How To Limit The Downstream Costs Of Racially Restrictive Covenants

Publication Date

2023

Document Type

Forthcoming Work

Abstract

This essay, which is part of the University of Kansas Law Review Symposium on the seventy-fifth (75th) anniversary of Shelley v. Kraemer, is the first to explain how a current successor in interest to a racially restrictive covenant may limit more of their own downstream costs through the use of self-help options. By definition, a downstream cost is any expense that arises after the formation, and in the course of performance, of a valid common law contract. Examples of downstream costs include the time, money and energy that property owners may expend in removing racially restrictive covenants.

The essay does its work by encouraging more owners to internalize their own downstream costs, at least on a prospective basis, by making greater use of self-help options such as the marketable title doctrine and title covenants with expanded coverages. One way for such owners to do so is negotiating with potential buyers, at least with respect to the title assurance that would be provided as part of potential real estate deals, so as to redefine the terms “marketable title” and/or “title defect” in exchange for some valuable consideration. The idea is that the parties to a potential property transfer agree to expand the legal definition of each term, at least for the purposes of a pending real estate deal, so as to recognize that racially restrictive covenants are one of the types of encumbrances that could prevent valid transfers of ownership interests and/or valid recording of such interests in certain states.

In the first instance, i.e., before the closing date, the negotiation of a valid agreement to re-define “marketable title” and “title defect” encourages the seller to remove all racially restrictive covenants in advance of their agreed-upon closing date with the buyer. Whereas between the closing date and the actual turnover of ownership interests in exchange for some valuable consideration, it would make sense to negotiate a valid agreement to do the same thing through the use of a present covenant against encumbrances with expanded coverage. And in the third instance, especially when the parties to a real estate deal already have agreed to an expanded set of legal definitions but the other two (2) aforementioned types of title assurance are no longer available due to the fact that a closing already took place, a future covenant of further assurances could be used in their stead to allow for some recovery even after turnover (as it is a recognized exception to the merger doctrine).

This essay’s innovative use of title assurance has theoretical and practical implications. For example, in keeping with recent contract law scholarship, these self-help options underscore the seemingly-obvious point that valid common law contracts should not include unenforceable terms like racially restrictive covenants. Second, the essay’s proposed uses of title assurance highlight an inconvenient truth: that too little attention is devoted to the possibility that unenforceable terms may discourage legal compliance. And, third, these self-help options point out a hidden problem with the status quo: failures to remove per se and easy-to-identify unenforceable terms, such as racially restrictive covenants, causes confusion about how the U.S. legal system works and what this system considers socially beneficial behavior.

The essay does its work in the following four (4) parts (Parts II-V). Part II provides useful background information. Part III describes the applicable law for racially restrictive covenants in the wake of Shelley v. Kraemer, 334 U.S. 1 (1948). Part III contains positive and normative analysis concerning the downstream costs that are currently being generated by racially restrictive covenants. Part IV is the conclusion, which includes an implementation plan for current property owners that may want to make use of this essay’s ideas.

Publication Title

University of Kansas Law Review

Volume

72

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