ULC

Land Transactions Summary

In 1952, the National Conference of Commissioners on Uniform State Laws with the American Law Institute produced the Uniform Commercial Code, (UCC). It applied to all commercial transactions which did not involve real property. The UCC is the standard for commercial transactions in the U.S., as it has become the law in nearly every jurisdiction. It is the common language of business­men, consumers and lawyers throughout the U.S.

The UCC unified disparate elements of law, and it has improved the course of commerce. Why not, then, a similar revision of real property law and a unification with real property financing? In 1968, the NCCUSL began to pursue such a goal. In 1975, after much consideration and drafting, the Uniform Land Transactions Act (ULTA) is a reality. A unity of real property law and the law of financing now exists.

It is inevitable that the comparison between the UCC and the Uniform Land Transactions Act will even be closer. Much of the uni­fying spirit and language of the UCC has been translated over into ULTA. If lawyers, businessmen, and consumers have had a common language for their personal property transactions in the past, that common language now can have meaning for their land trans­actions. The Uniform Land Transactions Act carries over many UCC concepts and much UCC language.

ULTA is divided into three articles. The first deals with General Provisions, the ground rules for developing transactions in land. It deals with certain fundamental concepts such as notice and knowledge, good faith obligations, parol or extrinsic evidence, un­conscionable terms, and sufficiency of land descriptions. These provisions and definitions are important to both succeeding articles. Article II deals with conveyancing. It includes provisions for breach of contract and for remedies. Part III concerns Secured Trans­actions, the nuts and bolts of financing land transactions. It in­cludes provisions relating to finance charges and default. These topics are the basic subject material of this Act.

That the UCC is an ancestor to ULTA is never more evident than in the General Provisions. The UCC deals with the sale of goods contract, its formation and interpretation. UCC contract principles carryover in several ways. For example, 1-301 of ULTA provides an obligation of good faith in the formation of the transaction. This is a direct lifting of a UCC concept. UCC 2-l03(1}i UCC 7-404. Another UCC concept involves "course of dealing" and "usage of trade" in the interpretation of a contract. In the UCC, it was recognized that certain behaviors have a common recognition that can provide them with a specific meaning in a transaction. If there is an accepted "course of dealing" or an accepted "usage of trade," that behavior receives legal recognition in contract interpretation. UCC 1-205.

ULTA 1-303 utilizes this concept in an adaption of the UCC concept. A "course of dealing" is a "sequence of previous conduct between the parties…. establishing a common basis for understanding." A "usage" is a "practice or method of dealing having such regularity of observance in a place as to justify an expectation that it will be observed…." These aspects of behavior give "particular meaning to" and supplement or qualify terms of an agreement, and are to be regarded as appropriate evidence when there is a contradiction of express terms of the agreement.

ULTA l-305(a), on waiver or renunciation of a claim or right arising out of a breach of contract, is also derived from the UCC. UCC 1-107. It allows a written waiver to be valid without contractual consideration. Another very important ground rule for the land transaction is the section on unconscionability. ULTA 1-311. An unconscionable contract or clause need not be en­forced. This concept corresponds to unconscionability in the UCC. UCC 2-302. These provisions provide examples of the ties between the UCC and ULTA in the fundamental approach to the transactions governed by each Act.

There are aspects of the General Provisions, however, which are unique to ULTA. The most important is the concept of the pro­tected party. ULTA 1-203. A protected party enters a land trans­action for the purpose of obtaining residential real estate for his own residential purposes. He is mainly the average home buyer and the average debtor in a home mortgage. ULTA provides special safe­guards for the "protected party" in a number of sections. The most important exist in the warranty provisions governing the seller's warranties to the buyer and in the sections regarding default of debt in Article III on Secured Transactions. Protected party status indi­cates the peculiar importance and vulnerability of the average home buyer in the land transaction.

There are, of course, other ground rule provisions, but these provide examples of the content of Article I. All transactions occur in a setting in which the participants bargain and exchange. ·The ground rules determine the setting. The setting leads to the trans­actions themselves.

In Anglo-American law, real property has always been treated as a special case. The transfer of rights in real property invokes symbolic rites that come to us from feudal origins. We have come to call these rites conveyancing, although the concept of contract more accurately portrays what goes on when Doe and Roe meet to transfer rights in property from one to the other, usually for money. The contractual nature of this transaction is not changed at all by the entry of the third party, the financier of the transaction. In ULTA, the language of contract becomes the dominant language of the transaction. We have thus moved a step away from the feudal origins of our property law.

Since the concern in the transaction is really contractual, Article II deals with the contract governing the transaction, its formation and performance, and with breach and remedies. Here, again, the influence of the UCC is evident for, like the UCC, the contract is governed in a manner to facilitate the transaction.

For example, ULTA 2-203 provides for an open price term. It states that the parties to a contract may "conclude a contract" although the price is not settled. There are rules for the determi­nation of the price if it is left open. ULTA 2-203 (b) states that, if the parties finally fail to determine a price, it will be the property interest's "fair rental value." Good faith governs if one party has the responsibility to fix price, and a party can cancel or fix a price if it is not fixed or agreed because of the fault of the other party. Common law contracts would not normally have provided for open price terms in a sale contract. This kind of approach to a contract is derived from the UCC, and ULTA 2-203 is almost identical to UCC 2-305.

These are not the only parallels between the UCC and ULTA in the formation of the contract. UCC 2-206(1) (a) states, "An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances." ULTA 2-206 states, "Unless otherwise unambiguously indicated by the lan­guage or circumstances, an offer to buy or convey real estate may be accepted in any manner and by any medium reasonable in. the circum­stances."

One should note also the "firm offer" concept in UCC 2-205 and ULTA 2-205. An offer in writing remains open, without consideration, for the duration stated or for a reasonable time. ULTA varies this concept for the "protected party" by requiring a separate signing of such a term, but essentially "firm offer" is a carry-over from the UCC. ULTA 2-205(b).

One area of parallel development, yet one in which ULTA strikes out with more staggering impact, is warranties between seller and buyer. The UCC provides for warranties in the sale. UCC 2-312: 2-313: 2-314: 2-315. The parallel is easily noted because ULTA's warranties are superficially similar. ULTA 2-306; 2-308; 2-309. Warranties, however, are simply foreign to the land transaction or conveyance as we know it, and the impact of warranties in the land transaction is predictably greater.

ULTA 2-304 provides a beginning to the statutory warranty pattern. A seller in a contract to convey warrants that the title is marketable at the time for conveyance, that the deed will not exclude warranties specified in ULTA 2-306, and that any possessory interest conveyed will be satisfied without judicial action or breach of the peace. ULTA 2-306 concerns warranty of title in deed. The execution of a deed, not expressing otherwise, impliedly warrants that the real estate is free from encumbrances, that the buyer will have quiet and peaceable possession, that the seller has power and right to convey the title he purports to convey, and that seller will defend the title conveyed against all persons lawfully claiming it. The seller, under ULTA 2-304, is also obligated to provide suffi­cient evidence and documentation to enable the buyer to determine the prospect of seller’s compliance with title obligations of con­tract. The buyer must have sufficient time to inspect the evidence.

The seller has some very specific obligations in executing the contract of sale with respect to providing good title. ULTA 2-307 provides a similar guarantee to the lessee or buyer of a non-possessory interest. Next to title warranties are very substantial warranties of "quality."

Express warranties of quality can arise in a number of ways. ULTA 2-308. "Any affirmation of fact or promise which becomes a basis of the bargain," which relates to the real estate, may give rise to an express warranty. Samples, models or descriptions of physical characteristics also suffice. A description of quantity and a provision that the buyer may make a specific use also create express warranties.

The seller is also subject to implied warranties of quality. He warrants, without express terms, that real estate will be in at least as good a condition at conveyance as it was at the time of contracting. ULTA 2-309. A professional in the sale of real estate impliedly warrants that the real estate is suitable for the ordinary user of real estate of its type and that improvements will be free of defective materials and constructed in accordance with applicable law. The professional also warrants to a protected party that an existing use, continuation of which is contemplated by the parties, does not violate applicable law at the earlier of conveyance or delivery of possession. This is one of the many provisions pertaining to the protected party.

ULTA 2-311 deals with exclusion or modification of implied warranties. Warranties may be excluded or modified by agreement of the parties, or by expressions of disclaimer "which in common understanding calls the buyer's attention to the exclusion of warranties." A protected party, however, is not subject to any dis­claimer in general language. The seller may disclaim specific defects or specified failure to comply with applicable law, if the defects or failure to comply entered into and became a part of the basis of the bargain." Even a written acknowledgment by the pro­tected party is only presumptive that the disclaimer was the basis of the bargain, and other evidence relevant to the issue may be of­fered. The protected party has a status which permits hidden defects from being foisted upon him or her without recourse.

The ULTA warranties, indeed, form one more parallel between ULTA and the UCC. Warranties have the same function, buyer protection. There are further analogies and parallels yet to be made of importance, however.

Both realty and personalty have been utilized in history as collateral for a loan of money. Both kinds of collateral have been subject to the possession and disposal of the creditor in the event of a default by the debtor. In recent history, financing has become the key to acquisition of property for any purpose. This is true if you buy a car or build a shopping center. Thus a Land Transactions Act and a Commercial Code are bound to have provisions pertaining financing. .

In the UCC, the primary provisions were found in Article IX, Secured Transactions. That, too, is the title of Article III of ULTA. Article III of ULTA, however, will bridge in analogy and in parallels to another major Uniform Act, the Uniform Consumer Credit Code (UCCC). Not only must the Article III of ULTA deal with the means of securing the transaction involving credit, it must also deal with the questions of interest and usury, disclosure, and default, all incidents of extension of credit. These are subjects of the UCCC with respect to sales of goods on credit.

The means of creating the relationship between creditor and debtor is the security agreement. There are strong ties to Article IX of the UCC. Under the agreement, no security interest is enforce­able until it attaches. ULTA 3-203(b). Attachment occurs when the debtor has signed a security agreement describing the collateral, when the debtor has given value, and after the debtor has acquired an interest in the collateral. ULTA 3-203(a). This parallels UCC 9-203.

There is an important concern for priorities between security interests. In the UCC, perfection of the interest determines its priority over other interests. UCC 9~301. In ULTA, unrecorded interests have priority by time of attachment. ULTA 3-301(a). A recorded security interest takes priority according to the existing law governing recording and priority. ULTA 3-30l(c).

 

Advances made under a security agreement or obligation in­curred, after recording, may have priority as of the date of re­cording under certain conditions. ULTA 3-30l(b). Generally, advances are secured if there is no knowledge of intervening interests and only to the maximum stated in the agreement. Ad­vances or obligations incurred after recording may also have priority as of the date of recording if they are for the reason­able protection of the existing security interest, and, also, if there is a construction security interest. ULTA 3-30l(b) (3) (4).

  

With the concern for priorities, similarity to the UCC ceases and is replaced by similarities to the UCCC. Part 4 of Article III of ULTA is devoted to finance charges and usury. Historically, usury rates have been held unrealistically low and have impeded the flow of financing for real property. This same fact, for consumer financing, was met in the UCCC by setting high maximum ceiling rates. However, Congress in PL-SO has already provided for rates upon com­mercial loans of $25,000.00 or more, preempting state law. There­fore, the maximum commercial rate chargeable is already established. The major concern lies with financing residential real estate.

  

 Here the legislatures must be aware of money availability and the factors which affect interest rates. Legislative experience with efforts to keep a tight cap on interest rates have generally been failures. The financing dries up, and the usury rates must then be raised. States with high ceiling rates (18%) have not experienced runaway finance charges. Competition plus the normal processes of control by the Federal Reserve Board have served to keep existing rates well below the maximum allowed. The flexibility encouraged by such rates has meant greater availability of money, in general.

 

ULTA does not recommend any specific ceiling. The states must balance the utility of more available financing with any possibility that interest rates will rise beyond justifiable levels. To encourage the flow of funds across state lines and to enhance the availability of money are primary ULTA policies. Excessive restrictions upon interest rates may, in fact, inhibit that purpose. It is important to achieve the proper balance when considering this legislation.

 

Default upon obligations by the debtor is the subject of Part 5 of Article III of ULTA. Default creates the creditor's rights in the collateral, and it is primarily with this issue that Part 5 deals. There are four methods specified for foreclosure upon the property of the debtor. The first is by the agreement of the parties. The second is by judicial sale. The third is by power of sale, and the fourth is by taking title in satisfaction of the obligation secured. The latter two require authorization in the security agreement. No protected party, however, is subjected to taking of title in satisfaction of the obligation secured.

 

A protected party has special notice provisions. For each method of foreclosure, a specified notice of intention to foreclose is essential. ULTA 3-506. ~his may not be given to a protected party "until a payment of money has not been made when due and remains unpaid for five weeks or until the protected party, having been notified by the secured creditor to cure any other default under the security agreement, has failed to commence and diligently proceed with performance within five weeks." ULTA 3-505(d). Once notice has been given, another five weeks must lapse before fore­closure can take place. The protected party then obtains a minimum of ten weeks from default to foreclosure.

 

To take title in satisfaction of an obligation, the creditor must propose this remedy in a notice conforming otherwise to the normal notice of intention to foreclose. ULTA 3-507(a). This notice gives the debtor five weeks to object and to demand fore­closure by sale. If there is objection by an interest holder, the creditor must turn to the applicable sale procedure. ULTA 3-507(c). If there is no objection, the creditor accepts title in complete satisfaction of the debt. There is then no right to any further judgments. ULTA 3-507(e).

 

Power of sale permits the creditor to offer the property to prospective buyers. ULTA 3-508. He can choose private or public sale, and may decide how to offer the property. ULTA 3-508 (a) . Every aspect of the sale must be reasonable, however. No sale may take place after notice of intention to foreclose until five weeks have elapsed. The creditor may buy the property for sale, but, if the sale is private, he can do so only in the event the sale is conducted by a fiduciary or other person not related to the creditor. There are also rules for auction sales and credit sales. ULTA 3-508(b).

 

The court controls the sale of the property in a judicial sale. ULTA 3-509. The creditor petitions to have the property sold. ULTA 3-509(A). Upon proper notice the court orders the sale, which may be conducted by the creditor according to the rules for power of sale in ULTA 3-508. ULTA 3-509(c). The court then receives a report on the sale and confirms it. ULTA 3-509(e). Deficiency judgment is then assessed, if any. A protected party who is obli­gated to a purchase money security interest is not subject to a deficiency judgment. ULTA 3~510(b). This is the final method for foreclosure offered in ULTA.

 

These are the main provisions of Article III and complete the description of ULTA. It is not possible to cover all of the pro­visions of ULTA. Hopefully, this discussion will assist in understanding the principal thrust of the Act.