Real Estate Transactions

Servient owner entitled to change easement location

/ Easements, Real Estate Transactions, Servitudes

The Vermont Supreme Court has adopted the rule promoted by the Restatement (Third) of Property (Servitudes), §4.8(3), allowing the owner of a servient estate to relocate an easement if this does not reduce the utility of the easement to the owner of the dominant estate. Roy v. Woodstock Cmty. Trust, Inc., 94 A.3d 530 (Vt. 2014). The case concerned an underground easement for water lines. The court also held that the dominant estate owner was entitled to build a housing complex and that this development did not exceed the scope of a right-of-way easement even though it had been originally used only by a church.

Robo-signing mortgage servicer may have violated state false document statute

/ Consumer Protection, Mortgages, Real Estate Transactions, Statute of Frauds, Title Issues

The Ninth Circuit held that a mortgage servicer that allegedly engaged in robo-signing may well have violated an Arizona statute, Ariz. Rev. Stat. § 33-420, that criminalizes filing false property title documents with the state recording offices. In re Mortg. Electronic Registrations Systems, Inc (Robinson v. Am. Home Mortg. Serv. Inc.), 2014 WL 2611314, 2 014 U.S. App. LEXIS 10934 (9th Cir. 2014). There was  evidence that trustee’s sale documents were notarized in blank and signed later by a person other than the one who was supposed to sign the document. Such signings were also done in bulk (robo-signing) and because not signed by the correct person were forged. In addition, notaries are supposed to witness the signature not notarize a blank document before any signature appears. The case is notable because the servicer was MERS (Mortgage Electronic Registration Systems, Inc.). Judge William Fletcher engaged in a detailed discussion about the advantages …

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Mortgage can be equitably reformed because of mutual mistake

/ Mortgages, Real Estate Transactions, Statute of Frauds

In a classic application of a traditional doctrine of contract law, the Massachusetts Land Court allowed a mortgage document to be reformed because of mutual mistake. Citibank, N.A. v. Heywood, 2014 WL 2158409 (Mass. Land Ct. 2014). While courts are very reluctant to amend written property documents or contracts because of unilateral mistake, it is standard practice to ignore the written terms of the agreement, despite the statute of frauds, when the evidence shows that it does not reflect the intent of both parties. The court noted that [A] court acting under general principles of equity jurisprudence has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality” as long as the mistake was mutual.

Massachusetts SJC considers remedies for seller’s breach of promise to sell

/ Real Estate Transactions, Title Issues

In K.G.M. Custom Homes, Inc. v. Prosky, 10 N.E.3d 117 (Mass. 2014), the Supreme Judicial Court of the Commonwealth of Massachusetts held that a buyer can choose to seek either specific performance or damages when a seller breaches the promise to sell. The issue was hard because Massachusetts allows only specific performance as a remedy for anticipatory breach and the complaint had alleged only anticipatory breach. Because the issue of actual breach was fully litigated and the court found the seller to have committed an actual breach, the judge was justified in giving the plaintiff a choice of remedies. Massachusetts law also provides that a liquidated damages clause does not prevent an aggrieved party from seeking specific performance of a real estate transaction. The court also affirmed the rule that every contract contains an “implied covenant of good faith and fair dealing.” That covenant “exists so that the objectives of the contract may …

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Contractual power to modify condo declaration held to be complete defense to claim of deceptive conduct under state consumer protection law

/ Condominiums and Homeowners Associations, Consumer Protection, Real Estate Transactions, Servitudes

The Seventh Circuit found no deceptive conduct within the meaning of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) when a condo developer substantially changed the governing documents after the condo sales. Goldberg v. 401 North Wabash Venture LLC, 2014 WL 2579939 (7th Cir. 2014). The case concerned Trump Tower in Chicago which contains hundreds of residential condominium units and hundreds of hotel condominium units as well as substantial retail space and other facilities. The purchase agreement gave TrumpOrg the “right, in its sole and absolute discretion, to modify the Condominium Documents.” Writing for the three-judge panel and applying Illinois law, Judge Posner held that this clause was sufficient to immunize TrumpOrg from any claim of deceptive conduct. Thus the hotel condo owners had no rights when TrumpOrg “greatly curtailed the owners’ rights in the hotel facilities.” Nor did the conduct violate the statute governing condominiums.

First Circuit supports MERS

/ Mortgages, Real Estate Transactions

The First Circuit reaffirmed its view of the validity of the MERS system under Massachusetts law. Mills v. U.S. Bank, (1st Cir. 2014) (reaffirming Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.2013)). The court explained that there was no conflict between MERS’s role as the “mortgagee” and MERS’s role as the nominee (agent) for the mortgagee (the actual Lender to whom promises were made under the note). Thus the note could be transferred from bank to bank while MERS held “legal title” to the mortgage, giving MERS the power to transfer legal title to the final note holder to allow it to foreclose on the property after default by the mortgagor. According to the court the “MERS framework…separates the legal interest [in the mortgage] from the beneficial interest [in the underlying debt]” and is valid. This separation is valid under Massachusetts law which allows the note to be …

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Owners who lost title to their homes through nonjudicial foreclosure are entitled to raise defenses to eviction

/ Consumer Protection, Mortgages, Real Estate Transactions, Title Issues

The Supreme Judicial Court of the Commonwealth of Massachusetts has ruled that owners may make affirmative defenses to eviction claims by banks that acquired title to their property through a private or nonjudicial foreclosure. Bank of America v. Rosa, 466 Mass. 613 (2013). Those defenses may challenge the way in which the bank acquired title to the property through the foreclosure process and and power of the bank to foreclose in the first place. They may also include any equitable defenses that would defeat the claim for a right to possession of the property (the right to evict).

Housing discrimination by town officials still a problem

/ Antidiscrimination Law, Consumer Protection, Due Process, Fair Housing Act, Leaseholds, Real Estate Transactions

A number of recent cases has revealed the persistence of racial discrimination affecting municipal decisions about housing. The Sixth Circuit found, for example, in Hidden Village, LLC v. City of Lakewood, Ohio, 734 F.3d 519 (6th Cir. 2013), that town officials may have engaged in a campaign of harassment designed to induce African American residents to move out of town. The case involved a Lutheran religious organization that helped young people released from foster care or juvenile detention to enter society. The organization found a helpful landlord willing to rent apartments to the organization’s clients. At first the town officials argued that this amounted to an institutional use in violation of the zoning law but the town planning commission found otherwise. At that point, the complaint alleges that town officials began a campaign of police harassment that involved citations for minor offenses and unreasonable searches of apartments. The Sixth Circuit concluded that …

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No mandatory duty to record titles or mortgages so no evasion of law by MERS

/ Mortgages, Real Estate Transactions, Statute of Frauds, Title Issues

Several lawsuits have been in progress arguing that MERS violated state recording statutes by not recording mortgage assignments and thus cheating recording offices out of fees they otherwise would have earned. Interpreting Illinois law, the Seventh Circuit rejected that claim as have other courts that addressed the issue. Union County v. MERSCORP, Inc., 2013 WL 6017394 (7th Cir. 2013) (applying Ill. law). The court explained that Illinois law agrees with almost all other states in providing a voluntary recording system that is intended to protect those who record; that system does not require property transactions to be recorded for them to be valid. It merely protects bona fide purchasers from prior claims against which they had no notice

Idaho Supreme Court allows MERS to initiate foreclosure proceedings

/ Mortgages, Real Estate Transactions

The Idaho Supreme Court endorsed the power of MERS (Mortgage Electronic Registration Systems) to initiate nonjudicial foreclosure proceedings. Edwards v. Mortg. Elec. Registration Sys. Inc., 300 P.3d 43 (Idaho 2013).The court held that MERS was an agent (nominee) for the actual lender and holder of the beneficial interest in the deed of trust and could act on behalf of its principal. The original deed of trust named Alliance Title as trustee, Lehman Brothers as the lender, and MERS as the beneficiary as nominee for the lender. After MERS substituted a new trustee, the borrower defaulted and the new trustee filed a notice of default to begin foreclosure proceedings. Although the court held that MERS could not be the beneficiary (since no debt was owed to it), MERS could be an agent for the beneficiary (in this case, Lehman Brothers). As agent for the beneficiary, MERS had legal authority to record the …

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