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A Study on American Real Estate Transaction Law

Author: ChenYongQiang
Tutor: HuHongGao
School: Fudan University
Course: Civil and Commercial Law
Keywords: US common law real estate transaction sale sales contract deed registration mortgage
CLC: DD912.29
Type: PhD thesis
Year: 2007
Downloads: 1117
Quote: 3
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The Anglo-American law and the continental law are the two major legal systems in the world today. This article studies on US real estate transaction law. English Jaw is the mother law of US law, but the latter has developed its own characteristics. So it is hard for us to understand the Anglo-American law if we study English law or US law singly. Many transactional rules in real estate law come from the ancient English common law. In early days of the common law, land was the most important wealth that people could own. The rules of estate with outstanding common law features is the core of English land law. Land law is the most abstract and complex law in the Anglo-American law system because of its feudal origin. Therefore, discussing English law from the historical perspective can help us understand the current real estate transaction legal institutions in the US. In addition, my study is not limited to common law; this article also discusses the continental law, especially the German law. Some important legal institutions are compared with the continental law. Comparison provides us with many more ways in solving problems in life. These ways cannot be imagined by any talented lawyer who studies Chinese domestic legal system only. Through comparative study and evaluation, we can reach a solution better than the current one, and explain its basic theory and value, so that we can reflect our legal institutions and borrow rules from the common law.The legal methodology of the US law is pragmatic. It believes that the object of legal science is not the logical structure of legal concepts, but problems in life that the legal structure should resolve. Legal methodology of Anglo-American law is of experience instead of constructive; its logic is "from life to law". Rules are created while specific problems in life are being solved. Justice and soundness in judging a specific case is the core issue a judge concerns. The rationality of a US judge is substantial instead of formal. It is more suitable for real estate transaction rules, which is much more of experience. This article explains these rules through narrating examples in transition practices, and shows how lawyers solve the specific problems. This pragmatic method may be lack of concepts, but can bring us experiences.The real estate transaction mode in the US laws is distinctive, the transaction has 2 steps: buying and transferring. The parties sign a contract first and then the grantor signs a deed. Registration is not a must for the transferring of the title, so the transferring of real estate rights is completely party-autonomous. In this way, will of the parties is most important in real estate transaction. How and when the right will transfer all depend on decisions of the parties. This can help carry out the principle of private law autonomy. However, the deficiency of this way is obvious, too. There is always a requirement for transactional safety in real estate transaction, and the US lawmakers have been devoting themselves in constructing a legal system and the related rules that can protect transactional safety, but these rules are not ideal. Also, the Torrens registration system, which is running well in countries like Britain and Australia, is not able to set its feet in the US. Protection of transactional safety in the US is realized through the running of commercial title insurance companies. This unique way of solving transactional safety problem through marketing adjustment makes a great difference from those of continental law countries, where transactional safety is usually ensured by governmental intervention. Private law autonomy and governmental compulsion are the 2 weights on the different ends of a lever with transactional safety as the fulcrum. To make one of them heavier or to make them equivalent, this is the core issue that the lawmakers and legal practitioners shall concern.Sales contract is the major form of transaction, and the most usual way for people o get real estate. The first thing to consider is the object to sale, and in general it’s the ownership. However, the concept of ownership in Anglo-American law is very different from that in the continental law. In the latter, ownership is jus in re, and belongs to absolute right, emphasizing that one object is owned by only one person. In Anglo-American law, ownership means one owns estate, an abstract concept that can be divided according to time. Therefore ownership is not an exclusive right, but a relative one that can be shared by many people without confliction. At the same time, sale will create 2 different types of title: legal and equitable. This distinction is important in risks bearing of loss in the period of contract and in property transferring if one party dies. In transaction, real estate must be marketable, that is to say, title to the real estate has no defection. If the title is defective and the purchaser does not accept it, he can cancel the contract and require damages. There are four remedies for contract breach in Anglo-American law: damages, special performance, rescission, and vendor’s/vendee’s lien. Lien is a featured remedy; courts of equity generally recognize an implied lien, much like a mortgage on the real estate, in favor of the vendor for the amount of the purchase price. Prior to the transfer of legal title by deed, the purchaser has an equitable title to the property under the doctrine of equitable conversion.Signing sales contract does not transfer legal title until the grantor delivers a deed. The deed is a special instrument to pass a title. To some extent, a deed is like the juristic act of real right in German law, but is much more complex than the latter. A deed is ineffective unless and until the grantor delivers it to the grantee. Before delivery, the deed has no legal effect. Effective delivery of deed occurs when the grantor properly manifests the present intent that the deed immediately transfers the title. The American pattern of passing titles is "sales contract + deed + delivery". Title covenant is the most important clause in the deed. Covenant means that the grantor promises that he owns clear title against any defective rights. If the grantor breaches the promise, the grantee can sue damages under the covenant.In most states, a deed conveys title when it is delivered. Failure to record the deed does not defeat the passage of title. However, recording provides important advantages to the grantee, because failure to record the deed will make the subsequent bona fide purchaser acquire priority, therefore the grantee will lose the land. The rule of priority aims at resolving conflicts of right between two successive grantees who get deed from the same owner. At common law, traditionally, priority was determined according to the principle of "first in time, first in right." That was to say, the party who took the deed first had the superior right. This principle was supported by the roman law’s logical notion that after the grantor gave his title to the first grantee, he had nothing left to give to a second. Nevertheless every state has replaced the common law rule with a statutory recording system, and introduced the equitable doctrine of notice. This system protects a subsequent bona fide purchaser against prior unrecorded transfers. The recording statutes do not mandate that every document must be recorded to be effective. Instead, they provide that a recorded title is effective against the entire world because recording provides constructive notice of its contents to everyone. The purchaser protected by recording statutes must buy in good faith and for a valuable consideration and without notice of a prior unrecorded claim. The rule of priority can be borrowed for us to protect transactional safety. In the current real right law of China, many types of change of right have adopted the principle of antagonism of registration, so American law is more helpful for us to define whether a third party should be protected by registration system. Other than this, I also narrate in this article the rise and fall of Torrens title registration system in America, and discuss the basic principle of Torrens system for protecting the third party.Most real estate purchasers do not simply pay the whole purchase price in cash. Instead, buyers often obtain financing from institutional lenders. The debtor will give the creditor a mortgage to secure the loan. The origin of mortgage law dates back to early English common law. In the earliest days a mortgage was a mere pledge. It might be agreed that the debtor should pass title to the lender and the lender had right to take possession of the land. Today’s American mortgage law no longer adopts this form of mortgage. Although there are many variations from state to state, mortgage law generally agrees that the debtor still possesses the land and need not pass title to the lender. In certain sense modern mortgage law is a law of procedure. When the mortgagor was in defaults, the mortgagee can not immediately enter into possession of the land or sale the real estate. Instead, he should give notice to the mortgagor, and declare the entire debt due and payable. Because of the event of default, the debt should be paid in full now. If the debtor can not pay in time, the mortgagee can file for judicial foreclosure actions. In this action, the court will determine a "law day". If payment is not timely made before this day, the court will auction the real estate. During the process of auction, notice shall be given to all junior interests owners, and they have the right to participate in the process. In some states, after the auction of the real estate, the mortgagor still has the right to redeem the land by paying the purchase price to the buyer in a set period of time.In the part of conclusion, I further discuss the protection of property rights by the Anglo-American law. Property rights have incomparable importance in the Constitution. It is a part of personality. Without the consent of the owner and due process, property rights will not lose and cannot be deprived of. Finally, I point out that China’s land rights system can be established on the base of land use right. The rule to resolve conflicts of rights should be based on the principle "no one can convey the right that he does not own". For dual sales, legislation should establish the passing rule of title according to the intent of the parties. Registration law should protect the third party who acts in good faith, for valuable considerations and without notice of prior interests.

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