Department

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

ADVERSE POSSESSION: Possession by foreclosure purchaser is not adverse to prior owner while purchaser holds under certificate of purchase. A divorce decree awarded the wife an undivided interest in two parcels, obligating the husband to pay a mortgage debt on the land. The husband’s default led to a foreclosure, at which the husband’s mother purchased the parcels. The mother received a certificate of purchase, which was subject to the husband and wife’s statutory right of redemption. The redemption right expired. The Iowa foreclosure statute requires that a purchaser obtain a sheriff’s deed within eight years after the foreclosure sale. Iowa Code § 626.97. Otherwise, the sale is canceled and the purchaser’s rights are barred. The mother took possession of the parcels, leasing them to family members, but she failed to obtain a sheriff’s deed. Thirteen years after the foreclosure sale the mother died, devising her property to her four children, including the husband. The wife brought a quiet title action, and the husband raised the defense of adverse possession by the mother, relying on the 10-year Iowa statute. The wife prevailed because the mother’s possession was not adverse until expiration of the eight-year period for obtaining a sheriff’s deed. The purchaser in possession under a sheriff’s certificate has equitable title and the absolute right to possession. In other words, the wife had no cause of action against the mother before the eight years ran out. This is the right outcome. Although the court does not mention this, the wife’s position during the eight years after the foreclosure sale is akin to owning a future interest. The wife had no present right to possession but the chance of regaining title and possession if the mother failed to obtain a deed. The court’s decision is a specialized application of the rule that adverse possession does not run against the holder of a future interest—one of the favorite things property professors sneak into exams to see if students have grasped the finer points of estates and adverse possession. Garrett v. Huster, 684 N.W.2d 250 (Iowa 2004).

BROKERS: Buyers’ tort claims against broker, who failed to obtain purchase contract extension, are not barred by statute of frauds. Buyers under a real estate contract paid $5,000 in earnest money on February 1, promising to pay an additional $10,000 in earnest money on April 6. In late March, the buyers asked the seller’s broker to obtain a 30-day extension for paying the extra earnest money. The broker promised to contact the sellers, assuring the buyers that the extension would be granted. On April 5 the buyers contacted the broker again, concerned that they did not have a written extension. Again, the broker assured them that the sellers would extend the date. In fact, the broker never had contacted the sellers. The sellers terminated the contract on April 8, choosing to sell to a third party who offered a higher price. The buyers sued the sellers for breach of contract. The court held for the sellers, reasoning that, even if they had agreed to an oral extension, it was unenforceable under the statute of frauds. The buyers also sued the broker in tort for fraudulent misrepresentation, interference with contract, and breach of common law and statutory duties. The trial court held for the broker, concluding that the tort claims, like the contract claims against the sellers, were barred because the alleged oral modification was not enforceable. The supreme court reversed, holding that the tort claims against the broker were separate and distinct from the contract claims and thus viable. Fericks v. Lucy Ann Soffe Trust, 100 P.3d 1200 (Utah 2004).

DEEDS: Grantee’s damages for breach of title covenants do not include amount in excess of purchase price paid to true owner to acquire title. After buying land for $12,000 and making improvements, the buyer discovered the seller had no title. The buyer sued the seller and the true owner, and then settled with the true owner, paying $40,000 to acquire good title. The buyer then collected $12,000 from his title insurer. Then he sought $28,000 from the seller for breach of title covenants in the warranty deed, this amount being the difference between his payment to the true owner and the insurance proceeds. Rejecting this claim, the court applied the rule followed in most states that limits damages for breach of warranty to the purchase price, plus interest and attorney’s fees incurred to defend title. Having already received insurance proceeds equal to the price, the buyer could only recover reasonable attorney’s fees incurred in litigating and settling the claims against the true owner. Bedard v. Martin, 100 P.3d 584 (Colo. Ct. App. 2004).

EASEMENTS: Gas pipeline is allowed in right-of-way for public road in rural community. Solano County, California, granted a permit for the installation of a natural gas pipeline within a right-of-way easement for a public road. The permit holder was a private corporation, which extracted gas from a nearby gas reservoir. The servient estate owner of the agricultural land, on which the road was located, brought an action in trespass against the corporation. The trial court found a trespass but awarded only nominal damages and refused injunctive relief. The appellate court reversed, holding that the pipeline was within the scope of the right-of-way easement. It noted that the trend for more than a century, in California and in other states, “is to construe public rights-of-way to accommodate technological advancement in the conveyance of goods and people.” The pipeline was buried under the road shoulder and thus had little or no effect on the plaintiffs’ use and enjoyment of their land. It made no difference that a private corporation, not a public entity or a public utility, owned the easement. All members of the public are allowed to use a public right-of-way. Bello v. ABA Energy Corp., 16 Cal. Rptr. 3d 818 (Cal. Ct. App. 2004).

EMINENT DOMAIN: Condemnation to create private business and technology park is not a public use. After an airport expansion, Wayne County began purchasing neighboring properties under a federally funded noise abatement program. The county planned a 1,300-acre business and technology park, including a hotel, conference center, and recreational facility. After completion of the county’s land assembly, private entities would develop and own the project. Land assembly proceeded with voluntary sales by landowners in checkerboard fashion. After the county had acquired more than 1,000 acres, it filed condemnation actions against 19 owners who were unwilling to sell at the offered prices. The landowners challenged the condemnation on the basis of the public use clause of the Michigan Constitution. The lower courts held for the county, finding a public purpose under Poletown, a famous case (infamous to its many critics) in which the Michigan court sanctioned the taking of an ethnic residential neighborhood for a General Motors’s assembly plant. Poletown Neighborhood Council v. Detroit, 304 N.W.2d 455 (Mich. 1981). Evidence indicated that the Wayne business and technology park would create 30,000 jobs and add $350 million in county tax revenues. Overruling Poletown, the Michigan Supreme Court reversed, adopting an “original intent” test to decipher the constitutional meaning of “public use.” The issue is the “common understanding” of “public use” when Michigan voters ratified their state constitution in 1963. The common understanding incorporates pre-1963 Michigan case law, which authorizes the transfer of condemned property to the private sector only under three narrow circumstances: (1) when it is necessary to develop transportation or utility networks, (2) when the property will remain subject to significant public oversight after the transfer, and
(3) when the property is selected because its present use harms the public (slum clearance, for example). Because the business and technology park satisfied none of these tests, the county lacked the power of eminent domain. See pages 10–19 of this issue. County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004).

MECHANIC’S LIENS: Claimant must notify all condominium owners to enforce lien on entire condominium building. A construction company contracted with the property manager of an eight-unit condominium building to do demolition and abatement work. The company, unpaid for part of its work, gave notice of a mechanic’s lien to the manager and to a corporation that owned seven of the units. The lien claimant did not notify the owner of the other condominium unit. The claimant then brought an action to enforce the lien against the manager and owner of the seven units. The trial court granted judgment for the construction company, imposing a lien on the entire building, including the common elements. The appellate court reversed, holding that all condominium unit owners were entitled to notice and that all owners were necessary parties in the judicial action. Due process requires notice and joinder because each owner has a separate and distinct property interest in her particular unit and the common elements of the building. Southern Mgmt. Corp. v. Kevin Willes Const. Co., 856 A.2d 626 (Md. 2004).

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): Lender cannot charge more for settlement services than the amount paid to third parties for those services. RESPA § 8(b) prohibits the receipt of a charge “other than for services actually performed.” In a class action, New York and California homeowners attacked two practices adopted by Wells Fargo in closing mortgage loans. First, they claimed that Wells Fargo made “overcharges” by charging substantially more than the cost they incurred for underwriting services, consisting of analysis of the borrowers’ credit risk. Second, they claimed that Wells Fargo outsourced certain settlement services to third-party vendors and “marked up” the cost. For example, Wells Fargo paid third parties $20 to $50 for document preparation, but charged borrowers $150 to $300. The Second Circuit affirmed a summary judgment for the lender on the “overcharge” claim, concluding that RESPA does not make it illegal for a lender to charge more than a reasonable amount for the closing services that it performs. The court reversed summary judgment for the lender on the “mark-up” claim. It relied on a policy statement, issued by the Department of Housing and Urban Development in 2001, declaring that any re-pricing of charges is unlawful under Section 8(b). The court stated that the HUD statement was entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), because the statute is ambiguous. This decision creates a circuit split. Prior decisions from the Fourth, Seventh, and Eighth Circuits have held for the providers of settlement services, refusing to follow the HUD policy statement. Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004).

TRESPASS: Treble damages awarded for forcible dispossession from grazing land. The Montana forcible detainer statute sanctions treble damages when a person “by force or by menaces and threats of violence unlawfully holds and keeps the possession” of “any building or cultivated real property.” Mont. Code §§ 70–27–103, 70-27-206 (this statute derives from an 1851 California statute, now codified at Cal. Civ. Proc. Code § 735). Four years after buying grazing land, the buyers destroyed their neighbors’ fence. They claimed ownership of a substantial part of the neighbors’ land, building a new fence to enclose the disputed area, which they used for grazing their cows. They dug a ditch across the neighbors’ road to prevent motor vehicle access. Twice they called the sheriff’s office when the neighbors entered the area to inspect it. When the neighbors, accompanied by a deputy sheriff and a friend, went to inspect the area of the new fence, the buyers told them to stop trespassing and that the land was now the buyers’ land. After the neighbors hired a surveyor to survey the disputed area, the buyer’s husband was observed leaning across a fence post, watching the surveyor through the scope of his rifle. In the neighbors’ forcible detainer action, the court found the buyers had taken possession by force and retained it by intimidation. Damages after trebling amounted to over $131,000, which included emotional distress damages of $20,000. Harding v. Savoy, 100 P.3d 976 (Mont. 2004).

ZONING: Board members entitled to official immunity regardless of subjective animus. Neighbors appealed the issuance of a building permit for a six-unit apartment building to the zoning board of adjustment. The city attorney opined that the lot satisfied the technical requirements of the city ordinance for a minimum street frontage. The neighbors’ attorney opined to the contrary. The city attorney then told the board that, because of the conflicting legal positions, you can “do whatever you want to.” The board of adjustment voted to revoke the permit. During deliberation, some board members said that the apartments might attract undesirable residents—they may be loud, disruptive, and commit crimes. The developer brought suit, obtaining a judgment that ordered reinstatement of the permit. The city appealed unsuccessfully. Despite judicial victory, the developer subsequently abandoned the project. Delay caused by the litigation resulted in the developer’s loss of its financing package. The developer, however, did not lose its taste for litigation. It wanted damages. The developer brought takings claims against the city and the board of adjustment. The trial court found a taking, but the court of appeals reversed. The developer also sued the individual board members for negligence, gross negligence, and tortious interference with contract. The trial court awarded over $600,000 in actual and punitive damages. A divided court of appeals rejected the board members’ defense of official immunity. The court concluded that the jury properly found the members did not act in good faith based on their comments about the potential residents. The supreme court reversed, holding that the jury should not have considered evidence of subjective bad faith. An objective standard applies. If a reasonably prudent official could have believed that the decision was justified, immunity applies. The official’s subjective intent, or possible malice, is irrelevant. Ballantyne v. Champion Builders, Inc., 144 S.W.3d 417 (Tex. 2004).

ZONING: Growth controls of unlimited duration violate due process. In 1988, the town of Hadley adopted a rate-of-development (ROD) ordinance limiting the number of residential building permits issued in any given year to a developer of multiple lots. A developer with more than 10 lots had to phase the development over 10 years. The expressed purposes of the ordinance were to preserve agricultural land, to preserve the town’s character, and to allow time for town services to keep up with population growth. Under existing zoning, the owner of a 66-acre parcel had the right to develop her property with up to 40 single-family homes. The ROD ordinance, however, limited development to four homes per year for 10 years. She challenged the ordinance, claiming a 10-year build out was not economically feasible. The court struck down the ordinance, distinguishing prior cases that upheld interim growth controls, adopted to allow the local government to study and plan for growth. The ROD ordinance had no time limitation and therefore did not serve a legitimate zoning purpose. Harkening back to the famous “pig in the parlor” metaphor from Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926), the court said, “Where classic zoning bylaws keep the pig out of the parlor, rate of development bylaws tell the farmer how many new pigs may be in the barnyard each year.” The court was also concerned about externalities, observing that the measure would deflect population growth from the town to neighboring communities, forcing them to bear increased growth-induced burdens. Zuckerman v. Town of Hadley, 813 N.E.2d 843 (Mass. 2004).

LITERATURE

Landlord-Tenant Law; Bankruptcy. Section 365(h) permits a tenant to retain possession of the leased premises if the landlord files a petition in bankruptcy and then rejects the lease. Section 363(f) complicates matters by permitting a sale of the debtor’s property free and clear of leasehold interests. Christopher C. Genovese explains the relationship of these two provisions in Precision Industries v. Qualitech Steel : Easing the Tension Between Sections 363 and 365 of the Bankruptcy Code?, 39 Real Prop. Prob. & Tr. J. 627 (2004). As the title implies,  Genovese addresses concerns about the holding of this recent Seventh Circuit Court of Appeals case. The court held that “under section 363(f) of the Code, the sale of the lessor-debtor’s real property, free and clear of interest, trumps section 365(h) of the Code, which only protects the rights of the lessee when the lessor-debtor expressly rejects the lease.” According to Genovese, this holding has been described as a “bankruptcy bombshell” and leaves “tenants in very precarious positions.” The article does a nice job of anticipating commercial implications of the decision and is worthwhile reading for attorneys with substantial commercial lease practices.

Landlord-Tenant Law; Summary Proceedings. In his student note, Landlord-Tenant Law: Protecting the Small Landlord’s Rights During Summary Process, 37 Suffolk U. L. Rev. 1109 (2004), Brian J. Delaney evaluates summary proceedings from the vantage point of the small landlord, typically an individual owner of one-to-four residential units. Delaney states that smaller landlords “generally do not seek to make a significant profit” and often “rely heavily on rental income to subsidize mortgage payments, property taxes, and other general expenses necessary to maintain” the landlord’s residence. These landlords depend on a speedy summary process to ensure a rental stream from the property. Delaney details the summary process available in Massachusetts. He also explains how the federal Fair Housing Act and the Massachusetts Fair Housing Laws affect the landlord’s ability to take advantage of summary proceedings statutes. The note has broader appeal because the author looks beyond the boundaries of Massachusetts law and evaluates summary proceedings laws in several other jurisdictions, including New Jersey and California.

Real Property Acquisitions; Public Institutions. Colleges and universities are often faced with the need to acquire and develop large parcels of land. A university may seek to replace aging libraries, construct a stadium, or provide amenities and services to students, staff, and faculty. In each case, it may be necessary for the institution to acquire and improve land. As explained by Carol L. Zeiner in her article Monetary and Regulatory Hobbling: The Acquisition of Real Property by Public Institutions of Higher Education in Florida, 12 U. Miami Bus. L. Rev. 103 (2004), the process of acquiring and developing real property is significantly more complex, and certainly more frustrating, for an institution of higher education than for the typical commercial real property purchaser. Zeiner focuses specifically on development obstacles in Florida and the state specific regulations that affect these transactions. The institution must first determine whether there is a need for a new facility. Establishing the need depends not only on the conclusions of university administration personnel, but on a series of formulae demonstrating enrollment of the school and the results of an Educational Plant Survey. The survey results must be presented to trustees and senior university administration for consideration and then forwarded to the Department of Education. Once approved at this level, the university still may need legislative approval. Throughout this process, individuals with different agendas and representing different communities may oppose the proposal or demand some sort of concession as a quid pro quo for support. The result is that the green light for acquisition and construction of university facilities requires many more layers of decision-makers than the typical private development. Zeiner details the problems that often arise and provides suggestions for making this process less cumbersome. This article may be of general interest to attorneys who do real property work for colleges or universities in jurisdictions other than Florida.

Takings; First Amendment Issues. In Eminent Domain Actions Targeting First Amendment Land Uses, 69 Mo. L. Rev. 653 (2004), Shelley Ross Saxer contemplates the intersection of constitutionally protected expression and free exercise of religion and the government’s power of eminent domain. Saxer explains that the nature or effect of certain land uses—notably adult businesses and religious land uses—may provoke local authorities to take steps to terminate the use or prevent expansion of the use. The author admits that religious uses of land and adult businesses are “strange bedfellows.” Saxer argues that the “intermediate scrutiny” presently applied to these eminent domain actions is “inadequate.” Instead, when a locality employs eminent domain in a manner that “targets free expression,” and “in a manner that demonstrates “evidence of improper government motivation,” the courts should apply strict scrutiny.

LEGISLATION

California expands the density bonus for moderate-income housing. Density bonuses are also increased for very low-income housing. 2004 Cal. Stat. 928.

Illinois mandates disclosures under the Mobile Home Landlord and Tenant Rights Act. Among the information that the park owner must disclose is the rent charged for the past five years, the fees in addition to rent, and late payment penalties. 2003 Ill. Laws 1043.

New York modifies its “Brownfield Cleanup Program.” At least some remediation is now required, except when the department has made a determination that the site does not pose a significant risk. 2004 N.Y. Laws 577.

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