| P R O B A T E & P R O P E R T Y September/October 2007 Vol. 21 No.5 |
| Articles from other issues of Probate and Property |
Keeping Current
Property
Keeping Current—Property Editor: Prof. James C. Smith, University of Georgia, Athens, GA 30602, jim@uga.edu. Contributors include Prof. William G. Baker, Eugene Grant, and Blake Robinson.
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: Use restriction for farming does not run with the land after gift is disclaimed. A testator devised a large parcel to two friends, subject to restrictions including a prohibition against alienation and a requirement that they continue to farm the land. The will provided that if they did not comply or if they disclaimed the devise, the property would pass to the state “subject to the same conditions and covenants.” The court held that the alienation restriction was an illegal restraint, and the state was not obligated to continue farming. The language created a covenant, not a defeasible estate, because there was no express right of entry. The testator must have realized that changes in economic and other conditions might make continuation of the property as farmland impracticable. Rodeheaver v. State, 917 A.2d 1122 (Md. Ct. Spec. App. 2007).
DEEDS: Estoppel by deed binds successor to grantor who acquires title after making conveyance. A landowner sued his neighbor for trespass, with the neighbor defending on the basis that he had an express easement. The case turned on the validity of the easement. There were two chains of title for the land subject to the easement. The earlier chain began with a 1958 deed from Lujan. Subsequently Lujan’s successor granted the easement to the neighbor. But Lujan had not owned the land in 1958. Lujan acquired the land by deed in 1967 and subsequently conveyed, starting a chain of title that culminated in plaintiff. The neighbor prevailed based on the doctrine of estoppel by deed, also known as the doctrine of after-acquired title. When Lujan acquired title in 1967, that title automatically passed to the grantee in the 1958 deed, thus validating the prior chain of title, which included the easement. When a grantor who lacks title subsequently acquires title, that title passes to the grantee, whose rights are paramount to persons claiming under a subsequent conveyance from the original grantor. The court rejected the plaintiff’s argument that estoppel should apply only to the original grantor (Lujan) and not to subsequent grantees. Rendleman v. Heinley, 149 P.3d 1009 (N.M. Ct. App. 2006).
EASEMENTS: Easements of view protect only such views as existed when the easements were granted. In 1999, three oceanfront lots were subdivided, with the deeds creating express easements to protect “an unobstructed view [of] the waters of Pleasant Bay and the Atlantic Ocean, along with islands, marshes, beaches, and mainland promenades which present themselves.” To preserve the views, each easement owner had the right to “trim and top trees and other vegetation” on designated areas on the neighbor’s land, with the limitation that this “shall not be done more than once per calendar year.” In 2003 a dispute over the extent of permitted trimming arose. When the deeds were executed in 1999, the lots had a significant amount of vegetation, including trees. An owner planned to trim vegetation so as to create a completely unobstructed view of the water. The court, however, limited trimming to growth that took place since the conveyances, concluding that the easement was intended to protect the views as they existed at their time of creation. The court also held that the view easements were perpetual, rejecting an argument that a statute providing for a 30-year limit on negative restrictions applied. Mass. Gen. Laws ch. 184, § 23. The statute does not apply to affirmative easements, and the view easement was affirmative because of the owner’s right to enter to conduct the trimming. Patterson v. Paul, 863 N.E.2d 527 (Mass. 2007).
EMINENT DOMAIN: Valuation of property in “quick-take” proceeding at date of deposit does not infringe owner’s right to just compensation. A community college district sought to condemn 30 acres of land owned by a private university, Azusa Pacific, under a statutory “quick-take” eminent domain proceeding. In 2000 the district deposited $1.789 million into court as probable compensation for the property and promptly obtained possession. The statute declared that the date of deposit is the date of valuation and provided that an owner who withdrew the funds from court waived the right to contest the condemnation. Lengthy litigation over a number of issues, including whether the district had the right to condemn the land, followed. The university did not withdraw the funds from the court, and the trial over the amount of compensation began in 2004. The university claimed that “just compensation” required measurement of value at the time of the trial, alleged to be $4.2 million. The court held that the valuation as of the date of the deposit was constitutional, because the owner had immediate access to the deposited funds. It also rejected the university’s argument that the statutory waiver of rights on withdrawal was an unconstitutional condition. Mt. San Jacinto Community College Dist. v. Superior Court, 151 P.3d 1166 (Cal. 2007).
LANDLORD-TENANT: Under guaranty that terminates if tenant is not in default during first three years, tenant’s habitual late payment of rent within seven-day grace period does not constitute default. A 10-year lease of a building for use as an automobile dealership provided for rent payable on the first day of each month. A guarantee signed by two of the tenant’s principals was to terminate “in the event Tenant shall not have been in monetary default under the Lease at any time during the first three (3) years” of the lease term. During the first three years, the tenant paid all installments of rent but often paid after the first of the month. The landlord accepted the rent payments without objection. The tenant abandoned the property midway through the fourth year of the term. The lower courts held that the landlord, by accepting late rents, waived its right to declare a default under the lease, and thus the guaranty terminated, because there was no “monetary default” within the first three years. The court of appeals affirmed based on a different rationale. Neither the lease nor the guaranty defined “monetary default.” For the late payment of rent, the lease granted remedies to the landlord only if the landlord notified the tenant and the tenant failed to cure within seven days thereafter. No such notices were sent during the first three years of the term, so the court concluded that the tenant never had been in “monetary default.” Madison Avenue Leasehold, LLC v. Madison Bentley Associates LLC, 861 N.E.2d 69 (N.Y. 2006).
MORTGAGES: Buyer has no cause of action for negligence against real estate appraiser hired by mortgage lender. An Indiana mortgage fraud scheme led to an action against a real estate appraiser. A swindler induced a person to defraud mortgage lenders by acting as buyer and falsely overstating the purchase price for homes. The swindler told the buyer that he would use the excess loan proceeds to repair the properties and then rent them to tenants. Instead, the swindler pocketed the loan proceeds, leaving the buyer personally liable on the mortgage loans. The documentation used to deceive lenders included false appraisals, which were prepared by an apprentice appraiser. As required by state law, a fully licensed appraiser supervised the apprentice’s work. Unfortunately, the appraiser paid little attention to checking the accuracy of the apprentice’s appraisals. The buyer brought an action for damages against the appraiser (the apprentice was apparently judgment-proof). The court dismissed the action, holding that the appraiser owed no duty of care to the buyer/borrower. The lender contracts with the appraiser, and the appraiser’s duty runs to her client, the lender. Although an appraiser may be liable to a third party for fraud, there was no evidence that the supervising appraiser realized that the apprentice had produced false appraisals. Decatur Ventures, LLC v. Daniel, 485 F.3d 387 (7th Cir. 2007).
SALES CONTRACTS: Buyer entitled to reasonable amount of extra time to obtain mortgage loan when time is not of the essence. The parties entered into a contract for the sale of a vacation home for $1.8 million. The buyer told the seller that he was “prequalified” for a mortgage, but the contract included a mortgage contingency allowing the buyer to terminate if he did not obtain a specified loan by November 5. The contract called for closing two months later. The contract had no “time of the essence” clause. The parties bargained over an extension of the mortgage contingency deadline, because the buyer’s appraiser needed more time to acquire information. The seller extended to November 9, also agreeing to grant a further extension if there were satisfactory explanations of the need for further delay. On that date, the buyer asked for a further extension because his lender was reviewing his income tax returns. The seller refused and then contracted to sell to another person. The buyer sued for specific performance. The court agreed with the buyer that the seller had a duty to be reasonable in considering the extension requests but held that the seller had acted reasonably. The seller had already purchased a replacement vacation home and did not want to carry two mortgages. The seller also was suspicious about the lender’s need to evaluate tax returns, giving the buyer’s previous statement that he was “prequalified.” Jaramillo v. Case, 919 A.2d 1061 (Conn. App. Ct. 2007).
SUBDIVISION MAPS: Designation of avenue on plat is not sufficient for dedication to public. A 1926 subdivision plat depicted a 33-foot strip of land as “Winnetka Avenue.” Later a nearby city annexed the subdivision. The strip was never paved or used as a public street. In 2003 the owners of the adjacent lots successfully brought an action to quiet title to the strip against the city. A statutory dedication takes place when a plat shows “portions of the premises . . . marked or noted on such plat as donated or granted to the public.” 765 Ill. Comp. Stat. 205/3. The court found no statutory dedication because private streets are permissible and the plat had no marks or notations pointing to use by the public. Nor was there a common law dedication, which creates a public easement when there is evidence of intention to dedicate for public use and acceptance by the public. Labeling the strip as “Winnetka Avenue” by itself is ambiguous and thus is insufficient evidence of intent to dedicate. Bigelow v. City of Rolling Meadows, 865 N.E.2d 221 (Ill. App. Ct. 2007).
TITLE REGISTRATION: Purchaser of Torrens property takes subject to unregistered mortgage of which purchaser had actual notice. Only a few states use land title registration, sometimes called the Torrens system. In Minnesota, where registration is optional but widely used, a lender who took a mortgage on registered land failed to register the mortgage. Instead, the mortgagee filed its mortgage in the regular county land records. The borrower defaulted, and the mortgagee purchased at its foreclosure sale. An investor offered to buy the property from the mortgagee, but the parties failed to reach an agreement. The investor researched title and discovered the error. Then the investor bargained with the borrower, paying $5,000 for a quitclaim deed. The intermediate court of appeals quieted title in favor of the investor based on a statutory requirement that a mortgage on registered land “shall be registered and take effect on the title only from the time of registration.” Minn. Stat. § 508.54. The state supreme court, however, reversed based on another provision in the Torrens statute, which provides that “every subsequent purchaser of registered land who receives a certificate of title in good faith and for a valuable consideration” shall take free of unregistered interests. Minn. Stat. § 508.25. The investor lacked “good faith” because he had actual knowledge of the mortgage. Although the decision may be understandable based on the particular equities of the parties, it introduces uncertainty into the registration system. For many sales of land, it is possible for a person to make allegations that a purchaser has notice of unregistered interests. In effect, the court imported into the registration system the concept of notice used in the recording system. The court’s holding on the surface is limited to “actual notice,” but the line between actual notice and imputed notice (inquiry or constructive) is notoriously difficult to draw. In other states, there is even a line of authority for the proposition that a person has “actual notice” of facts that he could have discovered through the use of ordinary diligence. In re Collier, 726 N.W.2d 799 (Minn. 2007).
ZONING: Ordinance that excludes national chain stores violates Dormant Commerce Clause. The owner of a 12,000-square-foot retail store contracted to sell to a buyer, who planned to build a Walgreens drug store, to be situated on the same footprint as the existing store. The zoning ordinance providing that “formula retail establishments,” offering standardized appearance, services, or other features, were limited to 50 feet of frontage and 2,000 square feet of area. The court held that the ordinance violated the Dormant Commerce Clause of the federal constitution. The town alleged that the regulation protected the community’s small town quality, but the court observed the community already had the appearance of a commercialized small town, with no immediate special natural attractions. The real purpose was the impermissible one of protecting local businesses. Island Silver & Spice, Inc. v. Islamorada, Village of Islands, 475 F. Supp. 2d 1281 (S.D. Fla. 2007).
LITERATURE
Conservation Easements. Currently, over 1,500 land trusts in the United States hold “over 5 million acres of private land in conservation easements.” In The Development, Status, and Viability of the Conservation Easement as a Private Land Conservation Tool in the Western United States, 39 Urb. Law. 19 (2007), J. Breting Engel reviews the current status of conservation easements and addresses some of the arguments in favor of curtailing or eliminating these easements. When landowners (particularly farmers and ranchers) burden their property with a conservation easement, they are “permanently limit[ing] uses of the land in order to protect its conservation values.” As consideration for granting conservation easements, landowners receive monetary compensation for the easement from the grantee or tax benefits from federal and state governments for donating the easement. Engel argues the length of time that landowners should be allowed to carry over their deductions should be increased from the current six years to enable relatively low-income ranchers and farmers to more “fully realize the value of [their] donation.” Society also benefits, Engel states, because conservation easements keep “private ranches working yet protected from development pressures in rural areas.” Some critics believe that conservation easements should be abandoned because they wrongfully burden future generations, who might disagree with our concept of preservation. Engel counters by pointing out that the Supreme Court’s Kelo decision will allow the taking of a conservation easement that obstructs the development of “an unarguable public use.” Furthermore, conservation easements recognize “one of the most fundamental property rights sticks in the bundle: the right to alienate.” Therefore, governments should continue to find ways to encourage landowners to grant conservation easements.
Eminent Domain; Blight Elimination. Legislatures have quickly responded to the Supreme Court’s decision in Kelo v. City of New London, 545 U.S. 469 (2005). One common response is to limit the government’s ability to take private property solely for the urban renewal of “blighted” areas. In Rejecting the Return to Blight in Post-Kelo State Legislation, 82 N.Y.U. L. Rev. 177 (2007), Amanda W. Goodin argues that eminent domain rules should only be adopted if they “apply evenhandedly to all property owners.” Blighted areas tend to contain mostly poor people, so allowing certain types of eminent domain solely in blighted areas will disproportionately affect the poor. This means that “minority groups, and no one else, [will have] a personal interest in ensuring that new rules for . . . eminent domain are generous to individual property owners.” This problem is compounded by the traditional lack of access to the political process that low-income and minority citizens experience. Many states, such as Alabama and Georgia, have nonetheless passed laws that specifically allow Kelo-type takings only in blighted areas. Goodin also addresses reasons commonly given as to why eminent domain is necessary for the urban renewal of blighted areas. She suggests that “[t]he holdout problem is not insurmountable without the use of eminent domain—assembling land on the private market is certainly possible.” Using eminent domain to resolve the “holdin” problem (which occurs when a landowner “subjectively values her property at a higher price than the market value”) is problematic, because the “just” compensation paid to the owner is an inaccurate reflection of the property’s worth to the owner. Goodin believes that allowing landowners to subjectively value their land for eminent domain and property taxes at the same time might be a better solution. Alternatively, states could give affected communities veto power over uses of eminent domain for development of blighted areas. Her viewpoint, however, is that the best legislative solution is to completely omit blight elimination as a public purpose justification for use of the power of eminent domain.
Eminent Domain; Just Compensation. In her article, To Attain “The Just Rewards of So Much Struggle”: Local-Resident Equity Participation in Urban Revitalization, 35 Hofstra L. Rev. 37 (2006), Prof. Barbara L. Bezdek addresses the problem of the displacement of poor people and the destruction of their neighborhoods as a result of urban redevelopment. Prof. Bezdek first details how urban redevelopment has had a disproportionately negative effect on the poor. Cities have an incentive when redeveloping to create middle- and upper-class neighborhoods. Bezdek makes the claim that, because “[l]ocal governments collect three-quarters or more of their revenues from taxes on property,” it is in each local government’s best financial interest “to maximize the assessed value of its real estate.” Although this claim is incorrect for many jurisdictions, it is true that property taxes are a significant source of revenue for almost all cities. Unfortunately, maximizing assessed value displaces the poor. Bezdek continues by pointing out that while this may seem like a minor problem, in actuality it can have serious consequences. Forcing residents to relocate not only results in those residents losing their homes, “but also [their] streets, friends, neighbors, churches, child care arrangements, schools and transit routes.” Bezdek proposes that governments shift from “profit-focused development” to “people-focused development.” The most important aspect of Bezdek’s proposal “is the issuance of shares in a development cooperative, attributable to the land area targeted for development, or in the value-generating project itself, or both.” The shares would belong to the residents and “be held either in an autonomous Community Equity Company, or in the project development itself.” Bezdek argues that following such a plan will give residents equity in the redevelopment, recognize the social capital they have in their community, and lead to overall stability. Bezdek fails to address many questions raised by her proposal. For example, how are these unsophisticated and low-income residents going to cooperatively manage to revitalize their own neighborhoods, and how can developers be attracted to projects in which they must share the development profit with existing residents? The result of her proposal might actually be a simple veto by the residents of any meaningful revitalization or their exploitation by fast-talking demagogues who gain control of the development cooperative and siphon off profits in the form of salaries and fees.
Eminent Domain; Public Use or Public Purpose. In her article, Much Ado About Nothing: Kelo v. City of New London, Babbit v. Sweet Home, and Other Tales from the Supreme Court, 75 U. Cin. L. Rev. 663 (2006), Marcilynn A. Burke argues that the effect of Kelo has been grossly exaggerated and the public outrage at it unwarranted. In Kelo v. City of New London, 545 U.S. 469 (2005), the Supreme Court held that the Fifth Amendment to the Constitution does not prohibit a government from using its power of eminent domain to take property from one private party and to give it to another for the purpose of economic development. Politicians responded by promising they would pass legislation that would prevent such a use of eminent domain in the future. Burke first points out that the Kelo decision “was arguably quite conservative,” as the Court simply stated that the issue was one of policy that should be resolved by the legislature. Burke argues that politicians have seized on the Kelo controversy to propose marginally related property laws, such as a law weakening environmental protection recently enacted in Nevada. Many such laws proposed as a response to the Kelo decision would have little, if any, effect on takings. Responding to those who criticize Kelo from an originalist perspective, Burke finds no strong historical evidence that the Framers would have opposed Kelo-type condemnation. Burke concludes by stating that any changes in response to Kelo should be minimalist in nature—narrow and deliberate.
LEGISLATION
Arizona establishes a condominium recovery fund. An aggrieved buyer may recover for the failure of a subdivider to complete the condominium project. Awards are limited to 20% of the base price of the unit, not to exceed $1 million per project. 2007 Ariz. Sess. Laws 221.
Arizona allows early termination of a residential lease by a tenant who is the victim of domestic violence. 2007 Ariz. Sess. Laws 100.
Arizona limits the recording of nonconsensual liens. The county recorder may record nonconsensual liens that are accompanied by the notarized signature of the debtor acknowledging the lien. Certain listed liens are exempt from this requirement. 2007 Ariz. Sess. Laws 220.
Colorado imposes a duty of good faith and fair dealing on mortgage brokers. A violation is treated as a deceptive practice under the Colorado Consumer Protection Act. 2007 Colo. Sess. Laws 389.
Florida imposes significant obligations on the sellers of out-of-state timeshares. Among other requirements, the act requires sellers of time-share units located outside of Florida to provide disclosure statements and completed contracts to prospective purchasers. 2007 Fla. Laws ch. 75.
Georgia allows the creation of “subcondominiums.” 2007 Ga. Laws 334.
Indiana authorizes “Homeowner Association Liens.” Liens may be recorded against the interest in real estate of a member for the failure to pay assessed common expenses. 2007 Ind. Acts 136.
Indiana attempts to limit fraud associated with mortgage rescue schemes. The act imposes stringent requirements on those who attempt to profit from the growing number of mortgage defaults. 2007 Ind. Acts 100.
Maryland allows purchasers of property encumbered by a conservation easement to rescind the contract unless they were notified about the conservation easement by the seller. 2007 Md. Laws 606.
Maryland modifies the common law rule against perpetuities for nondonative transfers of property interests. Certain interests such as options, lease renewals, warrants, and calls are now exempt from the rule against perpetuities. 2007 Md. Laws 381.
Minnesota limits predatory lending practices for sub-prime loans. 2007 Minn. Sess. Law Serv. 74.
Montana authorizes beneficiary deeds. The deed is revocable until the death of the grantor. A beneficiary deed is a countable asset under Medicaid. 2007 Mont. Laws 258.
Montana limits eminent domain. Blighted property may not be acquired by eminent domain if the purpose of the project is to increase tax revenue. 2007 Mont. Laws 512.
Montana prohibits cities and towns from using eminent domain to obtain property to sell, lease, or provide to a private entity for urban renewal. 2007 Mont. Laws 441.
Montana ratifies the Water Rights Compact with the United States of America, Department of Agriculture, Forest Service. 2007 Mont. Laws 213.
Nevada prohibits the use of eminent domain to transfer an interest in the property to a private person. 2007 Nev. Stat. 115.
Nevada enacts the Uniform Assignment of Rents Act. 2007 Nev. Stat. 106.
Nevada adopts the Uniform Custodial Trust Act. 2007 Nev. Stat. 103.
Nevada enacts the Uniform Limited Partnership Act. 2007 Nev. Stat. 146.
Nevada passes the Uniform Disclaimer of Property Interests Act. 2007 Nev. Stat. 102.
Nevada adopts the Uniform Real Property Electronic Recording Act. Electronic signatures, filing, recording, and storage are authorized by the act. 2007 Nev. Stat. 57.
New Mexico enacts the Uniform Power of Attorney Act. 2007 N.M. Laws 135.
New Mexico adopts the Uniform Real Property Electronic Recording Act. Electronic signatures, filing, recording, and storage are authorized by the act. 2007 N.M. Laws 261.
Oregon clarifies its preferences for concurrent estates. The tenancy in common remains the general preference. The joint tenancy is the preferred concurrent estate for transfers to a trustee or personal representative. A tenancy in common with a right of survivorship creates cross contingent remainders. The tenancy by the entirety is presumed for a conveyance to husband and wife. 2007 Or. Laws 64.
Washington expands disclosures for the sale of unimproved residential property. 2007 Wash. Legis. Serv. 107.
