Keeping Current

Property

Keeping Current—Property Editor: Prof. James C. Smith, University of Georgia, Athens, GA  30602, jim@uga.edu. Contributing editors: Prof. William G. Baker and Prof. Daniel B. Bogart.

Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

 CASES

 ADVERSE POSSESSION: Cotenant’s fencing of land is not sufficient to establish title against cotenant who is not in possession. A daughter inherited an undivided three-tenths interest in two lots from her father. Her uncle and his wife took care of the property for many years, adding fencing, planting crops, and demolishing a dilapidated house that the father had lived in. They failed to gain title by adverse possession, because their actions did not amount to an ouster of the daughter. She testified that she went to the land “a couple of times a year” and that her uncle had never excluded her. Preciado v. Wilde, 42 Cal. Rptr. 3d 792 (Ct. App. 2006).

 CONDEMNATION: Lender is entitled to proceeds from condemnation for freeway interchange. A sale of an office building took place after the state had commenced proceedings to take 0.2 acre out of the site, containing 4.5 acres, for a new freeway interchange. A lender financed the sale with a $14.4 million loan secured by a nonrecourse deed of trust. The borrower defaulted; then the lender foreclosed, with the foreclosure sale yielding $5 million. The lender asserted a claim to condemnation proceeds in the still-pending condemnation case. The trial court awarded the proceeds, set at $875,000 by the jury, to the borrower. The case turned on the language of the deed of trust, which defined “trust property” to include all condemnation awards “except for any award or payment payable” in connection with the ongoing condemnation “provided such condemnation does not impair the use or decrease the value of the Premises or Improvements.” According to the appellate court, the only evidence on point was testimony of the borrower’s appraiser that the condemnation reduced the market value by $5.26 million (it seems the jury was stingy). Later in the deed of trust, a paragraph labeled “Condemnation” allowed the lender to apply condemnation awards to the debt but ended with: “(e) Notwithstanding any provisions contained in this paragraph . . . , Trustor shall be entitled to retain any award paid in connection with [the freeway] Interchange Condemnation.” Note the inconsistent drafting: this latter provision says nothing about an exception if use of the property is impaired or its value decreased. The appellate court reversed, concluding that the first provision controlled because it was more specific (a point the editor does not appreciate). The lender should thank its lucky stars. Wells Fargo Bank, Minnesota, N.A. v. North Cent. Plaza I, L.L.P., 194 S.W.3d 723 (Tex. App. 2006).

 COVENANTS: Homeowners association may not impose new assessments on lots purchased at tax sale for previously made improvements. A residential development with over 500 lots had a standard set of recorded covenants, authorizing a designated homeowners association to impose assessments. The original association lost its charter because of failure to file annual reports and pay annual fees to the secretary of state. One homeowner formed a new homeowners association, using the identical name and articles of incorporation from the original association. A meeting of property owners elected a board of directors, and the association began to operate. In 1989, it levied an assessment of $5,900 per lot for special improvements, which some owners failed to pay. In 1994, the county sold four lots at a tax foreclosure sale, which had the legal effect of extinguishing the unpaid assessments. In 1996, the homeowners association imposed a new assessment for the same amount, giving a credit to all owners who had already paid for the improvements. The purchaser at the tax sale challenged the new assessment on two grounds, both raising issues of first impression for Utah. The court rejected the purchaser’s claim that the new association, which was not formally recognized by an amendment to the recorded covenants, lacked the authority to assess. Under the equitable doctrine of ratification, the new association had the authority delegated to the original association, because a majority of the lot owners had participated in and accepted the new association for twenty years. The purchaser prevailed, however, on her second claim. The 1996 assessment was invalid because the recorded declaration did not specifically allow the association to impose non-uniform assessments or levy assessments on only selected lot owners, which the credit mechanism accomplished. Swan Creek Village Homeowners Ass’n v. Warne, 134 P.3d 1122 (Utah 2006).

 EASEMENTS: Easement by necessity is appropriate even though owner has access by road to part of his land. A mother conveyed two lakefront lots to her daughter and two lots to her son. The son mortgaged his lots and lost title when the lender foreclosed. The purchaser at foreclosure obtained a variance allowing him to build a house on one of the lots and then, one year later, he obtained county approval for a consolidation of his two lots into a single lot. The purchaser subsequently asserted an easement by necessity for access by a footbridge to one of his two lots, which were separated by a channel of water, across one of the daughter’s lots. The court recognized an easement by necessity even though the purchaser had access to one of his lots, on which he had land use approval to build a house, from a public road. The court also ruled that it made no difference that the purchaser’s lot bordered navigable water on three sides. Access via navigable water did not negate the easement. Although it was possible for the purchaser to reach his lot by boat or by walking through submerged mud, the court considered that access insufficient for reasonable use of the property. Stansbury v. MDR Development, L.L.C., 889 A.2d 403 (Md. 2006).

 FAIR HOUSING ACT: Housing code enforcement in heavily Hispanic neighborhoods constitutes intentional discrimination. The District of Columbia began a “Hot Properties Initiative” to shut down apartment buildings with serious housing code violations. The program generated a list of 75 buildings distributed evenly throughout the city. Officials then pared down the list to 27 buildings, which were concentrated in neighborhoods with a percentage of Hispanic residents that was 4.1 times greater than the percentage of Hispanics in the city as a whole. A tenants’ group brought claims for intentional discrimination and for disparate impact. The district court dismissed the intentional discrimination claim and sent the disparate impact claim to the jury, which held for the tenants of one building. The court of appeals reversed on both claims. A reasonable jury could infer the presence of discriminatory intent, because the city had offered no plausible explanation for its decision to shrink the list to buildings located in Hispanic neighborhoods. On disparate impact, the verdict did not stand, because the plaintiffs failed to submit evidence on how many Hispanics occupied the building in question. 2922 Sherman Ave. Tenants’ Ass’n v. District of Columbia, 444 F.3d 673 (D.C. Cir. 2006).

 LANDLORD–TENANT: Daily rent abatement for landlord’s failure to complete tenant work is valid liquidated damages clause. To entice a new major tenant, a landlord promised in an office space lease to make numerous building upgrades and to install tenant improvements by the commencement date. The lease provided for rent abatement on a daily basis: a full-day’s abatement for the two most important work items (fire alarm and communications systems) and a half-day’s abatement for other work. The tenant took possession, and the landlord completed the most important work 412 days late. Based on the abatement clause, the tenant brought an action to obtain a rental refund of over $4 million. The trial court held that the clause called for an unenforceable penalty, but the appellate courts disagreed. The clause represented a valid attempt to liquidate damages, because it was not feasible to calculate the tenant’s actual loss caused by the landlord’s breach, and calculation of damages based on the number of days of nonperformance was a reasonable method of estimating damages. Bates Advertising USA, Inc. v. 498 Seventh, LLC, 818 N.Y.S.2d 161 (N.Y. 2006).

 MORTGAGES: Recording of a fictitious mortgage is fraudulent even though the preparer does not directly transmit the instrument to the victim. A lender alleged that defendants induced the lender into making 149 purchase-money loans when the lender believed it was refinancing existing mortgage loans. The purchase-money loans, all at a debt-to-price ratio of 100%, were higher risk than refinancings, which typically have a lower debt-to-value ratio. Part of the alleged deception consisted of the recordation of phony mortgages, which the lender thought were being refinanced. The court held that the recordation was a misrepresentation made to the lender, even though the lender received the information indirectly through a title report made by a nonculpable title company. ABN AMRO Mortgage Group, Inc. v. Maximum Mortgage, Inc., 429
F. Supp. 2d 1031 (N.D. Ind. 2006).

 SUBDIVISION REGULATION: Denial of subdivision is justified when overlapping utility and drainage servitudes raise safety concerns. A developer applied for approval of a residential subdivision in Jefferson Parish, Louisiana. The application triggered significant opposition from neighbors concerned with numerous issues including traffic, drainage, and flood insurance. The parish council denied the application, but the trial court labeled its decision arbitrary and capricious. On appeal the parish prevailed. The subdivision plan included overlapping drainage and utility servitudes (“easements” to common-law lawyers). The court endorsed the parish’s argument that this posed a health and safety risk to utility workers and to persons maintaining the drainage system. The parish decision and trial court decision took place before Hurricane Katrina. In the trial court, the Home Builders Association for Greater New Orleans had intervened, warning that denial of subdivision approval would result in “a significant reduction in economic activity.” Willow, Inc. v. Jefferson Parish Council, 928 So. 2d 756 (La. Ct. App. 2006).

 TAKINGS: State may not condemn water easements to benefit private electrical generation company. Muskogee County sought to condemn water pipeline easements to transport water from the Arkansas River to the site of a proposed electrical generation plant. The county claimed its use of eminent domain would promote economic development (increased taxes, jobs, and investment) and thus was a “public purpose.” The court disagreed, holding that the Oklahoma Constitution does not allow takings for economic development. The court discussed the famous (or infamous, depending on your viewpoint) decision in Kelo v. City of New London, 125
S. Ct. 2655 (2005) (authorizing takings for economic development as not violating the Fifth Amendment), but concluded that the Oklahoma Constitution protects private property from eminent domain to a greater extent than the federal constitution. The court also emphasized that the proposed electrical plant was not a public utility under state law. Board of County Comm’rs v. Lowery, 136 P.3d 639 (Okla. 2006).

 TAX FORECLOSURE: State must take additional steps to notify owner of tax sale when notices sent by certified mail are not delivered. A homeowner separated from his wife, vacating his residence and leaving his wife in possession. Four years later, he paid off his mortgage, and his lender naturally ceased paying property taxes. After several years of nonpayment, the state of Arkansas proceeded with a tax foreclosure. Two certified letters, mailed to the owner at the house address, were returned to the state unclaimed. In a five-to-three decision, the U.S. Supreme Court invalidated the tax sale, holding that due process required the state to take additional reasonable steps to attempt to provide actual notice of the sale to the property owner. The Court recommended sending the notice by regular mail or posting the notice on the front door of the house. In dissent, Justice Thomas criticized the majority for placing burdens on the state that were impractical and not justified by the Court’s precedents. Jones v. Flowers, 126 S. Ct. 1708 (2006).

 LITERATURE

 Homestead Exemptions; History and Policy. Homestead exemptions were recently in the news as a vehicle for wealthy wrongdoers to shield significant assets against collection from judgments. But, as wonderfully described by Prof. Alison D. Morantz in There’s No Place Like Home: Homestead Exemption and Judicial Constructions of Family in Nineteenth-Century America, 24 L. & Hist. Rev. 245 (2006), these exemptions have a long history dating in many jurisdictions to the 19th century. The homestead exemption was intended to serve the dual objectives of limiting poverty and homelessness. The exemptions, although varying in language and detail, precluded creditors “from claiming the homestead for the non-payment of debts,” and, even after the death of the head of the family, “immediate family (typically the surviving widow and minor children) could continue to occupy the homestead even if creditors or legal heirs held superior title.” These statutes, however, required courts to address the meaning of “family” and “head of family.” Because of the vague wording of the statutes, state court judges in the late 19th century were forced to “engage in tortuous doctrinal line drawing, struggling to define the legal entitlements of claimants whose domestic living arrangements often deviated from the basic nuclear prototype.” Morantz explains that the homestead exemption posed a direct threat to “twin premises of male headship and family unity,” yet somewhat unintentionally, men were often the indirect beneficiaries. The early opinions evaluating the meaning of “family” in homestead exemptions open a window on the culture of the time.

 Landlord–Tenant; Domestic Violence. Victims of domestic violence may be forced to permanently leave an apartment or rented house immediately to escape future violence. This places the victim in the unfortunate position of having to vacate rented premises before giving a termination notice to the landlord and subjects the tenant to penalties and damages. In her student note, From House to Home: Creating a Right to Early Lease Termination for Domestic Violence Victims, 90 Minn. L. Rev. 1859 (2006), Anne C. Johnson proposes that state legislatures modify statutes setting out minimum notice requirements for termination of month-to-month and periodic tenancies to allow an exception for victims of domestic violence. She notes that these statutes already often provide special termination rights to members of the military or in the case of illness of the tenant. The author finds support for her position in the Violence Against Women and Department of Justice Reauthorization Act of 2005, signed into law by President Bush at the beginning of this year. The Act provides “a right of early lease termination for domestic violence victims who participate in the federal Section 8 and public housing programs.” Johnson reviews some of the statutes that presently provide termination rights to victims of domestic abuse and describes what she considers to be the elements of an effective statute.

 Recording Statutes; North Carolina. North Carolina is one of the few jurisdictions using a pure “race” title recordation statute. In his article, North Carolina’s Real Estate Recording Laws: The Ghost of 1885, 28 N.C. Cent. L.J. 199 (2006), Prof. Charles Szypszak examines the operation and purpose of North Carolina’s 1885 recording statute, which remains in force today. In a pure race jurisdiction, individuals who record documents purporting to convey title have valid title “even if they knew someone else has already conveyed the same property.” This type of recording statute is said to encourage efficiency and certainty in the title system by limiting title searches by prospective purchasers to the public record. Szypszak argues, however, that the purity of the North Carolina recording statute is “illusory.” Court decisions “doing equity” reach beyond the public record. Similarly, the state legislature has created liens “that can apply without having to appear in the public records.” Szypszak explains that the North Carolina registers of deeds historically played an active role in authenticating documents filed for record, creating an independent safeguard of the validity of titles. Recent legislative changes, however, have reduced the obligations of registers to check whether documents “appear” appropriately acknowledged. The author also discusses the effect and treatment of fraudulent or frivolous filings, which foul up the public records.

 Residential Purchase and Sale; Attorney Approval Clauses. In her recent article, Navigating Residential Attorney Approvals: Finding a Better Judicial North Star, 39 J. Marshall L. Rev. 171 (2006), Prof. Debra Pogrund Stark evaluates provisions in residential real estate contracts requiring approval of one or both of the parties’ attorneys. Stark explains that “attorneys have been largely excluded from the residential real estate table in most states,” supplanted instead by title companies, brokers, and escrow companies. The author argues that these other individuals and institutions have done a poor job of protecting the legal needs of individual purchasers and sellers. Clauses in residential real estate contracts that require the approval of a party’s lawyer serve as a backdoor mechanism to bring lawyers back to the table. Stark traces the development of these clauses and then describes in detail precisely what “a competent and well trained lawyer would do if representing a home buyer or home seller.” Two examples include an evaluation of the risks associated with one party’s oral representations about the property and an inquiry into necessary conditions or covenants that might be included in the contract. A broker’s goal is to see that the deal closes, which in some instances is contrary to the needs of the client. Stark criticizes the wording of typical attorney approval clauses as being either too broad or too narrow. She notes that some courts mischaracterize a contract containing an attorney approval clause as “a conditional acceptance and any proposed changes as a counteroffer.” Instead, she argues that a form contract signed by both parties containing such language creates a contract that is a “valid and binding subject to the condition that both parties’ attorneys have a right to approve the contract, which the parties through their attorneys must exercise in accordance with the . . . clause and in good faith.” The definition of good faith creates discord among the courts. Stark argues that good faith requires lawyers to explain the reasons for declining approval. She explains that under any analysis, it should be deemed bad faith for a lawyer to decline approval of a contract because that lawyer’s client simply wants to void the transaction in order to enter a new deal with a different party on better terms.

 Takings; Kelo Worries in Florida. In his article, “Blight” as a Means of Justifying Condemnation for Economic Redevelopment in Florida, 35 Stetson L. Rev. 443 (2006), S. William Moore argues that, contrary to the expectations of some Florida lawyers, private property in that state is no more protected from eminent domain aimed at reducing economic blight than private property in other states. Moore notes, as have so many other authors, that Kelo v. City of New London sparked “national outrage” that was “palpable.” According to the author, “the Kelo decision laid bare the increasingly common practice of local governments (sometimes as few as three of five council members) entering into a partnership with big business to use the government’s power of eminent domain to seize property from individual owners and transfer ownership to a well-capitalized private business in order to achieve ‘economic redevelopment.’” Apparently, no Florida statute specifically authorizes eminent domain actions for the “express purpose” of economic redevelopment. Moore explains that some writers have argued that Florida is therefore immune from Kelo-like takings. The author strongly disagrees with this assumption and looks at the aggressive behavior of some of the 160 community redevelopment agencies (CRAs) in Florida. Moore does not want to prevent the positive work done by CRAs and therefore proposes a legislative solution. He urges “de-linking eminent domain exercise from voluntary acquisitions” by carefully defining the circumstances in which “blight” may be used to support condemnation. He suggests crafting a definition of blight that connects the term to local building and health codes and to local comprehensive plans. He also argues that courts should apply a heightened level of scrutiny to review a blight determination.

 Colorado enacts the Mortgage Broker Registration Act. Mortgage brokers are required to register with the state, submit to a criminal background check, and post a bond. 2006 Colo. Sess. Laws 318.

 Colorado revises foreclosure through the office of the public trustee. If a deed of trust grants a power of sale, but contains no provision for the exercise of the power, the deed of trust may be foreclosed through the office of the public trustee. 2006 Colo. Sess. Laws 305.

 Connecticut authorizes municipalities to establish a special assessment on blighted housing. 2006 Conn. Acts 185.

 Delaware adopts the Delaware Manufactured Housing Alternative Dispute Resolution Act. The purpose of the Act is to provide a means to resolve disputes involving manufactured homes without litigation by using alternative dispute resolution techniques. 75 Del. Laws 382 (2006).

 Florida authorizes local governments to accept building permit applications electronically. 2006 Fla. Laws 187.

 Florida passes the Florida Renewable Energy Technologies and Energy Efficiency Act. Among other incentives, the Act establishes the Solar Energy System Incentives Program. 2006 Fla. Laws 230.

 Florida enacts the Florida Land Trust Act. A land trust that holds the principal residence of a beneficiary is entitled to the homestead tax exemption under certain circumstances. 2006 Fla. Laws 274.

 Florida revises its foreclosure procedures. The act creates penalties for knowingly using unfair or deceptive homeowner victimization methods, acts, or practices in residential foreclosure proceedings. 2006 Fla. Laws 175.

 Hawaii enacts the Uniform Environmental Covenants Act. The Act recognizes environmental covenants as an interest in real property. The covenants arise as a result of environmental remediation or mitigation that imposes limitations on the activity or use of the property. Such covenants must be recorded and are subject to other requirements. 2006 Haw. Sess. Laws 279.

 Illinois adopts a new Eminent Domain Act. The purpose of the Act is to create “equity” in eminent domain proceedings by requiring the condemning authority to prove a public purpose. 2005 Ill. Laws 1055.

 Illinois clarifies the duty of a purchaser of a foreclosed condominium unit to pay common fees. The purchaser of a unit, other than a mortgagee, is responsible for the common expenses that would have become due during the six months preceding the action. 2005 Ill. Laws 1049.

 Illinois enacts the Safe Homes Act. The Act requires landlords to change locks in cases of domestic violence. A tenant who vacates as a result of domestic violence is given the right to avoid liability for rent by complying with the Act’s requirements. 2005 Ill. Laws 1038.

 New Hampshire requires eminent domain to be exercised only for a public purpose or use. The act limits condemnation for private purposes to incidental uses. 2006 N.H. Laws 324.

 New York adopts the Home Equity Theft Prevention Act. The Act requires equity purchasers to provide specific notices to the seller, including a right to cancel the contract. 2005 N.Y. Laws 308.

 Rhode Island adopts the Rhode Island Home Loan Protection Act. The Act limits predatory lending practices. The effect of the Act may be to limit credit to low-income homeowners. 2006 R.I. Pub. Laws 569.

 Tennessee imposes new limitations on eminent domain, prohibiting condemnation of agricultural land as blighted. 2006 Tenn. Pub. Acts 863.