March 14, 2018

Keeping Current—Property

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

CONDOMINIUMS: Association may not suspend common services to mortgage foreclosure purchaser for common charges owed by previous owner. The owner of a condominium unit failed to pay common charges and also failed to make her mortgage payments. The condominium association suspended common services to the unit, including water and sewer. The mortgagee foreclosed and purchased the property at the sale, paying all of the post-foreclosure assessments but refusing to pay the pre-foreclosure assessments. The condominium association continued to suspend common services, and the mortgagee sought declaratory judgment on the question of its liability for pre-foreclosure common charges. The court ruled for the mortgagee. The condominium act provides that an association's lien for unpaid assessments is junior to the first mortgage, N.H. Rev. Stat. § 356-B:46 I(a), and thus foreclosure of the first mortgage extinguished the association's junior lien. The court reasoned that the association's right to terminate services is subject to the foreclosure priority rules. Allowing the association to withhold services would in effect continue the lien on the unit after foreclosure, a result not authorized by the condominium act. It would undermine the legislative aim to facilitate mortgage financing for condominium purchases. New Hampshire Hous. Fin. Auth. v. Pinewood Estates Condominium Ass'n, No. 205-0514, 2016 N.H. LEXIS 200 (N.H. Sept. 20, 2016).

INVERSE CONDEMNATION: Recording highway corridor map that indefinitely restricts development of property is regulatory taking. The North Carolina Roadway Corridor Official Map Act authorizes the Department of Transportation (NCDOT) to record highway corridor maps. Recording a map prevents building or subdivision of land within the corridor for an indefinite period of time. The land is assessed and taxed at a special reduced rate. NCDOT is not obligated to build or complete the highway project. Owners may seek administrative relief by applying for a building permit or subdivision plat approval or seeking a variance or advanced acquisition based on undue hardship; but the act does not require the grant of a building permit or plat approval. In this case, NCDOT recorded a highway corridor map in 1997, and in 2012 the landowners brought an inverse condemnation action. In 2013, NCDOT held public hearings regarding the boundaries of the protected corridor and stated that it had no schedule for starting construction and no budget for the project through 2020. The trial court granted judgment for NCDOT, finding that NCDOT's actions fell within the ambit of the regulatory exercise of the police power and that the mere recording of the map was not a taking. The appellate court reversed and the supreme court affirmed. The court referred to numerous historical documents outlining the importance of guarding against the government taking of private property, including the right to improve, develop, and subdivide land. It stated that whether a governmental action constitutes a taking depends on whether a particular act is an exercise of the police power or of the power of eminent domain. Under this test, the court found that the Map Act was not a valid exercise of the police power because it indefinitely restrained fundamental property rights. Instead, the language of the Map Act referring to future condemnation of land for highway projects necessitated the invocation of eminent domain. A contrary ruling would allow the government to hinder property rights indefinitely for projects that may never be built. Kirby v. North Carolina Dep't of Transp., 786 S.E.2d 919 (N.C. 2016).

LANDLORD-TENANT: Punitive damages requires proof that landlord knew its lease provisions violated state law. An apartment lease contained an automatic carpet-cleaning provision, which authorized the landlord to deduct the cost of carpet cleaning from the tenant's security deposit once the tenancy ended. Another provision required the tenant to pay for certain repairs, absent negligence by the landlord, regardless of the cause of the problem. After the lease ended and the tenant moved out, the landlord deducted more than $900 from the tenant's security deposit for carpet cleaning, damage to an interior door, and other replacements and repairs. The tenant contested all the charges, alleging that the premises were left in pristine condition while the landlord claimed the premises were left unclean. The tenant filed an action in small claims court for unreasonable withholding of the deposit and willfully using prohibited lease provisions. The court found that the automatic carpet cleaning provision violated state law, that the repair provision violated the landlord's warranty of habitability, and that the landlord retained the deposit in bad faith. The court granted the tenant actual damages, attorney's fees, and punitive damages. On appeal, the supreme court agreed that the lease provisions were illegal, but reversed and remanded the punitive damages award. The record did not establish that the landlord had actual knowledge that the provisions violated the law, nor actual subjective dishonesty as required for a finding of bad-faith retention of the deposit. Caruso v. Apts. Downtown, Inc., 880 N.W.2d 465 (Iowa 2016).

LANDLORD-TENANT: Child cared for in grandmother's apartment does not "reside" there to impose liability on landlord for lead paint poisoning. A grandmother began caring for her three-month-old granddaughter, Yaniveth, five days a week at the grandmother's apartment while the child's parents were at work. She returned to her parents' apartment each evening. When she was one, Yaniveth was found to have elevated blood lead levels. The city health department identified lead conditions in the apartment and ordered the landlord to abate them. Eight years later, Yaniveth sued the landlord for violation of a city ordinance requiring abatement of lead paint in a dwelling unit where children six years of age or under "reside." The landlord prevailed on a motion for summary judgment because Yaniveth did not "reside" in the apartment. Because the statute did not define "reside," the court construed this "word of ordinary import" by using dictionary definitions as useful guideposts. Those sources say that "reside" means "to dwell permanently or continuously" or "to occupy a place as one's legal domicile as a fixed, legal abode," implying something more than mere physical presence. Moreover, the child and her grandmother testified that Yaniveth did not live at the apartment and there was no evidence of an intent to do so. Instead, the court concluded, she only "visited" her grandmother's apartment during the day solely for the purpose of child care. Although a person may reside at more than one location, the court remarked, 50 hours per week with a noncustodial caregiver is not sufficient to impose liability on the landlord under the law. No common law duty to abate the lead arose either, because the landlord had no knowledge of the child's presence in the apartment. Yaniveth R. v. LTD Realty Co., 51 N.E.3d 521 (N.Y. 2016).

MORTGAGES: Consolidated mortgage recorded before condominium association lien is entitled to priority as first mortgage. Citibank made a $54,000 mortgage loan secured by a condominium unit and the next year made an additional loan for $38,000 to the new owner of the unit. The parties entered into a consolidation agreement and a new mortgage securing $92,000 in debt. Seven years later, the condominium association foreclosed for unpaid common charges, selling the condominium unit subject to "the first mortgage of record." Thereafter, the foreclosure purchaser sued Citibank for a judgment subordinating the $38,000 debt to the later-filed condominium lien. This would extinguish Citibank's lien for that debt under the statutory super-priority lien for delinquent condominium charges. N.Y. Real Prop. Law § 339-z gives priority to condominium liens over other liens, with an exception for a first mortgage of record. The court observed that a consolidation agreement cannot adversely affect the priorities of any lien that has intervened between the respective dates of execution and delivery of the two consolidated mortgages. In that scenario, the consolidation agreement would not be considered "the first mortgage of record." Here, the condominium lien was not an intervening interest but was filed seven years after the consolidation. The court remarked that giving priority to the lien for the common charges under the circumstances here would interfere with the homeowner's ability to refinance, an interest that the statute seeks to protect. Plotch v. Citibank, N.A., 54 N.E.3d 66 (N.Y. 2016).

MORTGAGES: Foreclosure purchaser cannot recover price paid for property previously sold in tax sale. The Kleins paid $40,001 to purchase property at a nonjudicial foreclosure held under a deed of trust. They accepted a trustee's deed that contained no warranties of title. Several months earlier, the government had foreclosed a tax lien, conveying the property by a treasurer's tax deed to a third party. By operation of law, a treasurer's tax deed passes title free and clear of all previous liens and encumbrances, and therefore the tax deed had divested the deed of trust. The tax deed was recorded before the trustee's sale, but the Kleins failed to conduct a title search before their purchase. The Kleins sued the beneficiary of the deed of trust, seeking to set aside the sale and to recover the purchase price. The trial court granted relief, reasoning that the trustee's sale was "improper and a nullity" because the trustee had no rights to convey. In a case of first impression, the supreme court reversed, extending the doctrine of caveat emptor to nonjudicial foreclosure sales, which its precedent had applied to judicial sales. The Kleins' decision to purchase without examining the public records was at their own peril. Equity will not relieve a purchaser of the consequences of his own negligence. Klein v. Oakland/Red Oak Holdings, LLC, 883 N.W.2d 699 (Neb. 2016).

NUISANCE: Damages for past discomfort and annoyance and for diminution in market value are both recoverable for the same nuisance. Davis owned a house on four acres located in an area zoned for low-density residential or agricultural use. The government rezoned 260 acres across the highway from Davis for heavy industrial use, where Toyo Tire opened a manufacturing and distribution center. After several expansions, Toyo Tire operated around the clock, producing as many as 13,500 tires per day. When Toyo refused to purchase his home as they had done with his neighbors, Davis filed a nuisance suit, citing noise, lights, odors, black dust, increased traffic, and unsightliness. Toyo moved for summary judgment, arguing that Davis failed to prove that its activities caused damage and that Davis could not recover for both diminution of property value and discomfort caused by the same nuisance. The trial court denied Toyo's motion for summary judgment, and the supreme court affirmed. Although in nuisance a plaintiff cannot recover twice for the same injury, recovery both for past discomfort and annoyance and for diminished property value has been consistently allowed for more than a century. The court expressly disapproved any recent cases to the contrary. The two injuries cannot be fixed by one recovery. Discomfort and annoyance damages compensate for the interference with the use and enjoyment of property while living there, and diminution in value is based on the reduction in the property's market value because of continued discomfort and annoyance. The latter are forward-looking, and the former are backward-looking. Toyo Tire North America Mfg., Inc. v. Davis, 787 S.E.2d 171 (Ga. 2016).

PREMISES LIABILITY: Tenant, not landlord, is liable for injury to tenant's social guests occurring on leased premises. After Walter rented a house to three tenants, he and one tenant removed a bay window from the house in contemplation of a replacement. They left the window leaning against a fence on the property. Sometime later, one of the panes was shattered, leaving shards of glass protruding from the frame. Then a social guest of the tenants tripped over a tree stump that was lying on the ground near the window, fell forward, and severely lacerated his arm on the shards of glass. The guest sued Walter, who prevailed on summary judgment. A landlord has no duty of care towards his tenant's social guests, unless the landlord created the hazard. Here the landlord's removal of the bay window might be a negligent repair, which might give rise to a duty of care, but it was not the proximate cause of the guest's injury. For leased property, tenants, not landlords, are generally liable to injured third parties, including the tenant's social guests, as if they were the owner of the property. This is so because the tenant is in the best position to eliminate dangers or to make those dangers known to third parties. Stiles v. Amundson, 376 P.3d 734 (Idaho 2016).

RECORDING: Statute of limitations bars grantor's claim that recorded deed mistakenly omitted mineral reservation. Landowners agreed to sell their property to the Swinfords, reserving the mineral rights. They hired an attorney to represent them and an abstract company to perform abstracting and closing functions. The company mailed the grantors a packet of closing documents and deeds to sign. Apparently, the grantors did not read the instruments, although they claim that they sent the packet to their attorney to review. He insisted that he corrected the deeds so that they contained the reservation. The deeds, which did not reserve any mineral interests, were recorded in 2002. In an attempt to recover their mineral interests, the grantors filed a lawsuit in 2014 against their attorney, the abstract company, and a subsequent grantee of a royalty interest. The defendants relied on the statute of limitations, which provided a two-year period for negligence actions and a five-year period to reform deeds. The grantors argued that the limitations period did not begin to run when the deeds were filed but rather in 2013 when they first discovered the deficiency in their deed on learning that the Swinfords were leasing the mineral rights. The trial court granted summary judgment for the defendants, reasoning that the grantors had constructive notice of the alleged mistake because they examined and signed the deeds. The supreme court affirmed, holding that the discovery rule should not apply to toll the limitations period when a grantor alleges ignorance of the contents of the deed nearly 12 years after the grantor signed and recorded the deed. The deeds were readily available for anyone to inspect and a reasonable person would have read them before signing. The court concluded that to reason differently would pose the risk that "real property transactions across the state could be set aside at almost any time which could leave all real property transactions unsettled indefinitely." Calvert v. Swinford, 382 P.3d 1028 (Okla. 2016).

ZONING: Right to remove historic designation is available only to property owner at time of designation and not to successor owners. In 1990, the city designated the Carman House, owned by Wilmot, as a landmark because it was part of an historic farm complex. Designation precluded alteration of the property without permission by the local historic preservation commission. Wilmot objected to the designation but never formally sought removal of the designation as permitted by the state historic property designation statute. Or. Rev. Stat. § 197.772. In 2001, Wilmot conveyed the Carman House to a family trust. In 2013, the trustee, her son, sought to have the historic designation removed in order to develop the property. The city concluded it was required to grant the trust's request because the statute provided that "a local government shall allow a property owner to remove from the property a historic property designation that was imposed on the property by the local government." Id. § 197.772(3). The supreme court disagreed, holding that the statutory right to remove applies only to the property owner at the time of designation and gives no removal rights to successors-in-interest. The court reasoned that the statutory text did not "on its own, compel any particular interpretation of the term 'a property owner'" and found the resolution in the balance the legislature tried to strike between the owner's interest in developing her property and the public interest in preserving historic resources for future generations. Moreover, the court noted, third parties are not negatively affected when they acquire property with notice of the designation. Lake Oswego Preservation Soc'y v. City of Lake Oswego, 379 P.3d 462 (Or. 2016).

LITERATURE

Land Use. Profs. Sheila R. Foster and Christian Iaione highlight emerging questions about the use of city space in their recent article, The City as Commons, 34 Yale L. & Pol'y Rev. 281 (2016). Their work examines efforts by local residents to stake claim to certain "urban goods" as "collective, or shared, resources of cities" that should be protected by commons-based norms and values, consistent with growing interdisciplinary scholarship on progressive property and reform. Examples of such goods are "open squares, parks, abandoned buildings, vacant lots, roads and other urban infrastructure." The authors use an "urban commons" framework to promote "revitalized and inclusive" cities that are capable of resisting the privatization and commodification of urban goods. Using the "commons" framework, according to Profs. Foster and Iaione, gives a normative backdrop consistent with the social obligation norm espoused by progressive property scholars for opening up access to resources that might otherwise be considered rivalrous and consequently subject to closed or limited access. They also call for a governance or management regime that protects such resources from exploitation. Acknowledging problems like the tragedy of the commons that could play out in these new urban commons resources, they endorse alternative governance structures, including democratic experimentalism and urban collaborative governance, and tools like zoning, other land use controls, eminent domain, and the public trust doctrine to help shape the urban commons and protect the social function of property. Although the urban commons can help provide goods to urban inhabitants otherwise displaced by market forces of gentrification or living among the "ruins of urban disinvestment," Profs. Foster and Iaione also explain how some private ownership rights might need to yield to the community interest.

Property Theory. Prof. Taisu Zhang exposes the absence of culture in traditional economic theories of property and seeks to "re-culturalize" property theory in a recent article, Cultural Paradigms in Property Institutions, 41 Yale J. Int'l L. 347 (2016). He examines the influence of cultural factors on the creation and evolution of a jurisdiction's property institutions. He argues that his cultural theory "is particularly powerful . . . in explaining large-scale institutional differences between societies" regarding how they regulate the use and transfer of property. To test his hypothesis, he conducted a detailed, comparative study of select property institutions in China, England, and Japan during the two centuries before large-scale industrialization. The article focuses on differences in the regimes of land mortgages in these countries. England developed a pro-creditor and pro-rich culture, while China developed a pro-debtor and pro-small-holder culture, with Japan similar to England but with some variations. Prof. Zhang concludes that shared social and cultural values, particularly regarding sociopolitical status distribution, offer a better explanation of the divergent legal and institutional property-based choices than utilitarian bargaining, self-interest, wealth maximization, and other functionalist theories of norm formation. That understanding in turn, he contends, helps us to better understand the creation and reform of modern property institutions.

Prof. Gregory S. Alexander's recent article, Five Easy Pieces: Recurrent Themes in Property Law, 38 U. Haw. L. Rev. 1 (2016), provides an excellent overview of the theoretical and thematic structure within which our property law develops. Although aimed at first-year law students, the article's description of recurrent themes in American property law is useful to practitioners of property law of all types. Practicing lawyers, for example, can better position their examination of property problems as they arise in live cases if they understand the underlying conceptual and other theoretical foundations. Prof. Alexander identifies five themes that "provide a way of structuring all of property law, adding coherence to what so often appears" to be "an unintelligible rag-tag collection of rules and doctrines." The first theme deals with "conceptualizing property," including Blackstone's "classical conception," the "bundle-of-rights conception," and the "exclusion theory," leading him to conclude that there is not a "single, universally-applicable or correct conception of property" but instead "diverse social contexts in which people own property." The next theme, "categorizing property," shows how we look at the private and public values served by property rules to identify their purposes. He is quick to note, however, that public and private values are not categorically separate and often turn out to support each other rather than conflict when we look at the policies furthered by property rules and institutions. The third theme, "historicizing property," reveals how we use the historical context behind the creation and evolution of property institutions to explain their content, interpretation, and effect. In the fourth theme, "enforcing property," Prof. Alexander highlights the distinctions between rules and standards and the way that property values (such as predictability or flexibility) affect our enforcement mechanism choices. In the fifth theme, "de-marginalizing property," he discusses deviations from private ordering and legislative interventions that are designed to alleviate status problems for socially and economically marginalized groups within the property law system. This thematic architecture of property law, Prof. Alexander believes, makes it easier to comprehend and work with property doctrines.

Who owns the pore space that lies between the rocks below the surface of the land? It is generally held that the pore space is included as part of the surface estate, even after a severance of the mineral estate from the fee, giving the fee owner exclusive ownership of the pore space after extraction of any minerals. At the same time, the mineral estate owner holds the exclusive right to explore for and produce valuable substances contained in the pore space and also the implied right to cross the surface estate to access the minerals. But sometimes it is difficult if not impossible to drill for minerals from the surface estate over which the minerals lie; even horizontal or directional drilling is infeasible. In The Private Pore Space: Condemnation for Subsurface Ways of Necessity, 16 Wyo. L. Rev. 77 (2016), Prof. Tara Righetti explores the idea of using the Wyoming private condemnation act for a way of necessity through the subsurface pore space of an adjacent parcel. To date the act and the Wyoming constitutional provision that enables the act have operated to create ways of necessity for surface access, typically for landlocked parcels. She contends that the principles justifying surface easements by necessity logically extend to subsurface easements: both start with a kind of necessity, being landlocked or otherwise lacking access (although under the constitution, original unity of ownership is not required); mineral exploration serves a public interest; and such an easement will facilitate the important social ends in efficient resource development and the productive use of land. Moreover, Prof. Righetti makes the point that subsurface easements avoid subsurface trespass, permit critical access through the pore space of extra-lateral parcels to reach stranded mineral interests, and may limit surface disturbance in sensitive resource areas. Admitting that the use of private condemnation for a subsurface way of necessity is novel, she believes that given the technological realities of exploration, this application is a reasonable evolution of property law in response to the current pressures to reduce impacts to surface owners and the environment.

Takings. In her recent article, Property's Ceiling: State Courts and the Expansion of Takings Clause Property, 102 Va. L. Rev. 1167 (2016), Prof. Maureen E. Brady analyzes the ways state courts have expanded the definition of private property in takings and other constitutional property cases. Her original case study focuses on a series of 19th and 20th century cases on street grading, in which municipalities vertically shifted streets to improve transportation. Property owners sought relief when the regrades to streets adversely affected their abutting properties. The governments claimed that their actions were not physical takings and thus not compensable. Many state courts responded sympathetically and innovatively to the property owners' complaints, creating a novel "right of access" to land that was said to be "taken" when the roads were regraded. Prof. Brady also explains how such constitutional property cases historically have catalyzed political action and precipitated legislative and constitutional change. She provides a variety of examples, including the addition of provisions requiring compensation for "damage" to property to state constitutional takings clauses. These examples help tell a more general story about the varying levels of confidence that should be placed in the legislative process for expanding property rights protections. Advocates for property rights often prefer legislative changes over judicial ones when changing the number and types of recognized property rights. Courts do not do novelty well. Nonetheless, the article explores the frequency of political failure in property law, the capability at times for the judiciary to step in, and some of the doctrinal impediments to court intervention to solve deficiencies in the existing recognition of new protected property interests. Prof. Brady explains that, because the "meaning of property . . . will always be debated and fluid," we should remember the role that state courts can, and sometimes do, play. As she remarks, "While there may be good reasons to prefer that legislatures allocate and define property interests as a general matter, courts may play a valuable and neglected role in creating constitutional property interests when political processes have failed."

LEGISLATION

CALIFORNIA imposes duties on landlords regarding bedbug infestations. The act amends the civil code to require a residential landlord to notify tenants of the findings of a pest control inspection. It also prohibits the showing, renting, or leasing of a vacant dwelling unit that the landlord knows has a bedbug infestation. 2016 Cal. Legis. Serv. Ch. 599.

CALIFORNIA requires property owners to disclose compliance with disability access requirements. The act requires commercial property owners or lessors to state on every lease form or rental agreement executed on or after January 1, 2017, whether or not a certified access specialist (CASp) has inspected the premises and to provide a copy of any inspection report indicating that the premises meet applicable standards. Otherwise, the lease form or rental agreement must state that the property owner may not prohibit a CASp inspection of the subject premises, on mutually agreed-to terms. 2016 Cal. Legis. Serv. Ch. 379.

CALIFORNIAlimits the sale of property acquired by eminent domain. The act amends the government code to prohibit a local or county government from selling, leasing, or otherwise transferring property acquired through eminent domain for economic development purposes at a price below fair market value, with certain exceptions. These provisions complement existing law that prohibits the use of eminent domain for economic development purposes. 2016 Cal. Legis. Serv. Ch. 503.

CALIFORNIA restricts public access to court records in unlawful detainer actions. The act amends the code of civil procedure to make civil case records in unlawful detainer proceedings permanently unavailable to the public when the landlord does not prevail within 60 days of filing, with specific exceptions. The intent is to protect tenants from harm caused by reports prepared by tenant screening companies and credit reporting agencies. 2016 Cal. Legis. Serv. Ch. 336.

DELAWARE permanently protects certain open space from development. The act amends the land protection act. Open space land that is eligible for protection includes lands with great natural scenic beauty; or containing significant or sensitive natural resources, rare species, wetlands, or significant geological features; or situated near a cultural site. 2016 Del. Laws Ch. 354 (H.B. 262).

DELAWARE amends fair housing act to preclude discrimination based on source of income. Source of income is defined to mean income from any lawful source, any lawful possession or occupation, or derived from any government or private assistance. The amendment, however, does not require a landlord to participate in any government-sponsored rental assistance program, voucher, or certificate system, and such nonparticipation does not constitute proof of unlawful discrimination. 2016 Del. Laws Ch. 335 (S.B. 179).

ILLINOIS adopts the Revised Uniform Fiduciary Access to Digital Assets Law. Under the law, a user may use an on-line tool to direct the custodian to disclose to a designated recipient or not to disclose some or all of the user's digital assets, including the content of electronic communications. If the user does not have an on-line tool, the user may allow or prohibit in a will, trust, or power of attorney, or other record, disclosure to a fiduciary of some or all of the user's digital assets. A direction under either of these methods overrides a contrary provision in a terms-of-service agreement that does not require the user to act affirmatively and distinctly from the user's assent to the terms of service. 2015 Ill. Legis. Serv. 775.

NEW JERSEY amends its public housing law to give preference to veterans. The preference is extended to veterans, their spouses, and their surviving spouses who qualify for public housing assistance. 2016 N.J. Laws 19.

NEW YORK amends its public housing law tohelp the elderly avoid termination. The act requires the New York City Housing Authority to give elderly tenants a notice of opportunity to meet with the property manager when giving a notice of pre-termination. 2016 N.Y. Laws 340.