P R O B A T E   &   P R O P E R T Y
July/August 2002
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Articles from other issues of Probate and Property


Keeping Current—Property

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


BROKERS: Condemnation. At the time of obtaining a listing, the broker was aware that the city was interested in acquiring the listed property. The broker-drafted listing agreement was silent on the issue of a commission in the event of a city condemnation of the property. The broker was not entitled to a commission from the condemnation of the property. In re New York City School Constr. Auth., 733 N.Y.S.2d 86 (N.Y. App. Div. 2001).

BROKERS: Termination. A commission agreement on the sale of raw land also granted the broker the right to market the project after development. The ten-year term of the agreement was to commence upon the date development approvals were obtained from the local authorities. Twelve years later, without filing for development approval, the landowner sought to invalidate the commission agreement, which was upheld by a liberal reading of the statutory requirement of a definite termination date. The agreement provided a method for eventually determining the exact termination date, even though it could be an indefinite number of years in the future. Illva Saronno Corp. v. Liberty Hill Realty Inc., 782 A.2d 473 (N.J. Super. Ct. App. Div. 2001).

DEEDS: Escrow. Deposit of a deed in escrow to be delivered to the grantee upon the grantor’s death, subject to the grantor’s right to revoke the escrow, was held not a delivery of the deed. The grantor subsequently executed a will devising the same property to another party, which was held to be a valid revocation of the escrow even without notice to the escrow agent. The subsequent delivery of the deed by the escrow agent to the original grantee was ineffective. Albrecht v. Brais, 754 N.E.2d 396 (Ill. App. Ct. 2001).

DEEDS: Reformation. The grantor’s attorney modified a proposed deed to limit timber rights contrary to the parties’ prior agreement, and the grantee’s attorney objected to the change without obtaining the agreement of the grantor’s attorney to conform the deed to the agreement. The subsequent failure of the grantee’s attorney to insist on reviewing the final deed, attend the closing, or caution the grantee to carefully inspect the deed before recording, coupled with the grantee’s failure to read the deed at closing, constituted gross negligence that prevented deed reformation. Murray v. Laugsand, 39 P.3d 241 (Or. Ct. App. 2002).

EASEMENTS: Abandonment. Homeowners were the holders of a beneficial easement to maintain a dam supporting a recreational lake. By abandoning their easement rights, the homeowners sought to avoid the cost of dam repairs assessed by their homeowners association as the servient owner of the lake and dam. The court held that in such circumstances abandonment would not avoid the repair obligations necessitated due to the dam’s age, because of the easement benefits accepted by the owners over the prior 80 years. Lake Lookover Prop. Owner’s Ass’n v. Olsen, 791 A.2d 270 (N.J. Super. Ct. App. Div. 2002).

EASEMENTS: Implication. An implied access easement can arise if reasonable necessity exists at the time that a lease is executed, even if the lease contains an integration clause disclaiming any implied rights or obligations generally. To avoid an implied easement the disclaimer must be specific as to easements. In this case the benefited owner needed the easement for access to its property by large trucks used in its business. Dubin v. Robert Newhall Chesebrough Trust, 116 Cal. Rptr. 2d 872 (Cal. Ct. App. 2002).

EASEMENTS: Relocation . A servient owner deliberately relocated a drainage ditch to facilitate the development of its property without first obtaining a declaratory judgment authorizing the relocation. The relocation was held to be a trespass against the interest of the dominant owner. The court remanded the case for a determination whether the ditch must be restored to its original location based upon whether the relocation diminished the benefit of the easement to the dominant owner. Roaring Fork Club L.P. v. St. Jude’s Co., 36 P.3d 1229 (Colo. 2001).

EASEMENTS: Speed limits. A servient owner’s installation of gates on a way of necessity to control the servient owner’s livestock was upheld, but the servient owner’s imposition of a speed limit on the dominant owner’s use was rejected as unjustified by any evidence. Lowe v. Double L Properties, Inc., 20 P.3d 500 (Wash. Ct. App. 2001).

EMINENT DOMAIN: “Public purpose” doctrine. The Illinois high court concluded that the condemnation of land for purposes of expanding the parking area for a profit-making private auto racing track violated the Due Process Clause of the U.S. Constitution. Despite compliance with a state statutory industrial development bond process, the condemnation was held to lack a public purpose. Southwestern Ill. Dev. Auth. v. Nat’l City Envtl., L.L.C., 2002 WL 501593 (Ill. Apr. 4, 2002).

LANDLORD/TENANT: Federal housing. The U.S. Supreme Court upheld an interpretation of federal housing statutes that authorizes, but does not require, expulsion of any tenant if guests or children of that tenant possess or traffic in drugs, regardless of personal knowledge or involvement of the tenant. Department of Housing and Urban Development v. Rucker, 122 S. Ct. 1230 (2002).

LANDLORD/TENANT: Insurance. Connecticut held that, in both residential and commercial leases, the subrogation rights of landlord’s insurers against a tenant are implicitly waived if the lease is silent on the issue. Dilullo v. Joseph, 792 A.2d 819 (Conn. 2002).

In New York, a commercial lease waiver of subrogation rights respecting the tenants’ actual or required insurance coverage clearly precluded recovery of sums paid to the tenants by their insurers. The tenants, however, had triable claims against the landlords for the tenants’ large deductible amounts. The Gap, Inc. v. Red Apple Cos., Inc., 725 N.Y.S.2d 312 (N.Y. App. Div. 2001).

MORTGAGES: Condemnation proceeds. Because secured property condemnation proceeds were deposited in court and available to the mortgagee, the terms of the mortgage effected an immediate application of the deposited funds as payment in full of the mortgage even though the lender withdrew the funds months later. The lender unsuccessfully sought to treat the loan as paid when the lender finally withdrew the funds in order to recover from the borrower the large spread between the interest rates on the loan and the deposited funds. City of Orange Township v. Empire Mortgage Services, Inc., 775 A.2d 174 (N.J. Super. Ct. App. Div. 2001).

MORTGAGES: Nonrecourse. A mortgagor failed to renew its lease for parking to serve its mortgaged office building prior to being foreclosed. Because the secured loan was made on a nonrecourse basis, the mortgagee unsuccessfully sought recourse from the mortgagor, asserting that failure to maintain the parking constituted waste of the mortgaged property. Cases of waste without actual disrepair of the mortgaged property almost uniformly involve failure to pay taxes and insurance premiums or interest on a senior mortgage. The court refused to extend the doctrine to a failure to maintain offsite parking rights. Boucher Investments, L.P. v. Annapolis-West Limited Partnership, 784 A.2d 39 (Md. Ct. Spec. App. 2001).

MORTGAGES: Priority. A recorded deed of trust that stated it secured $65,000 evidenced by an unrecorded note did not put the holder of a junior deed of trust on inquiry notice of the contents of the note, which in fact evidenced additional debt beyond the $65,000. Nothing on the face of the senior deed of trust suggested the amount secured was incomplete and that reference should be made to the unrecorded note for a complete description of the underlying debt. Kalange v. Rencher, 30 P.3d 970 (Idaho 2001).

MORTGAGE BROKERS: Yield spread premiums. The Eighth Circuit held that a lender-paid mortgage broker fee based upon a yield spread premium may be a valid payment for services rendered or may be an illegal referral fee under RESPA. It also held a class action was improper because a loan-specific analysis was required under policy statements issued by the Department of Housing and Urban Development. The court deferred to HUD’s policy statements as determinative authority. Glover v. Standard Fed. Bank, 283 F.3d 953 (8th Cir. 2002).

SELLER/PURCHASER: Perpetuities. An option to purchase property, which is not limited by time and extends to the grantee’s heirs and assigns, violates the Rule Against Perpetuities and is void. Reynolds v. Gagen, 732 N.Y.S.2d 4 (N.Y. App. Div. 2001).

SELLER/PURCHASER: Statute of frauds. A buyer refused to close a purchase because the deed omitted a beneficial easement that the buyer was to receive under the sale agreement. The seller’s broker supplied a legal description for the easement, which the escrow agent attached to and recorded with the deed. The broker’s oral representation that the seller intended to convey the easement as described was insufficient to satisfy the Statute of Frauds, but the case was remanded for a trial on the buyer’s claim of equitable estoppel. Lakeside Oakland Dev., L.C. v. H.&J. Beef Co., 2002 WL 169216 (Mich. Ct. App. Feb. 2, 2002).

TITLE INSURANCE: Negligence. A seller brought a claim against its title company for negligent interference with contract expectation, when refusal to insure a lake access easement caused the buyer to withdraw from a purchase. The claim was unsuccessful because the seller failed to present any evidence of the title company’s negligence. Brackman v. Southern Tier Abst. Corp., 734 N.Y.S.2d 282 (N.Y. App. Div. 2001).


Bankruptcy and Letters of Credit. According to Kimberly S. Winick in Tenant Letters of Credit; Bankruptcy Issues for Landlords and Their Lenders, 9 Am. Bankr. Inst. L. Rev. 733 (2001), commercial landlords now commonly accept letters of credit instead of cash as security deposits. Winick explains that landlords and the landlords’ mortgage lenders obtain advantageous treatment if the tenant files a petition in bankruptcy. By filing a petition, the debtor creates “property of the estate.” Unsecured creditors’ debts are satisfied from this pool of assets. Winick demonstrates that, when correctly drafted and structured, neither letters of credit nor proceeds of letters of credit become property of the estate. Winick also identifies bankruptcy law pitfalls of incorrectly structured tenant letters of credit.

Federal Tax Lien. As real property practitioners already know, the federal tax lien attaches to “all property rights and to property” owned by delinquent taxpayers. Most property interests that the IRS pursues are easily identifiable as “property” for purposes of the tax lien statute. However, as Steve R. Johnson notes in The Good, the Bad, and the Ugly in Post-Drye Tax Lien Analysis, 5 Fla. Tax Rev. 415 (2002), garden-variety property interests of the tax debtor are often insufficient to pay the outstanding tax debt, and as a result the government is left to pursue more unusual interests of the debtor. These less common interests of the debtor include interests that have not ripened into possession, interests shared with other parties, and interests that are restricted by document or state law. The U.S. Supreme Court attempted to provide guidance to courts evaluating these more difficult cases in Drye v. United States, 528 U.S. 49 (1999). In that case, the Court held that a taxpayer’s inheritance from his mother was an interest subject to the tax lien, notwithstanding the taxpayer’s disclaimer of the inheritance. Johnson examines a spate of post- Drye district and appellate court opinions confronting difficult tax lien scenarios. Among other things, federal courts considered whether federal or state law control characterization of an asset or interest as “property,” a particularly vexing problem when marital assets are involved.

Illinois Law Survey. Steven B. Bashaw examines important developments in Illinois law in Survey of Illinois Law: Real Estate, 25 S. Ill. U. L.J. 943 (2001). Bashaw considers a variety of interesting cases. For example, he notes an Illinois case rejecting the ability of mortgage companies to earn brokerage commissions on real estate transactions if the financial institutions lack a brokerage license. According to Bashaw, “the theory of one stop shopping has led Realtors to attempt to control the entire residential real estate transaction.” The court denied the right to a commission, even though the mortgage company employed individuals who possessed real estate licenses. Bashaw also discusses more traditional property law case opinions covering topics such as easements by implication and the requirement that the easement arise at the time of severance, the interplay of tenancy by the entireties, and fraudulent conveyance law, as well as a number of just compensation/takings cases. The latter cases focus alternately on the proper calculation of just compensation in the event of a partial taking and the compensation that must be paid when an easement is taken for use as a public road. Illinois courts have heard a number of landlord/tenant cases and have determined that landlords may hire attorneys on a contingency fee basis in disputes with tenants, pursuant to lease provisions requiring tenant to pay landlord’s attorney fees.

Property Law Generally. Robert C. Ellickson, Carol M. Rose, and Bruce A. Ackerman have updated their popular Perspectives on Property Law (3d ed. 2002). Their book collects edited versions of essays and articles on property law from some of the most noted academic authors in the field. The book presents general economic and social analyses of property law, as well as discussions of landlord/tenant law, land use and environmental law, and takings law.

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