use planning, and environmental law.

CHAPTER TEXT REVISIONS AND CASE SUMMARIES

Each chapter has been updated to reflect numerous changes in real estate law since

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

vi Preface

Justice and Federal Trade Commission over its multiple listing services, discount

brokerage and other new brokerage types, the stigma caused by houses in which

crimes were committed, truth in lending and advertising, subprime lending and its

effects on foreclosure and deficiency judgments, the effect of inflated appraisals on

the loan process, workouts to avoid foreclosure, tax benefits in real estate investing,

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

text is filled with short case summaries that provide real-life examples of legal prin￾ciples. These summaries include decisions that determine the antitrust liability of

real estate professionals, the extent to which government can take private property

by regulation or resell it to private parties, the validity of rent control ordinances, a

broker’s duty to disclose defects to a buyer that were unknown to the broker at the

time of sale, and the strict liability of landlords for their tenants’ injuries.

New short summaries include cases on trade fixtures and tort liability, legal

rights to celestial bodies, ownership of wind and geothermal steam, revocation of a

license to attend sporting events, legal requirements for those conducting real es￾tate closings, the landlord’s duty to exclude potentially dangerous tenants, 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-service businesses, the right of a city to exclude

big-box stores, and the standing of endangered species to commence legal actions.

The text contains three special features designed to assist students in understand￾ing real estate law:

1. References to the end-of-chapter cases appear at appropriate points in the text.

These references are designed to facilitate integration of the cases with their

governing legal principles.

2. Key terms appear in boldfaced type upon first mention in the text, and most of

the key terms are defined in the margin. At first exposure, these terms may ap￾pear to be foreign and novel; yet they are important to understanding real es￾tate law and practice.

3. The text contains references to the World Wide Web, which is a rich source

of research information and data.

The seventh edition also includes two new tables that explain complex legal con￾cepts: Characteristics of Syndications in Real Estate and Defenses Under CERCLA.

TEACHING CASES AND PROBLEMS

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

Preface vii

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.

Three criteria were used in selecting the teaching cases:

• Does the case cover fundamental principles of real estate law?

• Does the case illustrate the impact of the law on current real estate practices?

• Are the facts in the case interesting and likely to generate lively class

discussion?

Using those criteria, teaching classics have been retained, such as the Katko case

involving the liability of a farmer to a criminal trespasser and the Fountainebleau air

rights battle between two luxury hotels.

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 (fiduciary duties of a buyer’s agent); Fair Housing Council of San Fernando

Valley v. Roommates.com (conflict between the Communications Decency Act and

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￾chase real estate); In Re: Katrina Canal Breaches Litigation (whether all-risk poli￾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

and prepayment penalties in commercial mortgages); In re Estate of Goyette (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

HealthSystem Surgical, L.L.C. v. Jefferson Parish Hospital Service District No. 1

(reasonableness standards in the assignment of a commercial lease); Burch v. Ned￾Power Mount Storm, LLC (windmills and nuisance); City of Edmonds v. Oxford

House, Inc. (family relations requirements under zoning laws and the Fair Housing

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

with numerous end-of-chapter problems. These problems provide additional illus￾trations of legal principles discussed in the text.

APPENDICES

Appendices include real estate forms and checklists, including a checklist for use in

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￾stract of title is reprinted in Chapter 8.

SUPPLEMENTS

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

viii Preface

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￾search assignments. You also can find additional teaching resources on the compan￾ion web site at academic.cengage.com/blaw.aalberts.

PowerPoint® Slides

Available to adopters, a set of PowerPoint® slides outlines each chapter.

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

the text, and links to forms often used in real estate.

Business Law Video Library

Featuring more than 60 segments on the most important topics in business law, 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 these clips bring business law to life. Access to Business Law Video Library

is free when bundled with a new text. If Digital Video Library access did not come

packaged with the textbook, students can purchase it online at academic.cengage

.com/blaw/dvl.

I ACKNOWLEDGMENTS

We want to thank the following individuals for their helpful comments and sug￾gestions regarding the current and earlier editions of this text.

Acknowledgments for Previous Editions

Robert H. Abrams

Wayne State University Law School

E. Elizabeth Arnold

University of San Diego

John Bost

San Diego State University

Heidi M. Bulich

Michigan State University

Daniel R. Cahoy

The Pennsylvania State University

Corey Ciocchetti

University of Denver

Katherine Cobb

Brevard Community College

Martin Conboy

University of Nebraska at Omaha

James R. Cooper

Georgia State University

Judith Craven

Newbury College

Thomas Enerva

Lakeland Community College

L. Fallasha Erwin

Commercial Law Corporation

C. Kerry Fields

University of Southern California

Thomas Guild

University of Central Oklahoma

Preface ix

James Holloway

East Carolina University

Madeline Huffmire

University of Connecticut

Hans R. Isakson

University of Northern Iowa

Jeffrey Keil

J. S. Reynolds Community College

John Keller

The Paralegal Institute

Alice Lawson

Mountain Empire Community College

Murray Levin

University of Kansas

Michael Mass

American University

Maurice McCann

Southern Illinois University

John McGee

Texas State University, San Marcos

Donna Wood McQueen

Horry-Georgetown Technical College

D. Geno Menchetti

Western Nevada Community College

Richard Murphey

Hilbert College

Paula C. Murray

University of Texas, Austin

Ed Norris

Norris School of Real Estate

Robert Notestine

Nashville State Technical College

Lynda J. Oswald

University of Michigan

Thomas Rhoads

California State University, Long Beach

Marty Saradijan

Bentley College

Terry Selles

Grand Valley State University

Donald Skadden

Ernst & Young

Leo J. Stevenson

Western Michigan University

Virginia K. Tompkins

Volunteer State Community College

Linda Carnes Wimberly

Eastern Kentucky University

Thomas A. Wurtz

University of Nebraska, Omaha

Bruce Zucker

California State University, Northridge

Acknowledgments for Seventh Edition

John Bost

San Diego State University

Corey Ciocchetti

University of Denver

Marty Conboy

University of Nebraska, Omaha

Karen A. Holmes

Hudson Valley Community College

Bev McCormick

Morehead State University

Louis Jiannine

Brevard Community College

Lynda Oswald

University of Michigan

We want to give a special thanks to the following people at Cengage Learning:

Steve Silverstein, Acquisitions Editor; Jan Lamar, Senior Developmental Editor;

Jennifer Garamy, Executive Marketing Manager; and Rob Ellington, Technology

Project Manager. We also want to recognize the production manager, Jamie

Armstrong of Newgen, and the copy editor, Marianne Miller.

Chapter 1 of this book has been adapted from Chapter 1 of The Law of Hospital

and Health Care Administration, which George Siedel jointly authored with principal

x Preface

author Arthur F. Southwick. This chapter is used with permission of The Health

Administration Press. Chapter 14 is derived in part from George Siedel’s contribu￾tion to the Environmental Law Handbook, published by the State Bar of Michigan.

Finally, we owe a special debt of gratitude to our students. Their comments

and encouragement have made teaching real estate law and preparing this edition

both challenging and stimulating. In a landlord and tenant case, a judge once

observed that the tenant had made a costly legal mistake, but “such is the tuition in

the school of hard knocks where lessons are learned that will be of incalculable

value in determining the course of future policies and operations.”

3 If the numer￾ous examples and cases in this book serve as vicarious experience for students so

that some of the “tuition in the school of hard knocks” can be avoided, our debt to

them will be partially repaid.

Robert J. Aalberts

Las Vegas, Nevada

George J. Siedel III

Ann Arbor, Michigan

November 2007

3. Gulbenkian v. Patcraft Mills, Inc., 104 Ga. App. 102, 121 S.E.2d 179 (1961).

Preface xi

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SUMMARY OF CONTENTS

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi

Part I The Legal System and the Nature of Real Property . . . . . . . . . . . . . . . . . . 1

Chapter 1 Introduction to the Legal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2 The Nature of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 3 The Scope of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Chapter 4 Rights in Land of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Part II The Real Estate Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Chapter 5 Types of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Chapter 6 The Search for Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

Chapter 7 The Real Estate Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Chapter 8 Title and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

Chapter 9 Financing the Real Estate Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Chapter 10 Closings and Taxation; Other Methods of Acquisition . . . . . . . . . . . . . . . . . 375

Chapter 11 Landlord and Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423

Part III Land Use and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477

Chapter 12 Rights and Duties of Landowners and Occupants . . . . . . . . . . . . . . . . . . . . . 479

Chapter 13 Legal Planning and Regulation of Land Use . . . . . . . . . . . . . . . . . . . . . . . . . 537

Chapter 14 Environmental Law and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639

Appendix A Checklist for Use in Real Estate Transactions . . . . . . . . . . . . . . . . . . . . . . . . 641

Appendix B Checklist for Use in Drafting Shopping Center Leases . . . . . . . . . . . . . . . . . 647

Appendix C Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665

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