PROBLEMS REAL ESTATE BY PHILIP A. BENSON AND NELSON L. NORTH, JR. — ■ * • ■ • ' >• ii ii, 1/ ici Fm< .v uz LExiriQton 2 - 4080 N. Y. C« NEW YORK, N. Y. PRENTICE-HALL, Inc. 1928 izx iCihrta SEYMOUR DURST IVhen you leave, please leave this book Because it has been said "Sver'thing comes t' him who waits Except a loaned book.'' Avery Architectural and Fine Arts Library Gift of Seymour B. Durst Oud York Library PROBLEMS IN REAL ESTATE BY PHILIP A. BENSON AND NELSON L. NORTH, JR. K. G00DK1ND REAL ESTATMN8URANCE 101 PARK AVENUE LExinatori 2-4080 N.Y.C Ui iiii l'i H i ffl NEW YORK, N. Y. PRENTICE-HALL, Inc. 1928 Copyright 1921, by PRENTICE-HALL, IVG All rights reserved PREFATORY NOTE These problems are intended for use by students. While they may be used as a basis for a real estate course they have been prepared primarily for use in conjunction with the authors' text- book "Real Estate Principles and Practices." To that end they are uniform in chapter arrangement. It is believed that these problems, which are actual situations arising in the real estate busi- ness will be found helpful in impressing upon the student's mind, the principles stated in the text-book. The authors desire to ac- knowledge their indebtedness to Mr. Richard P. Ettinger of the Xew York Bar and member of the faculty of New York Uni- versity for some of the problems which were adapted from prob- lems prepared by him. P. A. Benson, N. L. North, Jr. PROBLEMS IN REAL ESTATE Chapter I INTRODUCTORY 1. A owns a number of houses which he wishes to sell. B makes an offer for one of them which A verbally accepts, with the under- standing that they are to meet next day to sign a contract. Later in the same day, A hears that B was anxious to get the house and would have paid a larger price for it. Should A go through with the deal at the agreed price? Suppose that it was a plot of land being sold and that A knew B expected to erect an apartment house on the plot and also knew that the land had been filled in within a few years and could not support a heavy building. Should A inform B as to the character of the soil before making the sale? 2. X finding a one-family house for sale,' examines it and con- cludes that by the expenditure of a certain sum of money, it can be converted into a three-family house, which will sell for a price that will pay him a profit over the original price and the cost of altera- tions. He buys the house for that purpose. In what branch of the Real Estate business is he engaging? 3. Suppose after the alteration was completed X found that the house would earn a good income from the rents, and retained it. In what branch of the business is he then engaged? 4. A who owns a house and lot has contracted to sell it to B. He w r ishes to remove the following articles from the premises. Ad- vise him as to his rights and duties. Rose bushes in a flower bed. The coal range in the kitchen. The living room chandelier. The furnace shovel and poker. The living room lamp which is attached to a wall plug. The stair carpet. 5. A enters into an agreement with B, his son, who is impecu- nious, whereby B is to have the use of a house and lot for life. Is B's interest real property or personal property? Is the father's interest real or personal property? Suppose the agreement pro- vided that B might have the use of the property for thirty years, would that change your answer ? 6. You are a real estate agent, managing an apartment house for the ow r ner who has several times said he might plan to sell the house. As part of your employment you are authorized to negotiate Ci etf>*t+ ^y^v^f ^b-*** ***y(+*rri\, S$ ^ajl^ Cc^c c> (jUI£^ZZI^ 6 PROBLEMS IN REAL ESTATE and sign leases for the owner. You know that long term leases given to the tenants may hurt a sale. One of the tenants whose lease is about to expire conies to you and asks for a three-year renewal lease. What should you do ? 7. A purchases a farm near the city, consisting of twenty acres of land with a house at one corner. He occupies the house, and permits the land to lie idle, hoping the city will eventually grow out to his land. After ten years he finds no ready sale for the farm, so fences off a portion occupied by the house which he con- tinues to occupy as his home and after subdividing the balance of the farm, sells it in lots. In what branches of real estate has he engaged ? 8. A who owns a lot at a summer resort places on it a small bungalow which rests upon four small concrete blocks. Later he agrees to sell the lot, receives a deposit and removes the house. The purchaser seeks your advise. Advise him. 9. A who owns a house and lot, dies giving to his widow the right to use the property during her life. She not wishing to occupy it leases it to B for ten years. Discuss the interests of the widow and B as to whether they are real or personal property. 10. A builder of a row of one- family houses, advertises them as of high-grade construction. A buyer after moving in finds a door has warped so that it cannot be closed, that there is a small leak in the roof and that a waste pipe is stopped up. The buyer complains of these conditions and also complains that the wall paper, which he selected did not make the rooms look as he expected. What should the builder do? Chapter II INTERESTS IX. LAND 1. A owns a plot of ground which he has for some years held at a price of $50,000. The City needs this land for a courthouse. Can the City acquire this property? How? What price must the City pay for the property ? 2. Your building has become dilapidated and in danger of falling down. Has the Municipality any right to interfere? Wiry? 3. Your father has just died leaving a will by which he gives his property to you. He left him surviving his widow (your mother), and two grandchildren who are the daughters of your deceased sister. Who takes the real property? Name the means by which it passes. Wi C'l ^ CL *^'~ V" &6t<+ (^aJu^ j^y^y^i '^£<^jcjU, .^^4>y^c i 8 PROBLEMS IN REAL ESTATE 4. In the above problem who would take the real property if your father had left no will? Name the means by which it would pass. 5. In problem 3 suppose your father had left no widow and no heirs. Who would take the real property? Name the means by which it would pass. 6. In each of the following problems, name the interest of the grantor and grantee or grantees. State the rights and limitations Upon the interests of each party. a. X grants Whiteacre to A, his heirs and assigns forever. b. X grants W hiteacre to A. c. X grants Whiteacre to A during the life of B, and upon B's death to pass to C. d. X grants Whiteacre to A for life, then to B for life and at the death of both A and B, to C and his heirs forever. e. X grants Whiteacre to A and B and their survivor. f. X grants Whiteacre to A and B. g. A and B own as joint tenants. B grants his interest to C. h. X grants Whiteacre to A and B, his wife. i. X grants Whiteacre to A, B his wife, and C. J. X grants Whiteacre to B provided B abstains from the use of tobacco. k. X grants Whiteacre to B forever, provided that if the property be ever used as a dance hall it shall revert to X or his heirs. 1. X grants Whiteacre to A for life, then to B and his heirs forever. m. X grants Whiteacre to A for life, and to his children at his death provided that if A leave no children, it shall go to B. n. A and B his wife own as tenants by the entirety. A grants to C. 7. Mrs. Jones owns Whiteacre and sells it to you. Air. Jones knows nothing about the sale. Airs. Jones then dies. What interest has Air. Jones in the property? Would the birth of a child to Air. and Airs. Jones alter your answer? 8. Airs. Brown owns Blackacre. She dies intestate survived by her husband and three children. How does the property pass? Suppose she had given the property by will to Air. Smith? How then does the property pass ? CO 10 PKOiiLKMS IX REAL INSTATE Chapter III LIEXS 1. I Tow docs a lien differ from a conveyance of real property? 2. Of what advantage is a lien to the lienor? 3. Of what disadvantage is a lien to the owner of the property affected by it ? 4. A, an owner, contracts with B to have B tile the halls and bathrooms of a new building. B completes his work but A claims that he is unable to pay him. What can B do to enforce his claims? 5. Suppose that A (Problem 4) is insolvent and that claims of a number of contractors on his building are unpaid. What are their respective rights ? 6. Suppose that B (Problem 4) was merely a subcontractor of C who had the contract to erect the entire building for A and that all the agreed price except $1,000 had been paid to C. What rights would B have against A ? 7. What may an owner, who wishes to sell his property free from encumbrances, do regarding claims of contractors pending litigation with the contractors? 8. A sues B and recovers a judgment. B owns the house in which he lives and also a farm in an adjoining county. How may A enforce the judgment against B's property? 9. Suppose B (Problem 8) appeals the judgment. Can he sell his farm pending the appeal? Why? 10. Suppose that the judgment (Problem 8) is enforced against B's property but that eight months later he inherits enough money to pay the judgment. He wishes to recover his property. How would you advise him? 11. A dies leaving a gross estate of $100,000 consisting principally of real estate. His son, who is his sole heir, contracts to sell one of the houses in the estate free and clear of incumbrances. There are unpaid debts of $5,000. How should he arrange the affairs of the estate so as to carry out the contract of sale? 12. A corporation contracts to sell a piece of property to X. X instructs you to ascertain whether the corporation has paid its franchise taxes. Is this necessary? How t would you obtain the information? 13. The B Company agreed with the C Corporation to furnish material and perform labor for the installation of a steam heating JU^j^. tL-h^A ~tu u^t^^U c^of /><~* * /s 12 l'l'< >i:l.KMS IX RRAL R ST ATE plant in the building of the C Corporation. The i> Company pur- cliascd the risers and radiators from the P Company under an agreement whereby the title to the material did not pass until paid for. This conditional hill of sale was not filed. The C Corporation did not pay the B Company and later a mortgage on the property was foreclosed. Can the P Company remove the risers and radiators from the building? 14. What is an easement? What is a restriction? 15. A mortgaged his house to B on Janiiary 17th, 1921. On Apyil 1st he contracted to sell the house to C. On April 15th D dockets a judgment against A. On May 1st taxes become due and payable. On May 2d the deed from A to C is delivered which C holds and places on record on May 10th. On May 5th E files a mechanic's lien against the property. Discuss the respective rights of the parties mentioned. Chatter IV TAXES AND ASSESSMENTS 1. What is the difference between taxes and assessments? 2. Explain in detail the steps taken by the City of New York in levying taxes against a piece of property. 3. Distinguish between assessment and assessed valuation. 4. Name the separate tax levies which may affect a piece of property in a rural county. 5. A owns a lot 50 x 100 feet on G Street which is taxed by the City on an assessed valuation of $4,000. B owns the adjoining lot of the same size which the City taxes on the basis of $5,000. B asks your advice. How should he proceed? 6. Suppose that the lots (Problem 5) were both valued by the City at the same figure but that A had a frame house on his, valued by the City at $1,000, while B had a brick house valued by the City at $5,000. B says the valuation of the house is excessive. What would you advise him to do? 7. The local authorities upon appropriate notice take certain land for the extension of a highway. Are the owners paid for the land" J If so, who pays? How is the money collected? 8. Five owners of land in a certain block decide to petition the City to pave the streets. Will the City do this? If so, how is the expense paid? /3 r r ^ <■> — ~y 2 , 14 J'kOI'.LHMS IN KKAL INSTATE 9. When do taxes Ik-coidc a lien on real property? Assessments? Water rates? If title to property is being passed from seller to buyer who pays current taxes and water rates? Who pays the charge for a street improvement just completed? 10. Explain the method of selling property to pay arrears of taxes. Chapter V CONTRACTS h Why is the contract the most important paper in a real estate sale or exchange? State reasons for having it in writing. 2. A verbally agrees to purchase a lot from B for $1,000. Later the deed and money are exchanged. A, several days after demands the return of his money. What are the rights of the parties? 3. A states to you that he is the Executor of the will of B, who died owning Whiteacre. He then as such executor offers the prop- erty to you at a price you are willing to pay. What should you do before entering into a contract with him ? 4. A who is 20 years of age signs a contract to sell you Blackacre for $20,000. You pay a deposit of $2,500 on the contract. A spends the money, then refuses to carry out the contract. What are your rights ? 5. A, the seller and B, the purchaser, verbally agree upon terms of sale. Can either enforce this agreement? 6. The next day B pays A $50.00 on account and receives A's receipt reading as follows : "Received on account of sale of No. 10 Court St. $50.00,'' signed A. Can either now enforce the agree- ment ? 7. A father in a letter offers his daughter a house if she will agree to remain single for five years. The daughter writes her father accepting his offer and demands the deed. The father re- fuses. What are the daughter's rights ? 8. A owns a plot of land which he contracts to sell to B. a. B thinks there is valuable ore in the ground and is buying for the purpose of mining it. A thinks there is no ore in the ground. Is this a binding contract? b. B thinks there is valuable ore in the ground and is buying for the purpose of mining it. A knows that B thinks so and having previously sunk several shafts knows that there is no ore in the ground. Is this a binding contract? -v. o — g A .9 • 7 n J> S w — ^ O -If? & J 4 \ 3 C * PROBLEMS IN REAL ESTATE c. B thinks that the land contains valuable ore and can be profitably mined. A knows that B thinks so. B thinks that A intends to sell it as such. Is this a binding con- tract? d. B thinks that the land contains valuable ore and can be profitably mined and thinks that A intends to sell it as such. A knows that B thinks that he (A) is repre- senting that the land contains valuable ore but does not mean to make such representation and in the contract has merely stated that he is selling the land. Is this a binding contract ? 9. Name the elements which must be present in any legal contract. 10. A the owner of a house, has verbally agreed to sell it to B. B desires to occupy it himself as soon as he can and A knows the fact. The house at present is occupied by a tenant whose lease does not expire for two years. The contract is drawn and signed and states that the property is to be sold "subject to the rights of the present tenant.'' Later B ascertains the length of the lease and consults you. Advise him as to his rights. 1 1. A, the owner and B, the purchaser, reach an agreement as to price and terms. B then pays $200 on account and receives from A the following receipt signed by A. "Received from B $200 on account of the sale of No. 621 East 11th Street, Chicago, 111.; Price $10,000; purchaser to give a purchase money mortgage for $5,000 and pay $5,000 in cash." Is this writing sufficient to constitute a binding contract ? 12. A owns premises 200 First Street. B looks at premises 200 South First Street which he thinks A owns. He goes to A and makes him an offer in the following words : "I will give you $10,000 for your house at number 200." A accepts the offer. Is this a binding contract? 13. A contract of sale is drawn and executed from which is omitted the date of the contract and the names of the parties. Alay any rights be based on such a writing? 14. Assume that property values in general are declining. A, the owner of a piece of property, is about to sell it to B. You are asked by A to draw the contract. Would you seek a large or small deposit and why? If property values were rising how would you advise A? 15. Why should the purchaser seek some evidence that the seller 9 r J8 PROBLEMS IN REAL ESTATE has title when he makes a contract with him for the purchase of land? 16. What evidence of title is usually adduced for this purpose? 17. Describe by "metes and bounds" the following vacant property : /oo' Zo' 18 Describe by monuments the following property which tains about 100 acres: 20 PROBLEMS IX REAL ESTATE 19. Describe by "Map, plot or plan" a plot in the following diagram : MAP OF LAND OF ESTATE OF ANTHONY BROWN, DECEASED, FILED IN COOK COUNTY CLERK'S OFFICE, JANUARY 3, UJ2J. / 2 Met 3 6 7 g / z 3 6 7 20. Why is a description by natural monuments, such as trees, stumps, rocks, etc., dangerous? 21. Assume that you represent the seller of a lot upon which stands a building which not only fills the entire lot but encroaches two inches on the adjoining lot, how would you describe the property in the contract ? 22. Assume that you represent the seller of a lot upon which an adjoining building encroaches two inches. How would you draw the description? 23. Why is it important to state in the contract the encumbrances subject to which the property is sold? 24. A contract of sale is drawn stating that the property is sold "subject to the rights of present tenants." What, if any, alteration in this statement should the seller desire? The purchaser? 25. John Brown agrees to sell a house to Henry White for $100,000. At present there is affecting the property a first mort- gage of $60,000 bearing interest at 5% due January 1, 1924, and a second morgage of $20,000 bearing interest at 6% due July 1, 1924. It is agreed that White shall pay $20,000 cash over and above the mortgages, of which he shall pay $2,000 when the con- tract is signed and the balance at the closing. Draw up that part of the contract which expresses these financial terms. 26. If in the foregoing you were White would you prefer to take the property subject to the mortgages or would you prefer to assume the mortgages ? 12 PROBLEMS IN REAL ESTATE 27. Assume, in the 26th problem, that White had only $10,000 in cash, how might he arrange to pay the balance? 28. A has agreed to sell his property to B for $40,000. It is subject to a $20,000 mortgage due July 1, 1924, with interest at 5j/2%- The parties have agreed that L> shall give back on the closing his bond and purchase money mortgage for $10,000 to run for three years with interest at 6%, and is to pay $10,000 in cash of which $2,000 is to be paid on signing the contract. a. Draw a financial statement for insertion in the contract which should be satisfactory to the seller. b. Draw a financial statement for insertion in the contract which should be satisfactory to the purchaser. 29. A, who is about to sell his property, brings to you for examination a proposed contract of sale and asks your advice before he signs it. It provides that the amount payable on closing shall be paid in cash or certified check. Advi.se him. 30. A, the seller, brings you for examination a contract of sale which has been duly executed but which omits any mention of a day and place of closing title. Advise him. 31. Why is it customary to insert the following provision in contracts of sale : "Rents and interest on mortgages and fire insur- ance premiums, if any, are to be apportioned." 32. B, the purchaser of a piece of property, consults you with reference to the proper provision to insert in the contract with reference to taxes and water rates. State what information you would seek from him and the advice you would give him based on such information. 33. Is it necessary to have a contract of sale signed, sealed, wit- nessed and acknowledged ? 34. What is the advantage of having a contract sealed? 35. A contract of sale is about to be signed in your office. Would you have it witnessed and acknowledged ? Why ? 36. State a reason for the insertion of each of the following provisions in a contract of sale : a. The brokerage agreement. b. The agreement that street rights are included in the sale. c. The paragraph describing the form and manner of execu- tion of the deed. d. The following agreement : "All personal property appur- tenant to or used in the operation of said premises is 24 PROBLEMS IN REAL ESTATE represented to be owned by the seller and included in this sale." e. The agreement that the deposit shall be a lien upon the property. f. The agreement that the seller shall bear the risk of fire loss until the closing. 37. A, the seller and B, the purchaser, have made a binding contract for the sale of real estate. A fails to complete his con- tract. What remedies has B? Assume that B has failed to carry out the contract. What remedies has A ? 38. Name the differences between the contract for sale and the contract for exchange of real property. Chapter VI AUCT I ON SALES 1. A owns Whiteacre, reasonably worth $75,000. B holds a first mortgage of $50,000 and C a second mortgage of $15,000 against the property. A defaults in the payment of interest on the first mortgage and B forecloses. The property is sold at auction. Is this a voluntary or an involuntary auction sale ? 2. In Problem 1, is it legitimate for C to bid at the sale? 3. In problem 1, to what extent would you advise B to bid on the sale. 4. A dies, leaving two children, B and C. He owns Blackacre which is reasonably worth $100,000. He owes M, N, and other creditors $20,000. Blackacre is sold at auction, the proceeds to be used to pay the creditors. Is this a voluntary or an involuntary auction sale? 5. Who would conduct the sale of the property referred to in problem Number 1 ? Where, when and how is it conducted ? 6. Who would conduct the sale of the property referred to in Problem Number 4? Where, when and how T is it conducted? 7. What are the terms of sale and what is their purpose? 8. Why is the sixth clause inserted in the terms of sale? 9. Why is space for a seventh clause inserted in the terms of sale? 10. What instrument takes the place of the contract at an auction . sale? In what manner is it executed so that each party signs it? 11. In what respect do the terms of sale at voluntary auction sales differ from those at an involuntary auction sale? 26 PROBLEMS IX REAL ESTATE 12. If you were an auctioneer and were commissioned to sell an estate of about twenty acres in an outlying section of your city, what methods would you follow to insure the success of the sale? 13. You are an auctioneer engaged to sell real property at a vol- untary auction. The owner informs you that he is not willing to have the property sold for less than $20,000. Tell him two methods by which this may be accomplished and outline your own procedure in either case at the time of sale. 14. Discuss the advertisement (page 28) which recently appeared in a New York daily. Chapter VII DEEDS 1. By what name is the short form of deed in general use known? 2. An instrument containing all the usual phraseology of a deed contains the following statement inserted following the habendum clause: "the party of the second part agrees to reconvey to the party of the first part the premises herein described upon repayment of a loan of $5,000 to secure which this deed is given." Is this instrument a deed? State your reasons. 3. Why is it advisable to give the address of the grantee in a deed? 4. A ow r ns certain property upon which B holds a mortgage. The interest has remained unpaid dii the mortgage for a long time and the aggregate of the mortgage and interest is substantially as much as the value of the property. A deeds the property to B upon B's agreement to cancel the mortgage. Is this a good or a valuable consideration? 5. A owns YYhiteacre which is reasonably worth $50,000. B holds a mortgage thereon for $25,000. A is indebted to B, C and D each in the amount of $5,000. A conveys the property to B upon B's agreement to cancel the mortgage, his indebtedness, and upon his giving A $20,000. D consults you. Advise him. 6. Assume in the previous problem that B paid A only $10,000 in cash. Advise D under these circumstances. 7. A is the head of a substantial solvent business. His daughter is about to be married. He presents her with a very handsome home. Very soon thereafter he sustains large business losses which of ^ -^^r^fefc^ 28 rk()J',LKMS l\ RKAL ESTATE TO EVERYONE who lives in an apartment Your rent has been raised several times You probably have had trouble with your landlord You have been worried Your family and children have probably had disagreeable experiences with other tenants You might have had to move if it had not been for the rent law, which expires in 1922 You may not be able to lind an apartment in 1922 P y Y Look at the man who has lived in his own house these last few years He hasn't had to move He hasn't been worried by increased rent He hasn't been bothered by the landlord But he has probably had several chances to sell his own house at a good prolit When you live in your own house you are your own mas ter You can bring your children up in the proper surroundings The rent you save will pay off your mortgage The increase in value should provide for your old age WHEN THE PRESENT RENT LAWS EXPIRE in 1922 thousands will be looking for houses to live in Prices of houses are apt to increase. If you choose to sell the house you own you should be able to make a profit TOMORROW AT 12 NOON at the Real Estate Exchange, 14 Vesey Street 15 One-Family New BRICK PRIVATE HOUSES ON HOLLAND AVENUE two blocks from Allerton ave. Subway Station of the White Plains Line, Bronx will be sold at an ABSOLUTE AND UNPROTECTED AUCTION SALE You can buy the houses for whatever you choose to pay They will be sold for whatever they will bring The owners will not bid on them or protect them in any way You will get an honest, square deal 75 Per Cent May Remain on Mortgage Lots 25x100 Tax Exempt 10 Years Restricted Neighborhood f*l ✓'V Examine the Property Today — Take Lexington Avenue I -I J Subway Train marked 180th Street — Change at 180th Street for White Plains Line Get off at Allerton Ave- nue Station. Send for Particulars to J. CLARENCE DAVIES, 149th St. & Third Ave., JOSEPH P. DAY, 67 Liberty St., New York Agents and Auctioneers 30 I'kOHLKMS IN REAL ESTATE render him insolvent. Several of his creditors consult you with reference to their rights, if any, as against the daughter. Advise them. 8. Under what circumstances should the purchaser insist that the actual consideration be stated in the deed? Why? 9. A owns Blackacre appertaining to which there is a right of way over Whiteacre which adjoins Blackacre. A deeds Blackacre to B and says nothing about the right of way. Does the right of way pass to B? Why? 10. A deed conveying a farm describes the property partially as follows: "Beginning at a milestone at the junction of a ditch and Boston Post Road, thence northerly along the westerly side of Boston Post Road for a distance of 1200 feet to the intersection of Jones' fence and the Boston Post Road." Suppose the distance were actually 1400 feet, would the grantee obtain title to the entire plot or only part? 1L A wishes to deed Whiteacre to B in trust for C during Cs life. How may this fact be expressed in the deed? 12. Explain the difference between a patent and a latent defect in the description in a deed. 13. A who owns five lots in the town of Greenville executes to B a deed which recites that it conveys to B "any one of my five lots in Greenville." Is this an effectual deed? Why? 14. A's property is one hundred feet square and is at the north- east corner of Broadway and Chambers Street. lie executes a deed to B which describes the property as being one hundred feet square and being at the northwest corner of Broadway and Chambers Street. A owns no property on that corner. B seeks your advice. Advise him. 15. In the previous problem assume that B did not discover the error but fifteen years later after A had died, B contracted to sell the property to C and C seeks your advice. What would you tell him? Why? 16. What are the differences between the bargain and sale deed and the quit claim deed? When is each used? 17. Under what circumstances would you advise the seller to give a deed containing only the covenant against grantor's acts? 18. Name and explain each of the covenants in the warranty deed. 19. The granting clause of a deed reads : "Unto the party of the second part, his heirs and assigns forever.'' And the habendum **^uic ^w-^ # A *r~zs 32 PROBLEMS IX REAL ESTATE clause reads : "Unto the party of the second part for and during his natural life." What kind of an estate does the grantee possess? 20. Is it advisable for a deed to be signed, sealed, witnessed and acknowledged? Which of these is necessary ? State the reason for having each act performed. 21. By what means does a corporation execute an instrument? What is the most important act in such execution? 22. A conveys Whiteacre to B giving B a full covenant and war- ranty deed. B pays $10,000 for the property. Ten years later C proves that he owns the property and ejects B. At that time the property has increased in value to $30,000. What may B do? 23. In the above problem assume that C did not seek to prove his ownership to the property but went to B and threatened to eject him. What relief would B have against A under these circumstances? 24. Distinguish between a "good"' title and a "marketable" title. Chapter YIII BONDS AND MORTGAGES 1. What is the fundamental difference between a mortgage and a deed? 2. What is the purpose of the bond and the mortgage in con- nection with a loan upon real estate? 3. Why is a bond preferable to a note? 4. Under what circumstances would you substitute the w r ords "gold coin of the United States of the present standard of weight and fineness" for the words "lawful money of the United States," in the bond? 5. A owns an apartment house upon which he seeks a loan of $20,000 at 5% for three years. B is willing to make the loan. Draw that part of the bond which expresses these facts. 6. What provisions would B desire inserted in the bond? 7. What provision would A desire inserted in the bond if the property were reasonably worth $100,000? 8. A owns a piece of property reasonably worth $30,000. It is subject to a first mortgage of $15,000 with interest at 5% ; prin- cipal payable January 1, 1923. He seeks a second mortgage of $5,000 to' run for three years with interest at 6%. What special clause should the lender have inserted in such a mortgage ? What special clause should the borrower have inserted in such a mortgage ? 6. I ^/T TJJf JLJ- t - 34 I'kOHLHMS IX REAL ESTATE 9. A, the owner of property, has arranged with 15, the lender, for a loan of $5,000 to run with interest at 6% and to be paid in semi-annual instalments of $500 together with interest. A is to have the option of paying more than $500 in anticipation of future payments. Draw that part of the bond which expresses these facts. 10. John Brown, Incorporated, being badly in need of money, borrows $45,000 from P>, giving B its bond and mortgage for $50,000 with interest at 6%. Later it defaults in payment of interest. B forecloses. The borrower sets up the defense of usury. Who succeeds ? 11. Is it advisable to have a fire insurance clause in the bond and mortgage? Why? 12. Why is an assignment or estoppel clause usually included among the covenants in a mortgage ? 13. What steps would you take in buying a mortgage, i.e., in having a mortgage assigned to you? 14. On March 1, 1916, A buys Whiteacre. On March 10, 1916, A borrows $10,000 from B and gives \\ a mortgage on Whiteacre. On March 15, 1916, A marries M. On March 20, 1916, A bor- rows $10,000 from C and gives C a second mortgage on Whiteacre. On the same day A purchases from D Blackacre and gives D a purchase money mortgage in partial payment. Later A dies. Is M's dower claim prior to the claims of B, C and D? 15. In the above problem B is married. lie dies. lias his wife any dower interest in the mortgage? Why? 16. A owns a house and lot in San Francisco, California. He borrows $5,000 from B, giving B his bond and a mortgage on the property. Later A and B both establish residences in Xew York City, New York. A has a prosperous business in Xew York. lie fails to pay the mortgage when due. B consults you. How would you advise him to collect his claim? 17. L^pon whom does the burden of the usury laws fall? Give an example illustrating your answer. 18. A holds a mortgage upon property owned by B. The mort- gage is executed by B but not by his wife. C, who is about to pur- chase the mortgage, comes to you for advice. What would you tell him? 19. State the purpose of each of the various clauses appearing in the mortgage in use in your state. 20. B owns Whiteacre. He borrows $10,000 from A and gives A his bond guaranteed by C and D as co-sureties. B also gives A Z*^A \vJZu^ 12 36 L'KOiiLEMS IX kKAL ESTATE a mortgage on Whiteacre to secure the loan. Suppose B fails to repay the loan and C as one of the co-sureties pays A. What rights against D, B and A lias C? 21. A owns Blackacre. He borrows from B $10,000 and gives B a mortgage on the property. A divides Blackacre into ten lots numbered 1 to 10 consecutively and sells those numbered 1 to 8. inclusive, in that order each to a separate purchaser, who either obtains a warranty deed or pays the purchase price of his lot in full on the faith that the blanket mortgage will be fully discharged by A. A fails to pay B who forecloses the mortgage. Which property should be sold to satisfy B's mortgage and in what order? 22. A owns Whiteacre which is a plot consisting of 25 lots. He borrows $25,000 giving as security a blanket mortgage covering the entire plot. He intends to sell the lots separately. He wishes to make an arrangement with the lender under which a fixed pro- portion of the mortgage may be paid as each lot is sold so that each lot may be sold free and clear of the mortgage. How would you arrange this? 23. A owns Whiteacre and Blackacre upon which B holds a blanket mortgage to secure $20,000. In B's opinion the two prop- erties are of equal value. C holds a second mortgage covering W'hiteacre alone. A wishes to have B release Blackacre from the blanket mortgage and offers B $10,000 on account of the mortgage for a release of Blackacre. B consults you. Advise him what steps he should take for his protection. 24. Why is it important to record the satisfaction piece upon the payment of a mortgage? 25. State why it is customary for the lender to seek relief by foreclosure rather than an action on the bond. Chapter IX TRANSFER AXD EXAMINATION OF TITLE AXD TITLE INSURANCE 1. If an owner of real property dies intestate and in no other way disposes of his property, to whom does his real property pass? Why? By what name is the means of transferring title known? 2. A dies leaving a last Will and Testament by which he gives all his property to his son, B. He is survived by his wife and his three children, B, C and D. How does his real property pass? Why? 38 PKOllLHMS IX RKAL KSTATE 3. A sells his house and lot to B for $10,000. By what name is the means of transferring title known? 4. A's property is covered by a mortgage held by B. A defaults in the mortgage and B forecloses. The property is sold at public auction by a referee appointed in the foreclosure suit. By what name is the means of transferring title known? 5. A owns an apartment house occupied by B as tenant and seven other tenants. He sells the house to B who continues to live in the house and collect the rents from the other tenants but who fails to record his deed. Several months later A contracts to sell the property to X. X has the title examined and finds the record title in A. X then pays the consideration and receives a deed from A which he at once records. He then goes to the property and de- mands possession, which B refuses to deliver. Advise X as to his rights. 6. A owns Whiteacre and borrows $5,000 from B, giving him a bond and mortgage covering the property. On the following day he borrows $5,000 from C giving him a mortgage on the prop- erty as security. B is taken sick and for that reason fails to record his mortgage until after C has recorded his. B consults you. What advice would you give him ? 7. Suppose in the above problem that B made his loan on Tues- day afternoon and mentioned it to C Wednesday morning, C mak- ing his loan Wednesday afternoon. What would your advice be under these circumstances? 8. Assume in the above problem that B made his loan Tuesday afternoon and C made his loan Wednesday afternoon and while he was on his way to record his mortgage Thursday morning he met B who told him of his previous loan. Would this alter your answer? Why? 9. B has bought a piece of property from A, receiving a deed which is signed by A, sealed, and witnessed by C but has not been acknowledged. B attempts to record it and fails. Why? How- would you help him ? 10. State briefly the contents of an "abstract of title/' How- does it differ from a "chain of title ?" 11. You are a skilled title examiner and have been engaged by B to search the title to certain premises which he is purchasing from A. In examining the record you find among other things a deed in the chain of title made by X and Y which recites that X and Y are the sole heirs at law of the preceding record owner. You 40 PROBLEMS IN REAL ESTATE certify that the title may be conveyed by A. B purchases relying upon your certificate. Later it develops that Z was also an heir at law. Are you responsible for any damage sustained by B? State the title examiner's responsibility. 12. In what fundamental respect does title insurance differ from fire insurance? Why should one always insist upon a "report of title" before closing the title? 13. What is the purpose of the "schedule of exceptions" in a title insurance policy ? 14. How does a policy of title insurance issued to a mortgagee differ from a policy issued to an owner? 15. Suppose you purchased a piece of property and had the title examined and insured by a title company for $50,000. After buy- ing the property you enter into a contract with C whereby C agrees to purchase the property for $60,000. C claims the title is defective and refuses to take the property. What remedy have you? 16. A owns Whiteacre which is insured by a title company for $100,000. A dies leaving Whiteacre to B, his son. B sells White- acre to C for $200,000 and gives C a full covenant and warranty deed. Later C attempts to sell Whiteacre to D and an ancient defect in the title is discovered. What may C do? 17. Suppose that a title company is liable under its policy to pay the full amount of insurance. What reciprocal right would the title company have? 18. How should the property, title to which is insured, be de- scribed in the title policy? 19. You are about to sell a piece of property title to which was insured in you. To what use would you put the policy? 20. Why is a survey advisable in addition to an examination of the records? Chapter X CLOSING OF TITLE 1. A on April 1st signs a contract to sell Whiteacre to B. He executes a deed dated May 1st and the title is closed on June 1st. On what date did title pass? 2. Explain the theory under which adjustments are made at the closing of title? 3. B is about to purchase an eight-family house from A. What information should B require from A with reference to the tenants upon the closing of title? 42 PROBLEMS IN REAL ESTATE 4. A has contracted to sell Whiteacre to B subject to taxes, a $5,000 mortgage, and certain restrictions. The report of title shows numerous unpaid taxes, and an unpaid assessment for high- way improvement in front of the property, a mortgage for $6,000, a junior mortgage for $1,500. a judgment against A for $500 and the restrictions mentioned in the contract. You are representing B on the closing of title. Advise him with reference to each encum- brance. What disposition should be made of it and by whom? 5. Upon the closing of title why should special scrutiny be given to restrictive and other covenants affecting the property ? 6. A has contracted to sell Number 10 Fourth Street to B for $30,000, $2,000 of which was paid on the signing of the contract. $8,000 is to be paid on the closing. The purchaser is to take title subject to an existing mortgage of $15,000 with interest at 5% per annum payable semi-annually, the last interest having come due and been paid two months before the closing of title. The balance of the purchase price is to be paid by a bond and pur- chase money mortgage for $5,000 to run with interest at 6 a broker to see if a plot for the building can be purchased, and explains to the broker that he has only a lim- ited amount of cash. Suggest how the deal might be worked out by the broker. Suppose the entire deal originated with the broker, how many commissions could he earn ? 4. A, an owner, places a "For Sale" sign on his house. B, a broker, sees the sign and brings a prospective purchaser to the house. An offer is made and accepted. Later the sale is closed and B hands A a bill for commission on the sale. A refuses to pay it. Can B recover? 5. A broker has a customer for a factory building. He ap- proaches the president of the X corporation and asks if they will sell one of their buildings. The official states that they will sell and names price and terms. The broker introduces his customer and a sale is consummated. The sellers refuse to pay the brok- er's commission, however. Can he recover against them? 6. Suppose the X corporation (problem 5), through their offi- cials, had had previous real estate transactions with the broker. Would that affect your opinion? Would it affect your opinion if it was shown that the president of X corporation knew the broker personally and knew that his business was that of a real estate broker? 7. N, a farmer, calls at the office of M, a local broker, and asks him to secure a customer for h:s farm. His price is $7,500, and he states the farm consists of 7 1-2 acres of land, a house and a barn. Later the broker tells N he has received an offer of $7,000. X accepts this offer and a deposit is paid and a contract signed. Is M entitled to a commission? If so, who pays it ? 8. Suppose that the customer (Problem 7) had told M that if he could get the faro for less than $7,500 he would share the saving with him. Would this affect M's claim for com- mission from N ? 9. Suppose that it was shown that the customer (Problem 7) 50 PkOULEMS IX REAL ESTATE was a representative of M, and that there was a subsequent con- tract to resell the property to X for $8,000. Would N have to pay a commission? Who would get the profit on the resale? 10. A is authorized to sell property belonging to B for $25,000 cash. A obtains an offer of $18,000, which is declined. He later says that C is his party and that he will pay $20,000, half cash and half mortgage. This is also declined. Two weeks later B notifies A that his authority to sell the property is withdrawn. C then goes direct to B and buys the property for S22, 000 cash. A clajms a commission on the ground that C was his customer. Can he recover? 11. The customer (Problem 7) declines to complete his con- tract and take title to the farm on the ground that a survey shows that there are only 7 acres of land in it. A suit on the con- tract is decided in favor of the customer. If M has received a commission must he refund it ? 12. A seller's price for a tract of land is $250,000. A firm of brokers submit an offer of $175,000, expecting to receive the customary commission of 5%. The seller accepts the offer but stipulates that the brokers be paid only 2%. The brokers sign the stipulation regarding commission and a contract of sale is executed. Later the brokers make a claim for the regular commission. How much may they recover? I. 7 ). An owner tells a broker that he would like to sell a garage building, good-will and equipment. The broker asks for price and terms and is told to bring any customer he may have and terms will be arranged and a commission paid. The broker has a party who has offered him $500 if he could find him a ga- rage with a going business. The principals meet and a sale is made. Can the broker recover from both sides? 14. A authorizes B to sell his house. B brings C to the house but finds it closed and cannot show it. C meets A on the street and says that he understands A wishes to sell his house. A and C enter into a contract, nothing being said about the broker. Can B recover a commission? 15. X is authorized to sell a house for Y. He knows that Y wishes to buy a larger house and suggests a trade for a house belonging to Z. Z is approached and agrees to make the trade and pay X a commission. How should X protect himself so as to get a commission from both parties? 52 PROBLEMS IN REAL ESTATE Chapter XIII MANAGEMENT 1. An out of town manufacturer acquires a city loft build ing as the result of the foreclosure of a mortgage. The building is run down and only partially rented. He tells you that he in- tends to engage a contractor to repair the building and that he will advertise for tenants. What advice would you give him? Why? 2. Suppose the building (Problem 1) was especially suitable for the printing business. What method should be pursued in renting it? 3. You are managing a building occupied largely by whole- sale dealers in silks and dress goods. The top floor becomes vacant and a manufacturer of suits applies for it. Would you rent it to him? Give reasons. 4. A store has been vacant for some time and an offer is made for it, the prospective tenant requiring a long-term lease. What considerations would affect your judgment as to the length of lease to grant him? 5. Would a tenant be wise in taking a short-term lease of a public garage he proposes to operate? Why? 6. What attention should be given to complaints of tenants? 7. A manufacturer has a long-term lease on a building under your management. lie is unable to ship goods owing to freight congestion and does not pay his rent. Would you disposses him? Explain. 8. You are managing some apartment houses for an estate. One of the heirs complains of insufficient income and asks you to reduce repair bills. What points would you bring out in a dis- cussion w T ith him? 9. What insurance policies would you advise an owner to carry ? Chapter XIV THE VALUATION OF REAL ESTATE 1. What determines the value of farm land? 2. Why has vacant land in cities any value? 3. State the location of land in your city, town or borough used for three different purposes. W'hich is the most valuable? Which ranks second as to value? W&~* <$^* — -^7^ £ffc~-» 54 PROBLEMS IX REAL ESTATE 4. At what point did your community start? Why did it start there? In what direction or directions has it grown? Why? 5. What is a standard or typical lot? I low is it valued? 6. What physical features of city lots affect their value? What neighboring influences? 7. In what way do transit facilities affect land values? Does the amount of fare from the section to other sections have any effect? 8. A goes to an auction and finds a crowd buying lots at prices running from $800 to $1,000 each. He has some money to invest. Can he assume that the lots are cheap at the prices the crowd is paying? 9. If a standard lot in a certain block is worth $5,000, what is the value of a lot 75 feet in depth on one side and 85 feet deep on the other side. How did you obtain your answers? 10. A, B and C each own one of three contiguous lots 20 feet wide by 100 feet deep. They try to sell independently and get offers of $1,000 each. A builder comes to them and says he will pay $4,500 for the three. Why are the three together worth more than each one separately? 11. Why are corner lots more valuable than inside lots? What is the usual added value for corners? Is this ratio always correct ? 12. You are asked to value a plot 60 x 120 on which is erected a modern four-story apartment building. How would you proceed? 13. You are valuing a piece of property in a business section of a city. The land you believe to be worth $50,000. There is a brick dwelling on the land in a good state of repair. How would you fix the value of the building? 14. Would the rents produced by the building referred to in Problem 12 help you in forming an opinion of the value of the property? If so, how? Could you tell how much of the rent applied to the economic or ground rent? Would temporary or war conditions of renting have to be taken into account? 15. A corner plot A is located at the southwest corner of Broad and Race Streets, fronting 50 feet on Broad Street and 60 feet on Race Street. The adjoining plot B has a frontage of 20 feet on Broad Street and a depth of 90 feet. Plot C adjoins B and is the same size as B. Plot D adjoins A and has a frontage of 30 feet on Race Street and a depth of 50 feet. Plot E ad- ■.tt. / HiS^-, r - r lu^df s&^<~*~* ^e&~*-» K fjioMzCjC, ^ ^^^ CLf ^^TI -~^t- -J\ 1. A contracts to purchase an improved parcel of real estate from B. B has owned the property for five years and the title was examined when he bought it. Would you advise A to have it re-examined now? Why? 2. A does not know B and is undecided about making a con- tract with him and paying him a deposit. He thinks he should have some information about the title to the property. Can he obtain this speedily? Would it help the matter if B had a reg- istered title? 3. If B had a registered title how long would it take to trans- fer it to A? 4. If B's title was not registered, could A apply for registration after the contract was signed? How long would the proceeding take? 5. A asks you for advice as to the advisability of having title insurance or registration under the Torrens law. He asks espe- cially about (1) expense (2) length of time to complete (3) results. 6. Does the Torrens law in your state permit property to be withdrawn after once being registered? Is this an advantage or a disadvantage? 62 I'KOI'.LKMS IN RKAL INSTATE 7. A died intestate leaving four children living at his home. A fifth, U, had left home ten years previous and had not been heard from. The four children assume 15 to be dead and pro- ceed to divide the father's estate. They sell a parcel of the real estate and the purchaser proceeds to have the title to it reg- istered. Two weeks after an order of registration had been granted by the court B appears and demands his share of the estate. Can he have the order of registration set aside? Sup- pose he did not come back until a year after the order had been signed. Would he still be able to set it aside? 8. If he could not get his one-fifth interest in the registered property could he recover its value from anyone? If so, how? 9. Have B's constitutional rights been violated by the regis- tration in another of property in which lawfully he had an interest? 10. Suppose the four brothers of B had had the tit 1 e registered in them in order to prevent any claim by B should he appear. He does appear a year later. What can he do to get his share oi the estate? \