Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
FORECLOSURE: “Single refiling rule” bars action on promissory note after voluntary dismissal of foreclosure that also sought deficiency judgment. In 2011 a lender sued to foreclose a mortgage, voluntarily dismissed the action, and filed a new action against the borrowers for breach of promissory note. Two years later the lender voluntarily dismissed this action after the trial court denied its motion to continue the trial date. Later the same year the lender filed a new action for breach of a promissory note. The borrowers moved to dismiss based on the “single refiling rule” that prohibits a plaintiff from refiling the same cause of action more than once. Ill. Comp. Stat. § 13-217. The lender argued that the claim for mortgage foreclosure was different from a breach of a promissory note. The trial court granted summary judgment for the lender. The appellate court vacated the lower court’s order and dismissed the complaint, finding that although a mortgage and note are distinct contracts, the suits for foreclosure and for breach of the note arose out of the same set of operative facts, constituting the same cause of action for purposes of the rule. The supreme court affirmed, noting that determination of whether two lawsuits asserted the same cause of action requires application of the “transactional test.” The test treats separate claims as the same cause of action if they arise from a single group of operative facts, regardless of whether they assert different theories of relief. The single refiling rule does not require that prior lawsuits reach a final adjudication on the merits. The court recognized that a lender may sue under the mortgage and note consecutively or concurrently, and the decision did not hold that claims arising under the mortgage and note constituted the same cause transaction for purposes of the rule. However, the lender sought relief under the mortgage and note concurrently by seeking foreclosure and simultaneously requesting a potential deficiency judgment based on the note. The foreclosure suit, the later suit on the note, and the last suit filed all referenced the same note, default date, and amount of borrower liability, making them the same cause of action. As such, the last suit on the note was barred by the rule, which allows one, and only one, refiling of a claim. First Midwest Bank v. Cobo, 2018 Ill. LEXIS 1232 (Ill. 2018).
FORECLOSURE: Action for wrongful foreclosure lies even if lender does not complete foreclosure. A bank filed an action to foreclose on a home mortgage, claiming it held the note and mortgage by way of assignment from the original mortgagee. The homeowner disputed this claim, alleged the bank did not have standing to foreclose, and counterclaimed for wrongful foreclosure. The bank immediately moved to dismiss, arguing that the homeowner’s pleading was insufficient because she did not describe a completed foreclosure. The trial court dismissed the counterclaim because the foreclosure was not completed and Hawaiian precedent recognized a right of action for wrongful foreclosure only in non-judicial foreclosures. The Hawaii Supreme Court reversed, extending the doctrine of wrongful foreclosure to judicial foreclosure and allowing a wrongful foreclosure action before foreclosure is complete. The court reasoned that a foreclosing mortgagee’s right and power to foreclose is at the heart of whether a foreclosure is right or wrong. The court enumerated two essential elements of a wrongful foreclosure claim: (1) the foreclosing mortgagee’s failure to establish standing and (2) mortgagor’s suffering of an injury-in-fact and damages. Bank of America, N.A. v. Reyes-Toledo, 428 P.3d 761 (Haw. 2018).
FORECLOSURE: Sixty-day period to claim surplus funds runs from clerk’s issuance of the certificate of disbursements, not from date of foreclosure sale. A judicial foreclosure action on property subject to multiple mortgagees resulted in a sale at public auction at which the clerk issued a certificate of title. Two weeks later, the clerk issued a certificate of disbursements reflecting a surplus of $86,093. A junior mortgagee filed a claim asserting a right to $20,573 of the surplus amount. Thereafter, 61 days after the auction, the mortgagors filed a claim for the remaining surplus. The next day, a prior mortgagee filed a claim asserting its right to the entire surplus. At issue was when the time to claim a surplus commenced. Fla. Stat. Ann. § 45.031 states that a claim for surplus funds must be filed within “60 days after the sale,” but the section does not define “sale” or “60 days after the sale.” At a hearing on the competing surplus claims, the trial court rejected the mortgagee’s claim because it was not filed within 60 days of the foreclosure sale. The appellate court affirmed, rejecting the mortgagee’s assertion that the statute meant within 60 days of the issuance of the certificate of sale, or as recognized by other appellate courts, within 60 days of the clerk’s issuance and filing of the certificate of title. In reversing, the supreme court reviewed the legislative history of the statutory chapter on foreclosure proceedings and noted that the provision governing the “disbursement of surplus funds after judicial sale,” Fla. Stat. § 45.032, states that “during the 60 days after the clerk issues a certificate of disbursements, the clerk shall hold the surplus pending a court order.” Other subsections of 45.032 also reference the same 60-day period. The court found that sections 45.032 and 45.031 were manifestly designed to work in tandem. They were created in the same legislation and that legislation amended 45.031 to create separate cross references to 45.032 and other related sections of Chapter 45. Reading the two provisions in pari materia, the 60-day period for filing of claims to surplus funds begins upon the issuance of the certificate of disbursements, after the confirmation of the sale via the issuance of the certificate of title, and after determination of the actual surplus. Bank of New York Mellon v. Glenville, 252 So. 3d 1120 (Fla. 2018).
MECHANIC’S LIENS: Landowner’s consent to improvements is inferred from lease terms. A landlord leased space in a retail shopping plaza for a tenant to build and operate a full-service restaurant. The lease required the tenant to retain competent and skilled contractors for the completion of the electrical work but required the landlord’s consent before making any improvements. The lease also required the submission to the landlord of detailed plans and specifications, which were subject to the landlord’s right to revise. Improvements would become part of the realty at the end of the lease term. The tenant contracted with Ferrara to do the electrical work. The restaurant opened, then closed, still owing Ferrara $50,000 for the electrical work. Ferrara filed a mechanic’s lien against the property, noticing both the landlord and tenant. Two years later, Ferrara sought to foreclose, but the trial court dismissed Ferrara’s complaint. The court of appeals reversed. At issue was whether the improvements were made with the consent of the property owner. The court ruled that the lease provision requiring that the tenant make improvements on the premises is sufficient consent to charge the landlord’s property with a mechanic’s lien. Here, the language of the lease not only expressly authorized the tenant to undertake the electrical work but required it to do so. Moreover, the landlord retained extensive control over the work. The mere acquiescence by the owner is usually not sufficient for the imposition of a mechanic’s lien for work commissioned by a tenant, but the necessary affirmative act can be inferred from lease terms. Ferrara v. Peaches, 32 N.Y.3d 348 (N.Y. 2018).
MINERAL INTERESTS: Pugh clause controls over standard continuous drilling operations clauses. Two oil and gas leases executed by the same parties had primary terms of three years and covered a total of eight land units. The parties used a standard form for both leases that contained continuous drilling operations clauses, possibly extending the terms under specific circumstances. The parties added Pugh clauses to both leases, which stated the leases would terminate at the expiration of the primary term for any part of the property where oil and gas was not being produced in paying quantities. At the end of three years, the parties agreed that production was still occurring at three land units but disputed the continuation of the lease regarding the other five units. The trial court held that the leases continued based on the continuous drilling operations clauses. The supreme court reversed, agreeing with the lessor that the Pugh clauses terminated the leases as to the disputed units because oil and gas was not being produced in paying quantities at the end of the three-year period. To prevent dilution of their interest, landowners often include a Pugh clause that severs the lease as to units where drilling operations or production is not occurring. The Pugh clauses in this case were unambiguous and provided that termination would occur notwithstanding anything to the contrary within the lease. They were irreconcilable with the continuous drilling operations clauses; because they were added to the standard form, they controlled. Therefore, the leases were terminated as to the five land units in dispute. Johnson v. Statoil Oil & Gas LP, 918 N.W.2d 58 (N.D. 2018).
PREMISES LIABILITY: Rental of second home for family vacations does not create innkeeper liability. Haynes-Garrett rented the Dunns’ second home for her family’s one-week vacation at Virginia Beach. At the start of her rental, while walking from a carpeted room to an adjoining tiled hallway, she caught her foot on a lip or rise created by the unevenness of the threshold between the two areas, falling and suffering serious injury that required two surgeries. She sued, alleging the Dunns and the property manager failed to make reasonable inspection of the house’s floor and failed to warn her of the hidden dangerous and hazardous condition that caused her fall. The trial court ruled for the Dunns, and the supreme court affirmed. Under common law, a landlord has no duty to maintain in a safe condition any part of the leased premises that is under a tenant’s exclusive control. In contrast, an owner who operates an inn has an elevated duty of care to keep the premises safe. Unlike a landlord, an innkeeper is in direct and continued control of the property and usually maintains a presence on the property personally or by his agents, which justifies the elevated duty of care. On the other hand, a lessee enjoys the right of possession and therefore assumes all the risk of personal injury from defects therein. The controlling factor in determining whether the relation of innkeeper and guest has been established is intent of the parties. Here, a landlord-tenant relationship existed. The Dunns did not hold their house out as a public place—it was their second home, although available for rental during certain times of the year. They rented the house only to families, and there was no intent to maintain possession and control during Haynes-Garrett’s occupancy. And, unlike in the innkeeper context, the Dunns were not present, nor were permitted to enter without prior notification; cleaning occurred only between periods of occupancy; security deposits were required; and no food service, room service, or maid service was provided. Haynes-Garrett v. Dunn, 818 S.E.2d 798 (Va. 2018).
Vacation rental home at Virginia Beach. Photos courtesy of Brian N. Casey, Taylor Walker, P.C., Norfolk, Virginia.
RECREATIONAL USE STATUTE: Landowner not liable for injuries to invitee for ordinary negligence. Carli Chezem, a 12-year old, visited the home of her friend, Courtney Meredith. The Merediths’ property was zoned agricultural. During her visit, Carli asked if she and Courtney could drive around the Merediths’ property on the family’s ATV. The Merediths gave the girls permission but did not supervise them. Later that morning, Carli and Courtney returned to the house to pick up Courtney’s sister and her friend, also minors. At some point, Courtney took over as the driver, and Carli and the other girls rode as passengers. As the children were returning to the house, Courtney made a sharp left turn. The ATV flipped. Carli sustained a broken ankle and puncture wound, requiring two surgeries and physical therapy. Carli’s father sued the Merediths, asserting negligence, negligence per se, negligent entrustment, and gross negligence. After trial, the jury found the Merediths negligent but expressly found they had not been grossly negligent. The trial court entered judgment for Chezem. The court of appeals reversed. Under Texas’ recreational use statute, landowners are insulated from liability arising from claims of ordinary negligence or the condition of their property; under the statute, a landowner may be liable only for gross negligence, malicious intent, or bad faith. Tex. Civ. Prac. & Prem. § 75.002. Construing the statute, the court held that each element of the statute had been met and that the Merediths were entitled to immunity. Contrary to Chezem’s argument that the injury occurred when Carli was returning from the recreational act, the court ruled that a claimant does not need to sustain her injuries while actively recreating on the property. The statute covers acts that are incidental to the recreation. The court clarified that Texas’s recreational use statute extends to negligence claims arising out of dangerous conditions on a landowner’s property and garden variety negligence, so long as the claim fits within the statutory definitions. Meredith v. Chezem, 2018 Tex. App. LEXIS 10065 (Tex. Ct. App. Dec. 7, 2018).
RIGHT OF FIRST REFUSAL: Discovery rule extends statute of limitations for enforcing right of first refusal. The sellers of a surface estate granted the buyer a right of first refusal (ROFR) to purchase the mineral estate within 60 days after the sellers gave notice of their intent to sell. The deed and ROFR were duly recorded. In 2007, the sellers, without notifying the buyer, executed a mineral deed to the Tregellas, which was recorded. In 2011, the buyer learned of the conveyance and immediately sued the sellers and the Tregellas for breach of the ROFR. The defendants asserted the four-year statute of limitations barred the claim. The trial court found for the buyer, holding the purchasers took with notice of the ROFR and thus were not bona fide purchasers. The appellate court reversed, holding the cause of action arose when the property was conveyed without notice, and the discovery rule did not apply because the injury was the type generally discoverable through the exercise of reasonable diligence. The supreme court agreed with the court of appeals to a point. Although a ROFR is breached when property is conveyed to a third party without notice to the right holder, the discovery rule may defer a cause of action until the plaintiff knows or should know of the facts giving rise to the cause of action. The rule applies only when the nature of the injury is inherently undiscoverable, and the evidence of injury is objectively verifiable. An injury is inherently undiscoverable when it is unlikely to be discovered within the limitations period despite due diligence. The determination is made on a categorical basis rather than on the facts of each individual case. The court held that a right holder who has not received notice of a grantor’s intent to sell has no reason to believe his interest may be impaired and therefore would not continually monitor public records for evidence of an impairment. Here, the buyer sued almost immediately after learning of the prior sale, well within the four-year limitation period. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. Nov. 16, 2018).
ZONING: Statutory city lacks authority to impose impact fee for road improvements. Harstad applied to the City of Woodbury for approval to subdivide 77 acres of land to develop a 183-unit residential community. The city required Harstad to pay a $1,398,444 infrastructure charge for major roadway improvements to accommodate the traffic anticipated to be generated by the new community. Harstad sued, challenging the charge, and the district court granted summary judgment to Harstad, finding that the city had no statutory authority to impose the charge. The supreme court agreed, noting that the City of Woodbury is a statutory city, meaning that it has no home rule charter and thus no inherent powers beyond those expressly conferred by statute or implied as necessary in aid of those powers expressly conferred. The city specifically disclaimed implied authority, instead relying on Minn. Stat. § 462.358, which grants statutory cities the authority to pass regulations for the review and approval of applications for the subdivision of land. The statute also provides that the city’s subdivision regulations may address utilities, the built environment, and natural spaces “without limitation.” Despite the broad language of the statute, the supreme court disagreed that it authorized the imposition of an infrastructure charge. The statute does not expressly allow a city to condition subdivision approval on a “cash fee” for infrastructure improvements, as it does in discussing an alternative to require applicants to dedicate or preserve a portion of the subdivision for public uses like streets. Nor does the infrastructure charge qualify as “financial security” as used in the statute because that language is used in connection with payments that are ultimately returned to the developer upon completion of the subdivision pursuant to the city’s regulations. Harstad v. City of Woodbury, 916 N.W. 2d 540 (Minn. 2018).
ZONING: Building permit to construct farm buildings creates vested right to use surrounding land for farming. After Golden Sands Dairy obtained a building permit to construct seven farm structures, the Town of Saratoga adopted a zoning ordinance that prohibited agricultural uses on Golden Sands’s land. Golden Sands claimed a vested right to use all of the land identified on its building permit application for agricultural purposes. Saratoga contended that Golden Sands’s vested right was limited to building the seven structures identified in the building permit. The trial court granted summary judgment for Golden Sands, but the court of appeals reversed. The supreme court reversed based on its interpretation of the “Building Permit Rule.” Wisconsin is among the minority of jurisdictions that grants a landowner a vested right to use property consistent with current zoning upon the filing of a building permit application that strictly conforms to all current zoning regulations. The court extended the Building Permit Rule to all land specifically identified in the building permit application. The court reasoned that the “piecemealing” advanced by the court of appeals and Saratoga would require extensive litigation over how much land specifically identified in the building permit application was necessary, and this would run counter to one of the primary reasons for the Building Permit Rule: the avoidance of lengthy, fact-intensive litigation. The map filed by Golden Sands with its building permit application provided an objective means to determine the specific land it intended to use both for building structures and grazing, cultivating, fertilizing, and harvesting. Thus, Golden Sands possessed a vested right to use the property for agricultural purposes. Golden Sands Dairy LLC v. Town of Saratoga, 913 N.W.2d 118 (Wis. 2018).
DISTRICT OF COLUMBIA places limits on tenant evictions. Amendments to the rental housing act prohibit the execution of an eviction during precipitation or when the weather forecast calls for temperatures below freezing. A tenant is allowed up to seven days after eviction to remove personal property before the housing provider can dispose of it as abandoned property. 2017 D.C. ch. 510.
DISTRICT OF COLUMBIA enacts Revised Uniform Law on Notarial Acts. The act imposes duties upon notaries to verify the identity of the maker of instruments, authorizes notaries to refuse to act, prescribes a form for notary certificates, and requires notaries to keep journals of their notarial acts. 2017 D.C. ch. 471.
PENNSYLVANIA amends condominium act to specify contents of declaration. The amendments specify responsibility for complying with storm water management facilities, prescribe rules for elections of the executive board, set a statute of limitations for warranty claims, and provide that the burdens of the declaration continue after conveyance. 2017 Pa. Laws 84.
PENNSYLVANIA specifies documentation for permission to maintain service animal. A landlord or a homeowners association may require a person seeking an exception to a no-pet policy to produce documentation of the disability and related need for the animal only if the disability or need is not readily apparent. The misrepresentation or the making of a materially false statement of entitlement to a service animal is a misdemeanor offense. 2017 Pa. Laws 118.
PENNSYLVANIA amends recreational use statute. The amendments aim to encourage owners to give access to the public, without charge, for recreational purposes, including boating access, launch ramps, fishing from piers, hiking on paved and unpaved trials, and snowmobiling. The amendments specify that a charge does not include voluntary contributions, in-kind contributions, or contributions to the owner for the purpose of conserving or maintaining the land, paying taxes, or for liability insurance. 2018 Pa. Laws 98.
OHIO amends unclaimed property law. The amendments broaden the meaning of “unclaimed funds” to include gift cards redeemable only for goods and services, prepaid electronic payment devices, and electronic records consisting of points, cash, or other tokens of value. 2017 Ohio HB 353.
MORTGAGES. In Reversing Course: Stemming the Tide of Reverse Mortgage Foreclosures Through Effective Servicing and Loss Mitigation, 26 Elder L. J. 85 (2018), Sarah B. Mancini and Odette Williamson describe the perils confronting borrowers under reverse mortgages. Although reverse mortgages have been promoted recently as a financial planning tool, often as a strategy to delay social security benefits or draws from retirement accounts or as a standby line of credit, nearly half of borrowers use reverse mortgages for more prosaic purposes, such as basic necessities and essential expenses. This was particularly the case for borrowers in poor health, female, widowed, or divorced. Although by definition repayment of the loan is not due while the borrower is alive and continues to own the property, vulnerable and unsophisticated borrowers often neglect to pay property taxes or maintain property insurance. These failures are loan defaults that have triggered foreclosures at an alarming rate. The authors offer a set of policy recommendations, including effective communication with and counseling for the borrower.
PROPERTY THEORY. In Disclaiming Property, 42 Harv. Envtl. L. Rev. 391 (2018), Prof. Michael Pappas explores the constitutional and political implications of the increasing use of “disclaimed property,” that is, rights that on first blush resemble traditional property, but come with a disclaimer that the holder does not have any right, title, interest, estate, or compensable property right. Disclaimed property takes many forms, including grazing permits, water rights, fishing rights, and taxi medallions. Although courts often honor disclaimers, Prof. Pappas asserts that they raise core constitutional issues: whether the disclaimer amounts to a taking of property and the related question whether the disclaimer operates to nullify the Takings Clause. He goes on to explore the practical benefits from disclaimed property, finding that there are few regulatory flexibility gains in that legislative initiatives are price inelastic, being more sensitive to political costs than monetary costs. Prof. Pappas points out that, although there are social benefits in terms of low information costs and certainty, disclaimed property encourages rent-seeking and rent dissipation. In the end, disclaimed property is concerning, as it allows the shifting of the risk of changed situations from the government to the disclaimed-property holder.
PUBLIC LAND. In December 2017, President Trump signed a proclamation reducing a national monument previously established by President Clinton by 700,000 acres and one established by President Obama by more than 1 million acres. He relied on authority allegedly granted under the Antiquities Act of 1906, 54 U.S.C. § 320301. The act gives the president discretionary power to declare certain historic places, structures, and related objects on government land to be national monuments and states the president may reserve parcels within limits confined to the smallest area compatible with the proper care and management of objects to be protected. Numerous special interest lawsuits followed President Trump’s “reverse” proclamation, seeking a judicial answer to whether the act grants a president the power to rescind or modify a predecessor’s proclamation establishing a national monument. Three recent articles offer historical insights and analysis regarding that question. All agree that it is best for Congress to address the issue as opposed to the courts.
In Dismantling Monuments, 70 Fla. L. Rev. 553 (2018), Prof. Richard H. Seamon asserts that President Trump’s actions are authorized under the act. Prof. Seamon phrases the issue as a determination of whether the act impliedly authorizes reductions or rescissions of monuments established by prior presidents. He notes past presidential practice, congressional acquiescence, and official opinions of the Attorney General and Solicitor of the Department of Interior. He further contends the power to reduce logically dictates that reduction may reach the level of rescission. Additionally, exercise of such power by a president comports with a duty to assure the act is faithfully executed, as well as accords with the general principle that a current president cannot be bound by the acts of predecessors in office. Prof. Seamon correctly notes the act does not expressly authorize the president to reduce or abolish national monuments and that no court has ever addressed the question. He reviews the background and historical application of the law, identifying its distinctive nature in granting the president unilateral power without the need for Congressional advice or consent, curbed only by any valid existing rights that the declaration may affect. Prof. Seamon shows how the growth of practices under the act have conflicted with other existing laws related to forest preservation and Native American reservations and with the claims of individual artifact hunters. He also notes from the act’s outset, presidents began using it to reserve large portions of land covering hundreds of thousands of acres, up to modern applications on hundreds of millions of acres. He cites numerous unsuccessful bills proposed to address perceived abuses of the act. Despite the failures, he notes Congress on at least ten occasions abolished established monuments, albeit without directly expressing dissatisfaction with the act. Further, presidents excluded land originally included in a monument for many varied reasons, 18 times over 50 years beginning in 1911, without judicial challenge. Prof. Seamon’s conclusions, while supported historically, go questionably further. He reads into the legislative history of the act the belief that those passing the law meant that presidents should be able to abolish monuments in their entirety. Prof. Seamon’s shift from recognition of the actual language and practice regarding the act, to conclusions indicating an unlimited executive power, may appear analytically strained to some.
However, in Presidential Authority to Revoke or Reduce National Monument Designations, 35 Yale J. Reg. 617 (2018), Prof. John Yoo and Todd Gaziano reach the same conclusion. They assert that beyond the express provisions, a general discretionary revocation power under the act must exist. Reversing a negative canon of construction, they argue that traditional principles of constitutional, legislative, and administrative law indicate the authority to execute discretionary power must include the authority to reverse it. They characterize the one Attorney General opinion on the subject, which opposed revocation but favored modification, as poorly reasoned, misconstruing other opinions, and inconsistent with all sources of law interpreting the president’s powers. The authors attack those who support executive permanence for declarations and reservations under the act as having a backwards view of constitutional principles and legal presumptions. They analogize revocation of monuments to the routine revocation of federal regulations, which have no express revocation language attached. The article also reviews the 19th century drafting history leading to the final version of the act, asserting it as proof the act was never intended to allow for vast scenic or geological monuments. For example, they note the original debate over whether the power should be limited to 320 or 640 acres and the ultimate decision to employ the “smallest area compatible” language. They assert the plain language of the act supports their conclusion, despite the lack of any language expressing such power.
In Monumental Power: Can Past Proclamations Under the Antiquities Act Be Trumped?, 22 Tex. Rev. L. & Pol. 349 (2018), Prof. John Murdock’s exhaustive historical examination takes a decidedly more objective view. He critiques those arguing interpretation of the act as a one-way ratchet, noting their questionable reliance on statutes directed at non-presidential executive powers, while failing to recognize past presidential and congressional action. However, he does note that all executive powers do not come with a right to rescind or revoke, citing the example of the presidential granting of pardons. Conversely, Prof. Murdock points out flaws in arguments by those supportive of Yoo’s and Gaziano’s assertions, noting their reliance on controversial views on the precedential value of Attorney General opinions, on a questionably relevant US Supreme Court case characterized by the SCOTUS as a “nonjusticiable political dispute” and limited state court support for implied revocation powers. Although all three articles address changes to monuments made pursuant to the act with little attention to who or what drove the changes, Prof. Murdock’s article goes beyond simply stating legislative action is best and offers detailed factors and options for a congressional compromise that might lead to a possible optimal solution for all sides.
REMEDIES. In Domestic Asset Tracing and Recovery of Hidden Assets and the Spoils of Financial Crime, 49 St. Mary’s L.J. 609 (2018), Profs. Nathan Wadlinger, Carl Pacini, Nicole Stowell, William Hopwood, and Debra Sinclair offer a comprehensive plan for finding hidden assets obtained wrongfully. They recount the many ways in which people hide assets ranging from shell corporations and trusts to collectibles stored in wall or floor safes. They offer a plan to decode hiding methods and a scheme for finding and freezing those assets.