Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
Presumption of permissive use is rebutted when the use is the only, or most economical, access to user’s land. In 2013, Stowe purchased 15.8 acres of landlocked property. Her predecessors had access to the property for agricultural and recreational purposes by crossing a farm road on the Smiths’ property that led to a nearby highway. Before her purchase, Stowe received permission from the Smiths to use the farm road to reach the highway. Later Stowe decided to build a home on her property and sought an express easement from the Smiths, which was refused. Stowe then filed suit, claiming a prescriptive easement. The trial court found a nonexclusive right of way over the farm road. The Smiths appealed, opposing the finding and also seeking to limit the scope of any easement to agricultural and recreational purposes. The supreme court affirmed, acknowledging that normally there is a presumption of permissive use over a neighbor’s land, which does not ripen into a prescriptive easement even when used for over 20 years. The presumption is overcome, however, if the claimed use was the only means of ingress and egress to the claimant’s property. In such a situation, the landowner is charged with presumptive knowledge that the use is under a claim of right. The owner must take some affirmative action to restrict the neighbor’s use of the right-of-way to prevent the creation of a prescriptive easement. Here, it was undisputed that the farm road was the only means of vehicular ingress and egress to the Stowe property for more than 20 years, either by Stowe herself or by her predecessors in title, establishing the requisite claim of right. The holding was not a total victory for Stowe because the prescriptive easement she acquired was limited to agricultural and recreational purposes. Smith v. Stowe, 2023 Ala. LEXIS 106, 2023 WL 5989274 (Ala. Sept. 15, 2023).
Title acquired by municipality through eminent domain does not relate back to filing of condemnation action to relieve owner of obligation to pay property taxes. The City of Joliet filed a condemnation complaint against the plaintiff’s apartment complex in 2005. The city later acquired a fee-simple title to the property in 2017. During the pendency of the condemnation action, the property owners continued to operate the apartment complex and continued paying property taxes without protest. In 2018, the property owners sought a refund of more than $6 million in property taxes paid during the period of condemnation litigation. The plaintiffs argued the law dictated that once condemnation proceedings were complete, the title received by the government body related back to the date of the original filing, thus entitling the property owners to a refund. The trial court dismissed the complaint. The appellate court affirmed in part and reversed in part, agreeing with the plaintiffs that once the condemnation proceedings were complete and title to the property conveyed to the city, the title “related back” to the date of filing the condemnation complaint, such that any taxes paid during this period were not lawfully owed. The supreme court reversed, overruling the precedent relied on by the appellate court, City of Chicago v. McCausland, 41 N.E. 2d 745 (Ill. 1945). The court declared that the filing of a condemnation complaint is not a taking. Instead, the plaintiffs remained owners of the property—they had control over the property and were not deprived of any government benefits—during the time of the condemnation proceedings. The court concluded that it would be unreasonable to hold that they had no duty to pay property taxes accruing during that time. MB Financial Bank v. Brophy, 2023 Ill. LEXIS 464 (Ill. Sept. 21, 2023).
Exemption requires both occupancy and ownership of the claimed property. Brady was the sole owner of a single-family residence where she lived with her husband and children. She filed a bankruptcy petition, claiming a $120,000 homestead exemption and later amending the petition to claim an additional $120,000 exemption on behalf of her non-owner spouse. The New Hampshire homestead statute provides: “Every person is entitled to $120,000 worth of his or her homestead, or of his or her interest therein, as a homestead.” N.H. Rev. Stat. § 480:1. The trustee in bankruptcy objected to the second claim. After a hearing, the bankruptcy court concluded that to maintain a homestead right under the statute, a person claiming the exemption must demonstrate both occupancy and an ownership interest in the homestead property. Brady appealed the ruling to the federal district court, which certified to the state supreme court the question of whether a non-owning spouse who occupies a residence with an owning spouse has a homestead right. The court answered in the negative. The precise language of the statute means a possessory interest and refers to ownership. That a non-owning spouse may be entitled to notice of actions against the property does not give rise to a homestead right. Brady v. Sumski, 2023 N.H. LEXIS 144 (N.H. Aug. 17, 2023).
Buyer of land cannot recover for injury from flooding that first occurred before buyer acquired title. In 1993, the Maslonkas bought 525 acres of land near the Box Canyon Dam, constructed by a public utility district (PUD) in 1955 to provide low-cost electricity to its customers. In operating the dam, the PUD periodically raised and lowered the water levels, which occasionally caused flooding above prescribed levels set by the Federal Energy Regulatory Commission and by an express easement granted by the Maslonkas’ predecessor in title. In 2016, the Maslonkas sued the PUD, alleging inverse condemnation and claims for trespass, nuisance, and negligence. The trial court granted the PUD’s motion to dismiss, finding the subsequent purchaser rule precluded a later purchaser from bringing an inverse condemnation for a taking that occurred before acquiring title. The trial court also found a prescriptive easement over the Maslonkas’ land in favor of the PUD. The appellate court reversed, ruling that the PUD had the burden to show that its operations permanently reduced the value of the property before the Maslonkas acquired title. The supreme court reversed, first finding that the subsequent purchaser rule is one of standing, not an affirmative defense that a defendant must establish. As the Maslonkas failed to show that increased flooding occurred after they acquired title, they lacked standing to bring the action. On the tort claims, the court explained that ordinarily, when a landowner establishes a taking by inverse condemnation, actions in tort for injury to the property taken are precluded. That rule does not change when the takings claim is not available because of the subsequent purchaser rule. Maslonka v. Public Util. Dist. No. 1, 533 P.3d 400 (Wash. 2023).
Landlord-tenant relationship may be found based on conduct despite motel agreement’s describing relationship as innkeeper-guest. The plaintiffs, who rented rooms at the Efficiency Lodge extended-stay motel, fell behind on their rent and were threatened with immediate eviction. They sued for injunctive relief, claiming eviction was improper without judicial dispossessory proceedings as required by the state’s landlord-tenant law. The motel argued the plaintiffs signed agreements expressly stating their relationship was one of innkeeper-guest and not landlord-tenant, and the hotel, therefore, was entitled to lockout the residents without using judicial process. The trial court agreed with the plaintiffs, and the appellate court affirmed. The supreme court vacated the judgment and remanded the case for a determination of whether a landlord-tenant relationship existed under the new guidance provided in the court’s opinion. The supreme court stated that a landlord-tenant relationship exists when a property owner grants another the right to possess and enjoy the use of the owner’s property either for a fixed term or at the grantor’s will. The grant can be express or implied from the circumstances. Mere possession of the land of another raises a rebuttable presumption that some type of tenancy exists, and using the property as a home ordinarily establishes possession for purposes of a landlord-tenant relationship. Further, the intent of the parties, as shown by their written agreement or conduct, is a key factor. In contrast, an innkeeper-guest relationship is created when a person pays a fee to a hotel or inn “for the purpose of entertainment at that inn.” Ga. Code § 43-21-1. Whether a landlord-tenant relationship was created will turn on whether the motel granted the plaintiffs the right “simply to possess and enjoy the use of” their rooms. Despite the language referring to an innkeeper-guest relationship, it was particularly relevant that the plaintiffs occupied their rooms as their homes, using the motel’s address to register their children for school, to receive mail, and even as their driver’s license address. They also decorated their rooms, in some cases buying furniture for their spaces. The court explained it is the substance of the relationship that is determinative, “no matter the nomenclature assigned.” Efficiency Lodge, Inc. v. Neason, 889 S.E. 2d 789 (Ga. 2023).
Mortgagor has no right to challenge assignment of note and mortgage. A mortgagor claimed that an assignee could not enforce the mortgage on his property because the original loan agreement was with the assignor, and the mortgagor had not consented to the assignment. The mortgagor also claimed that he had a due process right to notice of the assignment and that the assignee violated the Fair Debt Collection Practices Act (FDCPA) in seeking to enforce the mortgage. The trial court dismissed each of the claims. The Ninth Circuit Court of Appeals affirmed. First, the court pointed out that under California law, a borrower generally cannot object to the assignment of a note and deed of trust because a promissory note is a negotiable instrument, which the lender may sell without notice to the borrower. In this respect, an assignment is an agreement between the assignor and the assignee only. Furthermore, the mortgagor consented in advance to the assignment by a term in the deed of trust providing that “[t]he note or a partial interest in the Note . . . can be sold one or more times without prior notice to Borrower.” Second, the mortgagor had no due process claim because under California law a mortgagor has no property interest in the identity of the holder of the note. In any case, a constitutional due process claim can be asserted only against a state actor, and neither party to the assignment is a state actor. Finally, the court ruled that a mortgagee enforcing a deed of trust is not a “debt collector” as defined in the FDCPA because it was not in the business of collecting or attempting to collect debts owed to another. See 15 U.S.C. § 1692a(6). Harris v. New Rez, LLC, 2023 U.S. App. LEXIS 24098, 2023 WL 5925909 (9th Cir. Sept. 12, 2023).
Dissolution of preliminary injunction against violation of covenants must meet same test for granting the injunction. Morning Star sought and obtained a preliminary injunction against the owners of a neighboring lot from building a second story on their home in violation of a restrictive covenant that allowed only one-story buildings on the lot. Later, the trial court dissolved the injunction on the basis that the offending lot owners’ removal of the second-story window facing Morning Star’s property was a significant change in facts that tipped the balance of hardships “heavily” in the offending landowners’ favor. The Ninth Circuit Court of Appeals reversed, stating that even assuming the removal of the window is “a significant change in facts,” it did not warrant dissolution of the injunction. Under Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008), the same factors determine both whether an injunction should be granted and whether the injunction should be continued. First, there was a likelihood of success on the merits, as state law precedent upheld a permanent injunction against the construction of a second-story unit in violation of a restrictive covenant. Second, Morning Star was likely to suffer irreparable harm in the absence of preliminary relief—state law recognized that the violation of a property right itself constitutes irreparable harm. Third, the balance of the equities and hardships weighed in favor of injunctive relief, notwithstanding the removal of the second-story window. The trial court concluded that the removal of the second-story window addressed the privacy invasion but failed to consider the other stated purpose of the covenant, i.e., to benefit Morning Star’s property. The trial court discounted the inherent harm caused by the violation, which, under state law, courts must strictly enforce absent extraordinary circumstances. The court of appeals did not address the fourth factor, whether the injunction is in the public interest, because the trial court did not address it, and, at best, it would be a neutral factor. Morning Star, LLC v. Canter, 2023 U.S. App. LEXIS 20686, 2023 WL 5092764 (9th Cir. Aug. 9, 2023).
Statute of Frauds
Agreement signed after purchase of home supports claim to joint ownership. Shields and Wilkinson, an unmarried couple, decided to buy a home where they would live, along with Wilkinson’s grandmother, Clark. Clark had suffered a mild stroke, and Shields and Wilkinson decided that they would care for her. The three of them pooled their resources to purchase a new home. Shields applied for a Veterans Administration mortgage loan, and Clark sold her existing home, contributing $106,000 of the proceeds as the down payment for the new home. While Wilkinson was out of town, Shields took Clark to the lender’s office, where she was asked to sign a statement that the $106,000 was a gift to Shields with no expectation of repayment. After Clark signed the gift letter, the purchase closed, with the title to the home conveyed only to Shields. Then Wilkinson consulted an attorney to obtain protection for Clark. The attorney drafted and Shields signed a memorandum that outlined how funds would be divided between Shields and Wilkinson upon the sale, transfer, or other disposal of the new house and acknowledged that “the parties used $106,000.00 from … Wilkinson’s family” to purchase the property. Later Shields’s and Wilkinson’s relationship deteriorated, and Shields listed the property for sale. Thereafter, Clark’s attorney sent a letter demanding her equity interest in the property. When Shields did not respond, Clark sued, seeking a preliminary injunction against the sale or that the proceeds be held in trust until her claim could be resolved. The trial court found that there was an agreement to purchase the property jointly and the memorandum was sufficient to satisfy the statute of frauds, Alas. Stat. § 09.25.010, or constituted an admission of a contract by Shields under Alas. Stat. § 09.25.020(4). The court ordered Shields to reimburse Clark for the down payment. The supreme court affirmed. Although there was no dispute that Clark provided the down payment, it remained to be determined what the parties intended by that payment. The evidence was clear that the parties intended to combine resources to purchase the property to take care of Clark as she aged. That the money was an unconditional gift was belied by the subsequent memorandum; instead, it was an investment in the property. The court rejected the assertion that the statute of frauds requires the signature of both parties, instead of only the party to be charged. In any case, the memorandum would serve as an admission of the contract, thereby taking the matter out of the statute of frauds. Shields v. Clark, 534 P.3d 94 (Alaska 2023).
Statute of Limitations
Statute of limitations on home equity mortgage loan runs from lender’s acceleration of debt, not from borrower’s first default in paying installments. In 2006, McElfish obtained a first mortgage loan on his residence and later, from a different lender, obtained a home equity line of credit (HELOC) loan for cash advances up to $150,000, which carried a maturity of 20 years. McElfish was required to make monthly payments. The note and mortgage gave the lender the right to require payment of the entire outstanding balance if McElfish defaulted, but the lender reserved the right to delay exercising any right under the agreement. After McElfish failed to make payments, the first lender foreclosed and sold the property in 2012. The foreclosure sale did not generate any surplus funds to pay off the HELOC debt. In 2019, Piedmont purchased the HELOC debt, gave notice to McElfish of the acceleration of the outstanding balance of $147,569, and demanded payment. McElfish did not respond, and Piedmont sued. McElfish moved to dismiss, asserting that the four-year statute of limitations began to run when he first missed a payment in 2011—not when Piedmont exercised the acceleration right in 2019. The trial court ruled that the HELOC was an installment contract such that the statute of limitations ran from the time of the first missed payment and had run out by the time of the suit. The court of appeals reversed. McElfish’s duties to pay the full amount were divisible in that the loan agreement required payment in full by a certain date, and simultaneously granted the lender the choice of whether to accelerate the maturity date when McElfish missed a payment or at any time thereafter. This choice necessarily contemplated a breach of McElfish’s duty to make monthly payments being divisible from his duty to pay the full amount. As such, Piedmont’s suit was timely as to all missed monthly payments within the four years preceding its filing as well as to all future payments because Piedmont accelerated those payments within that four-year “look back” period. Piedmont Capital Mgmt., L.L.C. v. McElfish, 312 Cal. Rptr. 3d 664 (Ct. App. 2023).
Special overlay zone prohibiting smoke shops and tobacco stores is not spot zoning. The City of Myrtle Beach, a town economically driven by tourism, decided to restrict certain business types and practices after receiving complaints from tourists and residents. To improve the “family-friendly” nature of its downtown, in 2018 the city, according to the state statute authorizing overlay zones, created the Ocean Boulevard Entertainment Overlay District (OBEOD). The new district addressed the special public interests in the area and was consistent with the objectives stated in the city’s comprehensive plan. The zone prohibited smoke shops, tobacco stores, sales of sexually explicit material, and cannabidiol merchandise. All businesses engaged in the prohibited activities immediately were deemed non-conforming uses and ordered to cease those activities or risk suspension or revocation of their business licenses, although they were given a four-month amortization period. The affected businesses filed suit, seeking various remedies including a declaration that the ordinance was unconstitutional. The zoning board administrator and the board of zoning appeals upheld the validity of the ordinance. The circuit court affirmed, finding the appellants’ claims to be meritless. The businesses then appealed to the supreme court, which also affirmed and upheld the ordinance. The court began its analysis by noting the presumed constitutionality of municipal enactments; a court will not disturb them unless arbitrary and capricious or lacking a reasonable relation to a lawful purpose. Although a finding of spot zoning means that the government has failed this test, the businesses here failed to meet their burden of proof. Traditional spot zoning singles out and reclassifies a relatively small portion of land in a manner different from the surrounding properties, thereby benefitting certain owners to the detriment of others. Yet, spot zoning is present only if the small zone is not justified by the city’s comprehensive plan of zoning or is for mere private gain as distinguished from the good of the common welfare. Traditional spot zoning is compared to reverse spot zoning, which occurs when a zoning ordinance restricts the use of property when virtually all adjoining neighbors are not subject to those restrictions. Here, because the prohibitions in the OBEOD were not the result of a zoning “island” that came from rezoning surrounding areas, there was no reverse spot zoning. Nor was there unlawful traditional spot zoning because the overlay was consistent with the comprehensive plan, it was fairly debatable that it was enacted to promote the public welfare, and there was no clear injustice to the appellants because their businesses were not taken. ANI Creation, Inc. v. Myrtle Beach Bd. of Zoning Appeals, 890 S.E.2d 748 (S.C. 2023).