Real Estate Transactions

Real estate buyer entitled to specific performance when sellers mistakenly omitted a contingency from the sales agreement

/ Real Estate Transactions

Intending to buy a lot to build a new home, sellers put their house up for sale and signed a contract with buyers. Then the lot the sellers hoped to buy was purchased by someone else and sellers tried to back out of their promise to sell their home to buyers. Although the sellers had intended the sale to be contingent on their getting title to the now-unavailable lot, that contingency was not included in the sales contract for their home because the realtor that drew up the agreement left it out and sellers apparently did not notice that when they signed the agreement. The buyers wanted to go through with the deal and refused to accept damages instead; they sought specific performance of the real estate sales contract, and the Wyoming Supreme Court gave it to them.  Morningstar v. Robison, 527 P.3d 241 (Wyo. 2023). The trial court relegated …

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Arizona Supreme Court holds that the implied warranty in new home sales cannot be disclaimed

/ Consumer Protection, Real Estate Transactions

In an important decision, the Arizona Supreme Court held that buyers of new homes have a nonwaivable right to a warranty of fitness. Zambrano v. M & RC II, LLC, 254 Ariz. 53, 517 P.3d 1168 (Ariz. 2022). The court explained that allowing waivability would mean the end of the implied warranty since all builders would include such a waiver in their agreements and buyers would neither know to contest it nor have the power to get the buyer to change the contract terms. The dissent argued that “freedom of contract” should prevail and that it is important to give the parties the benefit of the bargain they made, whatever that is.

Tax foreclosures violate the takings clause if they government entity retains proceeds beyond the unpaid taxes

/ Real Estate Transactions, Takings

In an important case, the Supreme Court held in Tyler v. Hennepin County, 143 S.Ct. 1369 (2023), that it violates the takings clause for a municipality to foreclose on property for nonpayment of property taxes and to retain the value of the property that exceeds the unpaid taxes (with costs). The purpose of a tax foreclosure is to pay off the taxes owed. The equity in the property beyond that belongs to the homeowner (and/or the lender). In one sense, the ruling is unexceptional and tracks the goals of tax foreclosure laws (and other foreclosure laws in general). In a different sense, the opinion goes beyond other cases that have been held to be takings and could have significant consequences for mortgage foreclosures that are effected through court proceedings (judicial foreclosures). Most foreclosures do not result in paying of fair market value for the property, thereby (in my view, improperly) shifting …

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Marketable title act does not prevent enforcement of reversionary interest in the root of title

/ Estates and Future Interests, Real Estate Transactions

The Ohio Supreme Court ruled that a reversionary interest in a deed donating a park to the city was not extinguished by operation of the state marketable title act. Cleveland Botanical Garden v. Worthington Drewien, 2022 Ohio LEXIS 2153 (Ohio 2022). When the park was donated to the city of Cleveland, it contained a possibility of reverter that would be activated if the city ever stopped using the property for public park purposes. The deed required the park to be “open at all times to the public” and to be used only for “park” purposes. The heir complained when the city’s lessee closed the park on Mondays, began charging admission to enter the park, and constructed and operated a parking garage on part of the property. The court first determined that the terms of the conveyance had not been violated because the city (and its lessee) had the power to create …

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Vermont Supreme Court denies reserved easements implied from prior use unless they are strictly necessary

/ Easements, Real Estate Transactions, Servitudes

While owners can generally get an easement by necessity to obtain access to landlocked land over remaining lands of the grantor, most states also recognize easements implied from visible, continuous prior use before the parcels were separated if the access is helpful (“reasonably necessary”) to the dominant estate. The prior use doctrine rests on the right to reform a deed because of mutual mistake. Such easements can arise by grant (giving an easement to the grantee/buyer) or reserved by the grantor/seller. However, the Vermont Supreme Court has held in the case of Greenfield v. Luce, 2022 WL 16848175, 2022 Vt. Unpub. LEXIS 97 (Vt. Nov. 10, 2022) that it will find an easement to be reserved unless it is necessary to access a landlocked estate. Most states have a stricter test for easements by reservation because they “derogate from the grant” and the buyer should not be surprised to find that …

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Implied warranty of workmanship & habitability in new housing cannot be waived

/ Consumer Protection, Real Estate Transactions

The Arizona Supreme Court has held in Zambrano v. M & RC. II LLC,, 517 P.3d 1168 (Ariz. 2022) that the implied warranty of workmanship and habitability in new housing cannot be disclaimed or waived. The involved a sales contract with a detailed express warranty that disclaims any obligation to comply with common law obligations under the implied warranty as defined in Arizona law. The Arizona Supreme Court held that any waiver of the implied warranty was void even if it was partial, as it was here because an express warranty existed, albeit narrower than the implied warranty. The Court refused to make an exception for sophisticated buyers (the buyer here was a licensed real estate agent) because such a rule would be hard to administer and because even sophisticated buyers need the protection of the rule which protects buyers from latent defects that the buyer could not have reasonably discovered at the time …

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Texas Supreme Court interprets life estate as a fee simple because the remainders were subject to divestment

/ Concurrent or Common Ownership, Estates and Future Interests, Real Estate Transactions, Wills and Inheritance

In Jordan v. Parker, 2022 WL 17998227 (Tex. Dec. 30, 2022), the Texas Supreme Court held that a conveyance of a life estate actually conveyed a fee simple since the remainders were subject to alteration or even complete divestment by the life estate owner. In this case, a man devised his entire estate to his widow for life with remainders in their children, but the devise gave the widow complete power to transfer both the life estate property and to redirect ownership of the remainders. Part of the estate was a fractional ownership interest in a ranch. Some years later, while the widow was still alive, a son who was a remainder owner conveyed his remainder interest to his daughters (the granddaughters of the widow and the testator). The widow never exercised her power to alter the remainders in her children during her lifetime, and the question was whether the widow …

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Bank with actual knowledge of intent to create homeowners association bound by covenants even though the mortgage was recorded before the homeowners association declaration

/ Condominiums and Homeowners Associations, Mortgages, Real Estate Transactions, Servitudes, Title Issues

An appellate court in New Jersey held that a bank that received a mortgage on a piece of property was bound by a later-recorded homeowners association covenants because it had actual knowledge that the developer planned to subject the property to the declaration. Fulton Bank of N.J. v. Casa Eleganza, 473 N.J. Super. 387, 281 A.3d 252 (N.J. App. Div. 2022). This was the case even though New Jersey had a race-notice recording act and the declaration was recorded after the mortgage was recorded. The court used the equitable doctrine of equitable subrogation to change the order of priorities to avoid injustice. Because the bank was subject to the covenants, it was obligated on foreclosure to pay past due fees to the association. This result conflicts with the approach taken by the California Supreem Court in Riley v. Bear Creek Planning Committee, 551 P.2d 123 (Cal. 1976), which freed an owner from covenants …

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Commercial rent acceleration clause invalid if it is a “penalty”

/ Estates and Future Interests, Leaseholds, Real Estate Transactions

The Massachusetts courts say that there is no duty to mitigate damages in commercial leases but they sure look like they recognize such a duty when a lease has an acceleration clause (requiring the full remaining rent for the rest of the lease to be paid if rent payments are missed). In the case of Cummings Props., LLC v. Hines, 2022 WL 17409280 (Mass. App. Ct. 2022), a commercial tenant defaulted only two months into a five-year lease and the landlord demanded the tenant pay the full rent for the rest of them five-year lease term in accodance with an acceleration clause in the lease that required this. The rent was $1364.50 per month and the damages would have been $74,000. The court recognized that acceleration clauses were valid and enforceable but applied ordinary contract doctrine that enforces liquidated damages (damage amounts set in contracts) only if they are a reasonable …

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Real estate purchase and sale agreement enforceable against the estate of the seller

/ Real Estate Transactions

A contract of sale signed by the seller could be enforced by the buyer against the estate of the seller when the seller died after signing the contract but before the closing. Liberty Hill, LLC v. Fernald (Mass. Super. Ct. 2022) (Civ. Action No. 2281CV00480). State statutes provided for specific performances of real estate contracts when the owner dies prior to conveyance. Mass. Gen. Laws ch. 204, §1.

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