Chapter 8 A.

Introduction y Old classification of servitudes: o Easements (profits) o Real covenants o Equitable servitudes o Licenses y Classification of these interests under the new Restatement: servitudes- an extension of what we previously studied. Another mechanism that more than one person has an interest in the same land. Two regimes that we look at that make it confusingcommon law (listed above). In 2000 the ALI adopted Restatement 3d of property of servitudes. Its not really a restatement of the law it is trying to push the law to do away with the previous classifications from common law. Easier/more practical for us to use the common law terms. The book/professor will tell us when the new restatement will make a difference. y Example of an easement- WYW owns Blackacre and John owns adjoining land, WYW conveys to John right to use a path across blackacre to access public road west of Blackacre. This is the most common form of easement that we see. ID the legal interest/relations btw. the owner of the easement (John) and the owner of the land (WYW). o John has an easement appurtenant. o WYW owns the servient (burdened) land. o John owns the dominant (benefited) land. o John S owns an affirmative easement; the right to make a limited use of WYWs land. o Definitionof Easement- the right to make a limited use of anothers land. By definition it means that you cannot have an easement in your own land. o Many of the questions involve who can use the easement once the benefitted or burdened land is transferred y Example: she created an easement in John. WYW then conveys her land to Goplerud, Goplerud takes the land subject to the easement in favor of Whiteacre (Johns land). y If John conveys Whiteacre to DuBose, DuBose acquires the right to use the easement across Blackacre. y The servient estate generally remains burdened by the servitude even after the owner transfers it to a successor. It runs with the land. y Example of a Real Covenant- WYW owns Blackacre and John S owns adjoining land, WYW grants John the right to build an irrigation ditch in the NW corner of Blackacre and John covenants for himself, his heirs and assigns that he will build and maintain a fence along each side of the irrigation ditch. o When WYW grants him the right to build an irrigation ditch she created an easement appurtenant- her land is the burdened estate, John S land is the benefited estate. She owns servient, John S owns dominant estate. Prefer an easement appurtenant. If you want to create an easement in gross you should say so if you dont then you are asking for the court to call it an easement appurtenant. o The covenant regarding the fence is the real covenant. Whiteacre is the burdened land and Blackacre is the benefitted land it is switched. y Example of an equitable servitude o WYW owns B and W. WYW sells W to John and promises John that WYW will only build a single family house on B. Youll see these kinds of arrangements where properties are located near water/mountains/anything with a view. o W is the benefited land and B is the burdened land by an equitable servitude. y Operation of real covenants and equitable servitudes o Subsequent owner of b- Goplerud he will be able to enforce the promise to John o W goes to DuBose o Main point of real covenants and equitable servitudes is a promise. These come in when you have new owners of benefitted and burdened land. y Real covenants vs. equitable servitude o Real covenants require  Intent, privity and touch and concern  Legal and equitable remedies are available to enforce the covenant o Equitable servitude  Intent, notice and touch and concern  Only remedy for breach is an injunction (an equitable remedy) o Only difference between these two is the remedy (this is why ALI grouped them together). Depends on what party wants as to whether the courts will enforce it as a real covenant or equitable servitude. y Appurtenant easement o WYW granted John right to use path across Blackacre to access public road. o Always two parcels of land involved in appurtenant easement. y Easement In Gross

WYW owns B, she grants an easement to JEA that allows JEA to install polls and electric wires across a 5 foot strip of Blackacer.  WYW owns the servient (burdened) land  An easement in gross gives its holder the rights in the servient land regardless of the holders ownership of any other portion of the land.  Without easements the electric companies would have to buy a FSA in each little strip of land to go across it. Creation of easements (overview) o Several ways in which an easement may be created:  (1) Express grant or reservation  (2) By implication  (3) By prescription (adverse possession)- basically same concept/elements  (4) By estoppel Servitudes all represent private land use arrangements (compared to government land use arrangements). Land use arrangements are more important and more prominent than government land use arrangements primarily as a result of the creation of CICs (common interest communities). Common law had real problems with negative easements and so they only recognized a few of them. We really dont have the same restrictions today in terms of negative easements but we have stuck to the original common law scheme with the exception of the conservation easement. o y y y Private property interests that confer nonpossessory rights in lad possessed by others. Includes: easements (affirmative and negative), profits, licenses, real covenants (affirmative and negative) and equitable servitudes. Easements- earliest servitudes recognized o Affirmative- holder has right to make some limited affirmative use of land possessed by another (crossing it to gain access to an adjacent tract of land, etc) o Negative- limited catalogue of limitations on the use of anothers land (preventing a neighbor from obstructing light, air, or view, etc) Profits- the right to detach and remove something (timber, minerals, ice, etc). The holder of a profit usually also has an easement to enter the land. Licenses- closely resemble easements except that a true license is revocable by the servient owner while an easement is irrevocable. Promissory servitudes- enforceable promises btw. a land owner and another person. o Negative covenants- Often ^; promises that restrict owner of land from making certain uses of the servient estate (i.e. residential purposes only). o Affirmative covenants- obligate promisor to undertake affirmative acts (pay neighborhood subdivision association assessment). o Example: For residential purposes only, neighbor sues for damages= real covenant. If the neighbor sues for an injunction to stop violation= equitable servitude. The benefitted land is called the dominant estate. If a servitude benefits a parcel of land it is called appurtenant or real. Attaches to the ownership of an estate in land (dominant estate) and provides owner of dominant land with the right to use (or restrict use of) the servient land. If it is not appurtenant and benefits someone without regard to her ownership of any parcel of land it is purely personal to its holder and is called a servitude in gross. Not attached to ownership of an estate in land. Holder has rights in servient land regardless of the holders ownership of any other parcel of land.

y y y

y y y

B. Easements 1. Negative Easements o right to restrict the possessor of the servient land from making some use of that land.  Ex: own 500 acres and convey 200 with a negative easement that says dont obstruct my view of mountain.  Types of negative easements: flow of light or air; support of a building; flow of an artificial stream. One that frequently arises in America: conservation easement (limits on use of servient land to preserve its availability for forest, recreational, or agricultural use; protect natural resources, etc) Conservation easements can potentially last forever. 2. Affirmative Easements o holder has right to enjoy some specified use of the servient tenement (right of way for access across servient land or right to run a utility line across the servient land). Nearly all modern easements are affirmative in nature. a. Creation of Express Grant or Reservation  Generally subject to the statute of frauds.  Express easement can be granted in one of two ways:

By grant- grantor (owner of servient land) executes and delivers to the grantee an instrument conveying an easement over the servient land, or y By reservation- grantor executes and delivers a deed conveying a possessory estate in the servient land to the grantee, but reserves or retains in herself an easement over the servient land.  Most arise by these two means so no real questions regarding the statute of frauds. But sometimes regarding whether its appurtenant or in gross, or whether they want an easement at all. Alft v. Stewart o Two parcels of land, one owner grants to the other the right of ingress and egress and also the right to use the land. o No magic words to create an easement but courts will note buzz-words a way of ingress and egress almost synonymous with an easement appurtenant right of way. Another way for this is a right of way o Probably wanted only the sibling to be able to do it. If you cant get to the land, except across the other land, the value of the land w/o ingress and egress would be worth nothing. This is why the courts prefer an easement appurtenant rather than an easement in gross, the courts are still very interested in the land being in the stream of commerce and not value-less. o Use of lake was not an easement appurtenant. o On our exam we will have an ambiguous kind of conveyance like this and there will be a traditional rule as stated in this case. o An easement granted in conjunction with a conveyance of the land to the easement holder will be construed as appurtenant unless there is clear evidence that the grantor intended to create only an easement in gross. o Parol evidence is not allowed to contradict but is allowed to explain what parties wanted. o Notes: Z obtains an easement to install and run a sewer line across whiteacre to connect to the citys sewer system. Easement appurtenant o Z obtains an easement to visit and relax in the gardens- and easement in gross. o Its possible that you can create an easement appurtenant for visiting and relaxing in gardens but it is not likely. o Note 3- p. 561- under the traditional rule an appurtenant easement is automatically transferred with ownership of the dominant estate. ****** Even if deeds dont say anything about easement, burden is automatically transferred by servient estate, and benefit by dominant estate. o An easement in gross is non-transferable unless it is of a commercial nature (railroad, utility co. etc). o The restatement 3d suggests that transferability depends on the parties intentions and is not dependent on the characterization as in gross or appurtenant. This is an important difference that the restatement suggests. o Note 4- wyw conveys blackacre to john s. reserving an easement for parking on Wednesdays and Sundays on blackacre in favor of First Baptist Church, located on a parcel of land south of blackacre. Now she wants to sell it and make sure the church can continue to use it  Traditional rule was that you could not create an easement for a stranger to the conveyance (in favor of the third party- the church). Today you are allowed to b/c its not that hard to get around. All that is needed is two different conveyances (first an easement to the church and then a conveyance to John and he would take subject to the easement). y

Recap y

Profit- one persons right to enter land possessed by another and remove something from the land (coal, oil, etc.). Could allow coal company to come on by severing the surface estate from coal and give coal company a FSA in the land or you could do it by granting a profit to them. Vast majority of easements are created by express grant or reservation. The traditional view is that a reservation cannot be made in favor of a stranger-to-the-deed (a third party) there is a split in modern cases. Note 4 again: o WYW owns Whiteacre and Blackacre and she conveys B to John, reserving an easement for parking on Wednesdays and Sundays on B in favor of the church. Under traditional rule, WYW could not accomplish this at one time. But to get around it she creates an easement while she still owns B and then after that she conveys the land to John. o What words should she use to convey an easement to the church for parking on Wednesdays and Sundays? Easement appurtenant vs. easement in gross o Appurtenant- two parcels of land (servient and dominant estate) easement can only be used for benefit of dominant estate, automatically transferred on sale/transfer of dominant land. o In gross- involves only one parcel of land; usually freely transferable if the easement is commercial in nature (think about this with church example). o In case of ambiguity, courts prefer an easement appurtenant rather than an easement in gross. Remember that the new restatement would separate the concept of transferability- it is possible to create an easement appurtenant that is personal and non-transferrable under the new restatement. Railway Rights of Way- Rails to Trails note 5 p. 562

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Present special problems that might be called scope problems Traditional language O conveys a strip of land to RR, the land to be used for railway purposes. Is the RRs interest a possessory estate in land (FSA, defeasible fee) or an easement? Why does it matter? Because, once they stop using it as a railroad, who owns it? The grantor? The grantee? If they held only an easement, then their ceasing operations and taking up the ties and the tracks might constitute abandonment. When something is abandoned, the property reverts to the owner of the servient estate. Lots of litigation over establishment of the trails from abandoned RRs, courts general side with the government entities.

b. Implied Easements- Three kinds: i. Easements Implied from Subdivision Plats y A purchaser who acquires a lot in a platted subdivision acquires an implied easement to use street and alleys and perhaps parks and playgrounds (thoroughfares) shown on the plat. y Absent express language that gives each lot owner the right to use streets, parks, etc the law will imply an easement for the streets and other items shown on the plat. y Different view in terms of whether implied easement is for all streets, etc. shown on the plat or for only such streets as will allow an owner access to a public road. Broad/unity rule- owner of subdivision has private easement over all parks/subdivisions on the streets. Intermediate beneficial/full enjoyment rule- owner of a platted subdivision has access only across such streets as are reasonably beneficial to the owner of the lot. Narrow/necessary rule- owner has implied easement only over that owners abutting street and any other connecting streets that are necessary to reach the public road. Reason behind narrow rule is that a homeowners association would require that you pay for upkeep of the road and you would only want to pay for upkeep on one road and not all roads in the neighborhood. y Brannon v. Boldt o Owners of servient estate (Brannons) own a residential lot. o Plat map gives other lot owners in a neighborhood an easement for ingress and egress to the water in the bay. o Issue: whether the lot owners have legal right to place a dock on the easement (unlikely) and the right to view the water from the land and to watch fireworks, fish, or otherwise remain on the land for a considerable amount of time. o The lot owners have the legal right to place a dock on the edge of the easement giving them access to the water. o Potential problems with holding:  Conflicting interpretations of view the water?  Is WYW a neighbor, allowed to view the water while doing other things, ex: waiting for Rasta Dog to poop?  At what hour can the neighbors view the water? o This decision still has the problem of neighbors believing they have the right to do the above thing. ii. The Implied Easement of Necessity (way of necessity) y Requirements for easement implied from necessity o Be very careful to note that in order to claim this you must begin with a common grantor!! o There was a severance of one portion of the land o After severance, it is necessary to pass over one of them to reach any public street or road from the other. o Sometimes called a way of necessity 99.9% of easements implied from necessity are rights of way. You could argue that for utilities but shehasnt seen it. They mostly involve land-locked parcels that are looking for access to a public street or road. o A few jurisdictions allow for private condemnation suits, you can sue one of your neighbors to force them to grant you access across their land to get to public road. If a jurisdiction did allow this, is it better than obtaining an easement implied from necessity? Main reason why common law route is better than private condemnation route is that if the court says that the person can have access, the servient owner gets first chance to place the route. If you go with private condemnation, imminent domain means compensation (you get money). Under common law if they find it by necessity, there is no requirement that the servient owner pay anything. On one hand, the dominant owner might say that they dont want private condemnation b/c they would have to pay, but on the other hand, the person claiming the easement may want to go with condemnation b/c easement by implication lasts only as long as the necessity lasts. o Remember: last only so long as the necessity lasts. o Note, no requirement for a quasi-easement, ex: that there was a prior usage on the land (for easement by necessity) o Requirements: (short version- duplicate)

   

Common grantor Severance of one portion of the land After severance it is necessary to pass over one of them to reach any public street or road from the other. Note, no requirement for quasi-easement, that there was a prior usage on the land Necessity must arise at the momentof severance. Most of the time you are talking about an easement for ingress and egress or a way of necessity to prevent a landlocked parcel. Just b/c a parcel is landlocked does not mean they can claim an easement by implication on necessity. If it did not arise at the moment of severance of the two parcels then no easement by implication based on necessity. Ex: a natural disaster makes it impossible for the way to be used anymore, then that parcel is landlocked and there is no remedy for it under this. Courts do consider whos asking for the easement based on necessity (like if it is the person who created the dilemma). We want land to be marketable and freely alienable which is why we have this. But that doesnt explain why we dont say that in every landlocked situation there will be an easement by implication based on necessity.

c.

iii. The Implied Easement Based Upon Pre-Existing Use (Quasi-Easement) y Requirements for easement by implication from prior use o 1) a common grantor conveys a physical part of the land to another. o 2) prior to the conveyance, there was a usage on the land that amounted to a quasi-easement that was permanent or continuous.(cant have an easement on your own land). Under common ownership you would have in essence a dominant estate and a servient one (but it was a fiction). MUST BE PERMANENT AND CONTINUOUS o 3) after the conveyance, the continued usage is more or less necessary. Necessity produced most litigation. Owner of dominant land will be put to some expense if they are prohibited from using the easement. o 4) the usage is apparent. Apparent interpreted by courts as reasonably discovered. o Most of these have involved buried sewer lines. Prescriptive Easements y Melendez v. Hintz  Has an easement by prescription been established, where: the predecessor to the party seeking the easement by prescription had added a driveway on the servient property and constructed a loop on the dominant lot that connected to this driveway; and part of the driveway on the servient lot was used jointly with the previous owner of the servient property; and one of the parties or witnesses had personal knowledge about whether the initial use was permissive?  Requirements: open, notorious, continuous, uninterrupted, use under a claim of right with the knowledge of the owner of the servient estate from the prescriptive period. NO EXCLUSIVITY  Largely decided by who has the burden of proof! More civil procedure than property law.  Period for prescription is usually the same as the states AP statute  Adverse claimant does not have to exercise exclusive use of the land  Use must be gained without consent  Use must be continuous  AP: requires exclusive; must be adverse without consent of TO; continuous  99% of easements we see will be non-exclusive rather than exclusive. Means that servient owner has right to use it as long as the dominant estate holder as long as it doesnt interfere with dominant owners rights. Exclusive easements are as close to granting a FSA as it can get. o Presumption of adverse use: 3 possible rules  1) use of a way over the land of another for the prescriptive period raises a presumption that the use is adverse.  2) use of a way over the land of another for the period is presumed to be permissive unless there is direct and specific proof that the use is adverse.  3) no presumption either in favor of adverseness or permissiveness.  Presumptions shift the burden of disproof to the other side.  If there were a presumption of permission it may lead people to be less neighborly. She likes the third one. o Hypo (rules)  Allow neighbor to use driveway for prescriptive period for cars to and from a personal residence. Now the neighbor wants to come in and put down telephone wires across the driveway. Generally an easement acquired by prescription is confined to the rights as exercised during the prescriptive period. Limited by the purpose for which it was acquired.  Most courts say that if a person has acquired an easement by prescription she may do what is reasonably necessary to maintain the usefulness of the easement even if the act of maintenance did not occur during the

prescriptive period. Ex: telephone company acquiring an easement- they can enter the servient estate and cut brush away from wires even if they didnt do that during the prescriptive period.  In above hypo: generally one has right to enlarge scope of prescriptive easement for foreseeable changes in the character of the dominant estate. If ANA has prescriptive easement for a footpath over land; if at the time it was a cabin but then she build a permanent house she ought to be able to make the footpath paved to where cars could drive across. It all depends. If it were used as a summer cabin, but now enlarged into a bed and breakfast, so that now there are 20 people who need to use it, this raises a question as to whether or not it was foreseeable. Some courts have said that the change that dominant owners can make can be evolutionary not revolutionary (not a very practical statement). The change has to be reasonable development of the dominant estate leads to expansion of the easement. Prescription and the general public  WYW owns land near hs, students use a portion of WYWs land as a shortcut to the school. Can the students use ripen into an easement by prescription? No because at some point the kids would move on and you would have different people exercising the right.  Prescription by a large but definable groups such as a hiking club, is generally allowed- even though not all members hike on a continuous basis.  A minority of jurisdictions hold that the public at large cannot obtain an easement by prescription but most say that they can.  Beach access- cases are divided but majority rule is that public doesnt acquire a prescriptive easement for beach access since the presumption is that use of beaches is within the permission of the owner.  In some states (particularly western) there is a presumption of permission where the land is wild and open land. The idea is that where there is vast land holdings, there is presumption of permission that people are able to cross over land that is unfenced to negate the idea of easement of prescription. Otherwise, owners of vast areas of acreage, they would have to fence it all off. If they had the opposite presumption that it was hostile, they would have to go out and fence it all in and then diligently check it often.

d. Licenses and Easement by Estoppel o License: right to use others land without being deemed a trespasser  Usually revocable  Automatically revoked on transfer of servient land or the death of licensor  Usually oral in nature but may be in writing.  Why is it automatically revoked on transfer? When someone buys land from another, how are they supposed to know that another person has a license to use land for some purpose? In order to make it freely alienable, we want to be able to check public records to know what encumbrances are on the land. y Bobs Ready to Wear v. Weaver I & II  Easement by implication based on prior use  Easement by estoppel  Facts: store with parking lot area in the back; initially Bobs and the Weavers restaurant leased, but later each bought separate parcels and then later on Weavers bought parking lot. Then weavers blocked off the back entrance.  Was the court correct saying that they didnt have an easement by implication based on prior use? Start with common grantor and has to be a severance, but prior to severance has to be use made on one parcel that benefitted another parcel that amounted to a quasi-easement, must be permanent and continuous, and reasonably necessary. They may not have been correct b/c the owners of Bobs had most of these things if not all of them. The courts decision seems inequitable if not outrageous to not allow them have an easement by implication based on prior use.  Can they now claim easement by estoppel? The court said yes. But why? If the licensee incurs: (reasonable) substantial expenses; (with knowledge of licensor) in reliance on continued ability to use the license, the licensor is estopped from terminating or revoking the license at least as long as the use of the servient estate continues in the same form.  What if one year later the Weavers terminate the lease agreement with the city for public parking. They post a sign stating that parking lot is for use by Weavers customers only. Court said it needed to be in good faith, but how do you show that it was in good faith? Then you have a court deciding what is in the best interest of this restaurant business.  Notes: p.581 (a) and (b) if you say sure its okay at least one court has said that means you also agree it means they can use road to access house once its built; in b- 3 month use, it is a license for a definite period and court would likely hold you to that requirement. o Kienzle v. Myers  Restatement formulation for an easement by estoppel different than the formulation used in the common law? Difference- if injustice is done gives court more leeway in deciding.

3.

Scope of Easements y Lazy Dog Ranch and Restatement Interpretive standards o Standards governing the courts inquiry regarding the scope of easement may include  Location and character of prop  Use made before and after creation of easement  Character of surrounging area  Existence of general development plan y Rules regarding scope o Unless contrary intent  Owner of servient estate may make any use of the burdened property that doesnt unreasonably interfere with the rights of the easement holder and vice versa  Owner of easement may make any use of easement including maintenance and improvement reasonably necessary to enjoy the easement and which doesnt cause unreasonable damage to or interfere with the use of the servient.  Utility company can come in years after you plant a garden and destroy it to put in pipes or anything else they need to do a. Maintenance of Easements y Schluemer v. Elrod o The grantees shall pay to the record owners of the land where the easements are located the sum of One Hundred Dollars per year starting July 1 83, and each and every July 1 thereafter, as long as grantees shall have the use of the easements to be used to help maintain the roadways located on said easements.  Is this language ambiguous?  Should there be an inflation factor on this? Probably. Maybe say every year at least 30 days before July 1 the servient owner would obtain an estimate of costs of repair and submit that to the dominant estate holder.  as long as grantees shall have use of the easements- an easement in gross. Grantees may not mean the owner of the dominant estate, just any grantee. Should say grantees, as owners of the dominant estate o Owner of dominant estate doesnt have to maintain the road o Owner of dominant estate have the right to have the road maintained so that they can traverse the road; they can fix it with a set off of $100/year o The owner of the servient estate has to maintain the roadway using the standard of usable (all this does is invite more litigation) b. Change and Expansion of Use y Henley v. Continental Cablevision of St. Louis County, Inc. o Easement across land for telephone wires and wanted to add another wire for cable television o Issue: whether they had an exclusive or non-exclusive easement o Gave easements to UE and SWB and didnt do it at the same time. If they gave first one to UE, if it were exclusive they could have never given an easement to SWB and vice versa. It almost has to be a nonexclusive easement. o Non-exclusive: servient owner and anyone claiming through the servient owner can use the easement as long as it doesnt interfere with easement holders right. o Cant have exclusive easement by prescription, implication from prior use, must be written exclusively. Its almost like a FSA, even the servient owner has no rights at all. o This court treats the easement that was granted to SWB and UE as having an easement which they could divide and therefore are treating it as an exclusive easement. o If servient owner retains privilege of sharing benefit; its non-exclusive and therefore cannot be apportioned or divided!!! o If servient owner grants exclusive easement, it can be divided. o Luddite- someone who doesnt like technology o Problem: applying our common law rules with developments in technology. At the time the easements were granted, no one thought of cable television o Easements and profits in gross are non-transferable, there is an exception if they are commercial in nature. Transferability under new Restatement is separated from whether or not it is an easement in gross personal or commercial; or an easement appurtenant. You could have an easement appurtenant under new Rest that is non-transferable and you can have an easement in gross that is transferable o Transferability refers to easement holders right to substitute new easement holder o Divisibility refers to easement holders right to allow additional parties to share use of servient. This is what the Henley case was, a divisibility problem.

Note 2: residents decide to authorize trustees to buy satellite cable at a lower price. Under this courts ruling they would not be able to do so. If it was an exclusive easement they could not have anything but UE or SWB to use it. o Succession principles problem 3b p. 593- each one of them would be able to use the original easement over WYWs land. In case in the notes the court said division of the dominant estate did not terminate an easement appurtenant and the dominant owner did have the right to apportion the easement, future development was foreseeable. Wright case- court refused to apportion an easement, it had been acquired by prescription and the owner of dominant estate was attempting to divide the easement so that 20 parcels were created out of one. o If WYW conveys an easement for access to a public road and later the servient estate is divided, each of the parcels that compose the servient estate will be subject to the easement. y Apportionment of dominant estate o Facts court will look at whether the owner can apportion the easement  Whether the easement was created by express or prescription- it will be a factor to consider if it was acquired by prescription or implication  Nature of how the use would change nature of easement  Whether the intensity of proposed use will interfere with enjoyment of servient estate  Whether subdivision would require a physical enlargement of easement  Whether the possibility of subdivision was foreseeable  None of these have more weight than the others, and no instances where if you have 3 or 4 out of 5 they would rule one way or another. y Brown v. Voss o Can owner of parcel B who has a roadway easement across A use that to access a house that straddles btw parcel B the original dominant land and C which was never part of the dominant land. o It would be a misuse if they combined the parcels and put a house on it. They decided the general rule was that they cannot extend an easement to non-dominant land. Any extension to non-dominant land is misuse, even if there is no additional burden placed on the servient estate. Then they dont even follow their own rule o Why should we help them when they should have known that the easement would not reach to their second acquired parcel. o Notes- could have obtained a private right of condemnation in the state of WA. Couldnt claim an easement by necessity b/c they bought a landlocked piece of property and it did not have a common owner. o Given the general rule, why is injunctive relief denied in this case? It is an equitable remedy (in sound discretion of the court); Ds might have been guilty of latching here b/c they waited over a year before taking any action. The Ps would suffer greatly and Ds wouldnt suffer anything if injunction were denied. o Two approaches to rule- majority cites general rule and then ignores it (if theres a little bit of trespass or misuse theyll let it go) that means they have to analyze it case by case. Dissents view makes the law clear so that we can advise our clients properly. y Drafting problem on p.601 o Specify easement appurtenant or in gross and also whether it is transferable or divisible. o Purpose of the easement o Ingress and egress if youre representing the person purchasing the easement you would maybe not want this b/c its a restriction. o Put in there whos responsible for maintenance of the easement. o Make clear divisibility issues. o Also talk about the duration; try to put in an adjacent land clause and see if you could get the servient owner to go along with it. o Clause regarding the placement of the easement, you have a description of the land but it doesnt say anything about where on the land its located. Ask your client where they want the easement to be. o Brown could represent a trend allowing an increase of parcels of land for one easement. Reichardt v. Hoffman o What acts would the dominant owner need to do in order to constitute misuse of the easement so that it could be terminated? He didnt do anything that rises to the level of criminal behavior. o

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Termination of Easements y Graves v. Dennis- abandonment o Nonuse doesnt equal abandonment, but why did the court state that easement had been abandoned in this case? There was acquiescense in allowing servient owner to build a garage in the path of the easement. She doesnt know why court didnt focus on this aspect more.

C. Promissory Servitudes: Real Covenants at Law and Equitable Servitudes 1. Introduction

Real Covenants and equitable servitudes y Common law refused to recognize mostnegative easements y Way for grantor to restrict land but with NO interest left in the grantor (a negative easement) OR: real covenant or equitable servitude. A promises never to sell liquor on the land y Real covenants are also referred to as covenants running with the land. y Except for easements created by express grant or reservation, negative easements created a challenge to court. Both impose a burden on grantors land (affirmative gives owner right to go on land and make a specified use); negative gives its owner the right to do or not do a specified thing with respect to the land. Negative easements- flow of stream, right to light an air, right to support from an adjacent building or wall. They created real covenants and equitable servitudes. y Real covenants and equitable servitudes are o Private, promissory obligations respecting the use of the land that are enforceable respecting the use of the common parties and also enforceable to successors in interest of the original parties. o THEY ARE PRIVATE land use mechanisms as opposed to government land use mechanisms. Dont use zoning b/c it is a new concept of the law, it is not universal (many areas in the country where there are no zoning laws), most zoning laws do not control the kinds of prohibitions and restrictions that we want in servitudes. y Easements authorize an affirmative use of the servient land and impose on servient owner a passive obligation y Real covenants and equitable servitudes generally impose an affirmative obligation in the servient landowner. o Easement I grant to you the right to use my land for the following purpose o Real covenant- I hereby promise you that my use of my land will be restricted as follows: you may promise that the land will only be used for residential purposes (it is handled by the law of K) the promises we have here bind not only the original parties, but anyone who acquires an interest in the land. y Hypo- landlord/tenant context: Peter G has to maintain parking lot and Terri has to pay rent monthly. If tenant transfers their interest then the new person has same responsibilities as tenant. Promises contained in lease will be binding on whoever secedes to those interests. y WYW sells parcel b (a days inn motel) to Peter and retains parcel a, the adjacent parcel which is vacant land. WYW promises peter that parcel a will never be used for a motel/hotel. It is an enforceable agreement. o Want these types of agreements to limit competition. o Two years later, can WYW open a Super8 motel on parcel a? no she cant. o P. 607 first paragraph under b.: K law would enforce this arrangement only btw the original contracting parties, not as between their successors in ownership of the land involved. So she sells to John s- can he build a super8? And two years later Peter sells his to V. Singh, can he prevent John S from building a super8? o Our usual disputes involve people who were not originally involved. The question is does the promise run with the land? o Can a promise made by a predecessor in title be enforced by or against a subsequent purchaser of the land? o Early English courts had trouble with this concept y To analyze these cases the first question is: which party has the benefit of the promise and which one has the burden? In many cases, both parcels will have benefit and burden. But looking at her example above Peter G has benefit and WYW has burden. If one is restricted in their use of the land its a burden!!! o If Peter G files suit against John S after he begins building a Super8 is it a question of whether the benefit runs? Whether the burden runs? Or is it a question of whether the benefit and the burden runs? The issue is whether the burden of the covenant runs. One transfer from WYW to John S the burdened property so its a question of whether the burden runs to John S. But if she changed it and kept WYW as owner of land and Peter G transferred to Elliot and WYW starts to build a Super8- the lawsuit would be Elliot v WYW in the issue of whether the benefit runs with the land. If two new parties were in the lawsuit it would be question of benefit and burden. o Only interested in the issue of whether successors can be burdened/benefitted from covenant of original parties. If its by both original parties it is a K law claim. o Its important b/c sometimes courts will enforce promise on benefit side and allow successor to enforce it but the same thing will not be allowed for the burdened property to run with the land!!! y Enforceable promise btw. the original parties o Intent for covenant to run (to bind successors) o The covenant has to touch and concern the land o There had to be privity of estate between the covenanting parties (the promisor and promisee). y Equitable servitudes are merely real covenants in disguise. They are covenants which are enforced in courts of equity o Enforceable promise btw original prties o Intention to run o Touch and concern land o notice y the touch and concern element has been particularly chaotic. Courts would strike down some as not touching and concerning.

y y o

o o

In new restatement, touch and concern is not important. The only question is whether the risk of enforcing the servitude harms society and the parties expectations. Burden will be enforceable by or against subsequent unless it is illegal, unconstitutional, or against public policy. Still need intent to bind, but no touch and concern. Promise that would not touch and concern the land: Elliott will give WYW tennis lessons bi-weekly for five years or until WYW is ranked in the top 500. Two years later, shes tired of trying to teach WYW. Can she enforce that agreement? Yes, because it is a K and there are two original contracting parties. Then, Elliott sells land to Taylor and he cant play tennis. Can WYW sue to enforce the covenant against Taylor? No, the covenant doesnt touch and concern the land. Its hard to say why it doesnt touch and concern the land, but we just know that it doesnt touch and concern it. The question is what is touch and concern?Its like pornography we know it when we see it. Isnt this the same thing as Bremmeyer? Originally, English courts allowed an assignment of k rights involving the use of land only where the parties stood in privity of estate.  For a real covenant- the privity of estate necessary to bind subsequent promissors or promissees to the obligation had to encompass the relationship of landlord/tenant. (Spencers case) Unlike the law courts, the Chancery courts early on decided that a purchaser of land would be bound by any restrictions imposed on the land by a predecessor in title if one took with notice of the burden. (Tulk v. Moxhay 1848) In American law, finally expanded concept of privity. If they have mutual interest (original parties), or successive interests in the affected land at the time of the covenant, it was enough to satisfy horizontal privity.  Ex: WYW sells to Peter G, and in the same transaction, Peter G promises not to build other than a residence on the property sold or WYW promises that she wont build other than a residence ont eh property she retains- this is a horizontal privity.

2.

a. English Resistance to Negative Easements b. The Development of Covenants Running With Land Covenants Running With Land in American Law a. Privity of Estate y Bremmeyer Excavating, Inc. v. McKenna o B and Parks had written agreement for B to provide excavation work on the land. Parks sold it to someone else, and those two people used another company to do the excavating. o Can B sue present owners for breach of the covenant to do the excavation work?  It is a question of the running of the burden because they had the obligation to use Bremmeyer. o for burden of covenant to run with land common law required that it must have intended to bind successors, must touch and concern land, and must have privity between the parties. o Corporation, didnt own any land agreed with owner of parcel of land that corp would provide and landowner would allow company to perform fill work on the land. Then the land was transferred to new owners. o Whether the burden of the covenant (have to use the company) ran with the land? Court said no. Because no horizontal privity between Bremmeyer and Parks. o P. 612- Bremmeyer involved the burden, but with respect to the benefit, the common law relaxed requirement of privity. No horizontal or vertical privity required if successive owner of benefitted parcel sought to enforce covenant against original covenantor. If John and JohnP had succeeded to the land, they would be able to force Bremmeyer or recover damages from him for breach of covenant if he had refused at their request to do the filling. o 3(a)- C can recover damages from Bob b/c privity was not necessary for the benefit of a covenant to run with the land. C is the successor, and the owner of the benefitted land and is seeking to enforce covenant against B the original owner of burdened land. No question that it can be enforced btw A and B. But, can C enforce the benefit against one of the original parties. Was there horizontal privity? Under original English law court, have to have mutual interest in the same land (something like landlord tenant, or easement with servient dominant estate), American courts will say horizontal privity if you have successive interests meaning A selling to B and in the same transaction an agreement for A or B to do something. All we have is two landowners who purchased at different times from different people that decide to form an agreement on their own. There is no problem with them agreeing as long as they have A and B together. Under common law no real covenant that ran with the land for the burdened side b/c no horizontal privity AT THE TIME OF THE AGREEMENT. But, this does not mean that it is not enforceable. Thats whats meant by the above note- with respect to running of benefit of covenant, common law relaxed privity required, so no privity required if a successor owner (C) seeks to enforce the covenant against original covenantor (B). A and B could have made it horizontal privity by using a straw person. When A and B made the agreement, Bs property was burdened and benefitted; As property was burdened and benefitted. Where C is trying to get damages from B, the issue is, does the benefit side of

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that covenant run with the land? Yes, it does. With these kinds of subdivisions and restrictions, every lot is benefitted and every lot is burdened. o 3(b)- B cannot recover damages because there was no horizontal privity between A and B. This shows that here, just based on lack of privity of estate, B cant sue C the transferee but in the first example transferee could sue original owner for breach of the original covenant. This doesnt make sense under first Restatement, but changes were proposed in the second. o 3(c)- None of the above. Difference here is that hes trying to get an injunction and hes trying to enforce this as an Equitable servitudes are covenants in disguise need intent for covenant to run, enforcement against original parties, touch and concern, and notice. He wants an injunction- not damages. He just wants to stop the dennys from being built. Where youre seeking injunctive relief you enforce it as equitable servitude and you dont need privity. Courts dont like for people to wait too long to bring injunctions b/c they may have expended a lot of money already building. o Note 6 p. 614  Started out requiring privity be mutual or co-existing interests in the same land  Then First Restatement said in the sale, at the same time, that there was a restriction, this makes privity. Think about subdivisions.  Then we see that there is hardly any mention of privity b/c for the most part, dont need privity because we are trying to get an injunction b/c no privity required. Rest. 3d rejects horizontal privity all together. o Used to recognize very few negative easements because you could actually see the easement on the ground for affirmative ones, but negative ones encountered a problem in property law because it was hard to conceive. So property turned to K law in order to impose these restrictions, market demanded it and no property law to meet demands. But with K law, came privity requirement to make sure enforced against legitimate sucessors in interest. Finally courts recognized equitable servitudes. Think of it like kid with training wheels- need balance at first and eventually they get enough balance that the parents can take the training wheels off. In a sense, the covenants or horizontal privity and enforcement of covenants running with the land was like training wheels on a bike. They were necessary, needed a covenant with privity as training wheels until law felt comfortable enough to get rid of the privity to let them go on their own. Sort of like new negative easements. Equitable servitudes are basically negative easements. Concept of privity has been expanded- more than landlord tenant o Simultaneous interests are enough for privity easements dominant and servient owners o X conveys one of his parcels to Y and in THE SAME deed they put a clause for covenant- thats privity o Finally the courts just gave up and did away with it and called it an equitable servitude b/c it doesnt need privity. And now the restatement did away with it too. o As a practical matter, most of the agreements are enforced as an equitable servitude and youre asking for injunction rather than damages so you can stop them from doing something. Midsouth Golf v. Fairfield Harbourside Condominium o Midsouth or their lawyer made a grave tactical error: it wasnt a personal covenant so it didnt run with the land. It was a huge subdivision, before this case everyone in the area was paying for the golf course. These people wanted more from timeshare so sued. The court said the covenants didnt run with the land so they lost all the money from the actual homeowners too!

b. The Touch and Concern Requirement at Common Law y Caullett v. Stanley Stilwell & Sons, Inc. o Deed contains language: the grantors reserve the right to build or construct the original dwelling or building on said premises. It also said the covenant was intended to run with the land. Is this enforceable? o Court said it was personal and vague/ambiguous. The original parties were the people in the case. Not talking about running of benefit or burden. o Said it was a benefit in gross- no dominant land and therefore didnt touch and concern the land. Under traditional rule if benefit of covenant is in gross (not attached to land) the burden wont run. The problem with this is that we arent talking about a successor, were talking about original parties. o He brought suit b/c he was probably trying to clear title so he could sell it. y Winn-Dixie v Dolgencorp o What arguments can you make in favor of upholding these kinds of restrictions against competition? Competition is a good thing, it improves business.

3.

c. Will Touch and Concern Survive?Law Reform and the Restatement of Servitudes Promissory Servitudes in Residential Servitude Regimes: The Modern CIC

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a.

Introduction o Basic Characteristics of CICs  Declaration (master deed, covenants and restrictions- CC&Rx) usually recorded  Second set of documents would be HOA by-laws, usually come second after developer has conveyed out enough homes for association to be formed.  Rules and regulations of the CIC (promulgated by the association or the board of directors of the homeowners association).

b. Creating a CIC Servitude Regime c. Financing a CIC Regime y Evergreen Highlands Association v. West o Do homeowners associations have the implied power to levy mandatory assessments for maintenance of a community facility? Does it matter that the assessments were voluntary at the time the land was purchased? o Court decided language in article 13 would allow them to create a new assessment even though the language said modify. But instead of stopping there the court said even if that language didnt allow for creation of a new one, they still think there is an implied power on part of board of directors to impose a mandatory assessment. o Arguments in favor of giving HOA this implied power? Shared responsibility, value of property goes up if its maintained, here it was a small fee (50/year) o Arguments against implied power of HOA to make it mandatory? Whats to stop them from raising the rates? He purchased this lot b/c assessments were voluntary. Restitution is an argument for keeping them. o P. 641- at bottom- if people dont pay you can put a lien against their property and then sell it if they still refuse to pay. Isnt this a bit much based on the amount of fees charged? The problem is that in the vast majority of cases, the owner of the property has borrowed money from the lender and they have a mortgage on the property, the first mortgage lender has priority over assessment lien. Purchaser takes subject to first mortgage. d. Managing Daily Life Within CICs y Nahrstedt v. Lakeside Village Condominium Assn, Inc. o Should a cic community unit owner be able to challenge a prohibition against certain animals, including cats, as unreasonable, where the prohibition is included in the recorded CC&Rs, but where the challenging owners cats are confined within the individual owners unit. o Do you think she really knew? She was buying here, who thinks that there are restrictions for buying property. o Courts should enforce restrictions contained in recorded declarations b/c enforcement will:  Protect the expectations of purchasers that the covenants will be enforced as written  Encourage this type of development that provides a lower cost alternative to detached single-family housing.  Discourage lawsuits and make management boards more willing to enforce rules without fear of lawsuits. HOA people are usually serving on a voluntary basis. Dont ever serve without directors liability insurance.  Alleviate the growing burden on the judiciary form these kinds of lawsuits  Avoid inconsistency and partiality in boards decision making. o Why is it unreasonable to prohibit a challenge to no pets rule  CC&R enforcement here avoids a nonexistent harm since there is no evidence that Nahrstedts cats posed a disturbance or health risk  Enforcement deprives Nahrstedt of the health and happiness associated with pet ownership  The justification of the policy points to it being arbitrary since birds are allowed and they may be more of a nuisance than cats. Fish tanks bring additional hazards.  Facts alleged in complaint suggest invasion of privacy by snoopers o CA statute, CIC restrictions contained in a recorded declaration are enforceable so long as they are reasonable. o Some states adopt a standard of reasonableness even without legislative guidance. o Other states adopt reasonableness standard only to those restrictions adopted by a majority vote of the homeowners or by a vote by the board of directors. In those states, like FL, a recorded restriction is presumptively valid. o Do different standards of review mean that a purchaser in a CIC can never challenge a restriction contained in a recorded declaration or master deed?  No. Courts wont enforce recorded restrictions that are: unconstitutional or against public policy; or arbitrary (bearing no rational relationship to the protection, preservation, operation or purpose of the affected land). Use to have racial restrictions, some may still exist but they cannot be enforced.

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Rule of reasonableness o Courts will uphold decisions to enforce CC&Rs as long as the covenants represent a good faith effort to further the purposes of the community; decisions are consistent with the communitys governing documents; and decisions are not arbitrary, contrary to public policy or in violation of a constitutional right. o Notes after Lakeside- did she really understand or know at the time she purchased her unit, that the covenant would prevent indoor cats? Maybe not o Should courts apply a different standard of review for rules and regulations or by-laws promulgated by common interest communities since these documents may not be readily available to prospective purchasers? The only real way to find out these documents is to ask the president of the association. It is something that potential buyers are not likely to do. Some newer subdivisions have placed them on the web. o How would you draft a covenant that bars all pets? You would not want to say pets, probably need to name them. o Would you have same concerns if they were detached housing. Restatement view- reasonableness standard should be default rule for everything. But, this doesnt help in deciding what should and should not be litigated. o Note 4- some CIC declarations absolutely prohibit from leasing their units. Is this reasonable and enforceable? Why would they want to ban leasing? Dont want bad tenants, they may not take care of the property in the same manner as a unit owner. o WYW purchased a condo in subdivision near Edenton, NC. The CC&Rs limit each household to one domesticated animal, weighing no more than 30 pounds. WYW has a puppy she secured from the local animal shelter. What happens if the dog grows to a weight of 45 pounds? Fountain Valley v. Cunningham o He agreed to remove kerosene and gasoline. He may have been crazy. How do you address mental health issue in a CIC?

Gabriel v. Cazier o Swimming lessons at backyard pool during summer for seven years. Caziers are bringing lawsuit. Would it have been better for the homeowners association to bring the lawsuit? Why do you think the homeowners association wasnt involved? Dont want neighbors suing each other, HOA has more money than the individual homeowners (they can spread the cost over all homeowners). Generally defer to HOA in their interpretation. HOA wasnt involved because it might be that they have no authority to enforce the covenants. Some restrictive covenants are only enforced by individuals suing to enforce the covenants. o After concluding that the term business was ambiguous and capable of multiple meanings, they decide that because the restriction was in derogation of the common law right to use land, it had to resolve the ambiguity in favor of the free use of land, absent sufficient evidence to conclude that the covenanting parties intended to include swimming lessons within the term business o Factors they looked at in reaching decision- conduct of neighbors, associations failure to assess fines, no one except these people complained, had evidence from drafter (attorney or developer) and they stated original restriction referred to horse stables and gas stations. Post purchase conduct of parties decided meaning of word business since at least two other homes had been giving swimming lessons (least persuasive reasoning). Dont think they meant to say how two or three people use their property will determine the term business for the entire subdivision of 500 homes. o Following this decision, Caziers decide to expand swimming lessons, so they enclose it and have it heated to give lessons year round and hire swimming coach to assist with workouts and training. Does the majority decision allow them to expand the business in this normal fashion? P. 663- one could argue that the court tries to limit its decision during a limited time in the summer. o Another neighbor decides to open a small daycare facility, she has 8 kids, some from subdivision and some from outside. Would this be prohibited under Gabriel majority? Note 2(a) p. 664- cases are divided. Some courts have said yes that it does violate a no business or residential use restriction. One argument says there is a fundamental public policy in our interest in having daycare available. Even new Restatement would say there should be exceptions for things that are needed in community like affordable/available daycare. What would be different than a family with lots of children? Kids would be coming early in the morning and leave potentially late in the evening. Mainly people are concerned about traffic during the day. o Concurring opinion- the court should not talk about whether it is a business or not, it has just been abandoned so no need for deciding it was a business. But if a covenant is abandoned for one type of business it may lead the court to say that all restrictions of that kind would be abandoned. If concurring had been majority, HOA may really want to say that they didnt abandon the no commercial activity restriction. Termination of covenant by abandonment o Contrasted with easements- they can be terminated by abandonment. Abandonment of an easement requires nonuse plus an intention to abandon (on the part of the dominant owner). y

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A covenant may be terminated by abandonment (focus is not on owner of benefit, but on other parties involved with covenant). Abandonment, waiver and acquiescence (lump them together) are all related to the idea that if no one attempts to enforce the covenants in the face of a substantial number of violations, the owners must intend to give up their right to enforce the restriction. It is not clear in Gabriel if concurrence is really correct. Some courts state that the abandonment must be so general to frustrate the object of the scheme with result of enforcement would seriously impair value of burdened lot without substantially benefitting the other lots that are restricted. With first instance of giving swimming lessons someone should bring it to dispute because you risk abandonment, acquiescence, and waiver. o Abandonment or waiver of one feature of the covenants doesnt make other unrelated covenants unenforceable. Ex: storing old vehicles on property for 15 year in violation of covenant. Violation of that would not render unenforceable a covenant prohibiting satellite dishes. o Could the Gabriels have been precluded from recovery because of unclean hands? Under unclean hands a P may be denied relief if he or she is also in violation of the covenants. It is not an automatic defense because Ps violation may be seen as too minor or trivial or because it is a violation of a different aspect of the covenants. Rules of construction for interpreting covenants o Traditional favors the free use of the land (reflected in Gabriel). o The restatement rejects traditional approach and it operates from premise that in our modern society with so many CICs, land restrictions are just as likely to increase the value of the land than they are to decrease it. o Would Gabriel be decided differently under new restatement? It might be, much more value in no commercial activity in terms of preserving the residential character of the neighborhood. o Note 2 defining residential use  Monthly sales parties for Pampered Chef products violate a covenant that restricts use for singlefamily residential purposes only? You arent having someone there every day, only monthly.  Would a person who does web-designs from their spare bedroom violate a covenant that restricts use for residential purposes only? Single family residential use o Many communities have covenants that limit use of the property to single family residential purposes only.  What about a group home for developmentally disabled individuals. Most have allowed group home for developmentally disabled. Some have special statutes enacted for benefit. But have not seen this for drug and alcohol recovering addicts.  At what point will court say that neighbors have abandoned/waived/acquiesced in that activity. o y Lamden v. La Jolla Shores Clubdominium HOA o Court substituted its own judgment.

e.

Termination and Amendment of Servitudes y Fink v. Miller o Should a restriction requiring wood shingles on exterior roofs be enforced where there are repeated although not uniform violations of the covenant. o Said abandonment b/c 23 of 81 o To have abandonment- requires party opposing enforcement to prove that existing violations are so great as to lead the mind of the average person to reasonably conclude the restriction has been abandoned. o Test- first the number nature and severity of the then existing violations. Also, if thats not sufficient you can consider prior acts of enforcement and whether its still possible to realize to a substantial degree the benefits intended through the covenant. o You get the impression that court didnt like wooden shingles, although they did not state it expressly. o Illustrates problem of homeowner developer putting in too restrictive of a covenant. o They were on notice, should they have inquired about the enforcement of the shingle roof. They saw the restriction, and drove around and saw some with and without shingles. What if they went through with the purchase thinking that the covenant had been abandoned, and then discovered all violations were recent and found the association had been aggressively attempting to enforce the covenants. o They went ahead even knowing that the committee said no to their shingles but it is a risk that you should be aware of, and be willing to pay for it if it is found against you. y West Alameda Heights HOA v. Board of County Commissioners o Changed circumstances outside of boundaries of residential community will never allow you to use the doctrine to be relieved of restrictive covenants. o Fairness- sometimes things just happen and youre stuck. Maybe try to get association to buy your property, but good luck to get recovery. y Boyles v. Hausmann

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Courts are divided- Evergreen vs Highland allowed amendment to allow for mandatory assessments where they were voluntary prior to that. Here they arent allowing amendment of a setback line. Even though the covenants could have allowed that kind of amendment. Remember Defenses to Enforcement of a Servitude o (1) Express waiver or release o (2) Expiration in restriction o (3) Just as with easements, they can be terminated when one person owns all of the restricted land. o (4) Changed circumstances, abandonment, acquiescence are all sort of the same thing. They may mean abandonment as changed circumstances. Acquiescence is a little different because it is almost a one time thing. Ex: where one person built a house without wood shingles and it has been 5 or 10 years and no other person has violated. Acquiescence- dont have to show character of neighborhood has been lost o (5) Unclean hands- can be in violation of one covenant and able to enforce another part of covenant but not in violation of the same one you want to enforce o (6) Laches failure for unreasonable time to assert a known right o (7) Estoppel- most difficult- requires detrimental reliance based on statement of others. o

Chapter 9 A. Introduction 1. ABA Special Committee on Residential Real Estate Transactions: The Proper Role of the Lawyer in Residential Real Estate Transactions y Vast majority of real estate transactions are done without use of lawyer. Its expensive, many people dont think its necessary because of so many forms, not as much negotiation with forms like lending documents y Anatomy of the Modern Residential Sale Transaction (intro in book is pretty outdated) o Seller lists house for sale using either a real estate broker or FSBO (for sale by owner) or combination o Sign K to purchase (buyer and seller) o Buyer arranges financing and seller arranges inspections and commitment for title insurance o Title insurance is secured, deed, mortgage, and closing documents prepared. o Closing occurs- often New York style- parties dont meet in room, simply mail it by courier, fedex, buyer transfers money and closing agent (title insurance co) will record needed documents that need to be recorded, release old mortgage and disperse payments to broker. B. Issues in Contract Formation 1. The Real Estate Broker o Typical brokerage agreement used to provide seller would pay broker between 5-10 percent of selling price, usually dependent upon area of the country. Today, it has changed dramatically. Like Flat Fee services ($349-$799+$500 at closing)- reminiscent of choices at carwash. This has upended the real estate broker market. Craigslist has also revolutionized the sale of homes. Brokers are now desperate to get listings. o FSBO versus using a broker, why do sellers use brokers? What services does a broker perform that are worth this cost? Brokers may be in a position to identify prospective purchasers immediately. They know what houses are selling for in the community. You could find it out but it would take some work to find out, helps seller from overpricing or under-pricing. Brokers can screen out people who are just there to look at houses, and arent in a position to buy. Can give advice about what kinds of things to do to make the house sell. o Conflicts of interest with broker and seller? Should never be a situation where broker is working for seller and buyer at same time. As a practical matter, seller is paying broker. Brokers interest is to get sale done quickly so they may want to go ahead and settle for a lower price from buyer. o Difference between listing broker and selling broker. When you have two brokers involved you will probably have a shared commission. You would want the option with only one broker and you dont have to share commission. o Whats the difference between an exclusive agency brokerage K and an exclusive right to sell brokerage K.  Exclusive agency- owner may not use another agents efforts to sell the home during the effective period of the listing agreement, the owner may sell the property through her own efforts.  Exclusive right to sell- broker has exclusive right to facilitate sales of the property, even as against the property owner.  Even fewer people use lawyers to look at brokers K than in real estate transfers.  K also says broker is entitled to commission if locate a buyer within four months after the expiration of brokerage K. y Drake v. Hosley o Buyers said to broker that they would not be able to close on day 1 or day 5, they needed to move the date to day 10. It turns out they were able to close on day 5 or 6. Seller was suggesting to court that broker was buyers agent. If buyers

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say to broker that they cant get the cash and broker tells it to seller, it doesnt make him the buyers agent, hes just communicating what was told to him. Whats he to do besides communicate between the parties? o What kind of brokerage agreement involved? Agent was working for the seller (Drake). o Issue: whether Hosley represented the buyers and had the authority to modify the buyers K. The court talked about the case as if Hosley was representing the buyers. o Overly confusing because of the way the court treats the relationship o Do they follow traditional rule or growing trend of Dobbs. o Traditional- broker entitled to commission when he finds a buyer who is ready, willing, and able to purchase, even if sale is not completed o Trend- Dobbs- brokers commission not required to be paid unless K is actually performed. Even though this court adopted Dobbs, it didnt help Drake. o Dobbs didnt help because failure of K was because of sellers conduct. He had no intentions of going through with the K since buyers were in compliance because they had ten days and before that seller sold property. o If you represent seller, you want to make it clear what rule your jurisdiction has adopted; it is a default rule so you would want to put whichever rule you want IN the K. o Note 2 p.711- closing didnt occur because of buyers fault. Under Dobbs, broker cannot recover commission from Seller, but can they get money from buyer? Is seller out of anything? Yes, they will want all of the deposit they received. Broker would have no basis for claim in K. In the case in this note, said broker was not an intended third party beneficiary of the sales K. This is the only theory she can think would work. May try to argue buyers decision was tortious interference with business relationship. y SOF o Ks for sale of land must be in writing and contain  Identify of parties  Description of land  Purchase price and  Signature of party to be charged o Courts will be flexible on some of the characteristics like street address o Exceptions  Part performance- payment of money plus transfer of possession; or payment of money plus improvements  Estoppel 2. The Form of the Contract y Hickey v. Green o Was check sufficient to satisfy statute of frauds? o If you are careless and have so little interest in legal formalities, why should the law help you when things go bad? 3. Land Descriptions C. Title Investigation and Assurance The Land Transfer Transaction y Land descriptions- know that there are three types and their names. Look to see if you could ID on slide 4 on TWEN. (2/27) y Proof of Sellers Title: o After K is signed, sellers title has to be verified. Cant simply assume that they own FSA. Must be to satisfaction of both buyer and lender, but particularly lender. Its important because thats where lenders security comes from, the reason for the mortgage. o Concept of marketable title is a K provision with a K remedy!!!! Once the buyer has accepted a deed, they can no longer talk about marketable title, it only relates to K phase of sale. Once sale is completed, whatever impediments there were, buyer accepted. May have other remedies based on deed but cannot be based on title not being marketable. 1. The Contract of SaleProvisions Regarding the Quality of Sellers Title y Lohmeyer v. Bower o House violated zoning ordinance that required setback, second violation was restrictive covenant that said had to be a two story house. o Marketable title is a title that is reasonably free from doubtful questions of law or fact, or a title not likely to result in litigation. Get slide. y Marketable title o Designation of what kind of title is critical part of K. Drafted on behalf of seller will be a lot different from one on behalf of buyer. Most courts hold title to land acquired by AP doesnt constitute marketable title of record unless theres been a judicial decree. Courts are divided whether it meets default standard of marketable title. o Majority of courts have held that municipal restrictions that exist at time of K do no render title unmarketable. Setback lines, zoning registrations dont make it unmarketable o Existing VIOLATION does make it unmarketable even if there has been no movement to make person conform.

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o Private non-governmental servitudes, mere existence of them makes it unmarketable. Special problems for installment K buyers o Why sell using installment land K- couldnt come up with down payment (buyer); seller may sell on this basis if interest rates are really high and you dont have any buyers who qualify. Sometimes intra family too. o 10 year K installment advice- if you represent buyer you should record K, and do a title search and have commitment brought to date Ks begin so if seller goes to get mortgage from Wachovia, the Wachovia will be second to the installment K.

2.

Title Serachingand the Recording System a. Recording Acts o Recording Review Checklist- both MC and essay for recording, important to be able to explain why its the correct answer.  Basic understanding of grantor/grantee index system; tract index and Torrens system  Common law rule of first-in-time, first-in-right  Persons covered by the recording acts  Identification of the various acts  Types of notice  Idemssonans  Estoppels by deed, after-acquried title; wild deeds  Shelter principle  Too early or too late recording  Majority and minority rules regarding mis-indexed documents  Effect of name changes  Problems involving multiple chains of title from a common grantor (special problem with notice)  Inquiry notice from persons in possession, quitclaim deed (minority rule) b. The Mechanics of Recording and Title Searching o Material covered on bar- recording system: the library and the card catalogue o Instead of registration system (like autos) most records are catalogued within recording system and most maintained in county office in county where land is located. Employees of recording office arent there to read and make sure instrument is valid. They can usually tell if something is wrong but they will only do it as a favor to you. Only requirement to record something is that the document is notarized. Not all documents affecting land title records are in that office. There will be probate matters and family law matters, judgment liens, etc. Those would be located in clerk of courts file, so you would have to use those other offices to complete search of title. o No centralized state office, and no document like you receive when buy car that it is a certificate of ownership of parcel of land. o Two Systems of maintaining records:  Grantor-grantee system- most counties have this. If you take document there today it will be date and time stamped and employees file in book and page and the index will indicate which book/page document can be found. Usually at least four indexes: grantor, grantee, mortgagor, mortgagee, and usually a miscellaneous containing judgment liens and sometimes probate and family court matters.  Tract indexing system- all transactions involving property are listed on page affecting that particular property. May also include judgment liens, probate, and family court matters. Not many states have this, it requires employees to read and interpret every document.  Few jurisdictions have Torrens system- a lot like car registration system, if you purchase piece of land in Torrens you receive certificate stating you are owner in FSA of land, and mortgage will be stated on certificate. If you sell, you produce certificate, it is destroyed and a new one given to the new owner. Why dont more states adopt and use Torrens? Its expensive because it requires a judicial action to begin with (start new community you would have to file a quiet title action to clear all claims to title). If you have original Torrens certificate you are cutting out attorneys and title insurance business. As a practical matter, attorneys dont do title search. If you have Torrens no need for title insurance because its right there on the certificate. Time involved in obtaining a certificate (not unheard of for it to take 14 months to get new certificate). o Abstract of title- go through chain of title since property was conveyed from sovereign, summarize each document and not any problems. Attorney would look over it and give an opinion. All of that has now been done away with because title insurance companies do it. First thing they do after purchase is request a commitment for title insurance. o Recording Acts Purpose  To protect against fraud

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c.

To promote certainty in the transfer of interests in real property and to promote the use of real estate as security for loans by encouraging parties to avoid costs by: placing documents affecting land and; making diligent inquiry. With this system, anyone can walk in and record a document. In order to lend a mortgage loan, banks want to know where they are in terms of priority. They want to be first in line. o Ex: Marc conveys Bacre to W. She keeps deed under her mattress and never records the deed. Who owns Bacre? W, because RECORDING has NO EFFECT on validity of a deed or other instrument. A deed or other instrument is effective between the original parties WITHOUT recording!!! When he gives W a FSA, he has given away everything he has. As between those two, theres no question that she owns the land. Conveyance is merely a piece of paper, you can give 50 deeds to same piece of property, how can a purchaser of one of those protect themselves? The recording system (statutes) is how you are protected. The recording system may provide relief for those who have paid value for some interest in the land and at the same time it encourages those in a position who were first in time to immediately record their interest. Purpose: to promote certainty, no certainty without encouraging people who have an interest to take it to recording office and record. o Default Rule first-in-time, first-in-right: O conveys Bacre to A, A doesnt record. Five days later O conveys to B, B doesnt record. Common law rule- A owns. Recording statutes may provide relief to people like B. A would own in race, race-notice jurisdiction; B would own it in notice because in notice all you have to do is not know As interest. If O conveyed to R after B, then he would win in pure notice. In notice no requirement that they record, only requirement that B take without notice.  O sells Bacre to A, A doesnt record. Five days later O sells to B, without notice. B records immediately. Who owns Bacre- B owns in every jurisdiction because B recorded first and took without notice.  If in pure race statute, deed to two people and neither records, first purchaser gets it because of default first in time, first in right. Constructive Notice i. Defects in Instruments as Recorded y 3 types of notice- actual, constructive from records, inquiry notice (when reasonable purchaser in your position would have asked more questions) y Common mistakes include: o Misspelled names o Names that do not correspond to previously recorded documents o Improper indexing of documents. y National Packaging Corp v. Belmont o Typical lawsuit, A sues B. A is successful and wins judgment against B. Judgment is simply piece of paper that says judgment- doesnt mean that it compels B to give you money. Sometimes they just write you a check, or insurance will pay. If no insurance and B doesnt pay a second lawsuit must begin where A must seek to satisfy As judgment. May file an action for another proceeding called a citation to discovery assets to find out what assets B has to satisfy judgment. If A finds they own real estate in county, they will quickly record judgment referencing that judgment in county where the real estate is located (doesnt matter if its a different county from judgment county). Once recorded, could foreclose on the judgment or, more likely, you will wait until there is a sale of the property. When theres a sale of the property, the new purchaser will insist that judgment be paid off prior to taking title so they dont take title subject to the judgment. o Bolan owned two pieces of property, didnt pay child support. Ex-wife got judgment against him for Indian Hill Property, recorded it, and foreclosed on the property. NPC had filed a judgment but theirs was under incorrect spelling of Bolans name. When sale is conducted, sheriff has to give notice to any lienholders, but NPC didnt get notice because of wrong spelling. Property was sold to DeCamps and now NPC is seeking to foreclose against DeCamps. o Issue: whether doctrine of item sonansbe applied to names that are misspelled in judgment-lien name indexes so that a purchaser would be on constructive notice of a lien filed under th name Bolen when the lien actually involved a person named Bolan? No o Court said item sonans does not apply. Is this a good decision? Still applicable in some jurisdictions, but majority follow decision here. Requiring title searcher to look for like-sounding names would be too great a burden o Under article 9 of UCC- similar trend. Goods and chattels purchased on installment basis, UCC has a way for sellers to place a security lien against item sold. That filing gives notice to all who may deal with the owner of the item (financing statement does this). Traditionally in UCC misspelling of filed financing statement would defeat secured parties perfection of security interest only if misspelling rendered the

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statement seriously misleading. Pretty lenient with financing statement, if you got close to the name, it was enough. Now UCC places on duty of filers to make sure their filings contain the correct name. ii. Chain of Title Problems o Gaps in title due to inheritance or devise  Henning owns Bacre and devises it to W. W is not required to, and does not record gift received through will. Later she contracted to sell land to your client. Hennings estate has never been judicially administered. Would you advise your client to buy the land? Could insist estate be administered but that would take a minimum of nine months. This problem happens often b/c of no requirement that you probate a will. She would first ask title insurance co what evidence they would need to cover it: affidavits from heirs declining interest in the property, perhaps a certified copy of will, etc. o Estoppel by deed (after-acquired title)  WYW owns Wacre. ANA who owns no interest in WacreconveyesWacre to Basanta. Basantadoesntrecored. Later, WYW conveys it to ANA, ANA records and conveys to Ruiz. Ruiz records. Assume a notice recording act. Who owns the land? Moment WYW conveyed to ANA, deed from ANA to Basanta became EFFECTIVE. Problem is when ANA then recorded and conveyed to Ruiz, Ruiz can only take if he comes under protection of recording acts. Notice jurisdiction, since Basanta never recorded and there is no way Ruiz could ever have found deed from ANA to Basanta because the only way would be if Basanta recorded in period before ANA conveyed to Ruiz. o Delivery of a deed and recording  Delivery of a deed means a grantors intent that it shall operate or take effect as a conveyance. If a grantor intends the deed to be effective, there is a valid delivery even if the deed remains in the possession of the grantor is given to a 3d person. If the grantor hands the deed to the grantee with no intent that it operate as a conveyance, it is ineffective and there is no delivery.  Most jurisdictions say that the recording of a deed raises a rebuttable presumption that the deed was validly delivered. In some states, the recording of a deed makes this presumption conclusive (few). iii. Errors by the Recording OfficeLost Documents and Misindexing o Defective acknowledgment  W owner of Bacre which is vacant farm land, conveys Bacre to Stinneford. Even though the deed appears to have a valid acknowledgment, the deed was not signed in front of a notary as required by law. Stinneford immediately records the deed. Two days later, W conveys Bacre to Peter G. Who owns? Stinneford is on notice.  Messersmith v. Smith- ND court held improperly acknowledged deed did NOT give notice to subsequent purchasers because the recording statute required instruments be validly acknowledged before recording. This is now a minority view. Hildebrandt case (note 5- 751), represents majority rule. Most say, whatever flaw there is in recorded document gives you at least inquiry notice to look at the facts. o Mis-Indexed Instruments  Not uncommon. Like problem of lost document or transcription error. Leaves court to decide between two relatively innocent parties  General rule- instrument provides constructive notice to subsequent purchasers even if the instrument is mistakenly indexed. Some courts have held that a mistakenly indexed document provides no notice to subsequent purchasers. Which is the better rule? In recorders office you could not find a document (literally) without the index. If recorders office made a mistake, its too bad for subsequent purchasers. She likes minority rule, its certainly more logical in regards to mortgagees. Why? Lenders are lending millions on property and taking back a mortgage as security. Its not too much trouble for them to pay someone to make sure the document has been properly indexed. iv. Inquiry or Off-Record Notice y Schwalm v. Deanhardt  Issue: under a notice recording statute, can a subsequent bona fide purchaser meet the requirement of taking without notice if the subsequent person: discovers his grantor took title by a quit claim deed? And gives a mortgage under circumstances which would put an ordinary person on inquiry notice that something was amiss?  This court is in clear minority- majority taking a quit claim deed from grantor does NOT prevent you from protection of recording acts. Quit claim is just as good as a warranty deed, it does not raise suspicions that something is amiss. As to the second question in issue- court said Deanhardt should have been suspicious and because he failed to research it was his fault because he was already on inquiry notice since he should have been suspicious.

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Deanhardt failures: didnt visit the property (didnt see condemnation sign), no title search, didnt request appraisal, didnt request proof of insurance, didnt question the ownership of the land, high rate of return. If he had done any of these things, would this have led him to the unrecorded Schwalms mortgage? If anyone is at fault it was the Schwalms, it was their fault that mtg was recorded second.  Note 2(a), 761- lives in home with son, would D be on inquiry notice of Rs interest? You are on inquiry notice of anyones interest who is in possession of the real estate. Probably not on notice if mother was living with the son, though. She should be treated as bona fide purchaser. By contrast if parent doesnt live in home with son but lives there by herself (Yancy v. Harris)- because son-in-law didnt occupy home with mother, second mortgagee should have inquired of the mother in law.  Note 2(b)- Walton takes property subject to the unrecorded lease. Rule is tenants possession gives constructive ntice of tenants rights.  2(c)- Can Peters collect $400 or $500 from tenants? Estoppel certificate o Additional question  Henning conveys to Pushaw, Pushaw fails to record but does occupy the cabin in the summer. Henning conveys the same land to Key. Should Key have inquiry notice of Pushaws interest? Want to know any additional facts that give notice of someone occupying. o Note 3  The general rule is that if a recorded document refers to another document that is unrecorded, a subsequent purchaser is on inquiry notice regarding that contents of that unrecorded document.  A minority state that you are on inquiry notice only if the recorded document makes reference to another recorded document.  The majority of courts hold that the presence of a quitclaim deed in the chain of title does NOT give inquiry notice to a subsequent taker. d. Marketable Title Acts o Designed to reduce the period of title search, to limit the period of title examination and to clear titles from outdated encumbrances. o The period specified for marketable title is 30-40 years. Vary FL is 30. o Subject to exemptions for persons in possession dont have to be recognized, interests of federal or state governments, interests preserved by filing of a proper notice (re-recording evidence of claims). Do people know that they have to rerecord? No, but doesnt exclude those in possession, and even things like obvious easements on the face of the land. Most courts that had litigation say its a slight burden compared to the efficiency of the system to allow a title searcher to limit the need for tracing title. 3. Post-Closing Title AssuranceDeed Warranties and Title Insurance o Overview of methods of title assurance.  Assurance mechanisms include: researching, retrieving and interpreting the data of various persons who have an interest in property (title search in grantor/grantee or tract index); also deed warranties; and indemnification systemTitle insurance (relied on most today). a. Deed Warranties (or Title Covenants) y Deed warranties o WYW conveys lot 17 to J using a quitclaim deed. o Wyw conveys Manhattan tower of Brooklyn bridge using warranty deed o Which will be more valuable to J? Likely that quitclaim deed will be more valuable because she probably doesnt own anything of the Brooklyn bridge! o Need to know- differences in types of deeds used in US; discussion of why a warranty deed is severely limited method of title assurance; comparison of deed covenants with implied covenant of marketable title; analysis of claims for breach of present covenants and future covenants. o Of methods of title assurance we have deed warranties are the least effective method. If you are forced to make a claim based on deed warranty, may not be worth it to file the suit. o Deeds we use: y Warranty deed- provides most protection; contains six covenants of title that warrant against any defect in grantors title y Special warranty- same six title covenants but applies them only to defects caused by acts or omissions of grantor y Quitclaim deed- contains no title covenants; the grantor does not warrant that he owns any title or that her title is good. y Why does she think quitclaim is just as good? Because you first of all have to find grantor gave warranty deed and then hope that they are solvent. When would you give a quitclaim deed? Some circumstances its common to give a quitclaim gift or inheritance; executors and administrators give quitclaim deeds. o Deed covenants compared to K covenants (marketable title)

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Dont confuse them! Things that raise question of marketability of title, will also raise concerns of quality of title contained in deed covenant. y Deed Covenants  Available remedies- Damages  No requirement of unreasonable risk of litigation  Timing of claims- once buyer has accepted a deed, cant talk about K remedy, merges with the deed. y K covenants  Available remedies- rescission  Concept of marketable title- free from reasonable doubt and threat of litigation  Timing of claims- if in K phase of transaction, based on breach of implied or express covenant of marketable title o Grantors covenants in warranty deed y Present: seisin, right to convey, covenant against encumbrances. Difference between seisin and right to convey: you can have right to convey without seisin and vice versa. Right to convey without seisin (trustee or executor who has right to convey but no seisin). Breached at the time of delivery of deed or not at all. SOL starts at time of delivery of deed! Dont run with the land! Only important in terms of immediate grantee. y Future: o Covenant of quiet enjoyment- similar to LL tenant law. Grantor promises that the grantee may possess and quietly enjoy the land. Breached if grantee is evicted from all or part of land by grantor, someone claiming under the grantor, or someone claiming paramount title. Key Concept: ACTUAL eviction is required in order for the grantee to have a claim for damages. o Covenant of warranty- win the war and lose the battle- grantor warrants title to the grantee. This includes a promise to defend the title and thus obligates grantor to pay the cost of defending title against third parties including reasonable attnys fees. Key concept: grantee suing grantor based on covenant of warranty can ONLY RECOVER IF THEY LOSE THE CASE (if 3d party claim prevails). If you defend and you win, no suit against your grantor for cost or attorneys fees because there was no problem. o Covenant for further assurances- not many cases involving this. Grantor promises to give whatever further assurances may be required to vest the grantee with good title. Ex: grantor gave defective deed; the grantor is obligated to execute a new deed without additional compensation. Key Concept: specific performance is available as remedy. y Difference between present and future: o Present covenants are breached at moment deed is delivered, SOL runs on date of delivery. Can file suit against grantor immediately even though no person is asserting a superior title. The covenant runs only in favor of the immediate grantee. (two years later grantee conveys to someone else, that person may not sue on one of the present covenants.  Measure of damages for a breach in case of covenant of seisin and right to convey is fraction of purchase price representing the percentage of price for which title failed.  Measure for breach of covenant against encumbrances is cost of removing the defect if that is possible, and if not, the difference between the fair market value with and without the encumbrance fixed at the time of the breach. o Future- requires that covenant actually be breached (either grantor refuses to act or defend title against a 3d party asserting superior claim) SOL does not begin to run until a 3d party asserts a superior title. RUNS WITH THE LAND SO THAT A REMOTE GRANTOR MAY BE LIABLE! y Damages for breach of deed warranty Recovery is limited to the purchase price of the land! o Ex 1: WYW pays 10k for a lot from HH and builds 100k home on lot. Later she discovers HH breached the covenant of seisin. Maximum damages she can get: $10k! o Ex 2: pays 100k for lot and value increases to 250k before she discovers breach. Maximum: 100k. o Problem 3- p. 769- O conveys to A by warranty deed for $20k. Later A conveys to B by quitclaim deed for $25k. WYW is true owner of land. Can B sue A? No deed warranties between them, only quitclaim deed. Can B sue O? in majority B cant sue O for breach of present covenant but can sue O under future covenants of warranty if: the title defect existed at time O conveyed to A AND the true owner, WYW actually asserts her rights against B. o Problem- A conveys to B for 20k; B conveys to C for 15k (both by WD). O (TO) ousts C. C has not sued nor settled with B. How much can B recover from A? B would seek recovery from A based on his warranty deed. C has been ousted, but B has not been bothered yet by the ouster. y

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SOL may run so B may not just want to sit and wait to be bothered. Different SOL for each transaction. Probably file suit against A, and ask court to order A to pay $15k into court or into escrow until contingency is resolved or SOL runs. Wont ask for the money now, must wait until youre sued and its successful, but by that time your SOL may have run. Why 15K and not 20k? Next problem: o A conveys to B (WD) 20k; B conveys to C (WD) 15k; O (TO) ousts C. C sues B and recovers 15k. How much can B get from A? 15k, otherwise, someone would be 5k richer than they ordinarily would be. There will be a windfall one way or another. B/c if A was ordered to pay 15k, and they sold for 20k, then they are 5k richer.  Courts follow 2 theories. 1)purpose of damages is to cover Bs actual loss, so B should get 15k. 2) B would be entitled to his purchase price of 20k because thats the general rule. So in the end, somebody is going to be 5k better off. y Frimberger v. Anzellotti o Can a purchaser of land who discovers that his predecessor in title filled in land in violation of wetlands requlations sue the predecessor for breach of the covenant against encumbrances? No o Rule- a latent violation of land use statute or regulation, existing at the time of delivery of WD is NOT a breach of the covenant against encumbrances. o Not sure if theres a breach here. y Doctrine of merger o Deed considered higher or more worthy instrument than the contract for sale of land. Common law, once grantee accepted a deed a promises contain din K were merged into (erased by) the deed. Modern day view of merger is that only covenants pertaining to the quality or quantity of title are merged into deed. b. Title Insurance o Title insurance- p. 702: either the lender or buyer or both, may demand additional protection in the form of title insurance policy. Today vast majority of real estate transactions that involve a lender, the lender will be the one who requires title insurance.  Why purchase title insurance? Non-assignable (every time new buyer, new policy and they arent re-researching the records everytime). Wont protect against anything they find in the file. Will protect against mis-indexed files. Slide 25- what they protect.  Note 1, 785- will it protect against a claim that title is unmarketable as a result of violation of an elevation covenant? No according to 8th circuit. She thinks that this is very wrong. o Lawyering Exercise from last time- 790:  Recourse against tile insurance co- although title is unmarketable b/c there is a risk of litigation for violation of the covenant, one of the standard exceptions listed in schedule B is for encroachments, overlaps, boundary line disputes. So no recourse against title insurance co.  Flinstones- doctrine of merger says any promises made about title in real estate K are merged into the deed. Flinstones conveyed by special warranty deed (grantor is merely warranting against defects grantor himself caused) they inherited the property so not liable for defects they didnt cause.. o Distinguish btw implied warranty of fitness and quality (p.804) and sellers duty of disclosure with residential houses.  Duty of disclosure (Johnson) talks about ANY seller (houses 10, 20, 30 yrs old) non-builder developers.  Implied warranty- deals with builder developers, not regular sellers.  Think about these like LL tenant law- started with caveat emptor and now most states recognize implied warranty of quality and fitness. Different or same policy reasons? Same: average buyer in what may be their most significant asset; buyers are unsophisticated; seller should not subject unknowing buyer to health and safety risk; disclosure imposes NO costs on seller. Should these same justifications apply to commercial property? A few cases only have extended this to commercial property. If you are a purchaser of commercial building you should not rely on law to imply some sort of warranty. You should be sophisticated and put an express warranty in the K. o Limitations on duty to disclose o Many states have statutory disclosure forms and they do generally have to be attached and signed to K. Some states go further and require disclosure of noise and nuisances. Some states BAR disclosure of certain non physical matters like Missouri example. o as is and non-reliance clauses example: can Stinneford rescind? Note 4- 803 decline generally to enforce as is clauses against claim of fraud/misrepresentation. Divided as to mere non-disclosure. She likes rule that says as-is non reliance clause (if carefully drafted) should be upheld. But you are expected to make both arguments in essay. D. Other Pitfalls in Negotiating Land Purchase and Sale Contracts 1. The Condition of the Land and Improvements y Johnson v. Davis 2. Remedies for Breach of Purchase and Sale Contract

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Liquidated damages  Probably one of the most difficult issues involving breach of K for sale of land is the validity and scope of sellers right to retain earnest money as liquidated damages. Is the forfeiture of the buyers earnest money a valid liquidation of damages or an invalid penalty? Mahoney v. Tingley o Seller agreed to sell home for 20k and deposit of 200. The k provided the money SHALL be forfeited as liquidated damages unless seller elects to enforce the agreement, after buyer defaulted, seller sold to someone else for less and sued for damages of $3k. o This case is unique because the seller is raising the issue of the damages being a penalty. He raised the question b/c he thinks its not enough money, doesnt usually happen this way. Shows why there is never a form K that benefits both buyers and sellers. You can have a clause that allows either. o Two main remedies for breach of K for sale: (1)damages- loss of bargain, diff between agreed K price and market value of land on date of breach. See most often. If seller is able to resale property to another within a reasonable time, they will take that new sale price as market value, can take the difference into account as well if it takes a while to sell the property. (2) specific performance English v. American rule where seller cant convey good title o WYW Ks to sell B to Peter G and commitment for title insurance is ordered and it turns out WYWs ex still holds interest in land that she mistakenly thought was extinguished. P.810- note 2  English rule- if failure of her title results in breach, they would limit Peters recover to a return of his earnest money  American- award loss of the bargain damages  Which is the better rule? Is it that hard for seller to know that they have marketable title before they sign the K? maybe, because lay people are very ignorant about the interest that they have in their property. She thinks this situation is pretty common (with the divorce). Title might not be marketable because of latent violation of zoning ordinance or something like that, and owner would not know. o Note 3a- consequential damages  Buyer spends 800 for airfare to travel to a meeting to negotiate the K. Later, seller breaches, should buyer be able to recover for the airline travel as consequential damages? If allowed, would there be any limit (like lodging, meals, etc). Fountain case cited- court held airfare was not recoverable because not sufficient evidence that that expense was in the reasonable contemplation of the parties. Wouldnt use this case to say that airfare would never be in the contemplation. If broker advises seller that buyer is coming to see house and sign K, the argument could be made and it would be stronger evidence of foreseeableness.  3(b)- seller breaches, buyer had to sign a month to month lease at 500/month and incurred 1k in moving expenses to the leased premises. Can buyer recover either of these extra expenses? Rent- buyer may not have had to rent before breach, buyer may or may not be damaged because if they had bought the house then they would have had a house payment, maybe if the rent was higher than the house payment would have been, damages may be appropriate. Moving expenses- recoverable.  3(c)- buyer breached; after 3 months seller resells, but during interval, seller incurred taxes, interest, utility payments and 500 in repair costs for fallen tree. Can seller recover any of these additional costs? Seller permitted to recover insurance, taxes and mortgage interest if sold in a reasonably short time. y What if they didnt sell it for a year or 2 years? Should they still get the money? We dont know in this market. The seller may have problems of foreseeability in this instance. Recovery of repairs, however, is unlikely.  3(d)- buyer breaches, seller pays brokers fee of 5k even though the sale was not completed (traditional rule- not ellsworth-dobbs rule). Seller sells to another buyer 3 months later and broker earns another commission. Can seller recover the amount of the second commission from the buyer as consequential damages? Mueller v. Johnson- court said seller would have had to pay first commission anyway, but then the court said the buyer was liable for amount of second brokers commission which they would not have had to pay but for the buyers breach and it is foreseeable.  3(d)- seller breaches, buyer had secured financing at 7%, two months later the buyer finds another home, during that time interest rates have risen to 9% and now the buyer will pay 3k more per year in interest. Can the buyer recover damages in the amount of the interest differential? Case in note court refused to allow the buyers to recover the interest rate differential concluding that it would be an improper speculation. As a practical matter, most buyers dont actually wait 30 years to pay off the mortgage so to give them 3k for 30 years would be a windfall. Apollo case found buyer could recover interest rate- but this was during a historical peak in interest rates so it was common to have these fluctuations then. She thinks better rule is to not allow interest rate differentials to be a part of the remedy for sellers breach. If buyer was pre-approved and had a locked in rate within a particular window, if you represent the buyer, have a recitation in the K itself with seller acknowledging buyer has locked in the rate and its foreseeable that if a breach there will be higher interest rates; this would make it part of the damages.

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Specific performance o Know that generally the courts have said real estate is unique and allowed the remedy of specific performance on the theory that no two parcels are alike and courts generally dont require buyer to demonstrate why its unique. As a practical matter, both buyer and seller have adequate remedy of damages and dont usually see too many cases of specific performance. A lot harder for seller to ask for specific performance from buyer. 3. Financing the Purchase of Land y Financing basics o Where a purchaser pays cash for property, only documents needed are K to sell and deed of conveyance. Most of time purchaser seeks financing from a lender. Either the lender is the seller, or they are institutional lender. From there the purchaser executes the promissory note and the mortgage. Very standard documents. o Whats the purpose of promissory note versus mortgage promissory note is just a sophisticated way of saying I promise to pay. Its backed up by signature and means that if you default, you can be sued on the note. Most important of the two is the mortgage. It is the document that gets recorded. Gives the bank or lender security for the promissory note, makes the promissory note different than any other debt that you have. Mortgage allows them to use property for repayment of loan, and if need be they can foreclose and sell the property and get money back. o Paragraph 3 p. 814- if had followed the rules there, would not be in the mess we are in now. Prudent lender would not grant loan unless it exceeds the amount of land value, increases the likelihood that lender would be able to recover full amount even if borrower defaults. o Handout for orders of certified copy of deed. No reason you would need a certified copy of the deed. Usually wouldnt cost more than $2 but these are charging 59 and 69 dollars. For every ten letters sent, probably at least three people respond with requests for this document. y Financing the Purchase- two forms o Mortgage- institutional lender OR seller. Borrower/purchaser received deed; financing entity receives amtg that pledges the property as security for debt. o Installment K (K for deed/land sales K) done by sellers only. Borrower pays fixed amount for duration of K and receives a deed only after completion of all payments. Used when mtg rates are extremely high and buyers cant/dont want to qualify. Also in intra-family sales. y Proctor v. Holden o Facts on slide. (4/1) o Issue- where a K contains an ambiguous financing contingency is the purchaser entitled to return of earnest money where they have been rejected by at least two institutions, and refuses to agree to seller financing pursuant to the same terms expressed in the financing contingency clause in the K? o It was reasonable for them to reject the sellers offer of financing. Why reject a mortgage from seller? Institutional lender is in the business of loaning money, they probably will not seek to foreclose right away if you are unemployed, would be able to allow for missed payments. Also, the bank is more sophisticated. Bank knows better how much the property is worth, bank will have it appraised and traditionally the appraisers were conservative. Bank will insist on commitment for title insurance and then you can note individual problems with seller. Individuals can do it too but bank will regularly do it. o K language on p. 793- we dont have classes geared to financing/accounting. But we should at least know basics of fixed rate/adjustable rate mtgs. Need to know what amounts to put in the blanks. As the seller, you dont want to make it easy for them to get out of the K, saying that they are bound if they qualify for a rate that is 10%. If youre the buyer, put really close to the current rate (5.5). If you say 10, that means if credit is bad and they can get a rate for 8 or 9 percent, then they are locked in. Other terms/points= prepaid interest (100k loan and 1 point= 1,000). If you represent the buyer, what additional language should be inserted in paragraph 5 on 793? Ex: if buyer loses job and they want to foreclose, make it contingent on loan being actually funded so as to be able to get the buyers earnest money deposit back if the worst happens. y Daugherty Cattle Co. v. General Construction Co. o K for deed with buyer who couldnt complete K after 8-9 years of payments. Offered to deed back about half the land in satisifaciton of debt. Seller rejected. I o Issue- whether K language would allow buyer to escape what was clear, forfeit all payments and the land. o Court said no ambiguity in language, statutory language designed to giver relief from forfeiture couldnt be used b/c there the party had to make full compensation to get out. Offer to reconvey half of land in exchange for termination doesnt equal full compensation, in order to get relief they would have to tender full amount. o Note difference btw earnest money K (typical) and installment land- seller financing in installment, title not transferred to buyer until final payment is made; failure to make all payments as required may result in forfeiture of all amounts paid and forfeiture of the land as well.  Installment K is like mtg b/c both instruments can be used by seller, both involve periodic payments (usually monthly but can be yearly/quarterly). Buyers under installment land K dont receive title until final payment made. Compared to traditional mtg where buyer receives title at closing and also executes a mtg document.

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Some jurisdictions follow rule for this case; growing number of jurisdictions (including FL) dont allow forfeiture of installment land Ks, treat them as mtg and require the seller (when there has been a default) to seek foreclosure rather than to simply allow forfeiture. Why would seller prefer forfeiture? b/c they get the land and keep all payments previously made; at foreclosure may also have a buyer that would pay money for land and you wouldnt get property. Cost of foreclosure is also expensive, and there is some delay. In installment land K it is an automatic forfeiture (you file suit to oust). Also, inability to retain all payments and land if another bidder at foreclosure sale.

Risk of Loss y Equitable conversion: means of characterizing respect interests of seller/vendor and buyer/vendee and serves as a default principle for allocation of risk between those parties (should be in K). Majority- ROL on buyer; minority- seller; 13 states adopted uniform vender and purchaser act. y Majority rule has been criticized ad noseaum and they fall into these categories: 1) majority rule is not consistent with probable expectation of properties (most people wouldnt think they need to get insurance as soon as they sign K to purchase) 2) majority rule doesnt place risk of person whos most likely in possession still who is the best person to oversee and guard against lost (like a hurricane). 3) criticism doesnt place risk against party whos most likely to carry insurance against loss. A normal seller will not likely cancel insurance policy as soon as they sign K to sell (usually cancelled a day or two after the closing). P. 794 paragraph 9- typical language you will see in most printed forms. No movement to change majority rule because most printed forms follow uniform vendor and purchaser act. Only where attny is drafting and forgets or person not using attny, or people cross it out. y Sanford v. Breidenbach o Sanford had property destroyed by fire, sued for spec. performance. B crosspetititioned for insurance. Key here that this K provided buyers obligation was contingent on existence of agreement insuring buyer had permanent permission to use septic system. Buyer had obtained insurance during executory gap period. o Trial court split the difference, said seller was not entitled to spec perf but both insurance companies were liable to reimburse the seller. Loss should either fall on buyer or seller, doesnt fall on both just b/c they have insurance. Even if equitable conversion provides default rule it still depends on the notion of a specifically enforceable K. Here the sellers could not have obtained spec perf b/c buyers obligation to perform was based on septic tank agreement and sellers had not obtained the agreement, so sellers lose b/c they didnt have an enforceable K. o Note 1(a) p.832-> sewer district case, court used equitable conversion rationale to conclude that it was the buyer/vendee not seller/vendor is capable of registering a protest for formulation of new sewer district. o Note 1(d)->blueacre for 100k, during gap period, state takes the land. Condemnation award is 120k. who is entitled to that money? Buyer or seller? What if state only is giving 80k for condemnation; should buyer be forced to complete the sale and pay 100k for property even though buyer will only assume 80k in condemnation award? Buyer should receive (majority rule) the excess for the downturn in price. Buyer would be liable to pay seller full 100k no matter what happened with imminent domain. y Moran v. Elk (TWEN case) o K language slide 11. Does the language allow the purchasers attny to disapprove the K simply b/c the purchaser gets cold feet? fairly easy to find something wrong with the K if you wanted to get out of it. These kinds of clauses arent that onerous because they are generally only open for 3-5 days. Here it was 10 years after K was signed that it went to court. E. The Role of Lawyers y Hubble v. OConnor o Only included to show how valuable the legal writing class. It is terrible to read attorneys letters trying to say something. Result is predictable- cant have attny approval clause and have attny not state it so sellers dont know if theres an approval or not. Foreclosure y Two types: o Judicial o Non-judicial y Foreclosure extinguishes borrowers title and invests title in sale purchaser; eliminates all subordinate liens/interests subsequent to the mtg being foreclosed. Ex: WYW owns land and has first mtg from Chase for 100k, she has a second mtg from BOA for 30k, because she was such a good risk she convinced a third bank to give her another mtg from Wachovia for 20k. Foreclosure eliminates all subordinate interests subsequent to mtg being foreclosed. So if BOA bought foreclosure action it would eliminate mtg received from second bank and third bank. Doesnt affect mtg from first bank. If chase foreclosed, it would eliminate all interests subsequent to chase. If you were a banker, and WYW has a first mtg from chase for 100k, what would you want from WYW for a second mtg for 30k? You would want a higher interest rate (also make sure property is worth at least 130k) and then since you are second, if WYW quits paying the first mtg and they foreclose you can only hope the property is still worth more than the two mortgages combined; so maybe first one is 5% you would want at least 9% or 10% on the second one to get more money up front. Foreclosure may result in deficiency judgment against borrower (mortgagor). Some states restrict deficiency judgments; but foreclosure sale may result in borrower owing more after the sale.

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As a practical matter, what would make one hesitant about buying property at a foreclosure sale? Many states have statutory redemption (Ill, 7 months after sale, mortgagor could come up with full amount owed and they have absolute right to buy mtg from foreclosure purchaser) so for seven months at least you would not want to do anything with the property just in case. In some states the statutory redemption period is as long as two years. o A foreclosure sale is a buyer sale; you dontpay near the full market value of the property. One problem is purchasers have to come with cash or equivalent. Bank only has to come with piece of paper which is a credit for amount due. o Issue: should a foreclosure sale be set aside for inadequacy for sale price where mortgagee mistakenly submits a low bid at sale and property is sold at foreclosure for approximately 1/3 of the approximate value? No. The court in SC is typical in that a sale price of even 10-15% OF the value will not shock the conscience of the court. Courts arent shocked that easily. In eastern savings bank it was malpractice. y Long Island savings o Can a foreclosure sale be voided b/c the attny for mortgagee missed sale b/c of a mistake? An Accident? A traffic jam? Car trouble? Any other reasons? No, lots of cases like this, in each one the court has said it is malpractice. y What to do about the mtg crisis? o National Consumer Law Center proposes: simplify mtgs and eliminate most mtg options (one type of fixed rate mtg is what we previously had). Pay originators from mtg payment steam only (modeled after insurance industry). Require that originators verify income of mtg applicants. Require loans to be below value of home and regulate/modify appraisal business. Require lender to pursue modification option BEFORE initiation of foreclosure. Chapter 10 o A. The Law of Zoning y Ch.8 (beginning) we studied private land use and control mechanisms. Here we are looking at govt land use mechanisms. y In contrast to servitudes, easements, covenants, CIC, CCRs; zoning is a government process that seeks to place restrictions on land insofar as how land may be used. y History- relatively recent development (zoning) there were ordinances in some cities in the early 1900s (Chicago, philly) ordinances relating to height of buildings and types of materials, etc. NY city is first major municipality to enact comprehensive zoning ordinance- relating to use that could be made of particular pieces of property (1916). y Hoover commission issued standard zoning act in 1922- municipalities were encouraged to develop. Fueled by migration of increasingly large numbers of ppl to cities, zoning swept country. Key- new zoning ordinances were more comprehensive than earlier attempts to regulate things like height. Closely associated with urban planning movement and sought to regulate use of plots of land. Legal challenges followed culminating in the village case for today. y Importance of Ambler realty case- no other case has had as much impact on development of real property law as it has. Case argued twice in supreme court (unusual). y P.866- inverted pyramid classic zoning regime. Cumulative (vs exclusive) type of regime things going up the period are commercial 1. The Validity of Zoning y Village of Euclid v. Ambler Realty Co. o Issue- can a landowner challenge a zoning ordinance based on constitutionality where the landowner alleges that the new zoning ordinance diminished property value. o Court said no. o When someone is challenging an enactment by legislature and saying its unconstitutional; supreme court has tried to fashion a consistent jurisprudence in tackling the issue. The court cant simply take each piece of legislation and substitute its judgment for the legislature; but courts have to be final arbiter as to whether the legislation is in the limits of power granted. Developed two major tests that courts use in determining how to discuss whether legislation is constitutional.  Rational basis test- (employed in Ambler) two prongs: (1) court asks whether the ordinance or statute is a means of achieving a legitimate or permissible government objective. (2) statute or ordinance bear some rational relation to that objective.  Strict scrutiny test- much harder test. Employed where the law/ordinance impacts some fundamental right (like first amendment right; ex: restricting/outlaws adult bookstores, etc.) (1) must be justified by compelling government interest; (2) must be narrowly tailored to achieve goal/interest; (3) must be the least restrictive means for achieving that interest.  Differences: RB court is saying is there a legitimate objective of the government, is the law rationally related to that objective (doesnt matter if they would have decided differently if they were in the legislature). If there is ANY relationship between 1 and 2 then courts should say its constitutional.  Third intermediate test is in between the above two tests. o Zoning is without compensation, and for some, it is a radical departure from what we think of as rights as an owner of private property. o Two principles important from this case:

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Ordinance has to have some justification based on police power of state. In order for city to act, they have to have some power derived from some aspect of the constitution (federal and state). o What was the harm that the Justice said might occur if we didnt have divisions for land use for single family and other things? Movement to segregate single family houses from apartment houses b/c they thought there would be riffraff. Decision suggests that there are higher places to live and lower; apartments are lower. o Does police power encompass power to regulate usage of land? Yes, it allows government to intervene in areas of public health welfare and safety. History of this regulation in this country is one of ever expanding scope and intensity. Now theres zoning for aesthetic reasons like historic preservation; regulation of wetlands and coastal areas. o Facial challenge to constitutionality? Challenging the statute overall. He could have (owner of land) petitioned for variance/amendment. The court said he was challenging it on its face, not related to any particular plans he had or anything else. o Note 2- left unanswered question of any particular aspect of legislation might be unconstitutional as to any effective part of the land. In the case in the note, it was specific. Small part of land was zoned residential and rest had to be agricultural. In way it was situated, made residential part useless. There the challenge was the zoning ordinance as applied to him in the particular situation was unconstitutional and court agreed. o Harder to challenge a law on basis of it being facially unconstitutional. o As far as zoning, 95% devaluation is irrelevant. y Is zoning good? Are there problems caused other than preventing particular landowner from using land the way they want. Politics and favoritism. The Zoning Process: Searching for Flexibility and Fairness a. Amendments and Conditional Uses y Chrismon v. Guilford County o Whether or not the zoning process allows for K zoning, spot zoning, or conditional (special use) zoning. o Facts in this case are typical. People moved to rural area and there was a grain bin and fertilizer business and complained about it. o Whenever you have a zoning ordinance passed, its usually at an existing community that has existing uses. In order to be constitutional has to provide some means of allowing for non-conforming uses. Non-conforming use statutes vary. In some jurisdictions it can only last for X number of years (5, 10, 20). Not grandfathered in where it can always exists. Others say it can exist only so long as original building remains (so if buyer or hurricane wipes out business, cant rebuild). Others say only so long as under the present owner, so it cant be sold; or remain so long as its in continuous operation. They eventually want the property to become in compliance with the zoning laws. o Here, business was expanded in a way. This case is meant to illustrate difference btw spot zoning, conditional and K zoning.  Spot zoning- used as a term of art by many jurisdictions. Say if you change zoning of one parcel in a larger parcel of zoned land is spot zoning and it is illegal per se. NC is in a minority (but possibly growing) who say it is spot zoning but dont say its always illegal per se. Say it could be okay in some instances: with a single family tract that has setback lines on all four sides (residence cant be built within 20ft of front or 15ft of each side) suppose lot with huge boalder in back that would be prohibitively expensive to move. She can build a house on the lot but cant meat sq foot requirements of the regulation. To allow owner to use lot at all the court would re-zone to allow smaller house to be built. This is spot zoning. NC would allow that in this situation even though it is spot zoning.  Conditional zoning/special use zoning- type of recognition that zoning is not a science. In many/most zoning plans there will be built in the concept of special use or conditional zoning permit. Typical example: area zoned for single family residences but municipality realizes that in this zone they will want schools and churches and maybe even gas stations. Other things like electric substations and firehouses. Instead of plotting that into the zoning law, the law will allow a conditional use/special use permit in that area which allows zoning board to specify where within the area the churches/schools/etc should go.  K zoning- landowner says Ill do this and zoning board says well do this. Its illegal. Practically- if you are a landowner and asking zoning people to allow you to use your land in a way its not intended, you would not just submit a plan and hope for the best. You would try to work with them. She thinks court is overly simplistic to say if its bilateral its wrong but if you just submit it then its okay. No one goes through time/expense of preparation plans without talking to them and getting some idea as to whats acceptable. o Note 5- what happens when the agreement btw the city and the landowner is held void? One case ct said zoning amendment enacted pursuant to the illegal agreement was void and the covenant/agreement was also void. In another case ct allowed re-zoning to stand and said agreement was invalid (lose/lose situation). Offending zoning you didnt want and landowner doesnt have to do what they promised the city they would do.

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Material in statute reading- note that most of the time in the uniform/suggested act. There is a board of adjustment and internal appeal mechanism and that mechanism usually has to be tried before a lawsuit can ensue. Few cases allow you to go directly from an adverse decision without exhausting administrative remedies available. b. Variances y Matthew v. Smith o Asking for area variance b/c two houses on one lot where there should have only been one house. Court discussed factors in deciding to grant use variance, the factors discussed are typical. FOUR FACTORS ON SLIDE 1 for today.(4/15)  Whether strict application of the ordinance would result in unnecessary hardship. (we dont know what unnecessary means, mere expenditure of money IS NOT AN UNNECESSARY HARDSHIP)  Whether the hardship is caused by the unique nature of the property rather than conditions personal to the owner of the property  Whether the hardship is necessary to preserve the plan  Whether granting the variance will result in substantial justice for all. o Variance should be the exception rather than the rule. c. Nonconforming Uses y In Re Appeal of Miserocchi o How many incorrect decisions by the zoning administarators and the lower courts were involved in this case? A lot o Cant depend on advice you will get from administrative employees. o Needed permission to change from nonconforming use which is allowed to a use allowed. Nonconforming use wasnt barn itself, it was the 40 ft setback. Didnt need permission to do this b/c it didnt effect the nonconforming use. y Mt. Laurel Flexibility in Zoning and Modern Zoning Schemes a. Overlay Zones b. Bonus Zoning or Incentive Zoning c. Planned Unit Developments (PUDs) d. Development Agreements Hot Topics in ZoningExclusionary Zoning, Urban Sprawl, Regional Zoning and Smart Growth a. Exclusionary Zoning i. The Mount Laurel CasesState Constitutional Law y Should a municipality be forced to provide some land for low and moderate-income housing? If people want to have large lot single family housing they should be allowed to do so. NJ supreme court said its okay but cannot exclude them. ii. From Euclidian to Utopian y Early zoning laws were primarily concerned with height/density of buildings. Village of Euclid v. Amblerindication of how much we value the single family residential district in this country. Early zoning laws went toward segregating single family from apartment areas and residential from commercial. y Whether and to what extent zoning laws should be used to regulate activities in zone as legitimate exercise of police power of the state. y Keep in mind the kinds of regulations/restrictions we are talking about in this area can also appear in CICs through employment of restrictive covenants, equitable servitudes, etc. However, private land restrictions dont use the same analysis as the restrictions imposed by govt. where you have restrictions imposed by govt, run into challenges based on constitutionality. In Ch.8 we didnt talk about the constitutionality of the restrictions b/c govt wasnt involved. ii. Exclusionary ZoningFederal Law b. Urban Sprawl c. Regional Zoning and Growth Controls d. Smart Growth y Ladue v. Horn o Why didnt they just get married? o Can a municipality regulate nontraditional living arrangements as part of a zoning ordinance based on govts power to enact reasonable provisions to promote the health, safety and morals of the community? Yes o Should the govt be able to do this? o Courts have overwhelmingly said that it doesnt raise a fundamental interest and can be decided on the lower standard of rational basis. Courts have generally upheld them. One exception- group homes (not all of them) for disabled, mentally ill, abused and neglected children. Where state can prove an overriding interest for these, exception allowed (in zoning and private restrictive covenants). But not case in families like Horn or other community type groups like y

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halfway houses. You could think of any sort of special group and make the argument that they need/want to live in single family communities (AIDS, alcoholics) but those arguments are not always successful. State v. Burnett o Can a municipality designate an area as a drug-exclusion zone and impose criminal penalties on persons found in violation of the ordinance simply because they are prohibited from entering the zone- even though there is no finding that they engaged in illegal activity at the time of their arrest? No. o Is it a viable attempt by cincinatti to use zoning laws to combat problem of drug use? She thinks its a legitimate way of dealing with a known problem. o Is it going to be effective? o The court should be asking not whether this will work, can they get a better idea; the court should be asking is it constitutional? Under what standard? Rational basis. With this standard, you are simply asking is the law a means of achieving a legitimate or permissible governmental objective? The second question is does the law as enacted bear a rational relation to that objective? These are the only two criteria. Not asking will it work? Only asking if its rational. Judges shouldnt substitute what they would have done for what the legislature did do. Dont need proof it will or wont work. Give deference to legislative determination that they want to try it. o Courts are divided on which test to use. Some courts have upheld this kind of drug exclusion/imposition of penalties. Others have found that zones are unconstitutional. Doe v Miller o Is a state law preventing convicted sex offenders from living within 2000 feet of a school or a registered child care facility is unconstitutional where 1) it applies to all convicted sex offenders regardless of crime for which they were convicted and 2) it may result in offenders being unable to live in their home community because the whole community is a restricted area? No o Sex offenders- recidivism is very high even more so for this kind of crime; treatment is fairly ineffective; also sex offenders as a group tend to be separated and people dont normally move from one group to another (like exhibitionism to child rape). For review o Remember that we are talking about governmental regulation in this area, not private restrictive covenants. Make sure you distinguish btwe governmental reg and private on exam. o At least be able to articulate that there are two tests courts use in determining whether or not particular ordinance will be constitutional. o Strict scrutiny in fundamental rights only- right to privacy, travel, etc (bill of rights). If not it is rational basis (courts will give far more deference to legislative will where ct applies rational basis test).

B. Eminent Domain, Regulatory Takings, and Exactions 1. Eminent Domain y The power of the government to take private property for a public purpose- Eminent domain. y Note- when talking about limits of govt actions we talk in terms of due process clause of 14th amendment/ Porceduraldoes govt give adequate notice (rational basis test for most governmental regulations and strict scrutiny test where action affects a fundamental right); substantive- does govt have authority to do what they are doing y Two types of takings: o Eminent domain/condemnation- where govt actually takes the property o Inverse condemnation (next classes) where regulation of property effects a taking even though government hasnt taken the property physically. y Eminent domain- inherent power of sovereign to take private property for public use, limited by 5th amendment of constitution (not without just compensation). It is also a part of every state constitution. y Takings clause 3 issue dominate the discussion o Is there a taking by the government action (Fri and Tues) o What is a public use o What is just compensation- isnt usually raised in constitutional context, landowners often litigate whether or not they received just compensation. y Public Use: Two Major Issues: o Substantive issue: what is public use?  Midkiff: Hawaii Housing Authority v. Midkiff p. 36 y Statute enacted by Hawaiian legislature which in essence authorized commission of state govt to acquire by eminent domain hundreds of thousand acres of land. B/c of hawaiis unique history, 17 landowners owned 80% of FSA absolute title, so lots of land held by few people. Most of the residents occupied their houses with longterm leases. Legislature didnt like it so they authorized state to take the property from the landowners and pay a certain amount and then sell the property to the residents who were living in the property, and if they didnt want it, to sell to others. Supreme Court decided it was a public purpose.

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Berman: Berman v. Parker p.35 y Involving blighted area in Washington, D.C. Most of housing was beyond repair. DC planning group came up with development plan, and effort to use eminent domain to acquire the property and then transfer it to others who would develop it. The person who sued, owned a dept store. His property was not blighted. Supreme court said that community development programs dont have to be on a piecemeal basis. If city planners have determined that this is the best way to spur economic development, cant allow individual landowners to have them build around their property. Kelo v. City of New London o Divided opinion, court decided economic development was within the constitutional perimeters of public use laws of fifth amendment. o Following the case, a rash of legislative actions began. Many jurisdictions have amended state constitution or passed laws that restrict power of state to take property for non-blighted conditions. o Kelo emphasizes this right: states are free to enact laws that are more protective of property rights (more restrictive of the governments eminent domain power). o Also note that state courts, in interpreting public use in the state constitution may give a more narrow definition of the view and give less deference to legislative determinations. County of Wayne v. Hathcock o Eminent domain under state constitution. Court overturns its decision in Poletown Neighborhood Council v. Detroit (1981). Poletown, Michigan supreme court approved plan of city to condemn 465 acres of land that included residences, churches, and stores and re-convey it on favorable terms to GMC for construction of new auto plant. o Poletown held public purpose did accomplish citys need to take property from one private person and give it to another private entity. o Co of Wayne- court uses a narrower definition of public use, and says exonomic benefit generally is not enough. Will have greater scrutiny of underlying decisions to use ED. This case said it can only be used to transfer property from one private owner to another owner and have the transfer meet the public use requirement only where:  1) the taking is necessary to facilitate something perceived to be a public necessity associated with the instruments of commerce (RRs, highways)  2) after the taking, the public continues to retain a measure of control over the property (ex: sports facility that city retains revenue from parking garage or something like this where there remains some control) or  3) the land in question presents a public concerna blighted area. o This case overturns Poletown o Why doesnt private owner just buy up property without resorting to the city like Phizer did in New London? Rationale for compensation o Ex: city of Jax needs to acquire land for major highway. Why not allow government to take the needed assets without paying- or at least give the government discretion in deciding how much if anything it will pay? o Area of study here is on a continuum. At one end regulation and at the other is taking. If the land has devalued 80-90 percent, you would get nothing (under zoning). If government takes land then you get money. o If city decides it will cost too much to pay then the city may just rezone. Is this a taking that they have to pay for? Cases are mixed, she would argue that setback line is not a taking b/c you can still have the property to look at. Theories of compensation as to why compensation is required o Equal treatment theory Compensation is required so that we place individuals whose property has been taken, on the same footing as their fellow citizens. Bars government from forcing some people to bear public burdens which in fairness ought to be born by public as a whole o Fiscal illusion Wyw likes this best  We require compensation in order to internalize cost of taking property to the government. By requiring govt to pay compensation we force the govt to compare the value of resource in governments hands compared to the value in private hands. If we dont require govt to pay for takings, govt officials can suffer from illusion that resources they have taken have no cost (fiscal illusion). As a result, they may engage in excessive takings of property and result in misallocation of resources. By requiring compensation force them to look at whether property is better off in private or govt hands. o Process failure theory  Compensation is required in order to overcome certain failures in political process. Theory- without compensation almost always takings will fall on least politically sophisticated (poor and minority) b/c it will always be easier to take a low income neighborhood rather than a neighborhood with politically sophisticated people that can mount opposition.

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2. Inverse Condemnation and Regulatory Takings When is a taking a taking? y US constitution- nor shall private property be taken for a public use, without just compensation. Amendment V. y Two basic types of takings o Physical invasions and non-physical regulations y Inverse condemnation is a question of what recourse does a landowner have when the government takes the land without pursuing eminent domain. Are there some regulations/actions of government that are a taking in essence even though they have not physically taken over the land. o Government hasnt formally condemned the land but property owner sues saying that in effect a taking has occurred. y Penn Central Transportation Co v. City of New York o What is a taking? o Does the NYC historic preservation law, which imposes significant restrictions on the development of certain parcels, amount to a taking requiring compensation? o Three factors of significance (Get Slide) Although regulatory takings jurisprudence has reflected essentially ad hoc, factual inquiries, three factors that have been particularly significant are: y (1) the economic impact of the regulation y (2) the extent to which the regulation has interfered with distinct, investment-backed expectations and y (3) the character of the government action.  Problem is figuring out where regulation crosses the line (by inverse condemnation- not physical taking but actions, in essence, leave you with inverse condemnation situation). o Two views on issue in Penn Central Frame issue so that when the judges respond they agree. Majority and dissents framing of issue:  Brennan- can city regulate landmarks and historic district w/o effecting a taking that triggers compensation?  Rehnquist- may cost associated with citys desire to preserve a limited number of landmarks within its borders be borne by all of the taxpayers in the city or whether it can instead by imposed entirely on the owners of individual properties? o What if WYW owned the everglades, and government decided they should be preserved. Told her she should not be able to develop everglades. Would anyone question whether or not the government should have to pay her for the land? No o Why not just by Penn Central? Footnote 10 (p.932) court acknowledged problem- public ownership reduces the tax base and burdens the public budget with cost of acquisition and maintenance. Results in preservation as museums rather than economically productive features of urban scene. Buying it would take it off of the tax rolls, then they would have to maintain it. Would burden public budget to acquire and maintain it and then it would just be a museum. o Court says its not a problem here b/c people could still enjoy some return on their investment. May not be as much as one would like, but they will still get a return. y Physical invasions almost have a bright line rule o Any permanent physical occupation of the land is a taking, regardless of whether the action achieves an important public benefit or has only minimal economic impact on the owner. o If physical occupation= TAKING, we dont look at any other factors. D o Makes no difference whether government occupies the property itself or merely authorizes a third party to do so (classic case- government authorized newly formed cable company to place wire on each apartment building within the municipality to allow all renters to receive cable television. One landowner objected and said it was a taking, wanted compensation. Supreme court agreed- any permanent physical occupation as to whether there is a public benefit/impact on building, its a taking.)  Exception- not all physical invasions are takings. Ex: a regulation that requires all landlords to supply and install mailboxes for his or her own expenses is NOT a taking, even though this is a permanent physical occupation.  Difference between mailboxes and cable tv? Original idea, mail was a necessity at the time the mailbox case was decided. However, it is questionable whether everyone needs a mail box now. y Chart on last slide (4/24)o Summarizes when there is a taking and when its less likely to be a taking, looking at character of government action and the economic impact. Takings y Supreme Court and takings jurisprudence o Stevens- great uncertainty in terms of courts taking jurisprudence. Lucas adds to the uncertainty.

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Theoretical justifications for compensation o Cost-internalization theory  Lucas is cited as illustrating this but she thinks there could be debate about that. She feels people should never have been able to build on the barrier islands like this one. o Fairness theory o Political process failure theory Lucas v. South Carolina Coastal Council o A rags to riches story. He was a part-time builder of inexpensive single family homes. He played guitar on the side. He played for governor of south Carolina once. Talked to woman whose husband campaigned with governor. Lucas was hired to play at function of husband. He lost election but went into business and bought land on SC coast. Hired Lucas as a custom builder of houses on the Isle of Palms, then he sold the business to Lucas and he held on to property and sold his interest in 84 for 25 million. After he dissolved the partnership, he bought two of the lots he sold when he sold the business, paid about 500k for each lot. o Lucas and Ripeness Why does the Supreme Court hear this case since it appears that the case wasnt ripe b/c Lucas could have filed for a variance or special permit (he didnt apply for either one). He also had political clout in this area, so one would assume he was very well aware of changes that were being made on SC beachfront management side, and he wouldve appreciated the fact that he should find out if he can build before purchasing. Scalia dismissed question of ripeness.  Lucas doesnt contest whether the act was legitimate exercise of states police power. Argued b/c act eliminated all economic value associated with the land made him entitled to compensation. Trial court agreed, Supreme ct of SC disagreed, US supreme court agrees.  Key in this case is (note 15 p. 953) doesnt make sense that if 100%=taking; but 95% deprivation, not a taking. However, as a practical matter, Lucas wasnt deprived of all economic value of the property, he couldnt build on the land. Lucas voluntarily paid 500k for two pieces of property, just being restricted on it doesnt make it valueless. He just couldnt get the maximum value (could put trailer, tent, etc). Often times in coastal areas, there are regulations on how/what you can build (like a certain type of structure on the land). We will have to pay one way or another, either higher cost after hurricane destroys it, or before the hurricane comes to prevent a house from being destroyed.  If 100% depreciation, a taking. If only 95% not a taking. Spring 08 exam question (30 minute question) o Issues:  Does althumb owe a brokers commission to Stanislaus  Does a brokers agreement need to satisfy the SOF? y no  Did Stanislaus provide a buyer that is ready, willing, and able? Comparison of traditional rule with Ellsworth/Dobbs rule  Also talk about y Whether buyers could cancel on basis of implied warranty of habitability y Or on basis of duty to disclose y Also could make a good argument Allthumb is a builder/vendor- built herself, lived in it for 3 yrs, therefore implied warranty of habitability standard. y If she is considered regular seller duty to disclose the termites/damage in ceiling. For this you should mention the K language was as is. Note 4 p.803-804 for review of effect of as is clause. y Whether or not her statements could be considered a fraudulent statement given discussion in Johnson v. Davis (misfeasance and nonfeasance). y Maybe lack of attny disapproval clause (all she said was they asked attny to disapprove the K). If not much to talk about the issue with in the facts, its not a big issue. Also, public policy in terms of difference btw caveat emptor rule and modern rule. Dont talk about inspection clauses or anything else like financing contingency.  Notice the call of the question. Some will be specific (x comes to office and wants to know a, b, cstructure answer a, b, c); others say discuss relevant issues then do your own organization. Exam o 2-3 essays (probably 3) o 40-45 MC o 1 short essay question involving recording statutes o MC questions  Primarily on chs 8 and 9.

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Servitudes and recording. % of questions may not necessarily reflect number of pages devoted to subject matter. Maybe more questions regarding recording than questions regarding RE sales K. thats because of importance of recording (on bar exam). Questions from 2008 students o Figure out difference btw easement in gross and license. o She wont ask us to draw a legal description based on government survey o Know grantor/grantee index and how it works generally. o Takings and eminent domain is not as significant (questions on it, but spend most of your time on chs. 8 and 9). o Q2- if someone is not covered by a recording act (done) do you go to first in time. Only question of done status, first grantee has land under first in time its the subsequent taker and their status is important. Answer is yes, if the person isnt covered by recording statute b/c they are a subsequent taker, first in time firt in right applies. o 3- no, its an express easement; and implied easement based on necessity would terminate. Look carefully!!! This would likely be a MC question, really read the question carefully. o 4- requirements are different, real covenant needs horizontal and vertical privity for burden to run (not benefit); with equitable servitudes dont need privity, only notice, still must start with original enforceable K btw the parties that touches and concerns with intent to run. Practically- equitable servitude remedy is equitable like injunction; real covenant would be remedy of money damages. Not to say you cant get damages with equitable remedy, but most cases are divided on these issues. Key- distinguishing btw covenant, equitable servitude, or easement. Study the cases and associate them with those phrases. Specific to easements- rights of way, ingress and egress. Look at specific things with real covenants and equitable servitudes (100/mo in HOA fees, servitude part of CIC and restrictive covenants). Termination and modification of these things are different. Go through notes and list all things with servitudes/covenants on one hand and easements on the other. o 5- joint use applied in prescriptive easements- 3 different view courts take in terms of presumptions in regards to permissive use of easements across from others land a note in the book (shell post page number with these slides). o 6- what makes title unmarketable- a likely question on exam. It generally talks about title to the land, not the economic viability of land. Violations of lead paint/toxic waste, dont make title unmarketable even though they make title unmarketable. o 7- collettv. Stanley- clause reserving right of grantor to build/construct- case said it was not, case is clearly a minority. Tie in arrangements with builders/developers are common especially if it can be construed as a right of first refusal. Would run with the land in modern times o 8- AP marketable title?- general rule, title acquired by AP is marketable. If you want something more, you should ask for record marketable title in the K for sale. o Duty to disclose generally- disclose things known to seller but things that arent readily discoverable by buyer (roof would be discoverable by buyer). If not statutory, things that are peculiarly within the knowledge of the seller. Home inspector would know if there was lead paint in the house so it would be readily discoverable.

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