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

 COVENANTS: Deed restricting “the land immediately to the west” of the conveyed lot violates the statute of frauds. A 1984 deed conveyed a residential lot, with the parties intending to preserve the grantee’s sight lines to a mountain range to the west. The deed restricted “the land lying immediately to the west of the property herein conveyed” by prohibiting “any trees or structures that will unreasonably block the view of the property herein conveyed.” At the time, the grantor owned two very large lots to the west of the conveyed lot. Successors acquired all the properties. The new owners of the western lots did not have actual notice of the covenant when they purchased, and their title insurance company did not find and disclose the covenant. The court invalidated the covenant, holding that the description of the burdened estate was inadequate. The description did not indicate how much land was affected, and it was not permissible to consider oral testimony to ascertain the predecessors’ intent. Dickson v. Kates, 133 P.3d 498 (Wash. Ct. App. 2006).

 DEEDS: Doctrine of resulting trust protects a relative of the grantee. Parents owned a one-acre tract of land where two of their daughters (“Daughter One” and “Daughter Two”) each occupied a mobile home. Daughter Two decided to move elsewhere and agreed to sell her mobile home to another sister (“Daughter Three”). Daughter Three needed a loan to finance the purchase, and the lender insisted on a mortgage on the entire tract. The parents had planned to give each daughter one-half of the land eventually. To facilitate Daughter Three’s financing, the parents conveyed the entire tract to Daughter Three with the understanding that she would convey one-half to Daughter One after she paid the mortgage loan. The relationship between Daughters One and Three and their respective families deteriorated, fomenting litigation after Daughter Three demanded that Daughter One vacate or begin paying rent. To effectuate the parents’ intent, the court held that the deed created a resulting trust. The outcome is unusual. The resulting trust doctrine creates a reversionary interest in the grantor when the grantee does not pay consideration and there is insufficient evidence that the grantor intended to make a gift of the land. The court recognized that Daughter One really was seeking an express oral trust in land (which is allowed in Delaware, but in few other states), but granted relief under the resulting trust rubric, because neither party had raised or briefed the issue of an express oral trust. Taylor v. Jones, No. Civ. A. 1498-K, 2006 WL 1510437 (Del. Ch. May 26, 2006).

 EASEMENTS: Owner’s brief physical interruption of adverse use stops prescriptive easement. A landowner built a cabin and a dirt driveway, 310 feet in length, across a neighbor’s tract in a rural community. In 1980 the landowner sold the property. The buyer continued to use the driveway and also parked vehicles on part of the neighbor’s tract. In 1984 the neighbor constructed a large dirt berm across the driveway for the purpose of stopping the buyer’s use. The buyer removed the berm within several days and used the driveway continuously until 2001, when litigation began. Colorado has an 18-year period for prescriptive easements. The buyer gained a prescriptive easement for parking, but lost her claim for the driveway. There is a split of authority on whether a brief physical interruption by the fee owner prevents the creation of a prescriptive easement. In a case of first impression for Colorado, the court sanctioned a loss of a prescriptive easement claim based on a brief interruption. It rejected the Restatement rule, which requires that a physical interruption followed by a resumption of use must be “long enough to indicate abandonment.” Restatement (Third) of Property: Servitudes § 2.17 (2000). The court was concerned that a requirement that the owner preserve the barrier for an extended period of time could lead to dangerous confrontations between neighbors, citing Gerry Spence, The Smoking Gun: Day by Day Through a Shocking Murder Trial with Gerry Spence (2003) (deadly confrontation over use of a private road). The Colorado decision follows a case previously reported in this column. 19 Prob. & Prop., Sept./Oct. 2005, at 26 (Pittman v. Lowther, 610 S.E.2d 479 (S.C. 2005) (intermittent interruptions by installing cables across road and planting rye grass in road suffices)). Trask v. Nozisko, 134 P.3d 544 (Colo. Ct. App. 2006).

 EMINENT DOMAIN: Landlord may condemn leasehold without paying compensation to tenant. A 15-year tire store lease assigned all condemnation awards to the landlord, except for amounts payable for the tenant’s moving expenses, loss of stock, personal property, and trade fixtures. One year after lease execution, the landlord, a private company, sold the land subject to the lease to a housing and redevelopment authority. Six years later the authority decided to acquire possession of the leased premises and neighboring properties for a redevelopment project by condemning the leasehold. Following cases from California and Massachusetts, the court rejected the tenant’s argument that the landlord’s exercise of the power of eminent domain violated the covenant of quiet enjoyment and was prosecuted in bad faith. Because of the express lease provision, the tenant received no condemnation award for the value of the leasehold. Rasmussen v. Housing & Redev. Auth., 712 N.W.2d 802 (Minn. Ct. App. 2006), review denied (Minn. July 19, 2006).

FORECLOSURES: Statute of limitations period for deficiency judgments is same as the period for actions on mortgages. A 1993 foreclosure resulted in a sale to a third party at a price that yielded a deficiency. In 2004, after several assignments of the promissory note, the holder brought an action against the maker. New Hampshire has a six-year statute of limitations to bring actions to enforce negotiable instruments, but a 20-year statute of limitations to bring actions on mortgages. The trial court applied the six-year statute, holding that the foreclosure discharged the mortgage. The supreme court disagreed, concluding that a foreclosure does not discharge a mortgage “by operation of law.” Cadle Co. v. Dejadon, 904 A.2d 605 (N.H. 2006).

 MORTGAGES: Lender is not obligated to pay surplus escrow funds to an assignee of the borrower. After a default on a home mortgage loan, the lender posted the property for foreclosure. A third person (“Buyer”) negotiated with the borrower, paying $1,500 for a warranty deed conveying the property to Buyer’s granddaughter and grandson-in-law, who had agreed to share profits from the transaction with Buyer. The deed included a statement that “all escrows pass to grantees.” The borrower signed a letter addressed to the lender, instructing the lender to allow the grantees to access information regarding the loan and to make loan payments. The letter also requested that “any and all escrowed balances” be paid to the grantees. Buyer paid off the loan in full, but the lender refused to pay the escrow surplus, approximately $3,300, to grantees or Buyer. The grantees assigned their right to the escrowed funds to Buyer, who brought suit against the lender. The court’s opinion does not state whether the lender paid the borrower before litigation began (presumably this is why the lender defended the case). The court granted summary judgment for the lender based on the escrow provision of the deed of trust, which obligated the lender to “refund any excess funds to Borrower.” Buyer could not enforce the promise to refund the escrow funds, because Buyer was not a third-party beneficiary of the loan documents. The court also observed that Buyer’s transaction violated the due-on-sale clause of the loan documents. Although it is hard for the editor to generate much sympathy for the shark who took advantage of a distressed homeowner, the case appears to be wrongly decided. The borrower had made an apparently effective assignment of the escrowed funds, and the lender had notice of that assignment. The court does not mention the Uniform Commercial Code, perhaps because Buyer’s attorney failed to do so. The escrow balance appears to be a “payment intangible,” U.C.C. § 9-102(a)(61), which is freely assignable unless a contract term prohibits or restricts assignment or transfer, U.C.C. § 9-408(a), which the parties’ escrow provision did not do. Canfield v. Countrywide Home Loans, Inc., 187 S.W.3d 258 (Tex. Ct. App. 2006).

 SALES CONTRACTS: An “as is” clause in a contract does not override a representation made in a statutory disclosure statement. A seller delivered a property condition disclosure statement, which stated that the seller had no actual knowledge of “any flooding, drainage or grading problems that resulted in standing water on any portion of the property.” The seller knew of a prior water leak in the basement during a severe storm but failed to disclose that problem, subsequently explaining that he believed it to be “an anomaly.” The buyer recovered $1,500 for water damage. The court rejected the seller’s defense that a broadly worded “as is” provision in the contract of sale superseded the statutorily required disclosure statement. Calvente v. Levy, 816 N.Y.S.2d 828 (App. Term 2006).

 TAKINGS: Damage from broken water main does not support action for inverse condemnation. A water main under a city street broke, causing flood damage to the foundation of an adjacent house. The homeowners sought relief under the theories of inverse condemnation, trespass, and negligence. Trespass failed, because the city did not intend the water main to break, and negligence foundered, because the city had discretionary immunity. The fate of the stronger claim, inverse condemnation, turned on the court’s characterization of the government action. The court interpreted prior case law to require compensation whenever the government damages private property “by some deliberate act, whether done intentionally, negligently, or innocently.” The court then concluded that the city’s policy for replacing water mains, which gave priority to neighborhoods that had encountered prior breaks, was not a deliberate act, seemingly confusing deliberateness with reasonableness. A concurring justice would have held for the city on an alternative basis—that inverse condemnation should lie only if the government’s actions rise to the level of a nuisance. Knutson v. City of Fargo, 714 N.W.2d 44 (N.D. 2006).

 TREES: Tree owner has no obligation to trim encroaching branches or eliminate encroaching roots. Roots from neighbors’ trees, growing along the property line, caused $61,000 in damage to the foundation of a house. After discovery of the damage, the neighbors cut the trees down, but the homeowners brought an action for damages based on trespass and nuisance. In a case of first impression for Oregon, the court held for defendants. The court recognized a split of authority on nuisance liability. In some states, a landowner who negligently allows roots or branches to damage a neighbor’s property is liable. In other states, a landowner is absolutely immune; the injured owner’s only recourse is self-help (cutting the branches or roots himself). The court failed to resolve this issue for Oregon, because the homeowners had not alleged culpability or negligence. The court explained that the lack of fault also meant the tree owners had not committed a trespass. Carvalho v. Wolfe, 140 P.3d 1161 (Or. Ct. App. 2006).

 ZONING: Denial of conditional use permit to build a Sikh temple violates the Religious Land Use and Institutionalized Persons Act. A religious organization applied for a conditional use permit to build a Sikh temple on a two-acre lot in Sutter County, California, zoned for residential use, but the planning commission denied the request. The next year the organization acquired a 29-acre parcel of agriculturally zoned land and filed another application. The planning staff and planning commission both approved issuance of the permit, subject to restrictions that mitigated environmental impacts. The board of supervisors, however, denied the permit, responding to neighbors’ desires that the land remain agricultural and concerns that the plan represented “leapfrog development” because the site was not close to the Yuba City urban area. The organization brought a complaint under the Religious Land Use and Institutionalized Persons Act (RLUIPA), prevailing based on the court’s finding that the two denials constituted a substantial burden on the free exercise of religion. The court ordered the local government to issue the permit, subject to the mitigation provisions, which the organization previously had accepted. Guru Nanak Sikh Society of Yuba City v. County of Sutter, 456 F.3d 978 (9th Cir. 2006).

 LITERATURE

 Bankruptcy; Automatic Stay. In the mid-1990s, commercial lenders negotiating with financially troubled borrowers began including provisions in loan workout agreements that purportedly waived the borrower’s right to the automatic stay in the event the borrower filed for bankruptcy protection. In Waivers of Automatic Stay: Are They Enforceable (and Does the New Bankruptcy Act Make a Difference)?, 41 Real Prop. Prob. &
Tr. J. 357 (2006), Judith Greenstone Miller and John C. Murray look at the recent development of this practice and the likely effect of the new Bankruptcy Act. The authors note that waivers of the automatic stay included in original loan or mortgage documents are held unenforceable. The real question is the enforceability of waiver provisions in loan workout agreements. The authors collect case opinions enforcing and invalidating waivers. Miller and Murray explain that courts evaluating waivers focus on the following factors: (1) whether the “lender granted substantial concessions and incurred risks as part of the workout”; (2) whether “there was material, significant and substantial consideration given by the lender” in exchange for the waiver; (3) whether “the debtor and its counsel acknowledged that the waiver was voluntarily given after negotiations”;
(4) whether granting the waiver adversely affected third parties;
(5) whether the property is necessary for a plan of reorganization that has a real prospect of succeeding; and
(6) whether the parties to the waiver are commercially sophisticated.

 Condominiums; Client Counseling. Owners of residential condominium units encounter a special set of concerns and problems. Unfortunately, purchasers of this type of real property do not always understand the nature of their ownership, and as a result attorneys regularly become involved in disputes between neighboring unit owners or between unit owners and their homeowners’ associations. Lawyers might suggest that their clients obtain a copy of a new, very short book, Condo Living—A Survival Guide to Buying, Owning and Selling a Condominium (Momentum Books 2005), by Robert M. Meisner. This book is not intended as a statement of blackletter law for attorneys; its intended audience is laymen seeking a basic understanding of what they might encounter in most aspects of condo life, including service on the board of directors.

 Homeowner Associations; Political Signs. Attorneys who represent either homeowner associations or disgruntled homeowners, or lawyers who just happen to live on property subject to association membership, might read a student note by Brian Jason Fleming, titled Regulation of Political Signs in Private Homeowner Associations: A New Approach, 59 Vand. L. Rev. 571 (2006). The note looks specifically at the right of individual homeowners to place what are usually relatively small, if sometimes strident political signs on their properties. Attempts to ban this form of political speech by governmental localities are limited by the free speech clauses of federal and state constitutions. The right of private associations to limit the speech of homeowners is viewed in one of two ways: (1) under contract law principles, because homeowners agree to a limitation on speech rights by purchasing the property subject to association control; or (2) under constitutional law, because associations are for practical purposes “mini governments” and thus “state actors.” According to Fleming, neither approach perfectly fits. For example, for purposes of contract law, one may argue that homeowners do not “meaningfully” consent to the speech limitations. Fleming collects the case law and suggests a more nuanced approach. He argues that modern contract law principles invalidate aspects of contractual agreements that violate public policy, and that in this case, the “public policy” is the importance of “core political speech” in a democratic society.

 Mortgages; Deeds in Escrow. In Mortgage Workouts: Deeds in Escrow, 41 Real Prop. Prob. & Tr. J. 185 (2006), John C. Murray thoroughly examines transactions involving deeds in escrow (or deeds in lieu of foreclosure). As Murray explains, “a mortgage lender, when approached by a delinquent borrower to structure a workout of a troubled loan, may seek to obtain a deed in escrow in consideration” for the lender’s willingness to forbear from foreclosure or other legal remedy. The borrower gets the “breathing room” it needs to straighten out its financial house and make good on its loan, and the lender receives a much cleaner and quicker mechanism for obtaining fee title to the property in the event the borrower ultimately fails. Murray first notes that courts frown on deeds in escrow if used as a security device at the time the loan is initially made. Courts often view these devices as disguised mortgages, and further brand these devices as clogs on the equity of redemption. Deeds in escrow, however, survive attack as clogs on the equity of redemption and avoid treatment as equitable mortgages if “certain positive factors are present.” These factors include “a sophisticated commercial borrower; lack of disparity in bargaining power and negotiating strength; representation of the borrower by knowledgeable counsel; an acknowledged loan default; actual and meaningful consideration for the deed in escrow (such as forbearance from foreclosure . . .); and little or no equity in the mortgaged property.” Murray attaches a sample escrow agreement to the article.

 Real Estate Transactions; Dower. Apparently six jurisdictions remain that retain the common law of dower, and Kentucky is one of them. Dower provides a widow with a one-third interest in lands in which her husband was seised during marriage. Today, in these steadfastly common law states, dower applies to property held by husband or wife, for the benefit of widow or widower. Real estate lawyers closing deals in these jurisdictions must understand the workings of this arcane doctrine. The nuts and bolts of dower as it relates to real estate practice are
nicely described in Theresa M. Mohan and J. Aaron Byrd, You Cannot Change 500 Years of Property Law at 5:00 p.m. on a Friday—Dower as Applied in Kentucky, 33 N. Ky. L. Rev. 335 (2006). Although this article focuses on Kentucky alone, lawyers dealing with real property in Arkansas, Iowa, Massachusetts, Michigan, and Ohio may also find it useful reading.

 Takings Clause; Lingle v. Chevron. In The Ownership Society and Takings of Property: Castles, Investments, and Just Obligations, 30 Harv. Envtl. L. Rev. 309 (2006), Prof. Joseph William Singer focuses on the underlying models of property ownership that are sometimes used to explain takings cases. In the first, an owner is viewed as keeper of his own castle, and “within the borders of one’s land is supreme and can do whatever he wishes.” The second model views property taken solely as an economic investment, no different from any other investment. Singer argues that in Lingle v. Chevron, 544 U.S. 528 (2005), the Court looked beyond either of these two models and used the correct model. In Singer’s opinion, the Lingle decision brought “the effort to identify per se takings to a crashing halt.” According to Singer, Lingle reinvigorated Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978). The author suggests that, in essence, the Penn Central case posed a simple question: is the obligation of a regulatory law “fair and just”? According to Singer, Lingle rests on a “citizenship model” of property ownership, in which the right of citizens to use property is limited by a corollary obligation not to do harm to others.

 

LEGISLATION

 California allows a public agency to authorize a nonprofit organization to hold title to and manage an interest in real property that a property owner is required to transfer to the agency to mitigate any adverse effect on natural resources resulting from the owner’s development of a project or facility. 2006 Cal. Stat. 577.

 California authorizes the transmission, filing, recording, and indexing of notices of state tax liens, and all documents that relate to or affect those liens, by electronic or magnetic means using computerized data processing, telecommunications, and other similar information technologies available to the filing offices. 2006 Cal. Stat. 423.

 California requires agencies under the Community Redevelopment Law to find that significant blight exists and cannot be eliminated without the use of eminent domain before amending a redevelopment plan to extend the time limits for an eminent domain proceeding to acquire property within a project area. 2006 Cal. Stat. 591.

 California revises the definition of “predominantly urbanized” and the conditions that characterize a blighted area, prohibiting the inclusion of nonblighted parcels in a redevelopment project area for the purpose of obtaining property tax revenue. 2006 Cal. Stat. 595.

California substantially limits reverse mortgages by prohibiting a reverse mortgage lender or a broker from offering an annuity to the borrower before the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement. 2006 Cal. Stat. 202.

 New Jersey enacts the New Jersey Real Estate Timeshare Act. 2006 N.J. Laws 63.

 New York authorizes real estate brokers to act as “dual agents.” Substantial disclosure requirements are imposed on the real estate broker. 2006 N.Y. Laws 569.

 New York mandates disclosure of the results of indoor environmental tests of commercial space or dwelling units to the owners. 2006 N.Y. Laws 707.

 North Carolina restricts the purposes for which condemnation may be used by adopting a narrow definition of a “blighted area.” 2006 N.C. Sess. Laws 224.