Landlord-Tenant
Tenants exposed to lead poisoning, who have not obtained a judgment or settlement against landlord, are not third-party beneficiaries under landlord’s liability insurance. Two classes of former and present tenants sued landlords for exposure to lead paint in their apartments. Between the two groups’ filings, the landlord’s liability insurers were successful in either rescinding the policies or reducing the coverage on the basis that the landlords misrepresented that there was no lead paint on the premises, when in fact the city health department had issued citations for lead paint. The tenants sought recovery under the original policy limits. At trial, the insurers moved to dismiss on the basis that the tenants were not third-party beneficiaries under the original policies instead, only incidental beneficiaries without enforcement rights. The trial court denied the motion, ruling that the tenants were third-party beneficiaries with vested rights in the policies as they existed before rescission or modification and that any agreements between the insurers and the landlords did not affect the tenants’ rights. The intermediate appellate court affirmed, ruling that the claimants obtained vested rights in the policies when they suffered their injuries. On further appeal, the tenants lost. The court explained the difference between the two types of contract beneficiaries. A third-party beneficiary is such because the parties intend for the third party to have that status, with the right to enforce the terms of the agreement. In the insurance context, under the common law and by the express terms of the insurance policy, a party who has obtained a judgment or settlement against the named insured is a third-party beneficiary, entitled to rights under the policy as it existed at the time of judgment or settlement. Although nothing in the landlords’ policies required the insurer or the named insured to obtain the consent of any other person before canceling or changing the policy terms, any such changes would not affect the vested rights of tort claimants who had secured judgments against or entered into approved settlements with their landlords before cancellation or modification of coverage. In contrast, a party who is only injured by the insured is viewed as an incidental beneficiary but with no affirmative rights against the insurer. Thus, the tenants who had only suffered injury from the lead paint, but had not yet reduced their claims to judgment or settlement at the time the policies were changed, were bound by the reduced insurance amounts. CX Reinsurance Co. v. Johnson, 282 A.3d 126 (Md. 2002).
Mechanics' Liens
General contractor’s failure to post notice of commencement of work to internet-based registry does not impair priority of later-filed subcontractors’ mechanics’ liens. In 2017, Dostal Developers, the owner of five lots in a new residential subdivision, served as a general contractor and hired two subcontractors, Borst and Kelly, to install utilities and roads and to grade the lots. The Iowa mechanics’ lien statute required Dostal to post a notice within ten days after the commencement of work to the Iowa Mechanic’s Notice and Lien Registry (MNLR) website, Iowa Code §572.13(A)(1), but Dostal never posted a notice. Later in 2017, Dostal obtained construction loans for work on the five lots from Finance of America Commercial (FAC), which promptly recorded its construction mortgages. In 2018, the two subcontractors posted notices and mechanics’ liens for work done in 2017. Dostal defaulted on the mortgages in 2018, and the subcontractors were not paid. The subcontractors filed foreclosure actions and FAC moved to dismiss, pointing to failures of the subcontractors to post notice of the liens within ten days of the commencement of work by Dostal. FAC claimed that the failure to comply with Iowa Code §572.13A(1) rendered the liens inferior, as a matter of law. FAC then filed a foreclosure action as well. The trial court found that all parties were entitled to foreclose, but that the mechanics’ liens had priority because Iowa Code § 572.13 gives a timely posted mechanic’s lien priority over all other liens that are perfected after the beginning of the contractor’s work. Because the subcontractors posted their liens within 90 days of completing their work, under Iowa Code §572.18(1), and FAC’s mortgages were recorded after they began their work, the subcontractor liens were superior. The supreme court affirmed, finding that the ten-day deadline for posting the notice of commencement to the registry applies only to general contractors and owner-builders, not to subcontractors. In the court’s reading of the statute, it would be absurd to require subcontractors to comply with the same ten-day deadline, not knowing when or if the general contractor had met the deadline; the ten days would necessarily expire before the condition precedent for posting was even satisfied. Because Borst and Kelly started their work before FAC’s mortgages were recorded, their liens had priority over FAC’s construction mortgage. Borst Bros. v. Finance of America Commercial, LLC, 975 N.W.2d 690 (Iowa 2022).
Mechanics' Liens
Time for recording lien was not extended by COVID-19 emergency order tolling court proceedings. During the early months of the COVID-19 pandemic, a contractor sought to establish a mechanic’s lien on land leased to a developer for whom the contractor had performed work but had not been paid. In April 2020, the contractor recorded a notice of contract in the registry of deeds, but the notice failed to name the actual owner of the property land and also incorrectly described a neighboring parcel as the land. In July, the contractor filed a complaint seeking to enforce its mechanic’s lien. Then in September, the contractor corrected its error by recording an amended notice of contract, properly identifying the owner and the land, but the statutory deadline of 90 days after completion of the work had elapsed. The landowner filed a motion to discharge the mechanic’s lien based on a late recording. The contractor argued that the 90-day statutory deadline was extended by four emergency orders of the Supreme Judicial Court, issued on April 1, April 27, May 26, and June 24, 2020, which modified in-person court operations and tolled “all deadlines set forth in statutes” that expired between March 17, 2020, and June 30, 2020. The trial court concluded that the deadline had been tolled. On appeal, the court explained that the referenced orders, issued pursuant to its superintendence authority under Mass. Gen. Law ch. 211, § 3, concerned court operations and pertained only to cases pending in court or to be filed in court, and did not apply to executive agencies such as the registry of deeds. Thus, the contractor lost its mechanic’s lien because it recorded a proper notice of contract too late. Graycor Constr. Co. v. Pacific Theatres Exhibition Corp., 193 N.E.3d 1083 (Mass. 2022).
Mortgage
Recording notice of trustee’s sale does not accelerate debt. In 2007, Bridges obtained a $500,000 loan to purchase a residential property, secured by a deed of trust. The promissory note and deed of trust included optional acceleration clauses authorizing the lender to accelerate the debt if Bridges defaulted. Both instruments required that the lender give notice of acceleration to Bridges, and the deed of trust also required that the lender provide notice of “(a) the default; (b) the action required to cure the default; (c) a date . . . by which the default must be cured; and (d) that failure to cure the default . . . may result in acceleration . . . and sale of the property.” In 2008, Bridges defaulted on the loan. The lender sent Bridges a notice of default, but it did not state that failure to cure the default would result in the acceleration of the loan or sale of the property. Bridges did not cure the default, which led to two notices of trustee’s sales, one recorded in January 2009 and another recorded in May 2009. Neither notice invoked the optional acceleration clause, however, and the property was not sold. Seven years later, Bridges sought declaratory relief, arguing that the deed of trust could not be foreclosed because the six-year statute of limitations had expired. Bridges contended that the 2009 notices of trustee’s sales accelerated the debt, triggering the statute of limitations, Ariz. Rev. Stat. § 12-548(A)(1), which ran out in either January or May 2015. The trial court granted Bridges’s summary judgment motion, but the court of appeals reversed. The supreme court affirmed. It stated that as a matter of law, recording a notice of a trustee’s sale does not accelerate a debt. The plain language of the deed of trust showed that the acceleration was not self-executing; instead, it required specific notices and warnings. None of the notices of sale referred to or invoked the acceleration clause. Nothing in the communications to Bridges indicated that the lender was accelerating the debt. The court explained that the main reason why an express act of acceleration is required is that after a notice of sale under Ariz. Rev. Stat. § 33-813(A), a debtor can cure the default and reinstate the contract by paying only the “amount then due” before a trustee’s sale is held. Finding that mere notice amounts to an acceleration would nullify this right. Bridges v. Nationstar Mortg. L.L.C., 515 P.3d 1270 (Ariz. 2022).
Recreational Use Immunity
Bollard placed in middle of biking trail may be a dangerous, latent condition subjecting landowner to liability. A bicyclist was riding on a biking trail developed by King County and hit a bollard placed in the middle of the trail, suffering severe injuries. The bollard was painted white and had a small red reflector attached to it. Years before the crash, an unknown person used fluorescent paint to write “POST” and other warnings on the pavement near the bollard to caution trail users as they approached it. But these conspicuous warnings had since faded. On the morning of the accident, the weather was wet and the skies were gray. The bicyclist sued the county to recover for his injuries, and the county defended by claiming immunity under the recreational use statute that shelters landowners from liability to persons using their land for recreational purposes. Wash. Rev. Code § 4.24.210. At issue was a statutory exception “for injuries sustained to users by reason of a known, dangerous, artificial, latent condition for which warning signs have not been conspicuously posted.” Wash. Rev. Code § 4.24.210(4)(a). All four terms—known, dangerous, artificial, latent—modify “condition,” not one another, such that all must be present for the exception to apply. Jewels v. City of Bellingham, 353 P.3d 204 (Wash. 2015). The trial court granted summary judgment to the county, and a divided appellate court reversed. On appeal, the supreme court affirmed, finding questions of fact on the grounds for the exception. In particular, the court found that the bicyclist had offered evidence that the county’s placement of the bollard created a “dangerous” condition, using the ordinary meaning of that term. The bicyclist also presented expert testimony that, depending on the weather conditions, such as gray days, the bollards quickly faded into the background and were not perceptible by bicyclists while riding. The court distinguished a prior case that held that a condition is not latent if a user standing nearby can perceive the condition. The court reworked the Jewels test, stating that latency should be determined from the vantage of the recreational user, that is, the moving cyclist. A strongly worded dissent chastised the majority for overruling Jewels sub silentio. Schwartz v. King County, 516 P.3d 360 (Wash. 2022).
Restrictive Covenants
Covenants allowing homeowners association to prohibit solar panels for aesthetic reasons are void and unenforceable under solar access statute. Covenants recorded in 2011 for a residential neighborhood restricted many specific uses but did not specifically address residential solar panels. The declaration established a homeowners association and an Architectural Review Committee (ARC) empowered to disapprove property improvements for aesthetic reasons. The Farwigs installed solar panels on their home, which triggered a notice from the ARC requesting they submit an ARC permission form. The ARC denied their application, and the Farwigs appealed to the association, which affirmed the decision and demanded they remove the solar panels. The Farwigs refused, and the association fined them and also sued them for injunctive relief. The trial court granted partial summary judgment to the association, and a divided appellate court affirmed. The supreme court reversed, noting the case as one of first impression. A state solar access statute passed in 2007 invalidates covenants that “prohibit, or have the effect of prohibiting, the installation” of solar collectors, but the regulation of “the location or screening of solar collectors” is allowed if the covenants do not prevent “the reasonable use of a solar collector for a residential property.” N.C. Gen. Stat. § 22B-20(b), (c). Also, the statute allows the prohibition of solar collectors in specific locations” that are visible by a person on the ground.” Id. § 22B-20(d). Here, the ARC’s treatment of the installation of solar collectors as an improvement subject to aesthetic regulation effectively gave ARC the ability to totally prohibit installation, without any of the statutory protections for solar collectors, and was thus invalid. Belmont Ass’n v. Farwig, 873 S.E. 2d 486 (N.C. 2022).
Title Insurance
Losses from disbursing closing payoff funds to fraudster who was not posing as an employee, vendor, or client of the insured is not covered by the cybercrime endorsement. Star Title, a settlement agent, was hired to close a residential real estate transaction. The seller of the home identified Capital Mortgage Services (CMS) as his lender and lienholder on the property. Osborne, Star Title’s transactions officer, confirmed that CMS did in fact have a lien on the home and requested payoff information. Initially, she contacted CMS at the phone number the seller provided and spoke to a representative who told her to submit a request for the information to an online address. Osborne sent an email requesting a “mortgage loan payoff letter.” She also provided the name of the sellers-mortgagors, the address of the property, the loan number, and the closing date, and attached a copy of the seller’s authorization form. Osborne then received what turned out to be a fraudulent email from an unknown actor who claimed to be a CMS payoff representative named “Kaitlyn Holt.” Osborne did not suspect that the email was fraudulent and simply verified that it correctly referenced the information she initially provided by email. The email from the fraudster contained a copy of the requested payoff statement, along with instructions for how to transfer the payoff funds. Star Title also received a second copy of the payoff statement, via facsimile, purportedly sent by CMS. Osborne reviewed this fax and determined that it matched the statement provided earlier that day. Osborne then set up the wire transfer. Upon the approval by the transactions closer, the payoff funds were transferred to the account provided in the payoff statement. The closer did not reach out to the lender to verify that the wiring instructions were accurate. Thereafter, Osborne learned that CMS had not received the payoff funds. Star Title did not have a policy in place to call the lender directly to verify the wire transfer information. Star Title submitted a claim to its insurer, Illinois Union Insurance Company, under the cybercrime endorsement of its insurance policy. The endorsement includes a Deceptive Transfer Fraud clause, insuring against loss resulting from the transfer of funds as the direct result of fraudulent representations, sent electronically by a person purporting to be an employee, customer, client, or vendor of the insured. The insured must verify the authenticity of the transfer request in accordance with internal procedures. Illinois Union denied coverage. The district court granted Illinois Union’s motion for summary judgment based on the terms of the endorsement. The Eleventh Circuit affirmed. Construing the policy language according to its plain meaning, the terms “employee,” “customer,” “client,” and “vendor” are plainly understood. The fraudster who sent the email and subsequent fax identified herself as “Kaitlyn Holt,” a representative of CMS. But CMS was a mortgage lender, not an employee, customer, client, or vendor of Star Title. Star Title did not employ CMS for any purpose or control CMS’s work performance in any manner. Nor did Star Title sell CMS any particular product or provide it with any particular service. CMS did not have any sort of contract or agreement with Star Title. Merely providing a service to parties in closing the transaction did not make a difference. Recognizing that cybercrime is on the rise and that it makes sense to provide (and obtain) coverage for situations like this one, the court was yet constrained to read the clause as written. Star Title Partners of Palm Harbor, LLC v. Illinois Union Ins. Co., 2022 U.S. App. LEXIS 24930, 2022 WL 4075048 (11th Cir. Sept. 6, 2022).
Literature
Housing
Prof. John G. Sprankling, in The Constitutional Right to “Establish a Home,” 90 Geo. Wash. L. Rev. 632 (2022), makes the case for establishing the right to home as a negative right that bars the government from unduly interfering with a person’s ability to rent or buy a home. He contends that this right has always resided in the Fourteenth Amendment as a fundamental right for the purpose of substantive due process analysis, much like the right to marry or to raise children. He asserts that any law that infringes the right, such as exclusionary zoning, must be evaluated under either the strict scrutiny or intermediate scrutiny tests. He provides a thorough history of the early notions on the importance of home in American law and social philosophy, noting the long-standing denial of this basic societal need to certain persons on account of race. Prof. Sprankling discusses the Supreme Court’s evolving interpretation of the Due Process Clause in the context of land use and personal rights. Although the Fair Housing Act can eliminate some exclusionary barriers to home ownership, the greatest value of recognizing this right as a fundamental constitutional right would be the removal of the deep deference long-afforded municipalities for their harmful land use regulations. Instead, they would need compelling justification. Although Prof. Sprankling’s analogies may be persuasive to housing advocates, given that the Supreme Court has refused to declare “housing” as a fundamental right and there appears a general reluctance to recognize new fundamental rights residing in the Constitutional penumbra (indeed, the Court seems more inclined to contract the list), recognition of this right to home may not be on the horizon.
Property Theory
In Property’s Relation: Tracing Anthropology in Property Theory, 73 Ala. L. Rev. 767 (2022), Prof. Meghan L. Morris shows how anthropology has deep roots in property theories, from realism to law and economics. This is largely because of the focus on relations between humans—anthropology and property are both about human nature. She shows how some of our most respected property law theorists have been influenced by or cast their theories in anthropological terms. For Karl Llewellyn, functionalism helped in the drafting of the Uniform Commercial Code. Harold Demsetz drew heavily on anthropological research for his work on externalities. Robert Ellickson embraced anthropological fieldwork methods for his study of cattle ranchers’ property norms. In understanding property, Carol Rose wrote about the importance of local knowledge, contingency, and different cultures. Prof. Morris believes the greatest reason why anthropology is important to property is its ability to refocus property beyond its “core debate over who and what is in relation, to deepen an understanding of how lines are drawn to create and substantiate the participants in property relations, and to further open up the relations themselves to sustained property.”
Public Lands
In Inholdings, 46 Harv. Env’t L. Rev. 439 (2022), Prof. Kellen Zale analyzes inholdings, which are tracts of non-federally-owned land surrounded by federal public lands. She sums up the problems of this peculiar form of land ownership and offers a promising approach for addressing much of the chaos it creates. Inholdings make up nearly 17 percent of all federal lands and exist in almost every category of public lands, including national seashores, national forests, and national parks (amounting to nearly 2.6 million acres). These 10,000 separate parcels are developable. Inholdings arose from many different circumstances; it seems oversight and myopic public land policies are at the top of the list. Inholdings create numerous challenges to the management of surrounding public lands, impact adversely wildlife habitat, watersheds, and historic and aesthetic resources, and make the development of a coherent land management policy nearly impossible. The traditional tools—land exchange, federal acquisition, and private conservation easements— have proven to be limited and largely ineffective. Prof. Zale claims that local land use regulation may offer the best prospects for filling this governance and regulatory gap. From zoning to subdivision regulations to a variety of other land use tools, including design review, land use law plays a key role in how intensively any privately-owned property may be developed. Land use laws can address concerns about the type of development on particularly sensitive lands. In this article, Prof. Zale develops a normative argument for local land use regulation, along with prescriptions for protecting our precious natural resources.
Legislation
Maine requires insurance coverage for the beneficiary of transfer on death deed. When the designated beneficiary obtains title to the real property at the grantor’s death, the beneficiary automatically is entitled to coverage under any property insurance policy taken out by the grantor. 2021 ME Ch. 497.
Tennessee specifies transfer taxes based on type of deed. A deed is treated as a quitclaim deed for transfer tax purposes if the deed only conveys the grantor’s interest to the grantee. A deed containing language evidencing an intent to convey the property itself or containing warranties of title is taxed as a transfer of a freehold estate. 2022 Tenn. Pub. Acts 834.
Tennessee amends real property law for acquiring additional easements for utility lines. If a person who already possesses a private easement or right-of-way of fewer than 25 feet determines that additional land is needed to extend utility lines to the person’s land, a new petition requesting additional land must be filed. 2022 Tenn. Pub. Acts 808.
Virginia allows transfer of tax-delinquent property to a public or nonprofit land bank, in lieu of public auction. The law includes parcels containing a structure that is a derelict building, when taxes and liens together, including penalty and accumulated interest, exceed 25 percent of the assessed value of the parcel. 2022 Va. Ch. 713.