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P R O B A T E & P R O P E R T Y
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Keeping Current—Property offers a look at selected recent cases, rulings and regulations, literature and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
• BANKRUPTCY: Leases. A landlord’s creditor entered into a below-market lease with the landlord to partially discharge a debt. When the landlord later declared bankruptcy, the bankruptcy court held the rent concessions constituted payments on a debt that was discharged in bankruptcy and ordered repayment of all post-petition rent concessions. Bozzuto’s, Inc. v. Vescio, 234 F.3d 1261, 2000 WL 1715281 (2d Cir. 2000).
• BANKRUPTCY: Leases. After a tenant filed a petition for bankruptcy, the landlord made a claim on tenant’s letter of credit based on the tenant’s default on the lease. The court held the letter of credit was never part of the estate and, therefore, the trustee had no interest in it. In re Farm Fresh Supermarkets of Maryland, Inc., 257 B.R. 770 (Bankr. D. Md. 2001).
• EASEMENTS: Access to landlocked parcel. A statute requiring a drainage district to construct, reconstruct and maintain a bridge to any parcel landlocked by its construction of a drainage ditch required continuous maintenance of a bridge that could sustain modern farm equipment, where the landlocked parcel was part of a farm. The owner was entitled to consequential damages for the estimated crop loss during the period when the bridge was not properly maintained. People ex rel. Peters v. O’Connor, 725 N.E.2d 391 (Ill. Ct. App. 2000).
• EASEMENTS: Maintenance. A water district held an easement that allowed it to construct, operate and maintain a dam but which contained no maintenance requirements. The court held the terms of the easement were sufficiently ambiguous to permit examining parole evidence to find an implied obligation to maintain the quality of the impounded water. The poor quality of the water had injured and in some cases killed the servient owner’s cattle. Fowler v. Lincoln County Conservation Dist., 15 P.3d 502 (Okla. 2000).
• Escrow: Fiduciary duty. A defrauded member of a company that had purchased land brought suit against a title company for allegedly failing to disclose its knowledge of the fraudulent self-dealing by the other company member, using a double escrow. The court held that although the escrow agent did not have a duty to investigate and discover fraud, it did have a limited duty to disclose known fraud. Mark Properties, Inc. v. National Title Co., 14 P.3d 507 (Nev. 2000).
• Landlord and Tenant: Exclusive use covenants. An exclusive use covenant was held violated by the landlord when it sold land within the radius stated in the covenant without restricting its use as required by the covenant and the purchaser subsequently used the land contrary to the covenant. The proper measure of the tenant’s damages is the diminution in the value of the leased premises, which cannot be proved solely through a showing of lost profits. Mabros v. Donuts-R-Us, Inc., 536 S.E.2d 215 (Ga. Ct. App. 2000).
• LANDLORD AND TENANT: Recapture. The court upheld termination of a lease, based on the tenant’s violation of a grocery store operating covenant. The landlord’s refusal to consent to assignment of the lease to a new operator was held reasonable because of the tenant’s violation of the operating covenant. The tenant’s failure to operate was not a default, triggering contractual notice and cure rights, but only a condition precedent to landlord’s recapture. Willow Oaks Associates v. Food Lion, Inc., 238 F.3d 418, 2000 WL 1724035 (4th Cir. 2000).
• LANDLORD AND TENANT: Section 8. The landlord’s recovery of rent from a Section 8 tenant was limited to the tenant’s share of the rent as determined by the tenant’s Section 8 agreement with the local housing authority, not the contract rate specified in the lease, even if the housing authority terminated subsidy payments. Curtis v. Surrette, 726 N.E.2d 967 (Mass. Ct. App. 2000).
• LIFE ESTATES: Partition. A decedent left each of two daughters a one-third fee interest in her estate and a son a one-third life estate with contingent remainder interests in his children. The son later sought to partition his life estate from the estates of his sisters. The court upheld the partition because it was limited to the life estate only and did not seek to partition the contingent remainders and because the Illinois statute has been interpreted to grant an absolute right of partition to tenants in common. Westerdale v. Grossman, 728 N.E.2d 67 (Ill. Ct. App. 2000).
• MORTGAGES: Priority. A vendor took back a purchase money mortgage to secure part of the sale price, while a third party bank with knowledge of the purchase money mortgage took a mortgage securing the balance of the sale price. There was no agreement regarding priority, and the closing officer arbitrarily recorded the bank’s mortgage first. Under Colorado common law, when a purchaser grants a mortgage to a seller as part of the transaction in which the purchaser takes title, execution of the deed and the mortgage are considered to be simultaneous. Therefore, a third party cannot acquire rights superior to the vendor. ALH Holding Co. v. Bank of Telluride, No. 99 SC 375, 2000 WL 1770035 (Colo. 2000).
• MORTGAGES: Statute of Limitations. A purchaser without notice of a mortgage sought to set aside foreclosure based on the argument that the applicable 15 year statute of limitation ran from the date of the mortgage in the absence of a stated maturity date. The court rejected the defense and held the loan amount, payment amount and interest rate stated in the mortgage were the equivalent of a maturity date in that they were sufficient to permit an amortization calculation of the maturity date. DeSalle v. Gibraltar Title Agency, L.L.C., 621 N.W.2d 31 (Minn. Ct. App. 2000).
• MORTGAGES: Waste. A borrower with ample cash attempted to use nonpayment of taxes as negotiating leverage against a lender that refused to adjust the terms of a nonrecourse loan. The court upheld the lender’s claim against the borrower for tortious waste. The Nippon Credit Bank, Ltd. v. 1333 North California Blvd., 103 Cal. Rptr. 2d 421 (Cal. Ct. App. 2001).
• REFORMATION OF INSTRUMENTS: Mistake. A borrower who executed a note for a personal loan improperly granted the lender a mortgage on trust property of which borrower was the trustee. The title insurance company warned the mortgagee to obtain a deed conveying title to the trust property from the borrower as trustee to the borrower individually. After the mortgage loan was closed, the mortgagee unsuccessfully sought a backdated deed. After the borrower defaulted, the mortgage holder sought foreclosure of the trust property and sought reformation of the trust property title in order to validate the mortgage. The court held reformation was improper, because the original mortgagee knew the status of title and simply failed to obtain the necessary deed at closing. Norwest Bank Minnesota, N.A. v. Ode, 615 N.W.2d 91 (Minn. Ct. App. 2000).
• STATUTE OF REPOSE: Improvements. Developers who created unimproved residential lots on a former graveyard sought to rely on a statute of repose that absolved developers of liability for the construction of “improvements” after 20 years. The court held that the removal of graveyard headstones (but not the bodies) was, in and of itself, not an improvement as that term was used in the statute of repose, which was, therefore, inapplicable. Carven v. Hickman, 763 A.2d 1207 (Md. Ct. Spec. App. 2000).
• TIMBER THEFT: Fraud. A middleman fraudulently procured a timber deed at a below-market price and assigned it to the ultimate purchaser at a large profit. The court upheld rescission of both transactions, double damages for timber theft and reimbursement of the owner’s legal fees. Although the ultimate purchaser had no actual knowledge of the means of fraudulent procurement, the court held it was not a bona fide purchaser, because it prepared the deeds for both sides of the “flip” among other involvement in the transactions. The middleman was held the agent of the ultimate purchaser based in part upon the ultimate purchaser’s instruction to the middleman to use any means necessary to get the timber. Memphis Hardwood Flooring Co. v. Daniel, 771 So.2d 924 (Miss. 2000).
• ZONING AND PLANNING: Parking requirements. A zoning ordinance required that off-site parking for manufacturing uses be provided by means of deeded or leasehold parking spaces. The court upheld the rejection of an application for a manufacturing use that included off-site parking under an agreement that it construed to be a mere license to use parking spaces on an unreserved basis rather than exclusive possession by deed or lease. North Avenue Properties, L.L.C. v. Zoning Bd. of Appeals of City of Chicago, 726 N.E.2d 65 (Ill. Ct. App. 2000).
• Brownfields transactions: In Buying and Selling Brownfield Properties: A Practical Guide for Successful Transactions, 27 N. Ky. L. Rev. 467 (2000), Andrew L. Kolesar and Jacqueline M. Kovilaritch provide a useful checklist for anyone whose client is considering purchasing a brownfield parcel. The authors review ways to reduce risks when purchasing brownfield parcels, including precautions that a buyer can take when arranging financing and insurance coverage.
• Equal Credit Opportunity Act and landlords: The Fair Housing Act protects tenants from discrimination in rental housing based on arbitrary classifications such as race. Some landlords use “bad credit” as an excuse to deny leases to members of protected classes, thereby camouflaging discrimination. If a landlord were required to tell a prospective tenant the specific reasons for rejecting the tenant’s credit, as a consumer creditor must do with a credit applicant under the Equal Credit Opportunity Act (ECOA), fewer landlords would be able to hide behind the “bad credit” excuse to discriminate against prospective tenants. Whether and when ECOA should apply to residential landlords is the topic of Brian S. Prestes’s Comment, Application of the Equal Credit Opportunity Act to Housing Leases, 67 U. Chi. L. Rev. 865 (2000).
• Fair Debt Collection Practices Act and landlords: Notices to residential tenants to pay rent or surrender the premises on behalf of a landlord client may make a lawyer subject to the requirements of the Fair Debt Collection Practices Act (FDCPA). Eric Stevens explains the potential FDCPA problems and suggests practices to ensure compliance in From Landlord/Tenant to Debt Collector/Consumer and Back Again, 35 Gonz. L. Rev. 175 (1999/2000).
• Property rights and the common good: In Eight Principles for Property Rights in the Anti-Sprawl Age, 23 Wm. & Mary Envtl. L. & Pol’y Rev. 777 (1999), Eric Freyfogle suggests that society needs to reach a consensus on a more realistic, modern concept of land ownership in order to meet the challenges that land use problems will pose in coming years. He emphasizes the need to “reaffirm the link between property rights and the common good.”
• Property rights and the police power: Former Justice Philip A. Talmadge of the Supreme Court of Washington focuses on the police power as a community interest that inherently limits private property rights in his article, The Myth of Property Absolutism and Modern Government: The Interaction of Police Power and Property Rights, 75 Wash. L. Rev. 857 (2000).
• Property rights and exactions: James E. Holloway and Donald C. Guy define the public infrastructure and services expected by the occupants of newly developed land as “social policy-making goals and programs” in A Limitation on Development Impact Exactions to Limit Social Policy-Making: Interpreting the Takings Clause to Limit Land Use Policy-Making for Social Welfare Goals of Urban Communities, 9 Dick. J. of Envtl. L. & Pol’y 1 (2000). They suggest that it is improper to interfere with a developer’s property rights by requiring the developer to pay some or all of the cost of satisfying those “social policy needs and wants.”
• Property rights and takings: In Comment, A New Green Government Weapon: Shooting down Regulatory Takings with Estoppel, 13 Tul. Envtl. L.J. 471 (2000), Laura Pfefferle suggests that purchasers of land should be protected from regulatory surprises with a state law mandating that the seller disclose wetland status when appropriate.
• Idaho extends right to farm law. Revisions enacted by the 1999 legislature clarify that food processing facilities are among the types of existing agricultural operations protected from nuisance suits brought by newly arrived non-agricultural neighbors. Idaho Code § 22-4502.
• Idaho revises the Local Land Use Planning Act. Adoption and implementation of regulations are streamlined, with some key substantive provisions changed. Decision making boards need only support their decisions with “reasoned statements,” rather than findings of fact and conclusions of law. Standing rules for aggrieved persons are tightened. Idaho Code § 67-6501 et seq.
• Illinois modifies law applicable to real estate agents. The Real Estate License Act of 2000 declares that relationships of brokers, salespersons and consumers are governed by the act to the exclusion of common law of agency and fiduciary principles, because application of the common law has “resulted in misunderstandings and results contrary to the public interest.” 225 Ill.Comp. Stat. 454/1-1 et seq.
• Illinois establishes an accessible housing demonstration grant program. The program will provide grants to builders to encourage the building of homes accessible to the disabled. A task force will advise builders how to incorporate needed accommodations while retaining aesthetics and resale value. 310 Ill. Comp. Stat. 95/1 et seq.
Readers interested in a comprehensive review of current developments in real estate law are encouraged to subscribe to the ABA Real Estate Quarterly Report, which is prepared by the Real Property Division’s Decisions Committee. For more information on this publication, contact Pam Hollins at (312) 988-5651
Keeping Current—Property Editor: Eugene L. Grant, 1211 SW 5th Ave., Ste. 1600, Portland, OR 97204-3795, firstname.lastname@example.org. Contributing editors: Robert Flores and Terry Frazier, email@example.com.