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November 14, 2022 Practice Points

Three Practical Considerations in Bringing Real Estate Claims during Escrow Periods

Is there ever too much leverage?

By Nicholas P. Shapiro and Robert K. Hopkins

Disputes between neighbors frequently arise in advance of the sale of property. Without having identified empirical data summarizing the issue, anecdotally it appears this phenomenon arises because sellers or new buyers commission surveys. In turn, these surveys frequently reveal modest to serious encroachments, including—to name only a few—driveways, hedgerows, fencing, walls, swing sets, patios, pools, and septic systems. Likewise, disputes over easements, restrictive covenant schemes, and non-prescriptive title claims often rear their heads in anticipation of a sale. This Practice Point aims to persuade practitioners to rethink immediately running into court to address these issues; in nearly all these disputes, it is not necessary, and perhaps not wise, to rush into court before the closing.

1. Counterclaim Liability

Clients often want to run into court, not only to file suit, but also to procure preliminary relief, including a lis pendens—a notice of the pendency of the action to be recorded, effectively killing any sale until the dispute is resolved. This is the natural reflex: Stop everything and force your neighbor to resolve the issue before allowing the transaction to close. On its face, this tactic would appear to generate considerable leverage. However, it often results in concomitant liability that will muddle the otherwise straightforward title dispute. If you run into court and record a lis pendens, you will almost certainly see a counterclaim for intentional interference with contractual/business relations and/or abuse of process. Depending on what your client is presently seeking to negotiate, this liability may be bona fide and the exposure real. If your client is seeking, inter alia, a benefit for which there is no colorable claim—i.e., something outside the bounds of what could be awarded by a court—your client will be vulnerable to these counterclaims. You just blew up a deal based on, in part, a benefit for which your client has no entitlement. Put yourself in the shoes of the court and your opponent.

2. Too Much Leverage

The leverage will appear extortionate in the eyes of your opponent. People never respond well to being sued, but especially not when they are moving homes and seeking to liquidate what is likely their largest single asset. People sell their homes at major inflection points in their lives, when they are changing jobs and residency or down-sizing and seeking to cash in. There is typically a sense of urgency involved in these choices and transactions. Stopping someone from selling their home invariably wreaks havoc in their personal lives and is thus highly alienating. Moreover, as often as not, what your client perceives to be great leverage merely results in a complete cessation of negotiations rather than advancing productive dialogue. The opponent may rather fight than settle due to the existential nature of the attack on their situation—their life. In other words, this tactic amounts to a nuclear option that, once detonated, begs for a proportionate counterattack, not a quick resolution.

3. Wrong Party

Finally, insisting upon resolving negotiations within an escrow period with the current property owner (whether or not suit has been filed) invites miscommunication and is inefficient. In this scenario, you are negotiating with the wrong party—the seller, not the buyer who will be taking title and frequently living at the property. Thus, to the extent that the buyer is participating, you are playing a game of telephone with the seller in between. Don’t forget that buyer and seller have structurally divergent interests. As such, messages are easily distorted. But, just as importantly, in the escrow period, seller has one foot out the door and buyer is not yet in the property. Therefore, there is no traditional and practical owner/occupant with whom to negotiate. Seller wants out ASAP, and buyer doesn’t know enough to know what he/she wants. Accordingly, for the sake of the best possible, practical outcome, it is often preferable for the transaction to close before negotiations begin or conclude. No prescriptive claims are lost with the transfer of property, nor the passage of time; the same is true for most other easement, restrictive covenant, and title disputes. The only scenario that more typically necessitates running into court pre-closing is when there are vying claims for specific performance in purchase and sale disputes. Otherwise, practitioners and parties should seriously consider letting transactions close.

Nicholas P. Shapiro and Robert K. Hopkins are with Phillips & Angley in Boston, Massachusetts.

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