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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

CONDOMINIUM ASSOCIATIONS: Painting lines within parking area unit is not valid subdivision. In 2000, Quail Street Company acquired a majority of units in a 14-unit mixed-use condominium project, including a 400-square-foot garage unit containing three parking spaces: C, D, and E (the Garage Unit). Quail Street subsequently painted or taped lines to mark the boundaries of the three spaces and then conveyed spaces C and D as separate units, which Semler eventually acquired. Quail Street did not amend the condominium documents to reflect this subdivision, as required by the Colorado Common Interest Ownership Act (CCIOA), Colo. Rev. Stat. § 38-33.3-213. In 2011, Quail Street separately transferred the Garage Unit as a single undivided unit to Perfect Place. In 2013, Perfect Place sought to quiet title to the Garage Unit. The trial court concluded that Quail Street validly subdivided the Garage Unit by substantial compliance with the CCIOA. The supreme court reversed. Under the plain language of the CCIOA, no subdivision is effective unless the condominium declaration and maps are amended and recorded. Nothing in the act permits or requires only “substantial compliance” to subdivide a condominium unit. The supreme court remanded to determine who owned spaces C and D. Perfect Place, LLC v. Semler, 426 P.3d 325 (Colo. 2018).

 

DEEDS: Cause of action against closing agent for failing to reserve mineral interest does not accrue upon recording of deed. In 2008, a sale of 200 acres of land closed. The title company, RCAT, served as closing agent and prepared the deed, which by mistake failed to refer to a mineral reservation agreed to by the parties. For six years, the seller and its successors in interest continued to receive royalties from mineral production on the land and continued to pay all property taxes associated with production. In 2014, the buyer resold the land to LCL. RCAT again acted as the closing agent, and again the deed did not note the mineral reservation. Shortly after closing, RCAT conducted a title search, discovered the problem, and asked LCL to execute a corrected deed. LCL refused, and the seller learned about the problem when the oil and gas company suspended royalty payments. LCL sought to quiet title to the mineral interests, and the seller filed a third-party action against RCAT for negligence and breach of fiduciary duty. RCAT moved for summary judgment on the ground that the two-year statute of limitations had run, asserting that the seller knew or should have known of the error in 2008 when it signed the deed, and alternatively that it had constructive notice when the deed was recorded. The trial court granted summary judgment for RCAT, and the supreme court reversed and remanded. Under Kan. Stat. Ann. § 60-513(b), a negligence claim accrues when the act giving rise to the cause of action first causes substantial injury and the fact of injury is reasonably ascertainable. The seller immediately suffered more than a paper injury when the deed was recorded in 2008; it had a cause of action for reformation based on mutual mistake. But there were questions of fact as to when that injury was reasonably ascertainable. Recording is said to be notice to the world, but it is usually relevant to persons who have a duty to investigate and thus it is not dispositive as to the seller’s claim. Other factors to be considered on remand include whether the seller should have read the deed before signing and the continuation of royalty payments for years after the sale. LCL, LLC v. Falen, 422 P.3d 1166 (Kan. 2018).

 

EASEMENTS: Footpath easement to reach wharves merely describes location and is not extinguished by destruction of wharves. Stowell is the owner of a lot on Great Island over which a footpath runs. Beginning in 1892, the original grantors conveyed lots along the Newbury shore to various individuals through deeds that granted “the right of a foot path across any of the lots numbered on the before mentioned ‘plan’ to reach the wharf or wharves that may be established on the shore of said Island.” Between 1893 and 1902, two steamboat wharves were built on the Newbury side of the Island. Steamboat service on Lake Sunapee ended by the 1930s. In 1938, a hurricane destroyed the wharves, which were never rebuilt. Thereafter, staples came to the island by boat and were delivered to residents using the footpaths. In recent times, residents built individual docks for boats for travel to and from the island, but they continued to use the footpaths for travel across the island and for recreational purposes. Stowell sought a ruling that the footpath easements were extinguished. The trial court, relying on the plain language of the deeds, agreed with the defendants that the destruction of the wharves did not extinguish the easements. The supreme court affirmed. Under the impossibility of purpose doctrine, “[w]hen a change has taken place since the creation of a servitude that makes it impossible as a practical matter to accomplish the purpose for which the servitude was created,” and modification of the servitude “is not practicable, or would not be effective, a court may terminate the servitude.” Restatement (Third) of Property: Servitudes § 7.10(1). The impossibility of purpose doctrine enforces the presumed intent of the parties that an easement created for a specific purpose terminates when that purpose no longer exists. The easements here did not require individuals to use a footpath only for boarding steamboats, did not limit what a person could do when reaching a wharf, and did not restrict a person in choosing which footpath route to use. Given the lack of public roads on Great Island and the fact that the footpaths were used to get from one place to another, the court concluded that the easements were intended to convey to the grantees a right to use the footpaths for multiple purposes. Thus, the easement language referring to wharves merely described a location, rather than limited the grantees’ use of the footpaths for a particular purpose. Stowell v. Andrews, 2018 N.H. LEXIS 168 (N.H. Sept. 14, 2018).

 

EMINENT DOMAIN: Restrictive covenant is not a compensable property interest. The Town of Monument purchased a lot in a residential subdivision to construct a municipal water storage tank. The lot was subject to a restrictive covenant prohibiting such structures in the subdivision. The town sought to use its powers of eminent domain to have the court declare its property free of the restrictive covenant. Other residential lot owners intervened, claiming the right to compensation for the loss in value to their properties from the elimination of the covenant. The case turned on an apparent conflict between the rulings in City of Steamboat Springs v. Johnson, 252 P.3d 1142 (Colo. Ct. App. 2010), and Smith v. Clifton Sanitation District, 300 P.2d 548 (Colo. 1956), on whether a restrictive covenant is a compensable property interest. The trial court limited the rule in Smith—that restrictive covenants are not compensable property interests in eminent domain proceedings—to its facts. In Smith, the landowners “schemed” to create a restrictive covenant for the express purpose of thwarting a possible eminent domain action. Instead, the trial court applied the rule in Johnson, compensating the other residential lot owners. In reversing, the court of appeals made clear that the rule in Smith was definitive in Colorado and applies broadly to any situation in which a restrictive covenant is interposed as an obstacle to a condemning authority’s attempt to obtain property for public use through eminent domain. Smith explained that a broad rule was justified by the need to avoid condemning authorities having to pay speculative and unwarranted damages for each interest in a subdivision subject to restrictive covenants and was consistent with the notion that landowners hold their estates subject to the public necessity for the exercise of the right of eminent domain for public purposes. Town of Monument v. State, 2018 Colo. App. LEXIS 1396 (Colo. Ct. App. Oct. 4, 2018).

 

FORECLOSURE: Condominium association may not use nonjudicial foreclosure to collect unpaid assessments without express authorization in condominium documents. Sakai acquired a condominium unit in 2006, and by 2012 he had amassed over $20,000 in unpaid assessments. The condominium bylaws authorize the association to file a lien for unpaid assessments and to avail itself of “any other remedies it may have” to enforce assessments. Neither the bylaws nor other condominium documents grant the association any additional powers with respect to unpaid assessments. In 2012, the association filed a notice of lien against Sakai and proceeded to foreclose by non-judicial power of sale. Kogen purchased at the foreclosure sale and filed suit to eject Sakai from the unit. Sakai simultaneously filed a complaint to quiet title in the unit, alleging that the association’s non-judicial foreclosure was illegal because the association lacked a power of sale. The trial court held in favor of Kogen, but the appellate court reversed. It held that the foreclosure statute, Haw. Rev. Stat. ch. 667, provided procedures for non-judicial foreclosures only but did not create or confer a right or power to foreclose. Such power, the court explained, must exist in a statute or written agreement. Nor did the condominium act, Haw. Rev. Stat. § 514A, confer a power of sale upon the association absent express adoption by the owners. Nevertheless, having failed to challenge the foreclosure before the recordation of the affidavit and the quitclaim deed, Sakai was time-barred by Haw. Rev. Stat. § 667-102(b)(2) from any claim to the property itself, but his claim for damages against the association for wrongful foreclosure was still viable. Sakai v. Ass’n of Apartment Owners of Hawaiian Monarch, 426 P.3d 443 (Haw. Ct. App. 2018).

 

MORTGAGES: Lender’s claim against borrower for non-payment of loan is subject to credits of amounts paid by settling defendants. Sky View at Las Palmas, LLC secured a construction loan of $9 million from a bank and a second loan from Martinez for $1.275 million. A title company escrow officer oversaw the loan closing and violated a number of laws in the process, including improper acknowledgments of the loan documents. Within months, Sky View defaulted on the loan, which led to foreclosure by the bank, extinguishing Martinez’s interest. After extended attempts at negotiation, Martinez filed suit against everyone involved in closing the loan. All but Sky View settled, paying a total of $2.3 million. Martinez then obtained a jury verdict against Sky View and its members for $2,665,832, plus attorneys’ fees of $774,062. The trial and appellate courts denied Sky View’s request for settlement credits, stating that the claims against Sky View were independent of the injuries Martinez alleged against the settling defendants. The supreme court reversed based on the one-satisfaction rule: an injured party is entitled to but one satisfaction regardless of whether more than one wrongdoer contributed to the injury. The rule applies when the defendants commit the same act and when they commit technically different acts that result in a single injury. No joint liability is required. Under this rule, a non-settling defendant is entitled to credits against liability for amounts paid by settling defendants. Here, the claim language used by Martinez did not matter because all claims pointed to the same alleged injury—nonpayment of the loan. Martinez also sought the same amount from each defendant, which was the amount the jury awarded him against Sky View. Thus, Sky View was entitled to a credit to the extent of Martinez’s prior agreements with the settling defendants. Additionally, since Martinez settled with the others, as opposed to successfully prevailing via litigation, Sky View could not be liable for attorney’s fees attributable to those actions. Will Sky View walk away scot-free, or will the other defendants have an action over against it? Sky View at Las Palmas, LLC v. Mendez, 555 S.W.3d 101 (Tex. 2018).

 

MORTGAGES: Foreign statutory trusts need not register as debt collectors to foreclose home mortgages. Defaulted home mortgage loans were transferred to foreign statutory trusts organized under Delaware law. After the trustees initiated foreclosure proceedings, the borrowers filed counterclaims, alleging that they violated Maryland debt collection law by attempting indirectly to collect mortgage payments without registering under the Maryland Collection Agency Licensing Act (MCALA), Md. Code Bus. Reg. § 7-301. The trial court granted the borrowers’ motions to dismiss without prejudice on the grounds that the foreign statutory trusts were “in the business of collecting consumer debt” and thus subject to the act because they “indirectly attempted to collect on a defaulted mortgage loan purchased at a discount” and were not otherwise exempt. The intermediate appellate court affirmed, but the court of appeals reversed. After an exhaustive review of MCALA’s legislative history and related laws regulating the mortgage industry, the court ruled that the legislature did not intend to require foreign statutory trusts to be licensed as collection agencies. Instead, “the legislature specifically decided that the statutory trusts were not doing business in Maryland when foreclosing on deeds of trust, recognizing that the previous Maryland mortgage foreclosure law reform would dictate the requirements for the in rem proceeding.” The court reversed and remanded to allow the underlying foreclosures to proceed. Blackstone v. Sharma, 191 A.3d 1188 (Md. 2018).

 

RECREATIONAL USE STATUTE: Charge for camping services is not admission fee that precludes statutory immunity. Albert Pike is an outdoor camping and recreational site, covering over 200 acres, including parts of the Little Missouri River, located in a national forest. The area is used for fishing, canoeing and swimming. There are 54 campsites over four loops, available for between $10 to $16. A 2001 rehabilitation project of campsites located in loop D included an environmental assessment that erroneously concluded that the site was not situated within the 100-year floodplain. Occasionally, the Little Missouri River rose, prompting concern for some campsites and causing rangers to move campers to other sites. In 2010, an intense storm system caused serious flooding of the river. Twenty campers were swept away to their deaths. A US Geological survey expert described the flood’s intensity as exceeding a 500-year event. Plaintiffs, the estates of those killed, sued the federal government under the Federal Tort Claims Act, 28 U.S.C. § 1346(b) (FTCA). The act grants subject matter jurisdiction for suits against the United States in circumstances that a private landowner would be liable to the plaintiff. The court granted the government’s motion to dismiss based on immunity under the Arkansas Recreational Use Statute (ARUS), Ark. Code §§ 18-11-301 to 18-11-307. The Arkansas statute immunizes a landowner from liability to persons entering the land and water areas available to the public for recreational purposes subject to two exceptions: when the landowner “charges the person . . . for the recreational use” and when the landowner maliciously fails “to guard or warn against an ultrahazardous condition, structure, personal property, use, or activity actually known to the owner to be dangerous.” Id. § 18-11-307. The court ruled that neither exception applied. First, the statute defines a charge as an “admission fee for permission to go upon or use the land.” Id. § 18-11-302(2). The parties disputed whether the $16 campsite fee was an admission fee, but the court, construing the language strictly, concluded that it was not. The charge was not for purposes of entry, but for access to campsite services, including water and electric hook ups. As to the second exception, the activity at issue, camping in a floodplain, is a common recreational activity and not ultrahazardous in itself. Finding that the ARUS provided immunity to the government, the court lacked subject matter jurisdiction under the FTCA over the claims. Moss v. U.S., 895 F.3d 1091 (8th Cir. 2018).

 

RESTRICTIVE COVENANTS: Covenant prohibiting “commercial activity” does not preclude short-term home rentals. The Neuschwanders bought property in a residential subdivision with restrictive covenants regarding lot size, lot subdivision, and lot use. One provision stated, “There shall be no commercial activity allowed on any of said lots.” The Neuschwanders’ primary use of the property was for rental to vacationers on both short-term and long-term leases. Subdivision neighbors filed suit for injunctive relief claiming short-term leasing violated the restrictive covenant banning commercial activity. The trial court agreed, finding the covenant’s “unstated purpose” was to ensure and maintain a quiet neighborhood where people would know their neighbors. The appellate court reversed, finding the covenant ambiguous and ruling that it did not bar short-term rentals. A majority of the supreme court agreed. The supreme court stated that “commercial activity” was simply an undefined term, whether read separately or in the context of the complete covenant. Because the meaning could not be discerned through its text, it was deemed ambiguous. The court then referenced the dictionary for the meaning of “commercial,” but found that a review of definitions, in the context of the entirety of the covenant on the property, still left them unable to decipher the meaning of “commercial activity”. If words in a restrictive covenant are ambiguous, public policy dictates resolving disputes about meaning in favor of the free use of property. The court noted individuals who rented and occupied the property used it in a manner similar to an owner, buying their own food, cooking their own meals, making their beds, and recreating as the house’s location permitted. The Neuschwanders provided no services to the renters. The court also recognized that the owners were using the property in a manner very similar to their predecessors in interest. Forshee v. Neuschwander, 914 N.W.2d 643 (Wis. 2018).

 

ZONING: Referendum may block zoning ordinance amendment even though it makes zoning and city’s general plan temporarily inconsistent. In California, zoning ordinances must “be consistent with the general plan of the county or city.” Cal. Gov’t Code § 65860. Any change to a city’s zoning ordinance, whether initiated by legislation or initiative, that is inconsistent with the general plan is invalid ab initio. But may citizens challenge by referendum a city’s zoning ordinance amendment that is necessary to conform to a revised general plan? Yes. In 2014, the City of Morgan Hill amended its general plan to change the land use designation for a tract from industrial to commercial to allow its owner to redevelop the land into a hotel. In 2015, the city council then sought to rezone the tract from “ML-Light Industrial” to “CG-General Commercial” (one of 12 possible commercial zoning designations for the tract). The Morgan Hill Hotel Coalition, in opposition, petitioned for a referendum to reject the rezoning ordinance. The city council placed the referendum on the ballot in a special municipal election but at the same time authorized a legal challenge to remove it. The trial court ordered the referendum removed from the ballot, reasoning that the referendum would “enact” an invalid zoning ordinance by leaving the ordinance inconsistent with the city’s amended general plan, in violation of the code. The court of appeal reversed, disagreeing with the per se rule (i.e., that referenda were always invalid if they rejected an ordinance meant to make zoning and land use plans consistent). The Supreme Court agreed, holding that a referendum to reject a proposed ordinance does not work to “enact” an inconsistent ordinance. A temporary inconsistency between a zoning ordinance and an amended general plan is allowed. The referendum merely maintains the status quo and gives maximum effect to the power of referendum reserved to California’s citizens under the state’s constitution. City of Morgan Hill v. Bushey, 423 P.3d 960 (Cal. 2018).

LITERATURE

Property theory. In The Role of Land Tenure in the Future of American Agriculture, 22 Drake J. Agric. L. 349 (2017), Prof. Neil D. Hamilton begins with a bold assertion about the role of farms in the development of the nation and its economy. Besides sustaining humans, farms have served to connect and sustain families across the generations. In Prof. Hamilton’s view, agricultural land tenure is unique in that it includes land for farming, a family dwelling, and a business operation. Despite its most essential role in life, the future of farming and agricultural land tenure is threatened by a host of factors, some associated with changes in society generally. He points to demographic changes: the farmers are aging and their heirs are not as interested in farming. This leads to the fragmentation of ownership interests, the increasing prevalence of non-owner operators (more than half of farms in Iowa), and the growing phenomenon of vertical integration of farming operations. There are high barriers to entry by new and young farmers. All of these changes portend worrisome trends for the nation. He attributes much of these worries to the traditional system of land tenure, as becoming disconnected from modern agricultural practices. Prof. Hamilton raises alarms through a series of rhetorical-sounding, but nonetheless real, questions about how we construct and support ownership of farmland.

Is the state liable when it fails to intervene against individuals who deny other persons access to their private property for reasons connected to constitutionally guaranteed rights? That is the question broached by Isaac Saidel-Goley and Professor Joseph William Singer in Things Invisible to See: State Action & Private Property, 5 Tex. A&M L. Rev. 439 (2018). The conduct suggested by the question includes restrictive covenants, refusals to rent or sell, and the denial of accommodations in places open to the public. The traditional bar to holding the state accountable in such instances is the state action doctrine. The authors posit that the state action doctrine, rather than operating as an imperative to the state to remedy denials of access to property, as guaranteed by the Constitution, in fact has served to limit remedies. Drawing on property law, they propose a reformulation, reasoning that equal protection depends on law, not action. Because the common law is law, it must comply with the Equal Protection Clause. Common law exists only to the extent authorized by the state, and when the common law allows discriminatory exclusion from the marketplace, it violates the Equal Protection Clause. A state’s acknowledgment or recognition of a common law right in this paradigm constitutes state action. The authors aim to make state involvement in such cases visible and therefore actionable for what it is and does. Their property platform is particularly apt for this purpose.

In The Texas Constructive Trust and Its Peculiar Requirements, 50 Tex. Tech L. Rev. 447 (2018), Prof. David Dittfurth explores the peculiar aspects of this equitable remedial device as it operates under Texas law. The “three-element rule” requires a plaintiff seeking a constructive trust to prove: (1) that the defendant acquired property from the plaintiff through either breach of trust or fraud, (2) that allowing the defendant to retain the property would unjustly enrich him, and (3) that the defendant currently possesses the plaintiff’s property or its traceable product. Prof. Dittfurth claims that the rule works mischief in those cases in which a party comes to possess another’s property through mistake or wrongful conduct not involving breach of trust, such as murder. He proposes a modified rule to encompass these and other scenarios, to avoid the confusion caused by the three-element rule, and to better protect property rights.

 

Land use. In The Power to Exclude and the Power to Expel, 66 Clev. St. L. Rev. 367 (2018), Prof. Donald J. Smythe asserts that local governments use zoning and eminent domain powers for wrongful ends by driving away and excluding certain persons from communities. He offers the analytical construct of the “Not-in-My-Backyard Game” to illustrate the motivations of various parties that have had the effect of changing the direction of American property law. The game starts with affluent residents and owners of upscale businesses pressuring suburban governments for zoning regulations that effectively exclude less affluent residents from their neighborhoods. At the same time affluent residents and corporations who want to relocate into urban neighborhoods pressure city governments to use eminent domain to facilitate urban redevelopment projects, which drive out less affluent residents and smaller businesses from their neighborhoods. Prof. Smythe relies on extensive historical evidence and the court decisions, which first upheld the powers of local governments to exclude and expel with few constraints. Recently some courts have exhibited willingness to scrutinize land use and regulatory practices for their pernicious effects, which include de facto segregation by wealth, by race, and by ethnicity. These practices also raise other societal concerns, such as rising land prices, unaffordable housing, and homelessness. Prof. Smythe aims to shed light on the range of social harms that result from this game, hoping to prompt action, as least on the state level, to curtail these concerning practices.

LEGISLATION

ALASKA adopts the Uniform Environmental Covenants Act. The law establishes environmental covenants as interests in real property, which arise when an environmental response project imposes activity and use limitations on the property. The act specifies limits and duties of the parties and methods for termination. 2018 AK Sess. Laws 106.

 

CALIFORNIA amends its Health and Safety Code to require inspections of buildings with three or more multifamily dwelling units by licensed inspectors. The inspections must be completed by January 1, 2025, and thereafter every six years. 2018 Cal. Stats. ch. 445.

 

CALIFORNIA amends its Civil Code to prohibit transfer fee covenants. Any transfer fee created in violation of this prohibition is void as against public policy. The act has exceptions for certain specified covenants, including fees payable to a condominium association for the maintenance of the property. 2018 Cal. Stats. ch. 306.

 

DELAWARE adopts provisions for the leasing of historic structures on state public lands to individuals or corporate entities. The lessee is required to renovate and maintain the structure up to the applicable Secretary of Interior Standards. The lessee is permitted to insure the property, and the property becomes eligible for Land and Historic Resource Tax Credits. 81 Del. Laws 309.

 

DELAWARE enacts provisions to allow striking unlawful provisions from recorded instruments. The county attorney determines whether an instrument contains an unlawful clause, including prohibitions on transfers based upon race, religion, gender, and age. Once redacted, the recorder may disclose the stricken provisions only in response to a subpoena. 81 Del. Laws 409.

 

ILLINOIS creates a pilot program for removing expired mechanics’ liens. If a recorder determines that a lien has expired, the property owner may send a Demand to Commence Suit to the lienholder. The findings of a hearing to determine if the lien has expired are recorded in the land records. 2017 Ill. Laws 1061.

 

MAINE amends tax foreclosure law to protect elderly homeowners. Low-income homeowners 65 years and older may request the listing of their property for sale by a real estate broker in lieu of a standard tax foreclosure sale. If the property does not sell within six months of listing, the property may be sold for unpaid taxes as any other property. 2017 Me. Laws 478.

 

NEW YORK amends agriculture law to provide for preemptive purchase rights to farmland. The act authorizes “farmer-purchaser farmland protection agreements,” which grant the holder of a farmland protection conservation easement a right to purchase. The aim is to protect farmland from conversion to other uses. The purchaser is eligible for state farm assistance. 2018 N.Y. Laws 158.

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