Keeping Current—Property

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

CASES

FORECLOSURE:

Fannie Mae’s nonjudicial foreclosure is not state action. The Federal National Mortgage Association (Fannie Mae) acquired home mortgage loans that were in default and conducted nonjudicial foreclosure sales of the properties under Rhode Island law. The homeowners filed a putative class action suit against Fannie Mae and its conservator, the Federal Housing Finance Agency (FHFA), alleging deprivation of property without adequate notice and opportunity for meaningful hearings in violation of the Fifth Amendment. FHFA and Fannie Mae moved to dismiss, asserting that they were not government actors for purposes of a Fifth Amendment claim. The district court dismissed the complaint on this ground. The First Circuit Court of Appeals affirmed. Its opinion began by describing the turmoil in the housing markets that led to the creation of FHFA, pointing out that FHFA’s mission is to prevent the ultimate collapse of the government-sponsored entities (GSEs), which include Fannie Mae. See Housing and Economic Recovery Act of 2008 (HERA), 12 U.S.C. § 4511. The court explained that when a federal agency, such as FHFA, exercises one statutory power in the role of government actor, that does not make the agency a federal actor for all purposes. Here, under the succession clause of HERA, when the FHFA became the GSEs’ conservator, it succeeded to “all rights, titles, powers, and privileges of the regulated entity … and [its] assets” Id. § 4617(b)(2)(A). One of these powers was the GSEs’ private contractual right to foreclose on “forced” to agree or risk losing his truck at a public auction. Long appealed the magistrate’s findings, arguing that the impoundment violated the excessive fines clauses of the state and federal constitutions, substantive due process, and the homestead act. The municipal court denied his claims. The superior court affirmed and reversed in part, rejecting the substantive due process claim but ruling that the impoundment costs were unconstitutionally excessive under the Eighth Amendment of the federal constitution and that the payment plan violated the homestead act. The court of appeals concluded that the payment plan was invalid under the homestead act but rejected the claim that the impoundment and associated costs were excessive. The supreme court affirmed in part and reversed in part. The court began by hailing the concept of homestead as a “uniquely American contribution” to real property law: “homestead exemptions are based on the notion that citizens should have a home where family is sheltered and living beyond the reach of financial misfortune and the demands of certain classes of creditors.” The court ruled that Long’s truck automatically qualified as a homestead because it was occupied personal property. The homestead act did not require Long to file a declaration; occupying the vehicle as his principal residence sufficed. Wash. Rev. Code § 6.13.040(1). Relying on historical sources going back to Magna Carta and on recent scholarship regarding the disproportionate effects of ostensibly neutral principles on certain groups, the court declared the fines excessive because they did not take into account Long’s ability to pay them. City of Seattle v. Long, 493 P.3d 94 (Wash. 2021).

plaintiffs’ mortgages, and plaintiffs did not allege that the FHFA relied on any power other than the one to conduct nonjudicial foreclosures. This means that FHFA stepped “into Fannie Mae’s private shoes” and thus became a private actor. Also, Fannie Mae did not become a federal actor by virtue of the conservatorship because the government did not reserve any permanent authority over Fannie Mae. Instead, by its terms the conservatorship is temporary and for the limited purpose of “reorganizing, rehabilitating, or winding up [its] affairs,” id. § 4617(a)(2), and to take actions “necessary to put the regulated entity in a sound and solvent condition.” Id. § 4617(b)(2)(D)(i). Montilla v. Fed. Nat’l Mortg. Ass’n, 999 F.3d 751 (1st Cir. 2021).

HOMESTEAD:

Truck used as shel- ter qualifies as homestead. Long lived in his truck where he stored his work tools and his personal items. After his truck broke down, he parked in a gravel lot owned by the city for three months, when the police told him that a city ordinance prohibited parking in one location for more than 72 hours. He did not move the truck, so the city impounded it, and at an impoundment hearing, the magistrate waived the $44 ticket, reduced the impoundment charges from $946 to $547, and drafted a payment plan requiring Long to pay $50 per month. Long stated that he felt

INSTALLMENT LAND CONTRACTS:

Statute of limitations bars vendor’s action for specific performance or foreclosure ten years after buyer’s last payment. In 1980, the Urbans sold 146 acres at nearly $640 per acre to their son Richard by an installment land sale contract that required 20 annual payments including interest and payment of annual real estate taxes. Richard took possession, improved the land, and periodically made payments to the sellers. The last payment Richard made was in 2001, and at that time he requested a deed from the sellers, which they did not provide. In 2018, the sellers filed suit seeking specific performance, foreclosure, or ejectment. The parties disputed what amount, if any, remained unpaid. The trial court found that a balance due including interest of $686,183 and held that the statute of limitations barred foreclosure, but the sellers were entitled to ejectment based on their superior title. The supreme court reversed, observing that Nebraska treats land contracts as mortgage substitutes and Neb. Rev. Stat. § 25-202 places a 10-year limitation on actions to recover the property. With installment land contracts, the statute runs individually from the time each installment becomes due. Because the sellers never accelerated the debt and Richard’s last payment was made in 2001, the 10-year statute commenced at that time and ran out in 2011. The sellers were not entitled to possession based on ejectment or any other theory because they made their claim too late. Richard acquired title by adverse possession under the same 10-year statute of limitations. When he made his last payment in 2001 and demanded the deed, his possession was no longer subordinate to the sellers but became adverse. A land-contract seller that receives an unequivocal repudiation by the buyer cannot wait more than 10 years before filing an ejectment action. Beckner v. Urban, 962 N.W. 2d 497 (Neb. 2021).

LANDLORD-TENANT:

Res judicata does not bar landlord’s action for damages in civil court after landlord recovers possession in landlord-tenant court. A landlord sued a tenant in landlord-tenant court, seeking back rent and possession, for breach of a commercial lease authorizing the tenant to improve the leased property for the operation of a bar. The parties settled the case, with the tenant surrendering possession, and the action terminated. Later, the landlord sued the tenant and its guarantors in civil court, seeking $250,000 in damages representing back rent and costs. The tenant filed a motion to dismiss, asserting the suit was barred by res judicata. The trial court ruled for the landlord. The court of appeals affirmed. The court explained that the doctrine of res judicata—or claim preclusion—precludes re-litigation of the same claim between the same parties. The general rule is that claim preclusion operates to bar a second action asserting claims arising out of the same transaction that the plaintiff could have raised in the first action. The court noted, however, that District of Columbia law has long recognized an exception to the rule, generally permitting landlords to obtain possession in the landlord-tenant branch and then to file a second action in the civil branch seeking damages. The court rejected the tenant’s argument that the exception should not apply because the landlord initially sought damages in the landlord-tenant action. The court saw no reason to apply a different rule to cases when a landlord initially seeks damages in the landlord-tenant action, abandons that request for relief before the trial court decides the damages issue, and then files a separate action in the civil branch seeking damages. PHCDC1, LLC v. Evans & Joyce Willoughby Trust, 257 A.3d 1039 (D.C. 2021).

LANDLORD-TENANT:

Tenant may recover treble damages for wrongful eviction only with proof that landlord removed tenant unlawfully and in bad faith. Reimringer rented a house from Anderson under a lease that required first and last month’s rent and a security deposit before possession. One month later, Reimringer moved in without paying any money, the prior tenant having left the premises unlocked with the keys inside. After discovering Reimringer on the premises, Anderson demanded payment and, following some heated exchanges, Anderson ordered Reimringer out. Reimringer moved to a nearby hotel where he and his family stayed for several weeks. Anderson paid for their stay for three nights and rented a storage container for their personal property. Reimringer filed suit against Anderson for possession, unlawful removal, and treble damages for wrongful ouster. The trial court granted judgment for Anderson on the ground that Reimringer was not a “residential tenant” under Minn. Stat. § 504B.001(12). The trial court also held that Anderson did not act in bad faith, as required for treble damages, because he paid for some expenses on Reimringer’s behalf. The appellate court affirmed. On further appeal, the supreme court did not resolve whether Reimringer was a residential tenant, but it clarified the statutory requirements for treble damages. The court explained that a successful claim requires a showing of both unlawfulness and bad faith when a landlord removes a tenant. It is not enough that the law prohibits landlord self-help. Noting that there is no definition of bad faith in the statute, Minn. Stat. § 504B.231, the court looked to precedent and Black’s Law Dictionary to hold that bad faith means that the landlord acted dubiously or dishonestly—in a way suggesting an ulterior motive or purpose beyond a mere desire to oust the tenant. In other words, the tenant must show that the landlord wanted to inflict harm beyond merely depriving the tenant of access to the premises. The court instructed that the analysis of bad faith under the new standard should address the totality of circumstances surrounding a tenant’s unlawful removal, including actions by the landlord both before and after the removal. In sending the case back to apply the new standard, the court also cautioned that a landlord’s mistaken understanding of the law does not preclude a finding that the landlord acted in bad faith. Reimringer v. Anderson, 960 N.W.2d 684 (Minn. 2021).

REAL COVENANTS:

Short-term rentals do not violate residential-use covenant when renters use home for ordinary living purposes such as sleeping and eating. The Maynards bought a subdivision lot where they constructed a three-story home with five bedrooms for the purpose of rental to short-term guests for profit. Restrictive covenants for the subdivision limited use to “residential purposes,” including “normal home occupations and offices of recognized professions and bed and breakfast uses.” Further, construction in the subdivision was “restricted to family or residential recreation type dwellings.” The Wilsons, neighboring property owners, filed suit seeking to enjoin the Maynards’ usage based on violation of the covenants. The circuit court granted summary judgment to the Maynards, and the Wilsons appealed. In a case of first impression, a divided supreme court noted that courts from other jurisdictions have consistently held that use of a home for eating, sleeping, and recreation for any duration is determinative of whether a property is used for residential purposes, regardless of the owner’s receipt of rental income. The court recognized that conclusion was consistently reached whether the court considered the covenant language to be ambiguous or unambiguous. In this case, the court agreed with the parties that the covenant in dispute was unambiguous. The court followed the nearly universal position that such rentals are allowed when the covenant language does not address the term of the rentals. The Maynards’ use was consistent with the common meaning of “residential purposes.” Similarly, the construction of a multi-bedroom vacation home was consistent with the plain language of the covenant requiring family or residential dwellings. Wilson v. Maynard, 961 N.W.2d 596 (S.D. 2021).

RECEIVERS:

Receiver appointed to collect rents to apply to delinquent real property taxes has no power to collect money from holdover tenant who occupies abandoned property. Cadle Properties of Connecticut, Inc., leased property to M & S Gateway Associates, LLC (Gateway) for use as an automobile dealership. Before the lease expired in 2001, the state obtained a judgment ordering Cadle to remediate contaminated soil and groundwater and pay a penalty of $2,143,000. Cadle effectively abandoned the property. Cadle took no further action to manage the property—it did not demand rent from Gateway, advertise the property for lease, or move to evict Gateway after the lease expired. In 2011, at the instance of the town where the property was located, the court appointed a receiver of rents under Conn. Gen. Stat. § 12-163a, which allows the receiver to “collect all rents or payments for use and occupancy forthcoming from the occupants of the building in question in place of the owner, agent, lessor, or manager” when there is a delinquency in the payment of real property taxes. Thereafter, the receiver sought rent or use and occupancy payments from Gateway and Cadle in the amount of $1,349,648, plus attorneys’ fees, and an order evicting Gateway from the property. Gateway moved for summary judgment, asserting the receiver lacked authority concerning abandoned property. The trial court granted the motion, finding that the lease contained no holdover provisions that would define rights and obligations after the lease expired. The supreme court affirmed, explaining that the scope of a receiver’s authority is a question of statutory construction. The supreme court found the text of the statute to be ambiguous— though it authorizes the collection of “all rents or use and occupancy payments,” it is silent on whether the receiver may establish those rents or use and occupancy payments in the first instance or whether the payments are limited to those resulting from an existing landlord-tenant relationship. The court thought both interpretations reasonable but adopted the latter. The express statutory powers are limited to collecting funds and making payments. There is no authority given to evict a tenant, to enter into a new lease, to take possession of the property, or to take any other action in the owner’s place regarding the property, except collecting payment from the building’s occupants. Nothing in the legislative history showed an intent to apply the statute to abandoned property. Boardwalk Realty Assocs. v. M & S Gateway Assocs, 2021 Conn. LEXIS 220 (Conn. Aug. 13, 2021).

REFORMATION:

Discovery rule extends statute of limitations even though mistake is apparent on face of deed of trust. In 2002, a father helped his daughter obtain mortgage financing to purchase a home. Only the father executed the promissory note, and both the daughter (the sole owner of the property) and her father signed the deed of trust. In 2005, they refinanced the mortgage loan, and a mistake was made in the refinancing documents. Again, only the father executed the promissory note, as the sole borrower, but the new deed of trust erroneously named only the daughter as the borrower. The daughter made all mortgage payments until 2015, several months after her father’s death. The lender commenced a non-judicial foreclosure proceeding in 2017 and, after spotting the error, commenced an action for reformation and judicial foreclosure. The trial court granted summary judgment to the lender. A divided appellate court reversed, finding reformation barred by a ten-year statute of limitations. N.C. Gen. Stat. § 1-47(2). The supreme court reversed, ruling that the appellate court applied the wrong statute—§ 1-47(2) applies to actions to enforce a sealed instrument, but N.C. Gen. Stat. § 1-52(9) applies to claims seeking relief based on mistake. Even though the latter provision contains a shorter limitations period, three years as opposed to ten, it does not begin to run until the aggrieved party discovers the error, meaning when the party knew or should have known of the mistake. The drafting of a document with an apparent mistake on its face alone does not necessarily trigger the statute. A drafter who makes a mistake is entitled to the benefit of the discovery rule in appropriate cases. Here, the first occasion that would have caused the lender to question the validity of the documents was the 2015 default. Thus, the lender’s reformation action, filed in 2017, was timely and not barred. Wells Fargo Bank, N.A. v. Stocks, 861 S.E.2d 516 (N.C. 2021).

SALES CONTRACTS:

Sellers are not liable for breach of contract by terminating their efforts to find “suitable” replacement housing before deadline in contingency. In 2018, the LaPlantes contracted to sell their house to the Kellys because of Ms. LaPlante’s debilitating allergies to the birch and oak trees on the property. The LaPlantes wanted to buy a new home with limited exposure to such trees and with a garage large enough to house vehicles and large equipment used in Mr. LaPlante’s mechanical engineering business. Over several months, they viewed some 100 properties online and visited 15 to 17 in-person, finding nothing to satisfy their needs. The purchase and sale agreement stated it was subject to the sellers’ finding “suitable housing” by July 14, 2018. However, on June 5, the LaPlantes sent an email to the Kellys apologizing to the buyers “for wanting to cancel the P&S … at this stage.” The sellers explained that they no longer needed to move from the property because Ms. LaPlante no longer had allergy symptoms as a result of having had allergy injections for several months. The Kellys sued for specific performance and damages for breach of contract. The trial court dismissed the action, finding no meeting of minds on account of the contingency provision. The Kellys appealed, claiming that the contingency provision was ambiguous and that the LaPlantes violated an implied covenant of good faith and fair dealing by terminating the contract ahead of the July 14 deadline. The supreme court affirmed on a ground other than the failure of a meeting of minds. The court held that the contingency provision was not ambiguous; the only reasonable interpretation is that the purchase and sale agreement becomes unenforceable upon the non-occurrence of the contingency. After months of searching, the LaPlantes had not found a suitable house. Nor did they breach the implied covenant of good faith and fair dealing by exercising their discretion to withdraw from the contract before the date set in the purchase and sale, because by that time, they had “exhausted their search.” Short v. LaPlante, 2021 N.H. LEXIS 129 (N.H. August 27, 2021).

STATUTE OF REPOSE:

Government’s cause of action to enforce conservation regulations renews with each transfer to new landowner. In 1979, the Conservation Commission issued John Teixeira a permit to make changes to his 2.3-acre tract of land, with specific limits on the amount of fill to be added. In 1984, the commission notified Teixeira by letter that he had exceeded the fill limits in the permit, but no enforcement action or restoration took place. In 1996, Teixeira deeded the property to himself and his wife, Ann Teixeira, as tenants by the entirety; he died in 2006. In 2014, Ann Teixeira sold the property to Robert and Annabella Pesa. Before closing, their attorney requested a “certificate of compliance” from the commission regarding the conditions in the 1979 permit issued to Teixeira. The commission refused to issue the certificate and

brought an enforcement action against the Pesas, seeking injunctive relief and civil penalties. The trial court granted summary judgment for the Pesas, ruling that Mass. Gen. Laws ch. 131, § 40, is a statute of repose and required the commission to bring an action within three years of the first transfer of ownership of the property after the unauthorized filing. Because Teixeira transferred the property to himself and his wife in 1996, the trial court held that the statute barred an enforcement action commenced after 1999. The supreme court agreed that the statute is a statute of repose, which “eliminates a cause of action at a specified time, regardless of whether an injury has occurred or a cause of action has accrued as of that date.” But the repose is personal to each owner separately—it does not preclude an action for all times, against later owners. This meant that, as to the Pesas, the commission had three years after they acquired title to sue them House and yard in Short v. LaPlante. Courtesy of Kathleen M. Mahan, for enforcement of the regulation. The Esq., Cook, Little, Rosenblatt & Manson, Manchester, New Hampshire. court explained that interpreting the act in this way is consistent with the overall statutory scheme—to address not only the unauthorized filling of wetlands but also continuing violations. A contrary interpretation that enforcement is possible only against the first subsequent owner would leave conservation commissions without an effective means of enforcement. Conservation Comm’n of Norton v. Pesa, 173 N.E.3d 333 (Mass. 2021).

LITERATURE

ADVERSE POSSESSION:

In Who Needs Adverse Possession?, 89 Fordham L. Rev. 2639 (2020), Prof. Nadav Shoked questions the continuing value and efficacy of the theory of adverse possession in all contexts. Prof. Shoked begins by rejecting the old romantic image of an industrious possessor who puts seemingly neglected land to productive use and efficiently strengthens titles. Instead, today the most common assertion of adverse possession concerns mundane boundary disputes, where the reliance interest is much more tenuous. Prof. Shoked argues for judicial and legislative reforms to better reflect and regulate adverse possession’s true function in current American law. He shows how the existing system of recording is ill-equipped to resolve rudimentary boundary disputes but also shows the limits and costs of the alternative system of title registration. Prof. Shoked’s prescriptions for a predictable and efficient regime include clarifying the role and import of the elements of adverse possession, putting burdens on landowners to survey their land, rethinking color of title, and drastically reforming the title insurance industry.

HOUSING:

In From Commodities to Communities: Reimagining Housing After the Pandemic, 68 U.C.L.A/. L. Rev. Disc. (Law Meets World) 190 (2020), Nisha N. Vyas and Matthew Warren advocate for a human-centered system to address the rental housing crisis facing California, and beyond, further exacerbated by the COVID-19 pandemic. The authors believe the current tenant eviction processes value property rights over human rights and drastic steps are required to prevent catastrophic effects once stays on evictions terminate. The authors point to proposed legislation that separates eviction and rent collection and creates a legal framework for repayment of rent that is fair to tenants and landlords. They assert that this approach is necessary to offset eviction moratoriums like those issued in California that fail to prevent or mitigate mass displacement. Though the authors decry moratoriums as eviction delay over eviction prevention, there is some value even with a delay because almost no money is flowing to landlords or tenants during the moratorium times. The authors note the lack of monies includes a failure of federal and state governments to coordinate adequately the disbursement of funds earmarked to assist all parties during the pandemic. The authors argue that evictions must be taken off the table, becoming an extraordinary remedy, with the burden placed on landlords to justify tenant removal only for demonstrable health or safety reasons. Although such an approach may well lead to more housing stability for lowincome and minority communities, the authors do not address whether their approach may severely limit the already constrained available affordable housing stock. The authors further advocate for other housing and land ownership alternatives to return community control to the neighborhoods. They do admit that political and financial capital for such change is currently limited, but they are hopeful that the effects of the moratoriums will highlight the stress felt by tenants generally and especially by those of low-income and minority status. It is hoped that highlighting the stress will trigger a progressive movement toward the suggested reforms.

PROPERTY THEORY:

In Fee Simple Failures: Rural Landscapes and Race, 119 Mich. L. Rev. 1695 (2021), Prof. Jessica Shoemaker challenges us to consider whether the fee simple concept is an appropriate one for allocating property rights in rural areas. After recounting the many woes and dysfunctions burdening rural America—from stark racial disparities in rates of ownership, vast poverty, and increasing population decline—she poses the question: To what extent is property law itself responsible? Many values underlie the fee simple concept, including encouraging investment and stewardship and the autonomy that comes from perpetual rights. At the same time, the concept seems to be the basis for entrenchment and discrimination in transfers. The demographics she offers in support of her claim are stark—more than 98 percent of all agricultural land is white-owned, though a large percentage of farm operators are minorities. She recounts the history of land laws that deliberately or unwittingly excluded indigenous people and people of color from property acquisition—from the homestead laws to heirs property. Prof. Shoemaker offers a prescription for rural land reform that includes strategies such as inclusive agriculture zoning, mandatory housing quality standards, and even land redistribution schemes. The article adds insightfully to the ongoing dialogue about the worth of the venerable fee simple.

LEGISLATION

CALIFORNIA allows affordable housing development to override restrictive covenants. An amendment to the government code allows owners of affordable housing developments to record instruments that modify or remove existing covenants that restrict the number, size, or location of residences that may be built on the property or restrict the number of persons or families who may reside on the property. 2021 Cal. Stats. ch. 349.

CALIFORNIA amends government code to require notice of opportunity to file restrictive covenant modifica- tion. A title company, escrow company, real estate broker, real estate agent, or association that delivers a copy of a declaration, governing document, or deed to a person who holds an ownership interest of record in property must also provide a restrictive covenant modification form with specified procedural information. Upon request before the close of escrow, the title company must assist in the preparation of such form. 2021 Cal. Stats. ch. 359.

CALIFORNIA adopts Fair Appraisal Act. The law prohibits appraisers from determining the market value of a property based on race, color, religion, gender, and other impermissible grounds prohibited by the federal Fair Housing Act. Applicants for licenses to appraise must complete at least one hour of instruction in cultural competency, and each licensed appraiser seeking renewal on or after January 1, 2023, must have at least two hours of elimination of bias training. Beginning January 1, 2023, licensees are required to complete at least one hour of instruction in cultural competency every four years. Notice must be given in every contract for the sale of single-family residential real property that any appraisal of the property is required to be unbiased, objective, and not influenced by improper or illegal considerations. 2021 Cal. Stats. ch. 352.

CALIFORNIA amends government code to allow cities to up-zone prop- erties. Up to ten dwelling units per property may be built in transit-rich areas or urban infill sites. Dwellings may be built without the need to conduct an environmental quality review. 2021 Cal. Stats. ch. 163.

CALIFORNIA amends government code to allow property owners to split single-family lots. For lots of at least 2,400 square feet, an owner may divide the lot to allow the construction of up to four dwelling units. Applications to split are reviewed and approved ministerially and must be granted if the applicant meets specific objective criteria. 2021 Cal. Stats. ch. 162.

FLORIDA amends building code to allow enforcement agencies to con- duct virtual inspections. A virtual inspection uses visual or electronic aids to allow inspection without the inspector being physically present at the property. The amendment does not apply to structural inspections of threshold buildings. 2021 Fla. Laws ch. 212.

ILLINOIS amends human rights law to cover discrimination in loan modification. It is a civil rights violation for a third-party loan modification service provider to refuse to engage in loan modifications and to indicate a preference for such services based on unlawful discrimination, familial status, or an arrest record. 2021 Ill. Laws 362.

NEW YORK adopts Solar Rights Act. The act prohibits a homeowners association from adopting or enforcing rules or regulations that would effectively prohibit, or impose unreasonable limitations on, the installation or use of a solar power system. Any such restriction is void and unenforceable as contrary to public policy. 2021 N.Y. Laws 342.

Keeping Current—Property Editor: Prof. Shelby D. Green, Elisabeth Haub School of Law at Pace University, White Plains, NY 10603, sgreen@law.pace.edu. Contributor: Prof. Darryl C. Wilson.

Published in Probate & Property, Volume 36, No 1 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.