November 01, 2018 Feature

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

ADVERSE POSSESSION: Claimant must prove precise boundaries for land allegedly possessed. The plaintiff claimed title by adverse possession to two parts of DiPetrillo’s land, a front and back pasture, where she kept animals on the lots, let her children ride ATVs, and reestablished a neglected and overgrown pasture. She also claimed to have installed six-foot metal posts that marked the boundary between the back pasture and the DiPetrillo land and maintained a stone wall that marked the boundary between the front pasture and the DiPetrillo land. All these activities might well have qualified as the kind of actual possession required for adverse possession, but the problem for the plaintiff was establishing the lines—they kept moving. The affidavits attached to her motion for summary judgment located the claimed land in a different place than her demand letter to the defendants, and a survey lacked a metes and bounds description. Despite these inconsistencies, the hearing officer granted the plaintiff’s motion but ordered a further evidentiary hearing on the boundaries. At the hearing, DiPetrillo testified that he used the property for cookouts and as access to the woods, and that after the ruling on summary judgment, someone had cleared the back pasture of trees and vegetation. Nevertheless, the hearing officer declared title in the plaintiff according to a new survey, including the newly-cleared area. On appeal the supreme court reversed. It was error to rule for the plaintiff absent proof on every element required for adverse possession, including an accurate description of the land. The survey appended to the complaint was neither final nor accurate, and the new survey may have considered activity occurring after the summary judgment ruling. And, the plaintiff’s story kept changing—at different points claiming a fence or a stone wall (rather than metal posts) marked the boundary of the back pasture. Finally, the court explained what all lawyers should know—an evidentiary hearing is not permitted in a summary judgment proceeding. Coscina v. DiPetrillo, 186 A.3d 590 (R.I. 2018).

BROKERS: Offer at full asking price with condition that seller work full time without compensation does not entitle broker to commission. The owner of a business that included real estate entered into a listing contract with an asking price of $1.2 million. The broker procured an offer to purchase at the asking price with three conditions, one being that the seller agree to operate the business as normal and stay on full-time, initially without pay, and then part-time for an unknown hourly amount and unspecified time. After the seller rejected the offer, the broker filed suit claiming a commission due of $72,000 pursuant to the listing contract. The trial court granted judgment for the broker as a matter of law, finding that the three conditions were not substantial variances from the listing contract. The appellate court affirmed, concluding that a substantial variance is limited to variances in offers that directly conflict with express terms in the listing agreement. The supreme court reversed, explaining that a direct conflict is not the only type of substantial variance. A condition to work without pay is an extraordinary departure from a listing contract and constitutes a substantial variation as a matter of law. The free labor of the seller in effect proposes a lower price than that reflected in the listing agreement, creating a variance between the asking price and the price offered. The broker did not substantially perform, absent the seller’s acceptance of the offer. McNally v. Capital Cartage, Inc., 912 N.W.2d 35 (Wis. 2018).

DEEDS: Deeds purporting to convey land and “rights of way” to railway create easements, with grantor retaining fee simple title and mineral rights. Who owns the mineral rights in a property? Two “right of way deeds” from 1913 stated the grantor “does grant, bargain, sell and convey” to a railway certain real estate “over and across” certain areas of land, while at the same time purporting to grant “right[s] of way. . .” The court held the deeds conveyed an easement rather than a fee simple, explaining that all of the terms of the deed, including its title, are relevant to construing an ambiguous deed. Of importance was the language placing restrictions on uses and the granting of the right to construct a snow fence, neither of which was consistent with the grant of a fee simple. Moreover, in 1913, the term “right of way” was synonymous with easement. Consequently, the grantor’s successors owned the mineral rights. BNSF Ry. Co. v. Box Creek Mineral Limited P’ship, 420 P.3d 161 (Wy. 2018).

INVERSE CONDEMNATION: Prevailing condemnee is entitled only to reasonable expenses and not full reimbursement of all expenses incurred. In 2014, the City of Missoula offered $50 million to purchase the private water system of Mountain Water Company. Mountain Water rejected the offer, and the city initiated condemnation. A trial court issued a condemnation order, and the condemnation commission awarded $88.6 million. Because the award exceeded the city’s final offer, Mountain Water was entitled to the “necessary expenses of litigation.” Mont. Code § 70-30-305(2). It moved for reimbursement of almost $7 million in attorney’s fees and expenses, but the court awarded just over $3.9 million based on a provision stating the “[r]easonable and necessary attorney fees are the customary hourly rates for an attorney’s services in the county in which the trial is held.” Id. at § 70-30-306(2). On appeal, Mountain Water argued that it was entitled to all fees and expenses under a constitutional provision stating, “In the event of litigation, just compensation shall include necessary expenses of litigation to be awarded by the court when the private property owner prevails.” Mont. Const. art. II, § 29. The supreme court concluded that this language was addressed to the court and not the legislature, such that the constitutional provision was self-executing. Consequently, it was within the court’s discretion to determine the “necessary expenses” that should be awarded to prevailing condemnees. Even though self-executing, the legislature was free to pass legislation for the better protection of the right secured. Here, the statute allowed fees that are reasonable, but not full reimbursement higher than the customary county rate. City of Missoula v. Mtn. Water Co., 419 P.3d 685 (Mont. 2018).

LANDLORD-TENANT: City leasing land in proprietary capacity is not entitled to governmental immunity in breach of contract action. The city constructed a lake in the 1950s to serve as its primary source of water, later developing the surrounding area and leasing lakefront lots to private parties. The leases restricted use of the lots for residential purposes only and not for any “business or commercial enterprise.” One lessee, the Wassons, initially lived on the property, but later moved and assigned their leases to a family company, which planned to open a bed and breakfast and event center. To do so, it sought a variance from the lease terms, but the city rejected the application. After the Wassons went ahead and entered into short-term subleases, the city terminated the lease. The Wassons sued for breach of contract, and the city defended largely on the ground that it was immune from suit. The lower courts agreed with the city that all the activities related to the lake constituted governmental functions. But the supreme court reversed, ruling that the governmental/proprietary dichotomy “is a tool with a particular purpose—it determines whether a municipality shares the State’s sovereign immunity because it was acting ‘as a branch’ of the State, or whether it lacks immunity because it was acting ‘on its own behalf.’” Here, the city acted on its own behalf because it had no obligation to lease the lots to private parties. Because it was not acting as a branch of the state when it allegedly breached the contract, it was not entitled to governmental immunity. Wasson Interests, Ltd. v. City of Jacksonville, 2018 Tex. LEXIS 514 (Tex. June 1, 2018).

MINERAL INTERESTS: Lessee’s assignment of all right, title, and interest in oil and gas lease includes overriding royalty. In 2007, the plaintiff entered into an oil and gas lease covering 220 acres, which granted the lessors a standard royalty. The plaintiff later assigned 75 percent of its working interest to third parties, reserving an overriding royalty in the interest conveyed. The plaintiff thus owned the override and the remaining 25 percent working interest, subject to the lessors’ royalty interest. In 2009, the plaintiff and the third parties assigned “all of [their] right, title, and interest” in and to the oil and gas lease, “together with a like interest in and to all personal property located therein” to the defendant. The defendant also agreed “to assume, be bound by and subject to each Assignor’s express and implied covenants, rights, obligations and liabilities” and to “bear its proportionate share of royalty interests, overriding royalty interests and other payments out of or measured by production.” After the defendant extracted oil from the land, the plaintiff sued to collect its overriding royalty interest. The trial court dismissed the action, finding that the plaintiff had conveyed all of its interest to the defendant. The appellate court reversed, finding the language in the agreement by which the defendant assumed and agreed to bear its share of “overriding royalty interests” created an exception to the general grant of all rights, leaving the overriding interest in the plaintiff. Unfortunately for the plaintiff, the supreme court construed the language quite literally and reversed. In its reading, because the grant conveyed “all” of the grantor’s interest in the property, the defendant received both the third parties’ obligations to pay the override and the plaintiff’s right to these payments. The overriding royalty interest still existed, which the defendant was still obligated to pay, but because the defendant now owned all interests in the lease, including the override, payment was not necessary in the strict sense. Ramsey Herndon LLC v. Whiteside, 102 N.E.3d 198 (Ill. 2017).

MORTGAGES: Insurer of mortgage-backed securities must prove justifiable reliance and loss causation to recover for fraudulent inducement from loan originators. Between 2004 and 2006, Ambac Assurance Corporation insured 17 mortgage-backed securities issued by Countrywide Home Loans, which pooled 300,000 individual mortgage loans originated by or acquired by Countrywide. In exchange for substantial premiums, Ambac issued unconditional irrevocable insurance policies, agreeing to insure certain payments to investors. Ambac’s guaranty caused the securities to receive a AAA credit rating. The insurance and indemnity agreement executed by the parties contained representations and warranties as to the loan’s compliance with indemnity guidelines as well as with federal regulations. In 2007 with the onset of the housing and mortgage crisis, Ambac was called upon to pay a large number of claims under the insurance policies. It began to review the origination files of defaulting loans and found that approximately 7,900 out of 8,800 contained material breaches of representations and warranties made by Countrywide. After initiating the repurchase protocol, Ambac sued, alleging Countrywide fraudulently induced it to provide credit enhancement to improve the marketability of the securities. Ambac sought indemnification, reimbursement, attorney’s fees, and expenses. Both parties moved for summary judgment. The trial court ruled for Ambac over Countrywide’s assertion that Ambac needed to show justifiable reliance and loss causation to prevail on a fraudulent inducement claim. The appellate court modified the trial court’s judgment, finding that justifiable reliance and loss causation are required elements of a fraudulent inducement claim. The court of appeals affirmed. First, the court found that under common law, justifiable reliance on the other party’s misrepresentation or material omissions is required, and this applies in the monoline insurer context involving asset-backed securities. The trial court erroneously relied upon an insurance law, N.Y. Ins. Law § 3105, to excuse a showing of reliance. That law is only relevant when an insurer seeks rescission or is defending against claims for payment under an insurance contract, in which case a showing of materiality is not required to avoid its obligations under a policy based on the insured’s misrepresentations. Moreover, requiring a sophisticated party to demonstrate justifiable reliance helps “to rid the court of cases in which the claim of reliance is likely to be hypocritical.” Ambac Assur. Corp. v. Countywide Home Loans, Inc., 2018 N.Y. LEXIS 1542 (N.Y. June 27, 2018).

NUISANCE: Plaintiff recovers cost of restoration for invasion that affects physical condition of land without proof of diminution in value. An oil tanker owned and operated by Jewett overturned in a traffic circle, spilling more than 9,000 gallons of oil and kerosene into a culvert and onto property belonging to the Wests. The Wests had acquired the property with plans to subdivide and develop it, but after the contamination from the spill, prospective real estate developers walked away. Jewett eventually recovered all but 800 gallons of the spill, leading the state to conclude that excavation to remove the remaining contamination was not necessary. The Wests sued Jewett for nuisance and obtained a jury verdict for $490,000 based on the costs of restoration by excavation. Jewett appealed, objecting to the trial court’s instruction to the jury that the measure of damages was the cost of restoring the land to its original condition, with no requirement of proof of a specific diminution in market value of the land due to the spill. The supreme court affirmed, relying on the seminal treatise Prosser and Keeton on the Law of Torts § 87 (5th ed. 1984). They distinguish between a substantial interference that affects the physical condition of the land and one that involves only physical discomfort or mental annoyance. The latter amounts to an unreasonable interference only if it reduces the market value or rental value of the land. The oil spill here affected the physical condition of the land, such that the Wests were not required to show a specific depreciation in the value of the land. West v. Jewett & Noonan Transp., Inc. 189 A.3d 277 (Me. 2018).

 

PREMISES LIABILITY: Landowners have no duty to trim naturally growing trees on their rural property to improve road visibility. Manley died after his truck collided with Patton’s truck at the intersection of two gravel roads. The intersection had no traffic signs. Investigation revealed that trees located on the Hallbauers’ land created a blind spot that prevented northbound traffic and westbound traffic from seeing each other. The Hallbauers bought the land five years before the accident, and the land remained largely unchanged from that time, although they had cleared some trees. Manley’s estate sued the Hallbauers for wrongful death. The Hallbauers’ motion for summary judgment was granted by the trial court. The court of appeals affirmed, applying Restatement (Second) Torts § 363(1) (1965) and rejecting Restatement (Third) of Torts: Liability for Physical & Emotional Harm § 54 (2012), under which a landowner has a duty of reasonable care if the landowner “knows of the risk or the risk is obvious.” The supreme court affirmed, adhering to the traditional rule that “the owner of land is under no affirmative duty to remedy conditions of purely natural origin upon his land[;] . . . the duty is upon the motoring public to observe obstructions to view and to exercise reasonable care for their own safety and protection.” The court examined a long list of Kansas precedents that follow the rule and saw no reason to divert from these cases in favor of the Restatement (Third). Kansas public policy chooses not to impose liability on rural landowners and instead places the duty upon drivers to use caution when conditions result in obstructed visibility. Manley v. Hallbauer, 423 P.3d 480 (Kan. 2018).

 

TAKINGS: City’s construction of park and invitation of public access over private beach is a taking of property. The Chmielewskis owned a beach parcel in Block M of a subdivision. The city acquired a neighboring lot in the subdivision and turned it into a mini park, clearing a path across Block M to the Gulf of Mexico. The city publicly announced the new park on its website, posted large signs with the city’s emblem stating “Beach Access” and improved a nearby parking lot for Block M beach access. The city zoned Block M, including the Chmielewskis’ beach parcel, as “recreation open space/public park.” The public regularly trespassed onto the Chmielewskis’ beach parcel to get to the beach. They walked up the private sidewalk in front of their home and from the mini park across the beach parcel. On weekends and holidays, beachgoers flocked to Block M in large numbers and onto the Chmielewskis’ beach parcel. In 2009, the Chmielewskis sued the city, alleging a taking in violation of the Florida Constitution by encouraging and inviting the general public to use Block M and their parcel. A jury returned a verdict for the Chmielewskis. The Eleventh Circuit affirmed, ruling that the evidence supported the jury’s finding that a physical taking occurred through the continuous occupation of the Chmielewskis’ property by members of the general public. The city encouraged this occupation by placing beach access signs, clearing vegetation, creating nearby parking spaces, hosting events at the property, and refusing to remove trespassers. The court pointed out that a plaintiff need not demonstrate direct government appropriation of private property to prove a taking. A taking also occurs when the government gives third parties “a permanent and continuous right to pass to and fro, so that the real property may continuously be traversed.” Chmielewski v. City of St. Pete Beach, 890 F.3d 942 (11th Cir. 2018).

LITERATURE

LANDLORD-TENANT. In One-Strike 2.0: How Local Governments Are Distorting a Flawed Federal Eviction Law, 65 UCLA L. Rev. 1146 (2018), Prof. Kathryn V. Ramsey offers a critical analysis of the proliferation and effects of what she calls crime-free housing ordinances (CHO). These local ordinances apply to private market housing and are ostensibly modeled after the federal one-strike policy, which authorizes the eviction of tenants from federally subsidized housing on the basis of their criminal activity or that of household members and guests. That policy was upheld in Department of Housing & Urban Development v. Rucker, 535 U.S. 125 (2002). But the CHOs are much more onerous. They not only authorize and encourage eviction of tenants who are engaged in criminal activity, but some require it and as a first resort remedy. Using the ordinance enacted by the City of Elgin, Illinois, as an example, she shows how burdensome these ordinances have become. They require landlord licensing, criminal background checks, tenant record sharing, and the use of a crime-free lease addendum. The city may treat illegal tenant behavior as a nuisance and require that the landlord accomplish abatement through a course of action approved by the police. Because these ordinances sometimes transfer discretion about whether eviction is warranted to the local police departments, they risk upsetting the traditional landlord-tenant relationship. Prof. Ramsey criticizes CHOs for producing effects that fall disproportionately on discrete ethnic groups. They also present serious constitutional and civil rights concerns, including unfettered discretion by the police to evict tenants and the spread of third-party policing that significantly expands the scope of activities that can lead to eviction. In the end, Prof. Ramsey maintains that municipalities need to balance prioritizing crime prevention with valuing the rights of their citizens.

The much-anticipated revision to the uniform residential landlord and tenant act has finally arrived. In The Revised Uniform Residential Landlord and Tenant Act: A Perspective from the Reporters, 52 Real Prop. Tr. & Est. L.J. 417 (2018), Profs. Sheldon F. Kurtz and Alice Noble-Allgire, reporters for the Uniform Law Commission project, recount the long process to revision. They give the historical context of the revolution in landlord-tenant law that commenced several decades ago and describe the public policy choices the committee considered in crafting the law. The article discusses how the revised law clarifies and expands traditional principles and aims to find a better balance of the respective interests of landlords and tenants. They discuss new rules for tenants who are victims of domestic violence, for security deposits, and for handling tenants’ personal property. The article constitutes a most insightful handbook on this still-evolving area of law.

PROPERTY THEORY. It is largely agreed that the 2008 financial crisis was catastrophic. But could the effects have been lessened by a different property regime—one that at least temporarily employed liability rules instead of property rules for mediating claims and losses? Prof. Andrew Blair-Stanek makes this suggestion in Crisis in Tax, 67 Duke L.J. 1155 (2018). He broaches this question in the context of tax rules that if modified might have helped to mitigate the disastrous consequences for taxpayers already in distress. Those consequences included bankruptcies, layoffs, foreclosures, and financial contagion. Under the classic dichotomy, property rules protect legal entitlements through deterrence and by backing up a property owner’s rights to prevent interference, and liability rules protect legal entitlements by requiring compensation for intrusions. Prof. Blair-Stanek asserts that, during the financial crisis, the IRS’s adherence to traditional property rules in enforcing and not enforcing tax rules cost more than the much-reviled federal bailout. Although the IRS did act to waive some property rules in tax law that risked worsening the crisis, such as the standards for mutual fund distributions, modifying mortgages in mortgage-backed bonds, and cash borrowed from foreign subsidiaries, it did so by nonenforcement of the property rules, rather than applying a liability rule. Had the IRS taken the latter course, it could have avoided the windfall to some companies and also obtained compensation for lost tax revenues. Prof. Blair-Stanek asserts that prearranging temporary moves to liability rules will empower drafters of private legal documents to take advantage of this different regime. In his view, this shift will tend to minimize contagion, avoid moral hazard, and further transparency and flexibility.

The federal government is the largest landowner in the United States. But, how did this come to be? In The Rise of Federal Title, 106 Calif. L. Rev. 631 (2018), Prof. Gregory Ablavsky offers a new theory on the invention of “federal title,” one that builds on the accepted theory of states ceding title to lands within their borders to the federal government upon entry into the union. Instead, Prof. Ablavsky maintains that federal title is largely premised upon the assertion of control by the federal government. He posits that federal title became a recognized concept as states’ unregulated and sometimes conflicting land grants created endless litigation, leading claimants to turn to the “federal government to resolve conflicting rights and to create a land system that offered certain title.” This circumstance served to vindicate federal ownership over the majority of the country’s land. Prof. Ablavsky backs up this claim with an extensive discussion of the history of land law in the United States, its early conception and how it changed as national imperatives changed, and the expansion westward occurred. The history shows a persistent conflict between states, Native Americans, and the federal government over control and dominance—states sometimes openly repudiating federal authority and native tribes challenging the federal government, often through warfare. In all, the federal government won, yet the legitimacy of federal title remains in contention as revealed in recent claims by individuals for unlimited access to federal lands. Prof. Ablavsky concludes that challenges to federal government control over the public domain reflect not “‘original understanding’ but a durable dissenting constitutional tradition that has consistently failed to become law.”

LEGISLATION

CALIFORNIA amends landlord-tenant law to allow termination of commercial leases in cases of abandonment. When rent is unpaid for at least 14 days, a lessor may terminate a lease upon service of a Notice of Belief of Abandonment if the tenant does not respond. 2018 Cal. Stats. ch. 104.

HAWAII makes mediation of condominium disputes mandatory. One party may compel mediation for disputes pertaining to interpretation or enforcement of the declaration, by-laws, or rules, but not in cases of threats to property damage or to health or safety of owners and other persons. 2018 Hi. Acts 196.

MISSOURI amends tax foreclosure act to specify distribution of proceeds of sale. Any surplus is to be distributed to lienholders in the order of their priority, then to the owners of the property, but no sooner than 90 days after the redemption period has expired. 2018 Mo. S.B. 623.

NORTH CAROLINA amends landlord-tenant law to allow recovery of out-of-pocket expenses by landlord. Recoverable expenses include filing fees, costs of service of process, and attorney’s fees; and they are recoverable in order to cure a default. 2018 N.C. Sess. Laws 50.

PENNSYLVANIA adopts accelerated foreclosure procedures for vacant and abandoned property. A court or municipality may certify vacancy and abandonment, in which case mediation and conciliation are not required and a sale must take place within 60 days of the writ of execution. 2018 Pa. Laws 32.

RHODE ISLAND amends Uniform Voidable Transaction Act. The amendments allocate burdens of proof on the statutory elements and shield good faith transferees. 2018 R.I. Pub. Laws 141.

RHODE ISLAND revises requirements for surveyors’ licenses. Additional field and research experience is required along with course work in math, science, and computer usage. 2018 R.I. Pub. Laws 11.

RHODE ISLAND amends property law on maintaining easements for access. Absent an agreement between the parties, the owners of residential real property who benefited from an easement or right of way must maintain and repair the easement, with the costs shared based on the proportion of benefit received by each property. Owners are liable in an action for specific performance or contribution. 2018 R.I. Pub. Laws 142.

RHODE ISLAND adopts the Uniform Real Property Electronic Recording Act. The act provides for electronic recording of instruments and the conversion of paper instruments to electronic form. It validates electronic signatures for execution and notarization. 2018 R.I. Pub. Laws 101.

VERMONT adopts rules regulating short-term rentals. Rentals in furnished homes, condominiums, and rooms in dwellings are subject to inspection for health and safety. Operators must provide occupants with information about meals and room taxes and contact information for the person responsible for the rental and the local department of health. 2017 Vt. Laws 10.

WEST VIRGINIA amends tax sale statute to prescribe rules for redeeming certificate of sale. The amendments prescribe a tax-deed form and requirements for its issuance, including notice to the owner of the right to redeem the certificate. 2018 W.V. S.B. 1006.  

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