P R O B A T E   &   P R O P E R T Y  
September/October 2003
Other Articles from this issue
Articles from other issues of Probate and Property

Articles

Keeping Current - Property

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

ADVERSE POSSESSION: True owner's ignorance of its title does not defeat claim. A 1942 will devised a house to the testatrix's daughter, with title to shift to the Town of Concord if she died childless. She died in 1965, and her husband assumed control of the property, periodically living there and renting it to tenants until his death in 1996. The town first learned of its ownership interest in 1997. The trial court and intermediate appellate court found the husband's possession was adverse, exclusive, and continuous for over 20 years, the period of time required by Massachusetts, but held it was not open. The supreme judicial court reversed, holding openness does not require that the true owner know of its ownership. The court also rejected the town's argument that the husband improperly concealed his claim by failing to notify the town of its interest. Because there was no special relationship between the parties, it did not matter if he acted with the hope that the town would not discover the trespass before the limitations period expired. Lawrence v. Town of Concord, 788 N.E.2d 546 (Mass. 2003).

DEEDS: Set aside based on forgery and inadequate consideration. An 85-year-old woman with a limited education and limited ability to speak English conveyed a tract to her son for no consideration. The son's attorney prepared the deed, and the mother lacked independent counsel. The deed was not signed in the presence of the notary, and another deed between the same parties bearing the same date of execution was forged. Based on this set of suspicious circumstances, the court declared the deed the mother signed invalid. Moreover, the mother's estate also succeeded in recovering the tract described in the forged deed. The son had conveyed that tract to a mortgagee, who was unaware of the forgery. The mortgagee was not entitled to protection as a bona fide purchaser, because a forged deed is void. Estate of Bontkowski v. Bontkowski, 785 N.E.2d 126 (Ill. App. Ct. 2003).

EASEMENTS: Reservation of strip for road purposes conveys easement. A landowner conveyed a parcel, reserving a 20-foot road. The trial court held the grantor had kept fee title to the strip, but the court of appeals reversed, reducing the reservation to an easement. Most courts, like this one, limit a road owner's rights to an easement in the absence of a clear indication to the contrary. An easement is all that is necessary for the construction and maintenance of the road, and the parties probably intended that the owner of the contiguous parcel retain fee title to the strip. Kimberling North, Inc. v. Pope, 100 S.W.3d 863 (Mo. Ct. App. 2003).

FORECLOSURES: Lender's failure to attend sale is not grounds for setting aside sale at low price. A first mortgagee commenced a Wyoming power of sale foreclosure to enforce an unpaid debt of $87,321. Its attorneys realized that they had failed to notify a junior mortgagee, and they apparently intended to postpone the sale, but they failed to do so. The sheriff conducted the sale, with no lender representative present, selling the property to the only bidder for $20,000. The trial court set aside the sale on the basis that the price was unconscionably low, but the state supreme court reversed, reasoning that the lender's mistake was unilateral and the lender had unclean hands. Although the lender probably would have prevailed in a number of other states, the editor agrees with the outcome. Foreclosure sales should be set aside only under very limited circumstances. Courts never set aside sales when borrowers complain that they inadvertently failed to attend a sale. The lender's law firm, or its malpractice insurer, properly bears the loss in this case. McNeill Family Trust v. Centura Bank, 60 P.3d 1277 (Wyo. 2003).

MECHANICS' LIENS: Time for subcontractor to file lien affidavit runs from termination of general contract. The Texas mechanic's lien statute requires the owner to retain 10% of the contract price for "30 days after the work is completed." To reach the retained funds, mechanics must file a lien affidavit within that 30-day period. A subcontractor completed its work on a remodeling project in mid-March. Other work continued, and after a dispute between the owner and the general contractor, the owner terminated the general contract on April 14. Thirty-one days later (May 15) the subcontractor filed a lien affidavit. The owner hired replacement contractors, who finished the remodeling work on July 21. The trial court and court of appeals held the lien affidavit was timely filed, reasoning that the retainage period continues until completion of all work contemplated by the original contract, even if accomplished by a replacement contractor. The supreme court reversed, interpreting the statute to restrict retainage and lien filings to individual contracts. Two justices vigorously dissented. Page v. Structural Wood Components, Inc., 102 S.W.3d 720 (Tex. 2003).

OFFER AND ACCEPTANCE: Seller's failure to agree to addendum terms amounts to rejection. Two buyers signed four documents to purchase two condominium units for $1.2 million. The documents consisted of the seller's standard-form purchase agreement, an addendum raising the price, a form giving the buyers a 15-day rescission right, and an addendum that required the seller to install, at its expense, marble flooring to be specified by the buyers. The buyers left the documents with the seller, who signed three of the documents but not the addendum for the marble flooring. The parties then negotiated over the marble flooring but failed to reach agreement. The seller refused to refund the buyers' deposits, relying on the presence in the purchase agreement of an integration clause and a provision stating that floor coverings were not included with the sale of the unit "unless specifically provided for in a Rider or Schedule to this Agreement signed by both Buyer and Seller." The buyers lost before the trial court on summary judgment and before the first appellate panel. They finally prevailed, however, at a rehearing en banc on the theory that a contract was never entered into—the four writings constituted one offer, which the seller failed to accept when it made a different proposition as to the nature of the marble flooring. DiMase v. Aquamar, 176, Inc., 835 So. 2d 1158 (Fla. Dist Ct. App. 2003).

STATUTE OF FRAUDS: Tenant may enforce oral lease under promissory estoppel theory. A landlord and a tenant had a year-to-year oral lease of Iowa farmland. After the landlord died, the tenant asked the landlord's heir if he could continue to lease the farm. The parties orally agreed to a continuation, with the tenant gaining the right to live in a farmhouse rent-free. Three years later, the landlord sought to negotiate more favorable terms, but the tenant claimed their agreement was to last until he "retired or couldn't work any more." The landlord invoked the statute of frauds, which requires a writing for a lease with a term longer than one year. The tenant, however, prevailed based on the promissory estoppel exception to the statute of frauds. The tenant's acts of reliance consisted of selling his former residence, moving to the property, purchasing farm equipment, and making repairs not typically accomplished by tenants. Nationally there is a split of authority on the issue. In some states, only the doctrine of part performance serves to take an oral lease out of the statute of frauds. Kolkman v. Roth, 656 N.W.2d 148 (Iowa 2003).

TAKINGS: Action for gradual physical taking accrues upon stabilization. The U.S. Army Corps of Engineers added steel sheet piling to jetties at St. Joseph Harbor, causing a significant increase in erosion of the Lake Michigan shoreline. To combat the erosion, from the 1970s to the late 1990s, the Corps conducted a mitigation program, depositing sand and rock along the shoreline. Studies published by the Corps in 1996, 1997, and 1999 revealed that the mitigation efforts had failed and that the erosion was irreversible. Thirty-six landowners brought an action against the government for the taking of their property. A six-year statute of limitations applies to claims against the federal government. The trial court dismissed the action, ruling the landowners' cause of action accrued in 1989 when the Corps completed the piling work on the jetties. The court of appeals reversed, ruling that the action accrued when the Corps published its reports. For a gradual physical taking, a claim accrues when the situation "becomes stabilized." This means the permanent nature of the taking must be evident. Until the reports were published, it was uncertain whether the mitigation work would succeed in reversing the erosion. Banks v. United States, 314 F.3d 1304 (Fed. Cir. 2003).

TRESPASS: Dumping material is not continuing trespass for purposes of statute of limitations. A road contractor dumped rock, soil, and debris on plaintiff's land. Nine months later plaintiff discovered the material, demanding its removal. Negotiations ensued, but the parties failed to reach agreement. Plaintiff filed a trespass action 3.3 years after the dumping. The court held the action barred by the Utah three-year statute of limitations, rejecting two arguments made by plaintiff. First, the court refused to apply the discovery rule, finding no exceptional circumstances warranted an extension of time. Second, the court recognized the rule that a plaintiff may challenge a "continuing trespass" at any time, but instead classified the contractor's trespass as permanent. The court rejected a California decision that labels a trespass continuing if the trespasser can remedy the harm. Mangini v. Aerojet-General Corp., 912 P.2d 1220 (Cal. 1996) (toxic waste contamination is continuing trespass if it can be abated, but finding contamination not reasonably abatable at reasonable cost). The Utah court held that a continuing trespass must involve multiple acts by the defendant. Breiggar Properties, L.C. v. H.E. Davis & Sons, 52 P.3d 1133 (Utah 2002).

ZONING: Due process claim requires official conduct that "shocks the conscience." United Artists and a competitor both sought zoning approval of plans to develop movie theatres in Warrington Township, Pennsylvania, a community too small to support two theatres. The township delayed approval of United Artists' plan, causing it to lose the race, because the competitor agreed to pay an annual $100,000 impact fee, illegal under state law. United Artists brought a Section 1983 action against the township, alleging a violation of substantive due process. The district court denied the township's motion for summary judgment. Prior Third Circuit cases established liability if municipal officials acted with "improper motive." The Third Circuit rejected that standard in a panel decision, with one judge dissenting. The majority held that the Supreme Court's decision in County of Sacramento v. Lewis, 523 U.S. 833 (1998) (damage action for personal injury suffered in reckless car chase), required a showing that the officials' conduct "shocked the conscience." The circuit court remanded for further proceedings without expressing an opinion as to whether the township's conduct was sufficiently egregious to shock the conscience. United Artists Theatre Circuit, Inc. v. Township of Warrington, 316 F.3d 392 (3d Cir. 2003).



LITERATURE

Lettters of Intent . Gregory G. Gosfield comprehensively examines the history, structure, and usefulness of letters of intent in the real estate context in The Structure and Use of Letters of Intent as Prenegotiation Contracts for Prospective Real Estate Transactions, 38 REAL PROP. PROB. & TRUST J. 99 (2003). Should a mere letter of intent preceding a real estate transaction be binding on the parties? What factors should control the parties' expectations and a court's ultimate conclusion? These questions confront real estate lawyers on a regular basis. In answering these questions, Gosfield's article presents more than the standard fare. Rather unexpectedly, he reviews contract law history, from the time of the Romans through the Enlightenment. This brief but interesting history forms the backdrop to a thoughtful analysis of basic contract law principles. An underlying point of the article is that it is only possible to correctly draft letters of intent, or anticipate their results, if lawyers retain a solid understanding of contract law.

Public Rights of Way . Frederick E. Ellrod III and Nicholas P. Miller advance a novel property rights argument in Property Rights, Federalism, and the Public Rights-of-Way, 26 SEATTLE U. L. REV. 475 (2003). The authors reject the traditional framework courts have employed when resolving disputes between private communication companies and local communities over the use of public rights-of-way. Courts, and the litigants, describe the conflict in terms of regulation. According to Ellrod and Miller, however, local communities own their rights of way to the same extent that individuals own their property. If true, then it is reasonable that "the owner can require market value compensation for that property's use." The authors focus their attention on Section 253 of the Telecommunications Act of 1996, which (they argue) is viewed as cementing a regulatory approach to the issue of local community property interests in rights-of-way. That legislation prohibits any state or local requirement that would erect a barrier to entry to any entity providing telecommunications services. Ellrod and Miller examine the history and application of the legislation and review Section 523 cases. In addition, the authors argue that permitting the barrier to entry rationale to trump community property rights runs counter to basic notions of federalism expressed in the Constitution and case law.

RESPA; Damages . Section 2605(f) of the Real Estate Settlement Procedures Act permits certain parties to a real estate transaction to recover "actual damages" for deals gone awry. Apparently, federal courts disagree whether plaintiffs may include, as actual damages, sums representing emotional distress and other nonpecuniary harms. George S. Mahaffey Jr. reviews this dispute and concludes that the phrase should be limited to pecuniary damages only, in his article A Product of Compromise: Or Why Non-Pecuniary Damages Should Not Be Recoverable Under Section 2605 of the Real Estate Settlement Procedures Act, 28 U. DAYTON L. REV. 1 (2002). Mahaffey acknowledges that traditional techniques of statutory interpretation do not wholly resolve the problem. He describes the legislative compromise that is at the core of RESPA—the original legislation and the modifications to the law adopted in 1976. Mahaffey asserts that, although RESPA was created to protect purchasers of residential property from abusive practices, the "enormous compromises that went into the statute's enactment" suggest that the damages term should not be read broadly.

Seller Disclosure and Broker Liability. In Real Estate Broker Liability and Property Condition Disclosure, 31 REAL EST. L. J. 285 (2003), Leonard V. Zumpano and Ken H. Johnson report the results of their research involving the rate of lawsuits against real estate brokers and salespeople. Zumpano and Johnson evaluate errors and omissions in insurance data for five states (Alabama, Kentucky, Louisiana, Mississippi, and Tennessee) to gauge the effect of statutes mandating seller disclosure of defects in the condition of property. The authors explain the impetus for such statutes, and how they operate. Zumpano and Johnson suggest that there is "a growing perception within the industry and among regulators that the number of lawsuits filed against real estate brokers has been increasing." The authors break down the claims filed in a variety of ways, including state-by-state, year-by-year, and by type of claim (for example, whether claims involved misrepresentation of water problems, failures to disclose latent defects, among others). The data reveal a decline in claims following enactment of the statutes. On one extreme, Zumpano and Johnson note that Alabama does not mandate seller disclosure, and in fact "continues to hold fast to the doctrine of caveat emptor." That state had the highest rate of lawsuits filed against real estate professionals in the sample group. At the other extreme is Louisiana, which instead of a statutory disclosure law, requires the seller to affirmatively warrant the quality of the property. Zumpano and Johnson explain that this is the "antithesis of caveat emptor." Louisiana had the lowest incidence of litigation in the sample. In the middle are Kentucky, Tennessee, and Mississippi, which have each adopted some form of disclosure statute. The authors report a decline in litigation in those states adopting the statutory disclosure. Zumpano and Johnson are careful not to place the entire credit for the decrease in lawsuits with the statutes. They review educational requirements for brokers and salespeople in the different jurisdictions. They note that Alabama is the only state in the sample that does not require pre-license education for its real estate brokers and, not surprisingly, has the highest rate of litigation against them. Zumpano and Johnson are not advocates for seller property condition disclosure, labeling this a political issue. And in fact, they sound a note of caution at the end of their piece.

Title Insurance and Title Assurance. Charles Szypszak's article Public Registries and Private Solutions: An Evolving American Real Estate Conveyance Regime, 24 WHITTIER L. REV. 663 (2003), serves as useful background reading for lawyers first encountering title insurance and wondering why the American system has developed as it has. Szypszak briefly explains the economic importance of assuring title and the American system of recording statutes and recordation of title documents. He then identifies some of the inherent title risks (or flaws) that emanate from this system. Readers might want to supplement this list of title problems that regularly pop up in practice (including, for example, the possibility that a recording office misfiles or incorrectly indexes a document, or that there is an unduly long gap in time between recording of a document and the time it appears of record). Szypszak reviews the failed attempt of property law reformers to import Torrens registration statutes to the United States. Szypszak argues that the existence of title insurance and proprietary title plants addresses many of the title risks and problems with which proponents of Torrrens registration were so concerned. To this end, the article may be a bit too favorable to title insurance; some additional skepticism may be called for. Szypszak lauds marketable title acts and argues that these statutes should be more commonly adopted.

Toxic Mold. Two recent articles address the growing concern over a particularly nasty property defect: toxic mold. Elliot Klayman describes a worst case scenario of "sick building" syndrome in Toxic Mold: A Growing Problem for the Real Estate Industry, 31 REAL ESTATE L. J. 211 (2003). In his brief article, Klayman addresses the major questions arising from this new (or perhaps not so new) property defect: Who should bear the burden of risk of toxic mold in residential transactions (buyers, sellers, or brokers) and what steps may each of the parties take to protect themselves? Although the article focuses mostly on the residential transaction, Klayman integrates discussion of case opinions involving governmental and commercial properties. Klayman identifies one troubling development: homeowner's insurance companies have begun to "deinsure" for mold problems. Klayman expects that toxic mold cases will be litigated in high numbers, but he argues that litigation may be stemmed if (1) the residential property industry (local real estate associations in cooperation with state bar associations) modifies form sales contracts to specifically allow buyers to inspect for mold, and (2) state statutes are revised to require toxic mold disclosure. As to the insurance question, Klayman suggests that homeowners purchase a rider to their existing policies covering toxic mold.

Thelma Jarman-Felstiner focuses specifically on toxic mold litigation in Mold Is Gold: But, Will It Be the Next Asbebstos?, 30 PEPP. L. REV. 529 (2003). Jarman-Felstiner argues that industry worries over mold litigation are overstated. She suggests that a number of key differences between mold and asbestos will limit this property defect litigation. Jarman-Felstiner points out the following: asbestos litigation was motivated in part by the existence of very deep industrial pockets, which have no real counterpart in mold litigation; scientific research is less conclusive as to the health consequences of mold exposure (at least at present); there is no single "signature disease" related to mold exposure, which, among other things, limits the availability of expert witnesses to testify for plaintiffs; there are presently no federal guidelines on mold exposure; and insurance companies have begun to routinely exclude mold from coverage. Real property lawyers, especially those with significant residential practices, should pay heed to this developing caveat emptor issue.



LEGISLATION

Colorado expands the definition of conservation easements in gross to include water rights and wetlands. The owner of the fee, or the owner of the water or water rights, may create the easement. When water rights are represented by shares in an association, the owner of the shares must give 60 days notice to the association to create or terminate the conservation easement. This change should substantially increase the feasibility of conservation easements in Colorado. 2003 Colo. Sess. Laws ch. 137.

Colorado guarantees the right of individuals to display the United States flag. The right to display the flag may not be prohibited by owners' associations, covenants, or equitable servitudes. Reasonable restrictions may be imposed as long as they allow a display "that is consistent with Chapter 1 of Title 4 of the United States Code." The new law does not specifically address tenants' rights but does declare the display of the flag to be "civil speech." 2003 Colo. Sess. Laws ch. 258.

Florida adopts the Notice and Opportunity to Repair Act. Before commencing an action against a construction professional for property damages, the claimant must serve a written notice of claim on the construction professional. Settlement is encouraged by an offer of compromise procedure that, under specified circumstances, acts as a limitation on damages. The claimant may recover attorney fees, but, when a reasonable offer of compromise is submitted, attorney fees are limited to those incurred before the offer of compromise is made. 2003 Fla. Laws ch. 49.

Florida allows condominium unit owners' associations and cooperative associations to vote by electronic transmission. Notice to unit or association owners who consent may be given by electronic transmission. 2003 Fla. Laws ch. 14.

Florida limits vacation notice requirements of fixed term residential leases to 60 days. A tenant who fails to comply may be liable for reasonable liquidated damages or one month's additional rent. 2003 Fla. Laws ch. 30.

Georgia enacts preferential assessment for "brownfield property." A purchaser of "brownfield property" who complies with the statute is subject to reduced ad valorem taxation of property based on the purchase price or fair market value (contaminated value) for the first ten years and at 40% of the fair market value thereafter. The goal of the statute, development of "brownfield property," along with a plan of remediation, may be difficult to achieve because of the complexity of compliance. 2003 Ga. Laws 28.

Indiana adopts the Notice and Opportunity to Repair Act. See above description under 2003 Fla. Laws ch. 49. 2003 Ind. Legis. Serv. P.L. 134.

Indiana extends the benefits of The Soldiers and Sailors Civil Relief Act of 1941 to members of the Indiana National Guard. To qualify, the member of the National Guard must be called to active duty for a continuous period of more than 30 days. This act limits the ability of a mortgagee to foreclose property owned by a qualified service member and provides a procedure for a qualified service member to terminate a residential lease. 2003 Ind. Legis. Serv. P.L. 113 (West).

Indiana begins comprehensive regulation of the home inspection industry. Home inspectors are required to obtain a license and pay a fee. Minimum requirements are established for "Home Inspection Reports." Liability insurance is mandated. The quality of home inspections may be enhanced by this legislation. 2003 Ind. Legis. Serv. P.L. 145 (West).

Maine permits landlords to remove tenants who are dangerous or harbor dangerous pets. Guests or invitees of the tenant are also subject to removal. This statute will simplify the landlord's burden to remove dangerous tenants. 2003 Me. Laws 265.

Montana adopts the Notice and Opportunity to Repair Act. See above description under 2003 Fla. Laws ch. 49. 2003 Mont. Laws 412.

Nevada grants relief to certain bona fide or innocent purchasers and owners of contiguous real property for hazardous materials. Covered property owners may avoid responsibility for clean up of hazardous materials by complying with the statute and reporting to the appropriate authorities. The state may impose a lien on the land for the cost of cleanup; recovery is limited to the increase in value as a result of the cleanup. The state may realize on its lien at the time of a subsequent sale. 2003 Nev. Stat. 193.

New Mexico enacts the Home Loan Protection Act. The Act regulates and limits points, fees, and "high-cost" home loans, in an effort to eliminate or reduce abusive mortgage lending. 2003 N.M. Laws 436.

New Mexico grants tax credits in return for donations of conservation interests in land. The Land Conservation Incentives Act provides a tax credit equal to 50% of the fair market value of "open space, natural resource or biodiversity conservation, agricultural preservation or watershed or historic preservation . . . " grants to a conservation agency. The credit is limited to $100,000. A substantial increase in donations of both fee and nonfee conservation interests should occur as a result of this law. 2003 N.M. Laws 331.

West Virginia adopts the Notice and Opportunity to Repair Act. See above description under 2003 Fla. Laws ch. 49. 2003 W. Va. Acts 73.

Advertisement