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Section of Real Property, Probate, and Trust Law

P R O B A T E   &   P R O P E R T Y
March/April 2006
Vol. 20 No. 2
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Keeping Current—Property

Keeping Current—Property Editor: Prof. Daniel B. Bogart, Chapman University School of Law, One University Drive, Orange, CA 92866, bogart@chapman.edu. Contributing editors: Prof. James C. Smith and Prof. William G. Baker.

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

 

DEDICATION OF ROADS: Public use for over 70 years supports presumption of intent for implied dedication. In 1964, Reed bought 105 acres of land. His access was by a narrow gravel road, locally known as Tyson Road, which crossed a neighbor’s parcel. In 1990, Betts bought the parcel with the road, and shortly thereafter began locking a gate and otherwise obstructing Reed’s use. The trial court held for Reed on the ground that the road was an abandoned public road, over which Reed had acquired a prescriptive easement. The appellate court affirmed, but rejected the trial court’s conclusion of abandonment. Although the history of Tyson Road is “shrouded in obscurity,” implied dedication applied. Since the 1920s, a number of families lived along both sides of the road, with the county maintaining the road. This long-standing continuous use by the public created a presumption that the landowner intended to dedicate the road. The subsequent departure of all families save Reed did not unwind dedication. At common law, the county’s long-term failure to maintain the road did not show intent to abandon ownership. Texas allows for statutory abandonment, but only if the road is enclosed “with a fence continuously for at least 20 years.” Tex. Transp. Code § 251.057. Betts v. Reed, 165 S.W.3d 862 (Tex. App. 2005).

 

EASEMENTS: Organization can assert public easement based on public use exceeding 10 years, even though organization was formed more recently. Buyers of a tract of land posted a “no trespassing” sign and erected a barrier to keep walkers from using a pathway across their land leading to the Skyline Ridge Trail in Fairbanks. Local residents then formed a nonprofit corporation, named Interior Trails Preservation Coalition, which brought an action against the landowners to assert a public prescriptive easement for recreational use. Plaintiff alleged that the public had used the pathway since the 1950s. The trial court dismissed the action because the Coalition had not existed for 10 years, the minimum time required under Alaska law. The supreme court reversed, holding that the Coalition did not have to prove its own continuous use. Rather, it could rely on evidence showing continuous public use. Interior Trails Preservation Coalition v. Swope, 115 P.3d 527 (Alaska 2005).

 

ESCROWS: Mortgage lender’s policy of refunding escrow balances 14 days after payoff is “prompt” refund. A lender adopted the policy of refunding escrow account balances 14 days after the mortgagor pays the loan in full. A mortgagor brought a class action, alleging breaches of the loan documents and fiduciary duty. The parties used the Illinois version of the uniform Security Instrument promulgated by Fannie Mae and Freddie Mac. That instrument provides: “Upon payment in full of all sums secured by this Security Instrument, Lender shall promptly refund to Borrower any Funds held by Lender.” The court dismissed the action, noting that the lender complied with Fannie Mae’s “Servicing Guide for Single Family Residential Mortgages,” which calls for the refund “within 30 days of the payoff date.” Query whether the 14-day delay is commercially reasonable in this day of electronic fund transfers and “instant banking.” The lender offered no reason to justify the delay and apparently could issue an instant refund by deducting the escrow balance from the payoff amount. Presumably, the lender’s only motivation for delay is to earn additional interest on the borrower’s money, as this lender (like virtually all lenders) pays no interest to borrowers on escrow balances. Sklodowski v. Countrywide Home Loans, Inc., 832 N.E.2d 189 (Ill. App. Ct. 2005).

 

FORECLOSURE: Purchaser at foreclosure not entitled to bring forcible entry and detainer action. After a foreclosure sale, if the mortgagor does not meekly vacate possession, the purchaser may have to resort to judicial process. State laws vary significantly as to the time when the purchaser has the right to possession, and what method is proper to enforce that right. Empire was the high bidder at a foreclosure sale held on April 11. On June 13, the circuit court ratified the sale. Ten days later, Empire filed a forcible entry and detainer action in a different court, the district court, to gain possession. At that time, Empire had not paid the balance of the purchase price to the foreclosure trustees and had not received a deed for the property. The district court held it lacked jurisdiction because Empire did not have legal title to the property. The state supreme court affirmed. Because Maryland precedents did not clearly explain when a foreclosure purchaser becomes entitled to possession, and by what means the purchaser may obtain possession from a resistant mortgagor, the court provided guidance. Three different time periods are relevant. (1) After the foreclosure sale but before the court’s ratification, the mortgagor generally is entitled to keep possession. The purchaser has “an inchoate equitable title” and can get possession only by showing sufficient reasons, such as the threat of waste. (2) After ratification and before delivery of the foreclosure deed, the purchaser has “complete equitable title” and is generally entitled to possession. The circuit court should grant possession unless it concludes that the particular circumstances warrant otherwise. An FED action is not the appropriate means to gain possession. (3) After the purchaser has paid the full price and received a deed, the purchaser is entitled to possession, and resort to the circuit court is not the exclusive remedy. Empire Properties, LLC v. Hardy, 873 A.2d 1187 (Md. 2005).

 

LANDLORD-TENANT: Tenant’s obligation to “yield up” premises in good condition does not apply to land outside leased buildings. IBM, as tenant, leased “premises” defined as “113,400 gross square feet in two buildings.” The lease separately defined the “land” on which the buildings were situated, with certain lease provisions applicable to the land. Before execution of the lease, IBM had used the site for manufacturing purposes under other arrangements. An underground storage tank had leaked chemical waste, which IBM abated under an agreement with the landlord and the state environmental agency. After the lease terminated, the landlord claimed that the lease obligated IBM to clean up the soil, bedrock, and groundwater to a higher quality, even though IBM was in full compliance with the earlier abatement agreement. The landlord pointed to a lease provision that called for the tenant, at lease termination, to “remove its goods and effects [and] peaceably yield up to the Landlord the premises in good order and condition.” The trial court, allowing extrinsic evidence, held for the landlord, construing the lease as a whole to obligate IBM to yield up the land in good condition, free of all contamination. The appellate courts reversed, holding that the lease definition of “premises” was clear and unambiguous, and thus the “yield up” provision did not apply to the land. Whether this outcome is what the parties actually intended is impossible to say. Arguably the landlord should have lost for an alternative reason. Should not its participation in the abatement agreement estop it from subsequently claiming that the lease required abatement to a higher standard? The decision underscores the need for real estate lawyers to pay careful attention to the use of defined terms throughout documents that they draft and review. South Road Assocs., LLC v. IBM, 826 N.E.2d 806 (N.Y. 2005).

 

RESIDENCY RESTRICTIONS: State may bar sex offenders from living near schools. In 2002, Iowa passed a statute that prohibits a person convicted of certain sex offenses involving minors from residing within 2,000 feet of a school or a registered child care facility. At least 12 other states have similar sex offender residency laws. The district court declared the statute unconstitutional. The statute had the effect of excluding offenders from the majority of available housing in many cities, and in many small towns it excluded offenders from the entire incorporated area. The circuit court reversed, finding the statute did not violate plaintiffs’ constitutional rights to travel and to live with family members. The court rejected their claim of a fundamental right “to live where you want.” Applying the rational basis standard, the court said that the legislature’s 2,000-foot restriction advances the interest of protecting children. Testimony indicated that the recidivism rate for sex offenders is between 20% and 25%. One judge dissented as to application of the statute to persons convicted before the statute’s effective date, concluding the statute operates as an unconstitutional ex post facto law. Doe v. Miller, 405 F.3d 700 (8th Cir. 2005).

 

SALES CONTRACTS: Mortgage financing condition that fails to specify loan amount does not allow purchaser to terminate contract. Buyers contracted to purchase a home for $770,000, giving a deposit of $12,500. A mortgage contingency specified an interest rate of 8.5% with the amount “to be determined.” The buyers applied for a loan of 90% of the price but were rejected. The sellers refused to return their deposit. The court held for the sellers because there was no evidence that the buyers could not obtain 8.5% financing for a smaller loan amount. It observed that the buyers inserted the words “to be determined” in the broker’s form contract, stating that any ambiguity must be construed against the party who “furnished the text in question.” The court also rejected the buyers’ arguments that the contract was indefinite and was subject to a mutual mistake. A realtor testified that 40% of the purchase agreements in the community used the “to be determined” language, a practice that obviously ought to change in the decision’s wake. Louisiana Real Estate Comm’n v. Butler, 899 So. 2d 151 (La. Ct. App. 2005).

 

TAKINGS: Environmental contamination emanating from Air Force base does not support inverse condemnation claim. During the 1940s and 1950s, the U.S. Air Force used trichloroethylene (TCE) to degrease airplane parts at Ellsworth Air Force Base, South Dakota. In 1998, an environmental study, commissioned by the government, revealed that groundwater underneath a nearby ranch was contaminated with TCE, a possible carcinogen. The ranch owners filed suit in the Court of Federal Claims, alleging that the government actions constituted an inverse condemnation of their property. The court dismissed because the property invasion was not the “direct, natural, or probable result” of the government’s use of TCE for aircraft maintenance operations. The claim sounded in tort, and was not a taking, because the alleged injury was incidental or consequential in nature. Moden v. United States, 404 F.3d 1335 (Fed. Cir. 2005).

 

WATER RIGHTS: Riparian rights may pass in a mortgage and a foreclosure sale, even if not specified in the documents. When a landowner granted a mortgage to a bank, neither party was aware that the property contained riparian rights. Those rights were in the form of what the court called a “riparian grant,” which the local government identified as a separate lot on its tax map. The bank foreclosed, and three persons entered sealed bids at the foreclosure sale. Two of the bids included the riparian grant in the property description. The trial court awarded the property to the low bidder, whose bid did not include the riparian grant, on the theory that the other two bids did not conform to the bank’s offer. The appellate court reversed, holding that the riparian rights were appurtenant to the fee estate, and thus were automatically included within the mortgage and the foreclosure sale. This result treats riparian rights the same as appurtenant easements and other servitudes. Panetta v. Equity One, Inc., 875 A.2d 991 (N.J. Super. Ct. App. Div. 2005).

 

ZONING: Estoppel bars city from revoking building permit issued under settlement agreement. A religious congregation held worship services at a home in violation of the zoning code of Los Angeles, California. Litigation resulted in a settlement agreement between the congregation and the city. The agreement called for the congregation to restore the property and the house’s architecture to a “single family character,” with plans to be submitted to a named individual in the city’s planning department, Mr. Green, within 90 days. Instead, the congregation submitted building plans to other employees of the department, including a city attorney. Those employees reviewed the plans and the agreement and, over three months, negotiated changes with the congregation. They approved the revised plans and issued a building permit. The plans called for expanding the existing home from 3,145 square feet to 8,150 square feet. One week after the congregation began construction, neighbors contacted Mr. Green. The planning department then revoked the permit on the grounds that it was issued “in error or in violation” of the zoning code. The congregation returned to court, prevailing on the ground that estoppel barred the city from revocation of the building permit. Before revocation, the congregation had expended over $26,000 on permit fees and demolition work. A dissenting judge would have allowed revocation, arguing that the congregation committed two breaches of the settlement agreement: proposing plans that did not restore the property’s single-family character and failing to send those plans to Mr. Green. Congregation Etz Chaim v. City of Los Angeles, 371 F.3d 1122 (9th Cir. 2004).

 

LITERATURE

 

Homeownership; FHA Lending Practice . This column has previously discussed the history of government regulation of the residential lending market. In his student comment, The Creation of Homeownership: How New Deal Changes in Banking Regulation Simultaneously Made Homeownership Accessible to Whites and Out of Reach for Blacks, 115 Yale L. J. 186 (2005), Adam Gordon explains that, to expand homeownership dramatically in the United States, the New Deal FHA decided to insure low down payment, long-term mortgages. To do so, it was first necessary to change the common banking practice of lending for terms of no more than five to seven years and requiring down payment of a third or more of the purchase price of homes. This pre-New Deal lending regime was promoted by a series of state and federal statutes thought necessary to reduce the rate of defaults on loans (a reasonable worry following the Great Depression). As the author notes, the FHA “convinced all federal bank regulators and all forty-eight state legislatures to make exceptions to safety-and-soundness regulations for loans that it insured.” Unfortunately, according to Gordon, “these policies, while logical and benign on the surface, in fact produced devastating results for African-Americans.” He explains that a key section of the FHA insurance program, section 203(b), was accompanied by a set of pernicious underwriting guidelines. The guidelines were based on “an economically and historically flawed understanding of a ‘natural’ progression of neighborhood racial change from all-white (with high property values) to all-black (with low property values). These guidelines rated a neighborhood’s suitability for insurance based on racial composition, encouraged or mandated racial covenants as a condition for insurance, and discouraged integrated neighborhoods.” Compounding the problem for prospective black home buyers, Congress and state legislatures “granted exemptions to bank safety-and-soundness regulations only for FHA insured mortgages—not for mortgages insured by the private sector.” In other words, uninsured mortgages might still require the short payment cycle and high down payments that had previously been the norm. According to the author, black mortgage applicants were systematically locked out of the federally sponsored housing boom as a result. President Kennedy ended the discriminatory lending practice under section 203(b), but this does not satisfy the author. Gordon argues that “making FHA-insured loans available to blacks did not compensate for the dramatic advantage that whites had enjoyed for decades.” The author concludes his article by examining several possible remedies for the disparity in wealth that resulted from the denial of loan money to blacks in the United States.

 

Property Law; Theory and Development . In their article, Of Property and Federalism, 115 Yale L.J. 72 (2005), Professors Abraham Bell and Gideon Parchomovsky sing the praises of federalism as it has affected the development of property law in the United States. The authors analogize property law to corporate law in this regard. State courts and legislatures in different states approach critical aspects of corporate governance in widely varying ways. Arguably, corporations and shareholders select the states they believe most conducive to incorporation and investment based on these different rules and laws. Similarly, Bell and Parchomovsky argue that varying state laws governing property, including adverse possession, easements, and (more controversially) same sex marriage, permit individuals to push property law in innovative and efficient directions. “Obsolete” laws occasionally receive the boot as a result of this dynamic system (although this editor notes that some obsolete property laws take an undue amount of time to disappear). This is a provocative article, although not one that will be relevant necessarily to the everyday practice of real estate lawyers.

 

LEGISLATION

 

  California mandates alternative dispute resolution before foreclosure for delinquent assessments on a common interest development. The owner determines whether to pursue alternative dispute resolution. Binding arbitration is not available if the association intends to initiate judicial foreclosure. This well-intended legislation may result in additional delay for associations seeking to recover assessments. 2005 Cal. Stat. 452.

 

California adds lead hazards to the conditions that create a rebuttable presumption that a dwelling is substandard. 2005 Cal. Stat. 595.

 

California enacts the “Methampheta-mine Contaminated Property Cleanup Act.” A property owner must remediate the site in accordance with the Act. 2005 Cal. Stat. 570.

 

Louisiana, in response to Hurricanes Katrina and Rita, enacts a limited suspension of prescriptions, including liberation, acquisitive, and prescription of nonuse. The suspension began on August 26, 2005, and expired on January 3, 2006. Any claims that would have expired during the suspension period lapsed on January 4, 2006. 2005 La. Acts 6.

 




P R O B A T E   &   P R O P E R T Y
March/April 2006
Vol. 20 No. 2
Other articles from this issue
Articles from other issues of Probate and Property