P R O B A T E   &   P R O P E R T Y
January/February 2002
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Keeping Current—Property

Keeping Current—Property offers a look at selected recent cases, rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.


BANKRUPTCY: Environmental liability . A state statutory environmental superlien is within the exception to the automatic stay described in Sections 362(b)(3) and 546(b) of the Bankruptcy Code. The state may create and perfect the superlien because the state notified the owner prior to the bankruptcy filing that it intended to file a superlien, establishing an interest in the property and thereby triggering the exception. In re 229 Main Street Limited Partnership, 262 F.3d 1 (1st Cir. 2001).

BANKRUPTCY : Rent . A lease recited “further rent” payments on a loan to be made by the lessor to the lessee. The court rejected the lessee’s claim that such payments were not payment of rent for occupancy value but rather for unrelated debts and held that such expenses enjoyed priority as administrative expenses. Cukierman v. Uecker, 265 F.3d 846 (9th Cir. 2001).

BROKERS : Agency . A broker is not an agent of its principal for the purpose of determining when an executed contract is delivered to a party for the purpose of beginning a statutory three-day attorney review contingency period. Peterson v. Estate of Pursell, 771 A.2d 666 (N.J. Super. App. Div. 2001).

CONSTITUTIONAL LAW: Americans with Disabilities Act . The “readily achievable” access barrier removal standard is inapplicable to new facilities constructed after the adoption of the ADA. Accordingly, all the ADA violations in a new hotel must be immediately corrected, including the widening of over 800 undersized doorways to comply with Sections 9.2 and 9.4 of the ADA Accessibility Guidelines, regulating the minimum width of bathroom doors. Long v. Coast Resorts, Inc., 267 F.3d 918 (9th Cir. 2001).

CONSTITUTIONAL LAW: Fair Housing Act. A successful referendum to overturn a city’s approval of a low-income housing project may be void as a violation of the Fair Housing Act, equal protection, and substantive due process. The development met existing zoning standards, and there was evidence the voters supporting the referendum petition were motivated by racial or anti-family bias. The court further concluded that there were highly unusual circumstances supporting a disparate racial and familial impact analysis to determine whether the FHA had been violated. Buckeye Community Hope Foundation v. City of Cuyahoga Falls, 263 F.3d 627 (6th Cir. 2001).

CONSTITUTIONAL LAW: Right to free speech . A tenant association does not have a constitutional free speech right to distribute leaflets to individual residences against apartment rules, because the apartment complex is not a public forum. Golden Gateway Center v. Golden Gateway Tenants Association, 29 P.3d 797 (Cal. 2001).

EASEMENTS : Creation . Owners of land adjoining a public road have a permanent vested easement right to use the road even after the public authorities abandon it. Tweedy v. Counts, 40 S.W.3d 328 (Ark. Ct. App. 2001).

FAIR HOUSING ACT : Vicarious liability. The sole owner of a brokerage business is vicariously liable for the discriminatory practices of its brokers regardless of the actions taken to control the brokers’ activities, because the duty to not discriminate is nondelegable. A supervising broker will be liable, however, only if reasonable steps were not taken to prevent discrimination. Holley v. Crank, 258 F.3d 1127 (9th Cir. 2001).

LANDLORD/TENANT: Security deposits . There is no de minimis exception to a statutory requirement that landlords return security deposits (minus valid charges) to the tenant within the statutorily specified period. Yi v. Re/Max Fortune Properties, Inc., 770 A.2d 738 (N.J. Super. App. Div. 2001).

LENDER LIABILITY: Unlicensed practice of law . Although lenders may lawfully prepare loan documents, such preparation becomes the unlicensed practice of law if the borrower is charged fees for loan document preparation. Dressel v. Ameribank, 635 N.W.2d 328 (Mich. Ct. App. 2001).

MORTGAGES: Acceleration . A mortgagee’s note included an option to accelerate the balance due upon default without notice or demand, with a default interest rate applicable thereafter. The court held that the mortgagee must give the mortgagor notice of acceleration to trigger the default interest rate, the terms of the note notwithstanding. A secret intention to accelerate is insufficient to exercise the option and thereby trigger the default interest rate. In re Crystal Properties, Ltd., 268 F.3d 743 (9th Cir. 2001).

MORTGAGES: Subordination . The holder of a first priority lien subordinated its lien to the third lien but not to the second lien. The court held that the subordination transferred to the holder of the third lien priority over the holder of the second lien up to the amount of the first lien. Bratcher v. Buckner, 109 Cal. Rptr. 2d 534 (Cal. Ct. App. 2001).

MORTGAGES: Subrogation . A title insurance company was denied subrogation of a refinancing lien to the priority of the retired first lien because the title insurance company had actual notice of an intervening judgment lien and negligently insured title as if the judgment lien did not exist. Subrogation is an equitable remedy that was inappropriate because the title insurance company created the problem through its own negligence. Kim v. Lee, 31 P.3d 665 (Wash. 2001).

MORTGAGES: Validity. The Hawaii Supreme Court held that a mortgagee could not enforce its “illegal” mortgage obtained through an unlicensed mortgage broker. In addition, because the mortgagee had not demonstrated that it received the assignment for value, it was not entitled to any equitable remedies. Beneficial Hawaii, Inc. v. Kida, 30 P.3d 895 (Haw. 2001).

OPTIONS: Restraint on alienation . An option to purchase real property for a fixed price, providing that the option term would be automatically and indefinitely extended until certain condemnation proceeds were received, is an unreasonable restraint on alienation. The appellate court rejected the trial court’s solution of imposing a five-year term on the option. Sander v. Ball, 781 So. 2d 527 (Fla. Dist. Ct. App. 2001).

REMEDIES: Emotional distress . In a contract breach of warranty claim, a homeowner may collect emotional distress damages from a builder for defects in a new home. Recovery for emotional distress damages was excluded, based upon Section 353 of the Restatement of Law 2d, Contracts (1981), because the breach caused no bodily harm nor was the contract or the breach of such a kind that serious emotional distress was a particularly likely result. Kishmarton v. William Bailey Const., 754 N.E.2d 785 (Ohio 2001).

SELLER AND BUYER : Merger . A seller intended to reserve an easement for himself, but neglected to do so in the deed. The court held the doctrine of merger did not apply, because the deed as delivered did not constitute full performance on the contract. “The easement reserved by plaintiff was not capable of fulfillment until after the deed was delivered and, therefore, was not fulfilled by the deed.” Chapdelaine v. Sochocki, 635 N.W.2d  339 (Mich. Ct. App. 2001).

SELLER AND BUYER: Risk of loss . Purchasers of residential property under an installment contract bear the risk of loss but are entitled to a credit equal to the seller’s insurance proceeds in the event of destruction, absent a contractual provision to the contrary. Hillard v. Franklin, 41 S.W.3d 106 (Tenn. Ct. App. 2001).

SUBDIVISIONS : Easements . The owners of two townhouses in a larger common ownership interest project found themselves marooned by the project lender’s foreclosure that apparently terminated the original declaration. A new declaration was recorded that did not affect the two townhouses. The court held the two owners had implied easements to use the private roads, sidewalks, and other common elements surrounding their homes, but not to use other common elements such as the pool. The new association could recover in quantum meruit for ser-vices rendered but could not charge the two owners monthly association fees for the right to use the implied easements. Post Hill Homeowners Ass’n v. Wheeler, 39 S.W.3d 508 (Mo. Ct. App. 2001).

TITLE INSURANCE: Exceptions . A title insurance company overlooked a deed by which a seller previously conveyed a 40-foot strip of a larger parcel to the county to widen a road right of way. The court, in finding for the title insurer, held that, although the general road exception did not apply to a road disclosed of record, an accurate survey would have revealed the conveyance and the survey exception applied. Hofmann v. Chicago Title Insurance Co., 107 Wash. App. 1010 (Wash. Ct. App. 2001).


Fair Housing Litigation. In Punitive Damages in Fair Housing Litigation: Ending Unwise Restrictions on a Necessary Remedy, 36 Harv. C.R.–C.L. L. Rev. 279 (2001), Timothy J. Moran argues that courts have performed poorly in eliminating housing discrimination by refusing to award punitive damages in even the most egregious cases. Mr. Moran’s article addresses when punitive damages should be awarded, including those situations in which compensatory damages are not awarded and in which employees engage in discrimination without knowledge of their employers.

Gated Communities. In Don’t Fence Us Out: The Municipal Power to Ban Gated Communities and the Federal Takings Clause, 35 Val. U.L. Rev. 525 (2001), Richard Damstra addresses the growing concern of municipalities with gated communities. Mr. Damstra discusses the tools communities have used to regulate the spread of such communities and why outright prohibition should be seen as a legitimate use of police power rather than an unconstitutional taking.

Home-based Work. Although for most of the twentieth century the “home” and “work” spheres of American life have remained distinctly separate, Nicole Garnett argues, in On Castles and Commerce: Zoning Law and the Home-Business Dilemma, 42 Wm. & Mary L. Rev. 1191 (2001), that recent societal and technological changes have created a need to re-examine laws that often make home-based work unlawful.

Keeping Current—Property Editor: Eugene L. Grant, 1211 S.W. 5th Ave., Ste. 1600, Portland, OR 97204-3795, egrant@schwabe.com. Contributing editor: Robert Flores.