P R O B A T E   &   P R O P E R T Y
September/October 2002
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Keeping Current -

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


CERCLA DISPOSAL: Migration. In a case of first impression, the Ninth Circuit ruled, after a rehearing en banc, that migration of contamination on property does not constitute “disposal” under CERCLA. The court positioned itself with the Second, Third, and Sixth Circuits and at odds with the Fourth Circuit. This holding is significant in terms of a buyer’s ability to fit within the safe harbor under the Small Business Liability Relief and Brownfields Revitalization Act. As aptly stated by Professor Randolph: “A little common sense filters into the miasma of undifferentiated blame that spreads like a vile plume around federal environmental policy.” Carson Harbor Village, Ltd. v. Unocal Corp., 270 F.3d 863 (9th Cir. 2001), cert. denied, 122 S. Ct. 1437 (2002) .

CLOSINGS: Misappropriation. A property sale occurred under a bankruptcy court order, which provided the property was to be sold free and clear of existing liens. By this order the liens attached to the sale proceeds, which were to be held pending a further order of distribution to the lien holders. The proceeds were delivered to the buyer’s attorney, who stole the funds, was disbarred, and was imprisoned. The first mortgagee sought recovery from the title company on the theory the rogue attorney was a title company agent. The transaction was held completed by distribution of the funds to the buyer’s attorney, which ended any relationship with the title company. The court also held the first mortgagee was not a third-party beneficiary of the agreement protecting the buyer from its attorney’s misconduct. GE Capital Mortgage Services, Inc. v. Privetera, 788 A.2d 324 (N.J. Super . Ct. App. Div. 2002).

COTENANCY: Credit against expenses. Cotenants sold their property and disputed allocation of the proceeds. The cotenants, who had been in possession of the property for many years, charged the non-occupying cotenant for repairs. The non-occupying cotenant sought a rental value credit against the repair costs during the occupancy. Because New Jersey follows the minority rule requiring contribution for repairs, the court held that fairness and equity dictate that the one seeking the contribution must give a corresponding credit for the rental value of the sole occupancy. Esteves v. Esteves, 775 A.2d 163 (N.J. Super. Ct. App. Div. 2001).

COVENANTS: Release. A restaurant property being sold was benefited by a covenant prohibiting use of the servient parcel for a competing restaurant. After entering into the sale agreement, but before closing, the seller attempted to release the covenant in order to join with the owners of the servient parcel in opening a competing restaurant. Equitable conversion was used as the basis to hold that only the buyer could release a covenant running with the land to be purchased after the sale agreement was signed. Lone Star Steakhouse & Saloon of Ohio, Inc. v. Quaranta, Case No. 01-CA-60, 2002 WL 924630 (Ohio Ct. App. Mar. 18, 2002).

DEEDS: Fee Title. Deeds granting right of way land to a railroad company were held to convey fee title in the absence of anything explicitly or implicitly limiting the conveyance to an easement for right of way use. Schoenberger v. Missouri Pacific Railroad Co., 26 P.3d 700 (Kan. Ct. App. 2001).

The description of the instrument as a right of way deed on the cover sheet does not create an ambiguity in the absence of any limitation to right of way use in the body of the deed. C & G, Inc. v. Rule, 25 P.3d 76 (Idaho 2001).

EASEMENTS: Prescriptive. Railroad right of way usage resulted only in a prescriptive easement and did not result in fee title by adverse possession. The easement was abandoned by subsequent lack of use while fee title would have survived. Strother v. Bootheel Rail Properties, Inc., 66 S.W.3d 751 (Mo. Ct. App. 2001).

EASEMENTS: Relocation. The servient parcel owner sought a forced driveway easement relocation that was necessary to permit development of the servient parcel. The easement was long ago established by implication. In a case of first impression, the court rejected the Restatement (Third) of Property (Servitudes) (2000) minority view that forced relocation is permissible in favor of the traditional majority rule that requires consent of the dominant owner. The editor agrees that uniformity, stability, predictability, and property rights should prevail over the Restatement (Third) approach favoring flexibility and the development potential of the servient estate. MacMeekin v. Low Income Housing Institute, Inc., 45 P.3d 570 (Wash. Ct. App. 2002).

  EMINENT DOMAIN: Land-use moratorium. The U.S. Supreme Court rejected the argument that moratoria are per se takings, even when maintained for extended time periods. Development of the plaintiffs’ property was prohibited for 32 months, in order to evaluate how best to maintain the clarity of the waters of Lake Tahoe. Individual facts and circumstances determine if such a temporary governmental prohibition is a taking. The Court was favorably influenced by the positive and traditional role served by moratoria in local government land-use planning. The Court also seemed influenced by lack of funding cities and counties have available to pay compensation for legitimate development moratoria. The editor is a small city mayor and, therefore applauds the Court’s recognition of a land-use moratorium as a legitimate planning tool, but also applauds the holding that an inverse taking will occur if a moratorium exceeds its legitimate bounds. There is little to this holding other than that a 32-month moratorium in these circumstances was not a taking. Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 122 S. Ct. 1465 (2002).

FEDERAL TAX LIENS: Entireties property. The decision was based on the broad sweep of the federal tax lien statute and the majority’s view that federal law controls what rights constitute property under the statute. Note that the IRS claimed only half the proceeds following a voluntary sale of the property. The Court did not face the issue of determining what will happen if a tax lien attaches to entireties property owned and occupied by a married couple. United States v. Craft, 122 S. Ct. 1414 (2002).

LEASING: Structural replacement. The tenant’s parking lot was 18 years old and in poor condition when originally leased. Near the end of the initial lease term, the landlord demanded the tenant replace the paving. The need for replacement was not because of any lack of proper maintenance and repair during the lease term. The court held that the stated tenant duty to keep the premises in good repair did not imply a replacement duty. The eight-year initial term was too short to imply a replacement duty based upon the net rent clause. The editor believes the court ignored the extensive renewal options in avoiding the implication of the net rent clause. The surrender clause required the premises be returned in only as good condition as received subject to normal wear and tear. Requiring the tenant to replace worn out elements would require a return of the premises in better condition than received. The obvious unfairness of such a result may explain the court’s straining to categorize this as a short-term lease and thereby avoid the implication of the net rent clause. This holding suggests that specific repair and surrender clauses usually will prevail in a conflict with the more general net rent clause. Miller v. Gammon & Sons, Inc., 67 S.W.3d 613 (Mo. Ct. App. 2001).

LENDER LIABILITY: Nondisclosure. The lender gave the borrower the appraised value of the property the bank was financing. The court held the lender had a duty either to disclose other information in the lender’s possession placing the appraisal in doubt or to disclaim any responsibility for the appraisal’s accuracy. Sallee v. Fort Knox National Bank, N.A. (In re Sallee), 286 F.3d 878 (6th Cir. 2002).

MORTGAGES: Termination. The mortgagee accepted a deed in lieu foreclosure. Subsequently the mortgagee’s judgment creditor attempted to execute its judgment on the property. The parent of the mortgagee claimed it had priority over the judgment holder based upon a prior security interest in the note and mortgage. The Sixth Circuit held that, because of equitable considerations, it would not enforce the nonmerger clause in the deed in lieu of foreclosure, because it would allow the parent company to obtain priority over a third-party creditor of the parent’s subsidiary. The court was greatly influenced by its finding that the parent and subsidiary shared the same office space, computers, employees, and officers. United States Leather, Inc. v. Mitchell Mfg. Group, Inc., 276 F.3d 782 (6th Cir. 2002).


Conservation Easements. In An Examination of Court Opinions on the Enforcement and Defense of Conservation Easements and Other Conservation and Preservation Tools: Themes and Approaches to Date, 78 Denver U. L. Rev. 373 (2001), Melissa K. Thompson and Jessica E. Jay review the state of conservation easements across the United States. Conservation easements require owners of property to comply with environmental and preservation requirements contained in the easement. Often, conservation easements take the form of reservations in deeds of property from land trusts. The authors discuss various issues arising in the context of conservation easement cases, including the standing of third parties to enforce the easements, whether common law and statutory merger doctrines may extinguish the easements, and the manner and intensity in which courts have examined the intent of the parties to the easement.

Predatory Lending—Holder in Due Course. Kurt Eggert treats a much neglected aspect of real estate securitization in Held Up in Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 Creighton L. Rev. 503 (2002). Until recently, scholars have focused on the vast market implications in the trend toward commercial and residential real estate securitization and not upon the effect this trend may have on homeowners who refinance their residential loans. Kurt Eggert corrects the imbalance and critically evaluates the behavior of “predatory lenders.” Eggert details what he believes to be a pernicious interaction of the “holder in due course” (HDC) doctrine established under the Uniform Commercial Code, and the market for securitized residential real estate loans. Eggert reveals the outrageous behavior of some subprime lenders in obtaining—and Wall Street in securitizing—subprime loans. Eggert concludes with a proposal many lawyers may deem extreme: the abolition of the HDC doctrine in any noncommercial transaction.

Premises Liability. Nancy English examines the state of premises liability law in New Mexico in Note, Chavez v. Torres: New Mexico Premises Liability Reform: Two Steps Forward, One Step Back, 31 N.M. L. R ev. 652 (2001). As background, English describes two New Mexico Supreme Court cases that she suggests modernized New Mexico tort law. These cases validated the obligation of property owners to “prevent harmful conduct of a third party on the owner’s land” and abolished the distinction between invitees and licensees for the purpose of establishing liability. English then criticizes the recent case Chavez v. Torres, 128 N.M. 171 (N.M. Ct. App. 1999), which denied an injured plaintiff monetary relief because the plaintiff entered the premises without a business purpose.

Prescriptive Easements. In Note, Prescriptive Easements and a Change from Permissive to Hostile Use—Boldt v. Roth, 28 Wm. Mitchell L. Rev. 1283 (2002), Jeffrey Chelstrom evaluates the hostility requirement necessary to establish a prescriptive easement and reviews the Minnesota Supreme Court case of Boldt v. Roth, 618 N.W.2d 393 (2000).

Property Interests. Tony Arnold treats the most theoretical aspects of property law in The Reconstitution of Property: Property as a Web of Interests, 26 Harv. Envtl. L. Rev. 281 (2002). The article critiques the age-old concept of property as a “bundle of rights” from both a theoretical and empirical perspective. Instead, Arnold offers an alternative view of property as a “web of interests.” Applying this new metaphor to regulatory takings, the public trust, conservation easements, and other thorny topics, he would define property rights according to the particular characteristics of the object and the nature of the economic and non-economic relationships people form with specific objects.

Supermarket Leases. Emanuel B. Halper takes a in-depth look at two critical clauses in supermarket leases in Supermarket Use and Exclusive Clauses, 30 Hofstra L. Rev. 297 (2001). Halper serves as lawyer-historian, tracing the history of supermarkets and corresponding lease documents in the United States. Although a history of supermarkets may not make for the most interesting read for the typical person, it may be informative for lawyers who negotiate these transactions. Halper argues that attorneys for supermarket landlords and tenants often push for provisions that are so protective of their clients that, if included in the final lease document, would limit the beneficial symbiotic relationship between the two parties.

Terminology. Damien Abbot’s Encyclopedia of Real Estate Terms (Delta Alpha Publishing, 2d ed. 2000) is a comprehensive and easy-to-read reference of real estate law and practice terms. This book will be especially useful to newer real estate lawyers and to more experienced attorneys who focus on other areas of law but occasionally confront real estate documentation. Abbot’s book is up to date and provides explanations of securitization and related terms. Despite its currency, the book maintains clear explanations of older property law terms, including future interests. The author provides citations to a limited number of definitive cases and treatises to give the reader additional sources or necessary context. This book is not limited to purely American real estate law terminology. Abbot also focuses on English practice terms, as well as civil law and Scots and French law. As a result, this reference book might be useful to American attorneys representing parties in real estate transactions involving foreign soil.

Title Searches. No aspect of practice today is safe from scholars’ economic analysis, including real estate. Economists now ask, “Just how far back in time should a buyer’s search go to assure quality title?” In Optimal Title Search, 31 J. Legal Studies 139 (2002), Matthew Baker, Thomas J. Miceli, C.F. Sirmans, and Geoffrey K. Turnbull discover what title lawyers already know: searching back to the distant past can be overly costly, given the risk of finding a material defect. Using various state recording statutes and statutory search periods, the authors develop a model that identifies key factors for determining when to search longer or shorter time periods.

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