Property Law Developments—Joseph William Singer

In 2011, Governor Chris Christie purported to abolish the Council on Affordable Housing (COAH), an agency set up by legislation and designed to implement the state’s Mount Laurel obligations; he planned to transfer its responsibilities to the Department of Community Affairs. The Supreme Court of New Jersey had held in the Mount Laurel litigation that towns were required to implement zoning laws in a manner that made room for all kinds of housing, including housing affordable by low and moderate-income families. S. Burlington County, NAACP v. Twp. of Mount Laurel (Mount Laurel II), 456 A.2d 390 (N.J. 1983); S. Burlington County, NAACP v. Twp. of Mount Laurel (Mount Laurel I), 336 A.2d 713 (N.J. 1975). When the legislature created an agency to manage those obligations, the court held that it constituted a legitimate institutional mechanism for complying with those constitutional obligations. Hills Dev. Co. v. Twp. of Bernards, 510 A.2d 621 (N.J. 1986). In In re Plan for Abolition of Council on Affordable Housing, 2013 WL 3717751 (N.J. 2013), the court interpreted the statute establishing COAH and the statute providing for reorganization of state government and determined that COAH was an independent agency that could not be abolished or reorganized without new authorizing legislation.

The Supreme Court of New Jersey has ruled that benefits to the property from a partial taking must be counted against the losses in determining just compensation. Borough of Harvey Cedars v. Karan, — A.3d —, 2013 WL 3368225 (N.J. 2013). In this case, the borough government took part of the beachfront owner’s property to construct dunes to protect the property from erosion or loss during storms. The court held that just compensation for the partial taking “must be based on a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property.  In a partial-takings case, homeowners are entitled to the fair market value of their loss, not to a windfall, not to a pay out that disregards the home’s enhanced value resulting from a public project. To calculate that loss, we must look to the difference between the fair market value of the property before the partial taking and after the taking.”

That meant that, in determining just compensation for the partial taking, the court must take into account the increase in value of the property that remained because of the taking and construction of the dune. The holding overrules a traditional legal rule that distinguished between compensable benefits that were special to the homeowner and noncompensable ones that were general benefits to the whole community. Getting rid of that distinction, the court simply required any benefits to the owner to be reasonably quantifiable to be measured against losses in market value caused by the partial taking.

South Carolina joins the growing list of jurisdictions that bans transfer fee covenants. 2012 S.C. Acts 106, codified at S.C. Code §27-1-70.

The Rhode Island Supreme Court has held that an injunction can be granted to stop an owner from deliberately and knowingly violating a restrictive covenant. The traditional balancing of interests used to determine whether an injunction is appropriate need not be done when violation of a covenant is not inadvertent or unknowing. Cullen v. Tarini, 15 A.2d 968 (R.I. 2011). The court found that defendant knowingly violated a covenant that protected plaintiff’s view of the ocean. In such a case, plaintiff was entitled to an injunction to remove the offending structure despite the fact that defendant had already invested $1 million in the project.

In effect, the court treated servitudes as important property rights owned by the servitude beneficiary and found they cannot be violated simply by paying damages. The beneficiary has a right to enforcement without any need to show that the benefits of enforcement outweigh the costs. The court limited the relative hardship doctrine that balances the equities between the parties to situations where an innocent party proceeds without knowledge or notice that he is encroaching on another’s rights.

The New York Court of Appeals relaxed a traditional rule of property law by holding that a commercial landlord’s interference with possession of 12 square feet of space out of a total of 15,000 square feet does not constitute a partial actual eviction entitling the tenant to a full rent abatement. Eastside Exhibition Corp. v. 210 East 86th Street Corp., 965 N.E.2d 246 (N.Y. 2012). The court noted that withholding of the entire amount of rent is the proper remedy when there has been a partial eviction by a landlord but a partial eviction will not be found if the landlord’s intrusion is trivial and has no effect on the tenant’s use or enjoyment of the property. In this case, the landlord merely placed cross-bracing between two steel support columns on both of tenant’s floors in a manner that did not affect the tenant’s use or enjoyment of the leased premises. The only effects of the cross-bracing were minimal effect on the flow of foot traffic and the fact that the bracing was unattractive, insufficient to constitute partial eviction.

The traditional rule is that title to real property is determined by the whole law of the situs of the property, meaning both the substantive law of the situs and its choice-of-law rules. Thus title is determined by whatever law would be applied at the situs. This rule has been rejected in some cases in recent years because personal property on death is determined by the law of the domicile of the decedent and if different rules are applied to real property located elsewhere and personal property, the decedent’s wishes may be ignored or perverted. However, many courts adhere to the traditional rules as occurred in In re Estate of Latek, 960 N.E.2d 193 (Ind. Ct. App. 2012), a court at the decedent’s domicile (Illinois) refused to accept a will for failure to comply with Illinois will execution requirements but the court in Indiana (where the property was located) refused to defer automatically to the determination of the Illinois court. The court affirmed what appears to be settled law that the full faith and credit clause does not require one state to defer to judgments of another state that purport to determine title to land outside that court’s jurisdiction. The Indiana court noted that an Indiana statute allowed wills that were proved valid in other states to be admitted in Indiana but in this case the will had not been proved in Illinois.

A deed granting an interest to two siblings (Roger & Dana Waid) “or the survivor” was interpreted as created a tenancy in common rather than a joint tenancy. Young v. Waid, 2012 WL 2947590, (W.Va. 2012). Following the death of Roger, Dana would have had a 100 % interest in the property if they held as joint tenants (because of her right of survivorship) but only a 50 % interest (with 50% held by Roger’s heir or devisees) if they held as tenants in common. Applying an interpretive presumption in favor of tenancies in common, the West Virginia Supreme Court noted that the deed did not use the words “joint tenancy” or “right of survivorship” and that it was possible the words “to the survivor” were mere surplusage. The court found the language not clear enough to constitute an intent to create a right of survivorship, effectively privileging giving each sibling (and his or her descendants) the economic benefit of the property rather than assuming the grantor wanted to consolidate interests in the survivor of the siblings. The case pitted one canon of interpretation (do not interpret conveyances to include language that has no purpose) against another (preferring tenancies in common over joint tenancies). The common approach in the US is to prefer the tenancy in common because it  treats co-owners more equally than the joint tenancy which consolidates interests but disinherits the descendants of one of the owners.

The Supreme Court of Minnesota held that pesticide drift from one property to another is governed by nuisance law and not trespass law even though it constitutes a physical invasion of particles. Johnson v. Paynesville Farmers Union Cooperative Oil Co., 817 N.W.2d 693 (Minn. 2012). The court held that trespass law protects only the interest in possession while nuisance law protects use and enjoyment, making nuisance the appropriate standard to regulate the problem. Trespass law does not require any proof of harm and the court felt that applying it in this context would require a narrowing principle it was not willing to create.

The Wisconsin Supreme Court ruled that frequent, low-flying aircraft may so interfere with the use and enjoyment of property as to constitute an unconstitutional taking of property by the state. Brenner v. New Richmond Regional Airport Comm’n, 816 N.W.2d 291 (Wis. 2012). Owners located near an airport sued the airport authority when it extended a runway in a manner that created low overflights of their property. The court held that a taking could occur if the flights were “low enough and frequent enough to have a direct and immediate effect on the use and enjoyment of property.” 816 N.W.2d at 294.

California passed a statute on Jan. 1, 2013 called the California Homeowner Bill of Rights (Assembly Bill 278, ch. 86, adopted July 11, 2012) (effective Jan. 1, 2013). Among other things, it prohibits banks from proceeding with foreclosures if the homeowners is seeking a loan modification and it requires the bank to act on qualified applications for loan modifications. Cal. Civ. §2923.5.It also subjects banks to a penalty for recording unverified documents. Cal. Civ. §2924.17. It also prevents eviction of tenants who have fixed-term leases as long as those leases last even if the landlord loses the property to foreclosure before the end of the lease term and even if the lease was created after the mortgage. Cal. Civ. Proc. §1161b(b).

In 2012, HUD adopt an Equal Access Rule that prohibits lenders from discriminating on the basis of actual or perceived sexual orientation, gender identity or marital status in granting mortgages insured by the Federal Housing Administration (FHA). 24 C.F.R.Parts 5, 200, 203, 236, 400, 570, 574, 882, 8991, 982 (77 Fed. Regis. 5662 (Feb. 3, 2012). The rule applies to all housing programs administered by the department. In January 2013, HUD entered a settlement with Bank of America over a claim that it refused to grant a mortgage to a lesbian couple. See article. It was promulgated under HUD’s general statutory authority to promote the “goal of a decent home and a suitable living environment for every American family,” 42 U.S.C. §1441.

A Pennsylvania trial court held that a seller had no duty to reveal that a murder/suicide took place in the house. Milliken v. Jacono, 60 A.3d 133 (Pa. Super. Ct. 2013). The court interpreted a state statute that required sellers to reveal “material defects” and found that events that had happened in the house were not a “material defect” in the physical structure of the property. The court declined to find any common law duty to reveal the information on the ground “an expansion of required seller disclosures from the physical to the psychological is a massive expansion in the character of disclosure. It requires the seller to warn not only of the physically quantifiable but also of utterly subjective defects.” Id. at 140. A dissenting opinion would have found such an obligation because “[r]eputation and history can have a significant effect on the value of realty.” Id. at 145 (Bender, J., dissenting).

The Ninth Circuit held that the Americans with Disabilities Act grants a woman the right to use a Segway in Walt Disney World unless the park owners can show that its use is dangerous. Baughman v. Walt Disney World, Inc., 685 F.3d 1131 (9th Cir. 2012). The court found that allowing Segway use might constitute a reasonable modification of the park’s policies that were “necessary” to allow her to enjoy the facilities on an equal basis with others. Such modifications are not required if they cannot be consistent with safety requirements.

In Glazer v. Chase Home Finance, 704 F.3d 453 (6th Cir. 2013), the Six Circuit found lawyers who initiated a foreclosure may be “debt collectors” subject to the Federal Debt Collection Practices Act (FDCPA), 15 U.S.C. §§1692 to 1692p, if they regularly perform this function, and thus may be liable for making “false, deceptive or misleading representations” in connection with the foreclosure.

In Pasqualino v. Washington Mutual Bank, 982 N.E.2d 72 (Mass. App. Ct. 2013), the court was forced to decide which of two innocent parties should bear the financial burden of a forged deed. Although the normal rule is that a forged deed is a nullity and conveys nothing, in this case, the court protected the party that relied on the forged deed because the original owner contributed to the problem by making the forger the trustee of the property. The property was originally conveyed by Salvatore Pasqualino to a trust controlled by his son Ronald. The father Salvatore knew his son used aliases in his real estate business and the recorded documents listed the trust of the trustee of the trust as “Jonathan Pasqualino III,” an alias used by Ronald. Ronald subsequently forged a deed from the trust to a fictitious buyer who then took out a $166,600 loan from a bank (Washington Mutual Bank) in exchange for a mortgage. Ronald died shortly thereafter in police custody on unrelated charges and the bank sought to foreclose on the mortgage.

The court framed the question as a choice of which innocent party should bear the risk (and the loss) associated with the forgery. A forged deed usually conveys no title and that would suggest that the bank should bear the loss of the money. But the court determined otherwise, allowing the bank to foreclose on the property. It did so on the grounds that the father knew his son Ronald engaged in deceptive activities by using an alias in his real estate transactions and was in a better position to prevent the forgery from occuring.

The superior court in the Commonwealth of Massachusetts granted a preliminary injunction against a company called ANADeeds, Inc. to stop it from preparing and selling deeds and other legal instruments for the conveyance of property in Massachusetts. Real Estate Bar Ass’n v. ANAdeeds, 2012 Mass. Super. LEXIS 380 (Mass. Super. Ct. 2012). Judge Lauriat explained that “[i]n Massachusetts, drafting a deed constitutes the practice of law,” citing Real Estate Bar Ass’n of Massachusetts (REBA) v. Nat’l Real Estate Info. Servs., 946 N.E.2d 665 (Mass. 2011).

In 2008, by a 4-3 vote, the Supreme Court of California held that its state constitutional right to equal protection of the laws grants same-sex couples the same right to marry as is enjoyed by opposite-sex couples, using strict scrutiny to come to this conclusion. In re Marriage Cases, 183 P.2d 384 (Cal. 2008). The court held that the right to marry is a basic civil right whose denial impinges upon same-sex couples’ fundamental privacy interests in having official family relationships accorded equal respect and dignity and that no compelling state interest justified the differential treatment of same-sex and opposite-sex couples. It also ruled that existing statutory provisions recognizing civil union or domestic partnership arrangements for same-sex couples were not equivalent to laws recognizing opposite-sex civil marriages.

The California decision was overturned on November 4, 2008, when California voters approved Proposition 8 amending the California Constitution to provide that “[o]nly marriage between a man and a woman is valid or recognized in California.” Cal. Const. art. I, §7.5 (added Nov. 4, 2008), held unconstitutional by Perry v. Schwarzenegger, 704 F.Supp.2d 921 (N.D. Cal. 2010, aff’d, Perry v. Brown, 671 F.3d 1052 (9th Cir. 2012), appeal dismissed by Hollingsworth v. Perry, 133 S.Ct. 786 (U.S. 2012). Subsequently, the California Supreme Court ruled that the constitutional amendment did not retroactively invalidate the 18,000 same-sex marriages that took place in California between the time when the marriage right was extended to same-sex couples and the date when the marriage right was revoked. Strauss v. Horton, 207 P.3d 48 (Cal. 2009). Proposition 8 was struck down in federal district court as a unconstitutional denial of equal protection of the laws and the court ordered the state of California not to enforce Proposition 8. Perry v. Schwarzenegger, 704 F.Supp. 2d 921 (N.D. Cal. 2010). When the state refused to appeal that adverse ruling, proponents of Proposition 8 stepped in to do so; the California Supreme Court answered a certified question by determining that they were entitled to do so and the trial court’s ruling was upheld on appeal to the Ninth Circuit. That ruling was overturned by the Supreme Court in Hollingsworth v. Perry, — U.S. —, 2013 WL 3196927 (2013), on the ground that the petitioners had no standing to intervene in the case to appeal the trial court’s ruling. That left the trial court’s ruling standing, opening the way to resume same-sex marriages in California.

Section 3 of the federal Defense of Marriage Act (DOMA), 1 U.S.C. §7, Pub. L. No. 104-199, §3, 110 Stat. 2419, passed in 1996, denied federal recognition to same-sex marriages. This meant, for example, that for such purposes as calculating federal income tax, same-sex couples were not recognized as married and entitled to the tax advantages (and disadvantages) of marriage even if they were validly married under state law. A same-sex couple validly married in Massachusetts under Massachusetts law would file state tax returns as a married couple but would then have to file federal tax returns as two unrelated individuals. However, Section 3 was struck down as an unconstitutional violation of the due process and equal protection clauses on June 26, 2013 in the case of United States v. Windsor,  — U.S. —, 2013 WL 3196928 (2013). Windsor found that marriages have traditionally been governed by state, rather than federal law, and held that no legitimate government interest could justify treating same-sex married couples differently from those of opposite-sex married couples. Windsor does not answer the question of which state’s law should be used to determine whether a marriage is valid under federal law. The federal government could look to the law of the place of celebration or the domicile of the parties either at the time of marriage or at the time when recognition of the marriage is sought. For example, while the Veterans Administration looks to the place of celebration to determine if a marriage is valid, the Social Security Administration looks to the domicile of the parties. This issue will be worked out by future federal administrative action and possibly legislative reforms.