Real Estate Law for the CP Exam

Real estate law is a tested content area on the NALA Certified Paralegal exam. Paralegals in real estate practices handle closings, conduct title searches, prepare deeds, and coordinate with lenders and title companies. This guide covers the concepts you need to know.

Estates in Land

The type of ownership interest determines the rights a person has in real property:

Fee Simple Absolute: The highest form of ownership. The owner has complete control over the property with no conditions or limitations. This estate is freely transferable and inheritable.
Fee Simple Defeasible: Ownership subject to a condition. If the condition is violated, the estate may revert to the grantor or pass to a third party. Types include fee simple determinable (automatically reverts), fee simple subject to condition subsequent (grantor must exercise right of re-entry), and fee simple subject to executory limitation (passes to a third party).
Life Estate: Ownership for the duration of a person's life. The life tenant has the right to use the property but must not commit waste (damage that diminishes the value of the property for future interest holders).

Concurrent Ownership

When multiple parties own the same property, the form of co-ownership determines their rights:

Tenancy in Common: Each owner has an undivided interest in the whole property. Interests may be unequal. Each tenant can transfer or devise their interest independently. No right of survivorship.
Joint Tenancy: Requires the four unities (time, title, interest, and possession). Includes the right of survivorship, meaning the surviving joint tenant automatically receives the deceased tenant's share. A joint tenant can sever the joint tenancy by transferring their interest, converting it to a tenancy in common.
Tenancy by the Entirety: Available only to married couples in some states. Includes the right of survivorship and neither spouse can transfer their interest without the other's consent. Offers some protection from individual creditors.
Community Property: Recognized in nine states. Property acquired during marriage is owned equally by both spouses.

Deeds

A deed is the legal instrument used to transfer ownership of real property. Types of deeds include:

General Warranty Deed: Provides the greatest protection to the buyer. The grantor warrants title against all defects, even those arising before the grantor took ownership. Includes covenants of seisin, right to convey, against encumbrances, quiet enjoyment, warranty, and further assurances.
Special Warranty Deed: The grantor warrants only against defects that arose during the grantor's ownership period
Quitclaim Deed: Transfers whatever interest the grantor has, with no warranties. Commonly used between family members, in divorce, or to clear title defects.

For a deed to be valid, it must be in writing, identify the grantor and grantee, contain a legal description of the property, include words of conveyance, and be signed by the grantor. Delivery and acceptance are also required.

Title Searches

A title search examines public records to determine the history of ownership and to identify any liens, encumbrances, or defects in the title. The paralegal's role in title searches typically includes:

Searching the chain of title in the county recorder's office
Identifying recorded documents affecting the property (deeds, mortgages, easements, liens, judgments)
Reviewing tax records for unpaid property taxes
Checking for pending litigation (lis pendens)
Preparing or reviewing a title abstract or title commitment

Title Insurance protects the buyer and lender against losses from title defects that were not discovered during the title search. An owner's policy protects the buyer; a lender's policy protects the mortgage lender.

Recording Statutes

Recording statutes determine priority among competing claims to the same property. Three types exist:

Race Statute: The first person to record wins, regardless of notice. Very few states use pure race statutes.
Notice Statute: A subsequent bona fide purchaser (BFP) for value who takes without notice of a prior unrecorded conveyance prevails, even if the BFP has not yet recorded
Race-Notice Statute: A subsequent BFP for value prevails only if they (1) take without notice of the prior conveyance AND (2) record first. Most states use race-notice statutes.

The Closing Process

A real estate closing is the final step in a property transaction. Key elements include:

Settlement Statement (Closing Disclosure): Details all financial transactions in the closing, including purchase price, loan amounts, prorations, and closing costs
Document Review: Reviewing the deed, mortgage, promissory note, title commitment, and survey
Prorations: Allocating property taxes, insurance, and HOA dues between buyer and seller based on the closing date
Recording: Filing the deed and mortgage with the county recorder's office
Disbursement: Distributing funds to the seller, paying off existing liens, and paying closing costs

Mortgages

A mortgage is a security interest in real property given by the borrower to the lender. Key concepts:

Promissory Note: The borrower's promise to repay the loan
Mortgage/Deed of Trust: The security instrument that gives the lender a lien on the property
Foreclosure: The process by which a lender sells the property to satisfy the debt. Judicial foreclosure requires a court proceeding; non-judicial foreclosure (power of sale) does not.
Deficiency Judgment: If the foreclosure sale does not cover the debt, the lender may seek a deficiency judgment for the remaining balance in some states

Practice Real Estate Questions

Real estate questions on the CP exam test your understanding of property interests, deeds, recording statutes, and the closing process. Sign up free to access our flashcard system and practice questions covering all real estate topics.

Real Estate Transactions: Closing Procedures and Title Searches