Conservation Easements Circa 2013

This weekend's Wall Street Journal included an article about the inclusion, in the fiscal cliff compromise, of the generous federal tax benefit for conservation easement donors. Rachel Silverman's piece is here. 

 

The recently-passed legislation provides for a federal deduction equal to the easement's value up to 50% of adjusted gross income, with a carry forward of 15 years.

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The Journal article includes a cautionary note about the IRS's increased scrutiny of easements:

Beware that the Internal Revenue Service has been increasing the number of conservation-easement tax returns it audits, concerned with abuses in which donors have taken inflated deductions or have placed restrictions on land with little conservation value.

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At Richmond & Fishburne we have started work on 2013 easement donations (wow - there is some beautiful property in Albemarle County, and there's nothing better than getting away from this computer for a site visit to meet with a prospective easement donor).

Because of the lengthy review, revision and approval processes undertaken by the Virginia Outdoors Foundation, the Department of Forestry, and other donee organizations, it is important that easement donors start the process early in the calendar year for which they want to make their donation.

Short Sale Shenanigans = A Michigan Supreme Court Justice Pleads Guilty to Fraud

Individuals who sell their property short (that is, for less than the outstanding value of the mortgage) are required to disclose their other assets as part of the lending bank's approval process.

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Now comes a jaw-dropping story from Michigan about a former Supreme Court justice who pleaded guilty to bank fraud in connection with lying to her bank in order to obtain approval of her short sale.

Diane Hathaway faces a potential prison term of up to 18 months after her guilty plea.

According to the Associated Press (here), Hathaway and her husband owned property in Florida in addition to the house in Michigan that they were selling short.

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The AP reports that, in order to establish financial hardship, Hathaway and her husband transferred the Florida real estate to a relative -- and then the relative transferred the property back, after the short sale was approved and the Michigan transaction had closed.

When the Florida transfers were discovered, prosecutors pounced.

Wow. You can't make this stuff up. The practice points here practically slap you in the face:  

1. Records related to the ownership of real estate are public (and increasingly accessible, not just buried in the deed books).
2. Banks and federal prosecutors have the time and resources to investigate those records.
3. Tell the truth.

And, bonus pointer #4: Charlottesville has at least one resident expert on short sales, attorney Bill Tucker at Tucker Griffin Barnes.  If you are buying or selling in a short sale situation, you should be represented by Tucker or another experienced-hand.

Interfering (Or Not) With an Easement: The Supreme Court of Virginia's Decision in Piney Meeting House Investments, Inc. v. Hart

When a property owner conveys an easement, he or she gives the easement-holder the right to use the property.

The property that is subjected to the easement is called the servient tenement: it "serves" the easement-holder. 

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Notwithstanding the legalistic terminology -- and even though Halloween is fast-approaching -- don't let easements scare you. They are more common than you'd think, and they usually "work". In Albemarle and the surrounding counties, many properties are subject to access easements: a family has the legal right to cross their neighbor's property, via a driveway from the public road, even though all or a portion of the driveway is not actually located on the family's property. 

Most of the time, the easement is used without problems arising from either side.

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Easements can be created in several ways, and they need not be in writing.  For instance, continuous and adverse use of another person's property can give rise to a prescriptive easement (for a discussion of prescriptive easements, see our post about Hafner v. Hansen, here).

Usually, however, easements are created by a written document that is recorded in the Clerk's Office, in order to put the world on notice of the parties' rights and obligations related to the property.

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In Piney Meeting House Investments, Inc. v. Hart (June 7, 2012), the Supreme Court of Virginia examined the limits to which the owner of the servient tenement can interfere with the rights of the easement holder.  You can read Justice Mims's opinion here.

A sunrise on Lake Anna

Mr. and Mrs. Hart owned a parcel on Lake Anna. Their property included an access easement across land owned by Piney Meeting House.

According to the Harts, Piney Meeting House obstructed the easement by placing and/or installing a number of items within the easement: an electric box, a generator, a well, a propane tank, trees and mulch.  The crux of the opinion focuses on two of these items: the well and the propane tank.

A commissioner in chancery appointed by the Spotsylvania County Circuit Court determined (1) that the below-ground portion of the well did not unreasonably interfere with the Harts' use of the easement (so long as Piney Meeting House moved the above-ground portion of the well) and (2) that Piney Meeting House should be given an opportunity to satisfy the court that the propane tank's ground-level cap was strong enough to withstand automobile traffic.

The Circuit Court judge, however, rejected the commissioner's recommendations regarding the well and propane tank, and instead enjoined Piney Meeting House "from placing anything within the easement [above-ground or below-ground] which would in any way affect the Harts' use of the entire width of the easement." (emphasis added)

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The Supreme Court reversed the Circuit Court -- thus handing a victory to servient tenement owners throughout the Commonwealth.

In his opinion, Justice Mims states that the Circuit Court took a too-restrictive reading of the limits on the servient tenement's use of the easement property:

"Our cases make clear that the owner of a servient estate may still make reasonable use of land burdened by defined width ... An encroachment that does not narrow the width of an easement or unreasonably interfere with its use is not a material encroachment."

Justice Mims proceeds to state that the question of "unreasonable interference" is best left to a fact-finder (rather than a judge). 

Typically a jury would serve as the fact-finder, however the Spotsylvania Circuit Court had delegated the fact-finding role to the commissioner-in-chancery.

The commissioner-in-chancery had examined the evidence and determined that the well and propane tank would not unreasonably interfere with the Harts' use of the easement.  Piney stands for the proposition that once that determination was made, it should only have been disregarded by the judge in the face of [clear] contradictory evidence.

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The take-away from Piney is that the limits to which a servient tenement owner can interfere with an easement are highly dependent on the facts and circumstances of the particular easement.  That said, easement owners should not make too broad a claim about their servient neighbor's inability to use the easement property, particularly if the neighbor can produce evidence that the alleged impediment does not completely obstruct use of the easement.

 

Now it's time to take a break from the law books and choose the perfect pumpkin!

Trees, Roads, and Duties to Travelers: The Supreme Court of Virginia's Decision in Cline v. Dunlora South, LLC

Several clients have asked me whether property owners have any legal duties related to public roads that border their property. 

Like many of the questions that clients come up with, this one is not easy.

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The Supreme Court of Virginia provides some guidance in its recent opinion, Cline v. Dunlora South, LLC (June 7, 2012). You can read Justice Goodwyn's opinion here. 

Albemarle County was the tragic setting for the events in Cline.  Mr. Cline was driving along Rio Road when a tree fell onto his car. He was seriously injured, and he sued several parties including Dunlora South, LLC, the owner of the property adjacent to Rio Road on which the tree was located.

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Mr. Cline alleged that Dunlora South, LLC, as the owner of the property, owed a duty to him -- as a traveler on Rio Road -- to prevent trees from falling onto the road.  The Circuit Court for Albemarle County dismissed Cline's complaint and the Supreme Court of Virginia affirmed Judge Peatross's decision.

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Cline argued the property owner owed a duty to him in light of of the Court's 2007 decision in Fancher v. Fagella. 

In Fancher (2007), the Court held that a property owner can be held liable for damage caused by a tree to a neighboring owner's property.  In Cline, Justice Goodwyn refines the rule to state that an owner may be liable for property damage caused by trees, but not for personal injury.  The Court's rationale appears to be that a general duty to keep dead or rotten trees from falling onto roads would be unduly burdensome to landowners.

Instead, the duty of landowners is limited to avoiding taking actions that would increase the danger of personal injury to travelers on the road: "The duty owed by adjoining landowners is to refrain from engaging in any act that makes the highway more dangerous than in a state of nature or the state in which it has been left" (emphasis added).

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A critic of the Cline decision might reasonably ask why the Court imposes on landowners a greater duty to protect buildings from trees (per Fancher) than to protect people from trees (per Cline).

I thought Justice Lemons had the better argument in his dissent. Justice Lemons argued for a fact-based inquiry, under which a court would determine whether a property owner knew or should have known about the potential of a tree injuring someone using the adjoining road.  An owner in a suburban or urban area, for instance, might more reasonably be expected to cut down a potentially dangerous tree than would the owner of a large parcel in a rural area with sparsely-traveled roads.

Since Justice Lemons's view did not prevail, the takeaway from Cline is that property owners' duties with respect to trees that border public roads is extremely limited.

The Fourth of July is approaching!  Where will you celebrate in 2012?  Stanardsville? Scottsville? McIntire Park?  Or just in your own backyard?

Closing a Real Estate Transaction in 2012: Patience Please

If you have either bought or sold property during the past couple of years, then you know that the timing of real estate closings can be quite difficult.

One reason that timing is so tricky is the vagaries of closing a loan after the real estate crash. 

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After the crash, lenders are (institutionally) reluctant to approve loans, and their reluctance often extends until the actual day of closing -- sometimes until literally minutes before the borrower/purchaser is scheduled to meet with his or her closing agent or attorney.

This comes as a surprise to some borrowers (and to the sellers on the other side of their transactions), who assume that a lender's issuance of the loan commitment letter is the end-point of the lender's review process.  It is not. 

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In light of the probability of delay, it is important for both buyers and sellers to build flexibility into their closing schedules.

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Build flexibility into your closing schedule, and also choose a Realtor, an attorney or settlement agent, and a lender whom you trust to work diligently -- and in your best interest -- to bring the transaction to a successful and timely close.

The good news is that the vast majority of transactions do close successfully, notwithstanding the timing hiccups along the way. The key is for the various parties to work together to address questions that arise -- and to be patient so long as reason will allow.

For more about the realities of the lending process in 2012, I point you to Jim Duncan's excellent post , here.

A Conservation Easement Lawsuit in Caroline County

An overhead photograph of Moss Neck Manor

Moss Neck Manor is a historic home in Caroline County, Virginia. 

Stonewall Jackson maintained his headquarters there during the winter of 1862-1863. Jackson famously refused to sleep inside, protesting that the manor house was "too luxurious for a soldier, who should sleep in a tent."

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150 years later, the Manor is in the news again.   

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Rusty Dennen at the Fredericksburg Free-Lance Star reports (here) about a lawsuit stemming from a proposed conservation easement on the Moss Neck property.

According to Dennen, Moss Neck Manor Plantation Inc., the owner of some 1,200 acres around the manor, filed suit in Caroline County Circuit Court this March.

The defendants are the Virginia Outdoors Foundation and The Conservation Fund.

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I have not read the complaint (sadly, the majority of circuit court civil filings in Virginia are not available online), but my understanding from the Star is that Moss Neck Inc. alleges that it relied on the VOF and The Conservation Fund in structuring a sale of the property based on an agreement to donate a conservation easement to the VOF. 

Moss Neck Inc. understood that the easement would contain a particular set of terms. 

The claim states that one or the other of the defendants required more stringent terms just prior to closing, causing the transaction to fall through. Moss Neck Inc. alleges fraud, conspiracy and breach of contract by the two defendants.

Dennen reports that the Virginia Attorney General's Office will defend the VOF on grounds of sovereign immunity (the VOF is a state agency) and will also argue that the VOF was not a party to any contract. The Conservation Fund will also argue that the claim is invalid.

I will definitely be curious to track this litigation.

This is a painting of Stonewall Jackson at Moss Neck Manor by artist Mort Kunstler.

And what about you?  Are you a "tent person" like General Jackson, or are you ok with sleeping in a manor house?

Utility Easements and Contentious Tree-Trimming

If you purchase a house in Virginia (or most anywhere else), the title to your property will almost certainly be encumbered by utility easements.

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Utility easements are documents, recorded in the local Clerk's Office, by which an owner (usually the original developer) of the property conveys to various companies (the telephone company, the power company, the cable company, etc.) the right to maintain, repair and replace their lines and other equipment. 

Utility easements usually include both the right to enter onto private property and the right to remove "obstructions" within the easement area (usually 10 to 30 feet, in residential areas) that could interfere with operation of the utilities. 

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The "obstructions" in question, usually, are trees: trunks, roots and branches. 

A typical provision reads like this: "Grantee shall have the right to keep the easement clear of all buildings, structures, trees, undergrowth and other obstructions ... including the right to trim, top, and cut any trees or brush inside and outside the boundaries of the easement that may endanger the safe and proper operation of its facilities."

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Alas, there can be a difference of opinion between a property owner and a power company as to when a tree needs to be trimmed in order to ensure "safe and proper operation."

And when the power company fells a favorite limb from an owner's beloved oak tree because the company thinks the limb has grown too close to the power line, the owner may not be appeased to learn that the company was technically acting in accordance with its rights under the easement.

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With this background, yesterday's Washington Post has an interesting story (here) about Pepco's efforts to trim trees in the metropolitan Washington, D.C. area.

Pepco had been criticized for lackluster maintenance in the years leading up to the recent storms which brought down a significant number of power lines (this reminds me of similar criticism of Dominion Power in central Virginia).

According to the Post, even though Pepco is notifying owners before tree-trimming, there are enough disgruntled property owners that the Montgomery County (Maryland) council is considering legislation that would restrict the ability of utility companies to take down trees without the prior consent of the owner:

Two council members introduced legislation last month that would require the county’s chief of tree maintenance to intervene when a utility company cannot gain consent from a homeowner to remove a tree the utility says is an imminent hazard to its system. The legislation also calls for utility companies to gain homeowner or occupant consent before any vegetation management is performed and would require companies to grind the stumps of trees they remove and to fill the holes left behind.

Owner consent is rarely required in the text of a utility easement, and I am doubtful that a local jurisdiction would succeed in retroactively imposing a consent requirement on the utility companies.

You make the call: Should these limbs be trimmed?

Private Roads and Prescriptive Easements: The Supreme Court of Virginia's Decision in Dykes v. Friends of the CCC Road

In the midst of an abnormally warm winter (there was finally a scattering of snow over the weekend), the Supreme Court of Virginia has issued its first batch of opinions for 2012.

The Court's decision in Dykes v. Friends of the CCC Road (January 13, 2012) caught our attention. You can read Justice Koontz's opinion here.

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Property law in Virginia generally distinguishes between private roads and public roads. 

The effect of a road being classified as "public" is what you'd expect: the public (taxpayers) are responsible for paying to maintain the road. 

Private roads, on the other hand, are maintained by the affected property owners, either by informal agreement or in accordance with the terms of a road maintenance agreement recorded in the County courthouse.

Another important distinction relates to the right to use a road: in the case of a private road, the right to drive (or walk, or bicycle) on the road can be limited to the owners of property served by the road. Public roads are -- you guessed it -- open to the public.

Road-building circa 1935

Dykes v. Friends tells the story of a Highland County road built in the 1930's by the Civilian Conservation Corps. 

Several of the property owners along the road erected gates that blocked the public's access to the road, and a group called "Friends of the CCC Road" filed a lawsuit requesting an injunction to compel the removal of the gates (perhaps the friends had friends at the far end of the road, and the gates made friendship more difficult?).

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The Circuit Court of Highland County determined that the road had not been expressly or impliedly dedicated for public use. There were no records of the road's adoption into the County's road system, and the County had never paid for its upkeep.

Nevertheless, the Circuit Court granted the injunction compelling the removal of the gates.  The Circuit Court reasoned that a public right-of-way can be created over private property by virtue of the government's recognition of "long and continuous use" by the public. 

According to the Circuit Court, "recognition" can occur even though the public cannot satisfy the normal prescriptive easement requirement of exclusivity (more on this point below).

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The Supreme Court of Virginia reversed the Circuit Court. 

Justice Koontz starts by stating that "long and continuous use" of a road by the general public, plus government recognition, do not, in and of themselves, prove an implied dedication of the road to public use. Private property enthusiasts will cheer Justice Koontz's strong words: "The law of this Commonwealth simply does not allow for a conversion of private property to public property solely by public use." 

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Justice Koontz then turns to the interesting theoretical question of whether the public can, over time, acquire prescriptive rights to a road.

A refresher on prescriptive easements: In order to establish the existence of a prescriptive easement, an owner must prove that his use of another person's property satisfies each of the following tests:

1. The use must have been adverse and under a claim of right.
2. The use must have been exclusive.
3. The use must have been continuous for a period of at least 20 years.
4. The owner of the servient estate (the property over which the easement is alleged to run) must have had knowledge of it and acquiesced in its use.

In Dykes v. Friends, the general public may well have been able to satisfy requirements #1, 3 and 4 above (adverse use of the road, with the knowledge of the owner, for a period of 20+ years).

But can the general public ever really claim "exclusive use"?  Isn't the whole idea of "public" the opposite of "exclusive"?

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Justice Koontz solves the riddle by stating that past Supreme Court decisions have alluded to the public acquiring the right to use a road "by prescription", but only in circumstances when the government has taken an affirmative action to accept the road as public:

While on occasion we have discussed the conversion of a private road into a public road 'by prescription,' it has always been clear in the context of those cases that the elements of prescription were being used to establish that an implied dedication of the property had been made.  

As we explained in Tazewell County v. Norfolk & Western Railway (1916), 'when the dedication is implied from the long and continuous use by the public for the prescriptive period of twenty years, and there has been acceptance by competent authority, title to a right-of-way for a public road may be obtained by prescription' (second emphasis added).

Since the Supreme Court found no evidence of an affirmative "acceptance" by Highland County or another government authority, the CCC road remains private and the property owners retain the right to install the gates.

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The Court's opinion in Dykes v. Friends seems right. It seems fair that a private road can become public over time, but not without some kind of overt action by the government authority. Without the requirement of overt action, evaluating the facts could become too tricky for even our most discerning jurists.

And now that you are up to speed on the latest from the halls of justice, it's time for a snow dance to see if we can't get a little bit more winter around here...

Very Low Interest Rates and a Proposal to Encourage Refinancings

Interest rates on 15- and 30- year mortgage loans remain at historic lows, and Ezra Klein argues in this morning's Washington Post (here) that President Obama should adopt policies that would enable more homeowners to refinance.

In particular, Klein thinks the Federal Housing Finance Authority (which oversees Fannie Mae and Freddie Mac) should re-write its rules "so that anyone (!) with a loan backed by Fannie and Freddie and current on their payments for six months would be automatically approved for refinancing."

Klein says that Obama (and the FHFA) could make this change without Congressional authorization.

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Klein acknowledges that there would be opposition to such a move from investors (including many pension funds) that hold the current (higher interest rate) mortgage-backed securities.

He does not address an even larger problem: declining home values.

If a mortgage is backed by a home that is worth 20% less than it was when the original loan was made, it's hard to imagine lenders agreeing that six months of on-time payments should be the sole criteria for approving a refinance. I gather that Klein's point is that the lenders won't be making the decision   — Fannie and Freddie will be doing so, in their role as mortgage guarantors.

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Given the supercharged political environment of an election year, it will be interesting to see whether President Obama takes steps to more proactively intervene in the housing market.

Public Nuisance in Virginia

A nuisance occurs when a property owner unreasonably uses his property in a manner that "substantially interferes" with the enjoyment or use of another individual's property. 

A nuisance differs from a trespass because the nuisance-creator does not physically enter onto the other property owner's land. Nuisances include loud noises that unreasonably disturb a neighbor and foul smells that do the same: neither the ruckus nor the stench physically (or bodily) enters the neighbor's property, but they nevertheless interfere with the neighbor's ability to enjoy his property.

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In Virginia, most nuisances are private nuisances, which means that one landowner brings a civil claim against another landowner.  In these claims, the general public's interest is not represented by the Commonwealth attorney participating in the lawsuit.

However, there is a provision in the Code of Virginia (Section 48.1, accessible here) that enables five citizens to petition a court to bring a public nuisance claim against a property owner whose actions negatively impact a broader swath of the public.

When a petition is brought under Section 48.1, the judge summons a grand jury to investigate the complaint and, if sufficient evidence of a public nuisance is found, then the nuisance-creator may be held liable and fined up to $25,000.00.

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Now comes a fascinating front-page Washington Post story about a group of church-goers in Fairfax County who have petitioned under Section 48.1. The petitioners allege that a neighboring golf range has created a public nuisance by virtue of the 2,637 golf balls (!) that have crossed onto the church's property, in some cases damaging property and injuring individuals. 

You can read Justin Jouvenal's account of the dispute here. 

According to Jouvenal, the range owners contend that they have (1) taken reasonable steps to prevent the golf balls from leaving their property and (2) cooperated with the church in attempting to devise mutually agreeable solutions.  Nevertheless, the grand jury concluded that there is a reasonable basis for a charge of public nuisance, and the case could head to trial in January.

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If the matter does go to trial, it will be interesting to see whether a judge concludes that the 100+ foot protective netting installed by the golf range is a sufficient accomodation to defeat the claim of nuisance.

The Supreme Court of Virginia on Exclusive Easements: McCarthy Holdings, LLC v. Burgher

Happy fall!

It was a beautiful weekend in central Virginia, but as the work-week begins it's time to hit the law books. And what better place to dive back in than the always-fascinating world of easements?!

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In McCarthy Holdings, LLC v. Burgher (September 16, 2011, Record No. 10-1031), the Supreme Court of Virginia addressed whether the grant of an exclusive easement transfers a fee simple interest to the easement-grantee. You can read Justice Goodwyn's decision (and Justice Mims's pointed dissent) in McCarthy, here.

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When a property owner conveys an easement to someone, the landowner grants the easement-holder the right to use property that the easement-holder does not own (for a discussion of the subtle differences between an easement and a license, see our post about the 2010 Supreme Court decision Station #2 LLC v. Lynch, here).

As with all-things-legal, the particular language in the easement is critical. For instance, if Bob grants a utility easement to Acme Electric for the installation, maintenance and repair of power lines, but later Bob becomes angry because Acme's heavy equipment ruins Bob's azaleas while repairing the lines, the question of whether or not Acme is legally obligated to reimburse Bob for the azaleas will depend on the specific provisions in the instrument that created the easement.

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The vast majority of easements limit the easement-holder to using the eased-property in particular ways. For instance, an electric company may have the limited right to install power lines, or a neighbor may have the limited right to drive across the easement-grantor's property in order to reach his house.  In these instances, the electric company does not have the right to to dig a well in the easement-grantor's front yard, and the neighbor does not have the right to park his Chevy Silverado on the easement-grantor's driveway.

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Additionally, most easements are non-exclusive, which means that the person granting the easement reserves the right (1) to use the property himself and (2) to give other individuals the right to use the eased property as well.

Sometimes, however, an easement states that the easement-holder has the exclusive right to use the property that he does not own.  In McCarthy Holdings, the Supreme Court of Virginia examined the question: just how exclusive is an exclusive easement?

The facts in McCarthy Holdings are relatively straightforward.

Burgher granted an easement, to McCarthy's predecessor-in-interest, to use 488 square feet located on Burgher's land in Alexandria. The easement agreement included the following language: "The Grantee shall have exclusive use of the land set forth in the Easement Area."

A dispute arose because McCarthy believed that the easement gave him the right to prohibit Burgher from using the 488 square feet for any purpose at all. McCarthy's position seems logical: exclusive use means exclusive use, which means that no one (including the property owner) should have the right to use the 488 square feet without McCarthy's permission.

Alas for McCarthy, the Supreme Court said that the analysis is not quite so straightforward.  In particular, the Court cited its opinion in Walton v. Capital Land, Inc. for the proposition that "the term 'exclusive' in an easement agreement does not deny the servient estate its right to use the easement area, unless such use unreasonably interferes with the use and enjoyment of the easement." Unfortunately, the Court arrives at its conclusion without providing a great deal of insight into why the word "exclusive" does not retain its plain language meaning when used in a legal instrument.

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The Court is more convincing when it states that easement conveyances that "effectively transfer a fee ... are not favored." In other words, if McCarthy had intended to obtain the right to exclude Burgher from the easement area, then McCarthy should have insisted on a fee simple conveyance, rather than merely an easement.  By agreeing to accept an easement rather than the fee simple, McCarthy (or, more precisely, its predecessor-in-interest) acknowledged that Burgher retained some rights to use the 448 square feet.

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The practical take-away from McCarthy seems relatively clear: if an individual intends to obtain true exclusivity with respect to the use of property, then he or she needs to obtain a fee simple interest -- or at least an easement grant that clearly prohibits any use by the servient estate.

And if you can't get an exclusive easement, then you might try a bouncer and a rope line...

Who "Owns" the Jackson River? Attorney General Cuccinelli Declines to Take a Position

Virginia Lawyers Weekly reports that fishermen in Alleghany County are very disappointed with Attorney General Ken Cuccinelli's decision not to intervene on their behalf in a property dispute about ownership of the Jackson River. 

Peter Vieth's article is here, and the comment thread at the bottom of the page includes some pointed criticism of the AG's office.

Questions about the ownership of riverbeds, along with other questions of riparian rights, can be quite tricky.

Landowners along a river or stream often believe that they own the portion of the riverbed adjacent to their property -- and that other individuals do not have the right to enter onto the riverbed to fish, swim, or simply find a rock on which to bask in the warm summer sun.

However, in Virginia (as in many states) the general public has long had common law and/or statutory rights to use certain riverbeds.  And if a private riverside landowner attempts to block those rights, certain members of the public believe that the government has an obligation to step-in to defend the public's rights.

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There's been a long simmering dispute in Alleghany County between fishermen who wade into the Jackson River and neighboring property owners who argue that the fishermen are trespassing on their property.

Now, some landowners have brought a $10,000 trespassing suit against the fishermen, and the defendants asked the Attorney General's office to defend their right -- as members of the general public -- to enter into the riverbed. 

Interestingly, the Lawyer's Weekly points out that the Commonwealth's Department of Game and Inland Fisheries has long taken the position that the streambed of the Jackson River "belongs to the people of the state."

However, a spokesman for the Attorney General has stated that the state government need not be a party to the case in order for the court to determine the relative rights of the public and the property owners.

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The property owners allege that, notwithstanding the general presumption that the Commonwealth owns riverbeds, they can trace their claim to ownership to two grants, from King George II (in 1743) and the Commonwealth (in 1785). 

Beau Beasley has a good summary of the issues at www.midcurrent.com, here.

Oh, to be rollin' on the Jackson River, on a warm August day...

The Supreme Court of Virginia on Fixtures: The Taco Bell Decision

It's a steamy summer day in Charlottesville, so grab yourself a zesty burrito and an ice-cold Coke, and let's talk property law!

In Taco Bell v. Commonwealth Transportation Commissioner (June 9, 2011), the Supreme Court of Virginia examined the sometimes vexing question of the legal status of restaurant fixtures. For anyone who has been involved with the lease or sale of a restaurant, Taco Bell proves an engaging read. You can link to Senior Justice Lacy's opinion here.

First, the background:

Property law distinguishes between real property (the land and certain immovable structures located on the land (the structures are known as "improvements")) and personal property (moveable items, such as furniture, books, vehicles, etc.).

Ambiguity can arise with respect to fixtures. Fixtures are initially-moveable objects which can, over time, become literally or figuratively "attached" to the land or to improvements. In the eyes of the law, a fixture is real property, even though it began its life as personal property.

For instance, consider a sink, a stove, or a kitchen cabinet: although each of these items is moveable at the time it is installed in a house or a restaurant, the sink/stove/cabinet is secured to the immoveable real estate and thereafter becomes, in the eyes of most beholders, part of the real estate (for this reason, a house-seller who intends to keep the kitchen sink after conveying the property should make very clear in the contract that the sink will be removed prior to settlement).

In Virginia, whether or not an item is a fixture (and is, therefore, classified as real property rather than personal property) is determined using the following three-part test:

1. Has the item been actually or constructively "annexed" to the site?
2. Is the item appropriate to the purpose for which the land is being used?
3. Did the owner of the real property intend to make the item part of the real property?

Critics of this three-part test might point out that question 3 is quite subjective, because determining a person's intent is considerably more difficult than determining whether a stove is physically attached to a wall.  Nonetheless, the three-part test has guided Virginia courts since the Supreme Court articulated it in the 1941 decision Danville Holding Corp. v. Clement.

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Now, turning our attention to the facts in Taco Bell:

Using its eminent domain power, the Commonwealth of Virginia initiated a taking of a Taco Bell restaurant located on Route 29 in Fairfax County. The purpose of the take was to widen and repair Route 29.  Because the restaurant owners and the Transportation Commissioner could not agree on the value of compensation to be paid by the state to the property's owners, the Commissioner initiated a condemnation proceeding.

During the condemnation proceeding, the question arose whether Taco Bell's owners should be compensated not only for the building but also for certain items that the owners considered to be fixtures.  The items in dispute included a refrigerator, a freezer, sinks, ovens, pans, frying baskets, and a "drive thru" neon sign.

The Circuit Court of Fairfax County held that the disputed items were "purely personal property" and that there was no need for a factual determination by the jury because the evidence conclusively showed that the items could be removed from the property.  Since the items could be removed, they were not fixtures, and the owners were not entitled to compensation from the state for them.

The Taco Bell owners appealed, and the Supreme Court of Virginia reversed the Circuit Court.  In her opinion, Justice Lacy states that the Circuit Court incorrectly applied only one of the three prongs from the fixture test articulated in Danville Holding Corp. The Circuit Court focused exclusively on the moveability of the items, when it should have also focused on (1) the owners' intent and (2) the appropriateness of the items. Lacy writes:

"Taco Bell presented testimony that it intended that the items remain on the property for the life of the business or ... there was an 'intent to make such machinery and equipment a permanent accession to its realty' ... Considering the evidence in the light most favorable to Taco Bell, as we must on appellate review, we conclude that the evidence on the issue whether the items in question were fixtures or personalty for condemnation purposes was sufficient to submit to the jury."

The decision in Taco Bell is surprising in that it leaves open the possibility that certain items not generally considered fixtures (in particular, the pans and the frying baskets) may actually be fixtures in certain situations, depending on the parties' intent and the context in which those items exist. 

One interpretation of the decision is that, when it comes to questions about what constitutes a fixture, the Supreme Court of Virginia believes that juries should have the opportunity to assess the particular facts at issue.

OK, that's enough law for today --- now it's time to eat some tacos!!!

Is That a Pocket Listing in Your Pocket?

The New York Times ran an article last week about the increasing phenomenon of "pocket listings."  Marc Santora's piece is here.

According to Santora, a growing number of sellers are choosing to not formally list their property for sale, opting instead to work through informal, word-of-mouth channels. Sellers' motivations vary, from a concern that the failure to quickly sell a listed-property could "tarnish" its reputation to an aversion to having to keep the property spic-and-span for showings. 

The article alludes to (without fully examining) the attitudes of Realtors towards pocket listings and the potential legal and/or ethical ramifications of the practice, including the historical (one hopes) phenomenon of not listing properties as a means of racial discrimination.

Good Faith Estimates: More Changes to Come?

On Sunday, the New York Times reported on some of the challenges arising in connection with HUD's revised Good Faith Estimate form.  Lynnley Browning's article is here.

The federal government's rationale for mandating use of the new GFE form was to clarify borrowers' closing costs -- and to minimize last-minute changes to those costs. 

As Browning reports, the real estate industry is still adjusting to HUD's new requirements.  One example:

A growing number of lenders have been furnishing consumers with their own custom “work sheets” as a supplement to — or in a few cases, in lieu of — the required disclosures, according to Brian Sullivan, a spokesman for the federal housing department. They were being used “to weed out window shoppers and borrowers who haven’t provided enough information for the lender to be required to furnish a G.F.E.,” he said. But these work sheets may differ from the Good Faith form, further adding to the confusion.

The kicker comes at the end of Browning's article, when she reports that possible changes are in the works: "The Consumer Financial Protection Bureau has said that it is considering revising the revised G.F.E. form to make all costs clearer to the consumer."

The Supreme Court of Virginia and Rights of First Refusal: Fairfax v. Riekse

Many a real estate lawyer's day has taken a turn to the interesting when a title examination reveals a right of first refusal (or "ROFR" in electronic shorthand) in the chain of title. 

Although rights of first refusal can (and do) vary in their particulars, the basic idea is that a person or entity obtains the right to purchase property before it can be transferred to a third party. The ROFR is often recorded in the County Clerk's Office, which puts potential purchasers on constructive notice of its existence.

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In its recent opinion in Fairfax Redevelopment & Housing Authority v. Riekse (March 4, 2011), the Supreme Court of Virginia examined the particular issue of whether a right of first refusal is enforceable by specific performance, against the original ROFR-grantor, when the property has changed hands not by sale but by foreclosure. You can read Justice Mims's opinion in Riekse, here.

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When the Fairfax Redevelopment & Housing Authority conveyed property to a married couple in 1989, the deed of conveyance included a 30-year right of first refusal to repurchase the property if the couple died or "determined to sell the land."

The property was subsequently transferred to a new owner by foreclosing trustees, and the Housing Authority argued that its ROFR should still be enforceable against the original owners, since it was a covenant running with the land.  The new third party owner, not surprisingly, objected to the Housing Authority's position.

In its decision, the Supreme Court held that the Housing Authority could not obtain specific performance against the original owners, because the original owners no longer owned the property. However, the Court did leave open the possibility -- which had been suggested by the Fairfax trial court -- that the Housing Authority could bring an action of ejectment against the current owner.

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The result in Riekse strikes this observer as fair to the current owner.  That said, the Housing Authority may have a valid complaint that "constructive notice" (via the recorded chain of title) is not worth much unless the rights granted to prior owners can be enforced in court.  For that reason, it will be intersting to see whether the Housing Authority pursues (and utlimately prevails on) a claim for ejectment.

MERS in the News: Is the Agard Decision a Harbinger or an Outlier?

During his presentation about foreclosures at last week's Advanced Real Estate Seminar, Ron Wiley discussed In re: Agard, a February 10 decision by the U.S. Bankruptcy Court for the Eastern District of New York. 

A transcript of Agard is available here.

The Bankruptcy Court in Agard held that the Mortgage Electronic Registration System (MERS) did not have the authority to assign a borrower's mortgage document to a trust which held a large number of mortgage-backed securities. And the kicker is this: since MERS could not assign its interest in the mortgage, the mortgage-servicer lacked legal standing to foreclose against the borrower's property.

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The potential ramifications of Agard, if its reasoning were to be widely adopted by courts in other jurisdictions, are huge. That's because MERS is listed as the owner of record (or "nominee," in its terminology) on approximately 50% of the outstanding mortgages in the United States.

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However, as Ron Wiley pointed out in his presentation, Agard may be an outlier. Other courts have disagreed with the New York court's reasoning in Agard and concluded that MERS does have the authority to assign its interest in mortgages.  Yesterday, Moody's Investor Service predicted that there's only a "slim" chance of a significant number of other courts agreeing with the Agard holding (see the HousingWire report here).

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Regardless of how the courts analyze the technical question of MERS's status in foreclosure proceedings, the company appears likely to continue to receive widespread media attention, such as a Times article on Saturday (MERS? It May Have Swallowed Your Loan (here)).

The Advanced Real Estate Law Seminar: Education and Collegiality in Williamsburg

The annual Advanced Real Estate Seminar was held this past Friday and Saturday at the Kingsmill in Williamsburg. It was an excellent event.

I especially enjoyed the broad assortment of topics (including ethics, easements, water law, and the latest developments in foreclosures). 

Kudos to the Real Property Section of the Virginia State Bar, the folks at Virginia CLE, Larry McElwain, and the other individuals involved in organizing the seminar. 

Highlights of the weekend included:

• During his presentation about foreclosures, Ron Wiley facilitating an interesting discussion about who, in Virginia, does have the legal standing (and who should have the legal standing) to demand to see the originals of the promssory note and security intrument (and the assignments (and assignments, and assignments, and assignments) thereof).
  
  
• William Amhrein's historical overview of water law in Virginia, and the sometimes ambiguous overlap of statutes and case law in determining the extent of a riparian owner's rights to the water and the land beneath it.
  
  
• Gus Bauman's animated summary of Justice Scalia's concurring opinion in last year's Supreme Court decision in Stop the Beach Renourishment v. Florida. Try as he might, Scalia couldn't get either Breyer or Kennedy to rise to the bait of his pointed critiques on the issue of judicial takings!
  
  
• At Friday night's scrumptious dinner: talking with Barbara Goshorn and learning about her work on the invaluable Virginia Forms books. I loved hearing Barbara talk about how she came to the project and how it has evolved through the years.

And it always feels good to be on the banks of the James River...

Real Estate Law in the News: E-Mail, Binding Contracts, and Naldi v. Grunberg

In New York, trial and intermediate courts have recently held that e-mail correspondence can satisfy the Statute of Frauds requirement that real estate transactions be in writing in order to be enforceable.

The New York Times has a story summarizing the decision, in Naldi v. Grunberg, here.

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In Naldi, the New York trial court and intermediate appellate court agreed that a real estate contract can be both offered and accepted by e-mail.  Now, the case is pending review by New York's Court of Appeals (the state's highest court).

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While the Supreme Court of Virginia has not explicitly addressed the question of whether e-mail satisfies the Statute of Frauds in the real estate context, Virginia has adopted the Uniform Electronic Transactions Act, on which the lower New York courts relied in reaching their decision.

The applicable statute in Virginia is Code §59.1-485 ("Legal recognition of electronic records, electronic signatures, and electronic contracts"), which provides as follows:

(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form (emphasis added). 

(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

(c) If a law requires a record to be in writing, an electronic record satisfies the law.

(d) If a law requires a signature, or provides for certain consequences in the absence of a signature, an electronic signature satisfies the law.

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In the absence of clear guidance from Virginia courts, the New York ruling is a reminder that parties negotiating a real estate transaction by e-mail would be wise to include disclaimer language, in order to head-off an argument that an enforceable contract has been agreed-upon.

For instance, an e-mail could state as follows: "This e-mail shall not be deemed an offer or an acceptance of a contract.  No offer or acceptance shall be binding until documents are executed by hand-written signature."

Real Estate Law in the News: How Do You Measure "Square Feet"?

Yesterday's New York Times has the fascinating tale of real estate litigation that could turn -- literally -- on the (measuring) tape. 

Christine Haughney reports (here) that Rishi Bhandari discovered, prior to closing, a discrepancy between the actual square footage of the "living area" in his new apartment and the square footage that had been disclosed by the apartment's seller. In his suit against the seller, Bhandari alleges that he is entitled to a purchase price reduction that is proportionate to the "missing" square feet.

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Disputes about square footage are not unusual, in part because there is no standardized system for measuring the size of a home. What is unusual, though, is for such a dispute to go to trial, since most parties opt to settle such disputes out-of-court.

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Bhandari's case highlights one reason that each party to a real estate transaction is wise to involve a Realtor in the process: a Realtor can provide the insight and guidance of an experienced professional on questions which can (or should) affect the purchase price -- and which may not be readily apparent to the untrained eye.