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Author Archives: Christopher P. Finney

Major survey “fails”: They happen

Author By Christopher P. FinneyPosted on

I recently received a plat of survey from a client for a 90-year-old two-family residence he had purchased.  (Survey obtained after the closing.)  It showed several things:

  • The building encroached 8′ onto his neighbor’s property;
  • In addition, there was a walkway and retaining wall the projected even further onto his neighbor’s property; and
  • The home projected 6′ into the public right-of-way (a “right-of-way” is the land owed in “fee simple” or by easement by a governmental entity for roadway and sidewalk purposes (such as through dedication); it is usually much wider than the actual paved area for either).

Now, that’s a hot mess of title and survey issues.  What to do?  What to do?

Get a survey before a purchase

Well, for starters, this is great example of why a buyer needs a survey in addition to a title examination before purchasing real property.  None of these problems would be evidenced by a title examination.  Only a field survey would show these encroachments.  Further, title insurance does not cover these occurrences.

Excuses and justifications

As a side note, we hear over the phone and in the closing room the 25 reasons why a buyer, lender or Realtor does not think title insurance or a survey is needed:

  • The property is “new” (i.e. a new subdivision, with newly-constructed houses);
  • The property is “old,” meaning the homes, garages, driveways and other improvements have existed for a long time.
  • Certainly the seller checked the title and survey, so it is fine.

None of these is a good reason not to get title insurance and a survey.  We can explain further if you like.

Other survey nightmares

In addition to the problems identified above, we have seen other major survey problems:

  • A new house built in violation of a zoning or covenant setback.
  • An entire subdivision where each house was built 5′ onto the neighbor’s property (and thus needs re-platting, deeding the 5′ to the correct owner, a release of the “wrong” mortgage and a re-filing of the correct mortgage).
  • Condominiums where the unit numbering was changed from the time the contract was signed to the time when the condominium documents were file (and thus many units were mis-numbered and every unit needs a new deed, a release of the “wrong” mortgage and a re-filing of the correct mortgage).
  • A complete misunderstanding (or misrepresentation) of the location of property lines.
  • Encroachments (e.g., fences, sheds, utilities) of various improvements onto our client’s property.
  • Encroachments of various improvements from our client’s property onto their neighbor’s property.
  • An easement that runs right where your client intends to build on otherwise “raw land.”

Solutions

For the client noted above, he has several remedies to the problems.

  1. First, did he purchase title insurance?  If he did, he may have a claim — but probably not.  Why not?  For starters, title insurance provides coverage for the insured premises, not for property outside the boundaries of the insured premises.  And by definition, the three problems he called about are outside of the metes and bounds of the property he acquired.  Moreover, the standard title insurance policy specifically excepts coverage of matters that would be disclosed by an accurate survey, and as a rule that exception to coverage is not deleted (and thus coverage provided) without a survey certified to the title company.
  2. Second, did he get a general warranty deed from the seller, the most common form of deed in use in southwest Ohio certainly?  If so, he may (may) have a claim against the seller for breach of the contract and breach of the general warranty covenants.
  3. Third, as to the first two issues (the encroachments onto the neighbor’s property he almost certainly has a strong case for a claim to ownership of the property through “adverse possession.”  You may read a detailed analysis of that here.
  4. Fourth, however, as to the portion of the property in the public right-of-way, the client has a difficult row to hoe.  One may not adversely possess against a governmental entity in Ohio.  The only way to perfect title to the portion of the building in the right-of-way is to seek a deed (or statutory street vacation) from the governmental entity whereby they voluntarily surrender that title to the property owner.

Conclusion

The saying “an ounce of prevention is worth a pound of cure” is appropriate here, as it is with all due diligence investigations before the purchase of real property.  The buyer should have “kicked the tires” with a good surveyor before closing on the sale.  But this is the situation now. So, he can pursue the seller and the neighbor to vindicate his rights to the home and walkway.  As to the governmental entity owning an interest in the right-of-way, he simply needs to work the ropes to see if it will relinquish its interest in his home.

 

 

Clermont property buyer gets tagged with $682,000 extra tax bill; litigation ensues

Author By Christopher P. FinneyPosted on

The purchaser of an apartment building Clermont County and his counsel are learning the lessons of real property taxes — and the ways to handle tax prorations —  the hard way.  Because neither the seller nor his attorney thought through the transaction carefully, the purchaser (a) lost $682,000 in tax proration negotiations and (b) has suffered what appears to be an entirely unnecessary increase in the same amount in his annual real estate taxes, essentially forever.

How can outcomes between savvy and clumsy real estate transactional work vary so dramatically?

Underlying facts

On December 28, 2021, RS Fairways, LLC closed on the purchase of Fairways at Royal Oaks, an apartment complex in Pierce Township on Clermont County for $32,600,000.  The Auditor’s valuation at the time of the sale was $6,622,000.  The difference between the sale price and the Auditor’s valuation was $25,977,700, a whopping 500% increase.

Following the sale, our former Associate, Brian Shrive — who now heads the civil division of the Clermont County Prosecutor’s office — on behalf of the Prosecutor, saw the conveyance fee form filed with the deed reporting the whopping sale price-compared-to-Auditor’s-valuation and filed \a Board of Revision Complaint to increase the valuation — retroactively to January 1, 2021 — to the sales price.

Almost inexorably, the Board of Revision would have so increased the value, so the owner, the Prosecutor and the School Board later entered into a Stipulation as to the new valuation at $32,600,000.

Tax proration language

As we have written about here (just one month before this buyer closed; he should have read our blog!), standard tax proration language in use in the Cincinnati area calls for a tax proration to be based upon the most recent available tax duplicate.  Since the Auditor and School Board will not know about the sale until after the deed is recorded, current taxes can’t possibly be based upon the sale price.  Here, the Auditor obviously had a grossly outdated and inaccurate valuation.

In other words, standard and customary contract language in use in greater Cincinnati simply does not adequately protect the purchaser in a situation where it is paying much higher than the Auditor’s present valuation.

The Contract in question provided:

If the 2021 tax bill is not available as of the Closing Date, then the proration described in clause (b) above shall be based on the 2020 tax bill for the property.

Why do we prorate taxes in Ohio?  Taxes in Ohio are paid “six months in arrears at the end of the period.”  What does that mean?

It means that the first half 2021 tax bill is issued in January of 2022 and the second half 2021 tax bill is issued in July of 2022.  Therefore as of the date of closing (here, the end of December 2021), the seller owned the property for all of 2021, but hadn’t paid the taxes for 2021.  Therefore, at closing (under local contract form and custom) the seller prorates to the buyer the taxes for the period it had owned the property, but at existing tax and valuation rates.

The dual problems are: (i) if there is a change in the tax rate for 2021 (such as with the passage of a school or other levy), the proration will be wrong as to the 2021 rate and (b) if there is a change in the tax valuation in the normal triennial cycle, the valuation (and thus the taxes) will change, and, here’s the kicker, (c) well after the closing, a school board or the County Prosecutor have the right to ask the Board of Revision to retroactively, back to the beginning of the prior tax year, change the valuation to a reported sales price.

And, as Casey Jones of our office blogged here, a recent arm’s length sale is uncontestably the valuation for tax purposes.

Thus, under the law, a purchaser is liable for taxes calculated at the tax amount for the taxes for the periods from the date prior to the sale (based upon the next tax bill to be issued) and into the future.  And this new tax rate calculates in “unknowns” at the time of the closing, which are a change in rate and a change in valuation.  Both of these can be both assessed, and as to the valuation, can be contested and litigated, well after the sale, but the retroactive liability for those taxes falls on the new property owner.

“Forever” increase in taxes

The tax proration flub — a $682,000 mistake — was bad enough, but worse is that the reported sale will result in a new baseline valuation for future taxes of $32,600,000 for a property that previously was valued and taxed at just $6.2 million.  Every three years the County will start with the $32 million number and make (likely) increases from there, so this owner will have $700,000 in higher taxes (than likely he anticipated) forever.

Could the massive increase have been prevented?

Two fairly sophisticated legal techniques could have been employed by this purchaser to avoid these massive “surprise” tax bills.  One would have spared them the cost of the under-proration, and the second could have resulted in a permanent savings — tens of millions to the purchaser’s bottom line.  They employed neither.

First, when a purchaser pays an amount significantly above Auditor’s valuation for property (this is a simple task of comparing the sale price to Auditor’s valuation [a quick on-line check]) before the contract is negotiated and signed, a purchaser will want the tax proration language to include a re-proration after the final taxes for the year prorated are known.  [By the way, when we get into an environment of declining values, the inverse rules as to tax proration can apply — the purchaser will have an advantage in the proration process — an over-proration —  if the contract language is not modified.]

Second, a technique is available in Ohio (but not Kentucky) to have the seller first transfer the property into an LLC that he owns exclusively (by deed, but with an “exempt conveyance fee form,” so that no sales price is reported) and then, at the closing between seller and purchaser, the seller transfers his interest in the LLC to the purchaser — and thus there is no recorded deed.  These transfers are referred to as “drop and swaps” or “entity transfers.”  In this situation — with some possible exceptions, the Auditor and school board are not put on notice of the sale or the sale price, and thus the increase in value could slip by unnoticed.

Here, the purchaser employed neither technique resulting in a bad proration and “forever” tax liability.

Ensuing litigation

Despite terrible tax proration language that we see as “fatal” to the purchaser’s claims (see above, they agreed to base the proration on the 2020 tax bill, period), the purchaser has sued the seller for a re-proration based upon the post-closing tax “surprise.”  Good luck with that.  See the Complaint here.

Conclusion

Smart advance legal planning by a purchaser or seller can dramatically change the outcome as to taxes in a real estate transaction.  Contact Isaac T. Heintz (513.943.6654) or Eli Krafte-Jacobs (513-797-2853) for assistance on your real estate transactions to avoid these disastrous outcomes.

Finney Law Firm frequently utilizes “We can talk” agreements in settlement discussions

Author By Christopher P. FinneyPosted on

Ohio Rule of Evidence 408 generally provides that settlement discussions are “not admissible to prove liability for or invalidity of the claim or its amount.”

Public policy behind inadmissibility of settlement discussions.

Why not? Shouldn’t the judge or jury know all of the facts of a situation in determining liability and in assessing damages, for if a Defendant offered to pay he more or less must be liable, correct? Or shouldn’t the amount — the range — of settlement amount discussed, be some indication of the value of the claim?

Well, Courts have decided as a matter of public policy that the answer is “no.”  It would discourage good faith settlement discussions if the fact of such discussions and what was discussed were admissible.  We want parties to settle their disputes and bringing settlement conversations into Court would throw a cold wet towel on those conversations.

But Rule of Evidence 408 is not perfect

But Rule 408 is not all-encompassing.  It excepts party admissions of liability jnd, if agreement is reached, — or claimed to be reached — that oral settlement can be enforceable — sometimes much to the surprise and chagrin of one of the parties.

Further, in our experience, impermissibly and unethically, what happens in the course of settlement discussions is that those conversations seep into court proceedings and discovery.  Further, invariably opposing counsel will share some morsel of the tenor, tone or dialogue with a Judge to gain an advantage in the litigation.  In other words, opposing counsel and parties are not always trustworthy.

“We Can Talk Agreements”

As a result, before engaging in settlement discussions with opposing parties or counsel, Finney Law Firm frequently has the parties sign what we call a “We Can Talk Agreement” that generally provides two things:

  • Nothing said in the course of the settlement discussions will come into play in any manner in the litigation proceedings: Not in discovery, not in “in Chambers” conversations with the Judge, and not in Court.
  • No claimed oral settlement agreement will be binding unless and until it is memorialized in writing and signed by our client.  Period.

I recently had opposing counsel ask me: “Why would you ask me to sign such an agreement?”  It was a case in which we had the upper hand and the defendant was flailing around for some foothold for a defense.  Opposing counsel already had engaged in motion and discovery abuse, needlessly and substantially driving up the cost of litigation, and after 26 months of writing, twisting and turning, he had run out of underhanded tactics, and was approaching facing the music before the Judge.  My answer: “Because I don’t trust you. You, in this case and attorneys at your firm over the years, have engaged in underhanded tactics, and we won’t sit and talk except on our terms.”

Setting the proper tone for settlement conversations

In addition to beefing up the protections of Rule of Evidence 408, the “We Can Talk Agreement” establishes, shall we say, imposed mutual respect between the parties.  We find it a powerful tool to set the proper tone in settlement discussions.

Direct client conversations

Other times, clients want to talk directly — without the filter of attorneys.  Again, it’s not just what our client may say during the course of those conversations that is potentially problematic, but what the other party will claim they said.  (Side note: Assume all conversations these days are being recorded, especially those in situations of conflict.)  Further, sometimes clients want to use an intermediary, such as a priest, pastor or mutual friend to resolve a dispute.

In these instances, we also recommend a “We Can Talk Agreement” to enable and encourage a full and robust conversation.

Conclusion

When you already know you are in the midst of a conflict with another party, caution is the watchword and a “We Can Talk Agreement” can greatly advance the cause of a cautious approach to settlement discussions.

__________________________________________________

The text of Ohio Rule of Evidence 408 is below:

Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.

Judge Wende Cross certifies classes in Cincinnati “Alarms Tax” case

Author By Christopher P. FinneyPosted on

Hamilton County Common Pleas Court Judge Wende Cross has certified two classes in White v. Cincinnati, litigation in which both the 1851 Center for Constitutional Law and Finney Law Firm represented payors of the illegal and unconstitutional Cincinnati tax on security alarm systems.  The two distinct classes certified are (a) residential and (b) non-residential payors of the Cincinnati alarms tax.

The City charged residential alarm-system-owners $50 per year to register their systems and commercial owners $100 to register their systems.  Last fall, the 1st District Court of Appeals unanimously ruled the tax illegal under Ohio law and unconstitutional, overruling a trial Court ruling on the same subject.  In March of this year, the Ohio Supreme Court preserved that victory for Cincinnati property owners when it refused to accept discretionary review of the case.

We now proceed to an an Order that will establish the amount and procedures for the restitution of the illegally-collected sums, a fairness hearing, and then distribution of the refunds to payors.  We aim for the conclusion of those steps this calendar year.  The amount of restitution is expected to be more than $3.6 million.

For questions, contact Chris Finney at 513.943.6655.

You may read the order issued April 22 here.

 

 

Governor DeWine signs into law legislation that significantly clips wings of School Districts in tax valuation litigation

Author By Christopher P. FinneyPosted on

Until now, School Districts in Ohio were fully empowered to participate in legal proceedings to oppose the lowering of Auditor’s property tax valuations and to seek increases in property tax valuations.  No more.

As we explain here, the Ohio House and Senate in the past few weeks passed legislation that upends the current equilibrium among County Auditors, property owners and school boards, to tilt matters decidedly in favor of property owners. (In fairness, Ohio had granted school boards a far greater role in the process than most other states.)

Today, Governor DeWine signed that bill, Am. Sub. H.B. 126, into law.  Read the summary of the legislation here.  The Cleveland Plain Dealer covers today’s events here.

For assistance with property tax valuation matters, please contact Chris Finney (513.943.6655) or Casey Jones (513.943.5673).

Tea Party groups move to unseal Lois Lerner and Holly Paz depositions

Author By Christopher P. FinneyPosted on

As we previously wrote about, here, Finney Law Firm was honored to serve as co-counsel to Tea Party groups throughout the nation in what we believe was the only certified class action ever against the Internal Revenue Service for its targeted discrimination against the plaintiffs resulting in protracted delays in processing and granting tax exemption status due to their political viewpoints. The targeting was led by Obama administration IRS official Lois Lerner and her chief deputy at the IRS, Holly Paz.

After years of pitched legal battles, that litigation ended with a dramatic settlement in which the IRS paid damages to Tea Party groups, the IRS paid the Tea Parties’ attorneys fees, and then-US Attorney General Jeff Sessions issued a personal apology on behalf of the United States of America that included this unequivocal statement about the IRS intentional wrongdoing: “this abuse of power will not be tolerated.”

In that litigation, plaintiffs succeeded in obtaining the depositions of Lerner and Paz, but the transcripts of the depositions — finally revealing their own testimony about the origins and implementation of the outrageous policies and practices — have remain sealed under a temporary emergency Order by Judge Michael Barrett. (Even US House and Senate Committees investigating the wrongdoing were stymied in getting that testimony when Lerner and Paz each invoked their 5th Amendment right against self-incrimination.)  That Order bottling up the deposition transcripts was never made final, and thus it could not be appealed.  Thus, to this day — more than three years later — the deposition transcripts remain hidden from public scrutiny.

As a result, this week, Plaintiff’s counsel filed a Motion for Writ of Mandamus before the 6th Circuit Court of Appeals seeking to have the depositions unsealed.  You may read the Motion here.

Ohio legislature sends major changes in Boards of Education/Boards of Revision process to Governor DeWine for signature

Author By Christopher P. FinneyPosted on

A bill passed this week by the Ohio legislature could make major changes in the current process for Ohio tax valuation challenges before Ohio Boards of Revision as it relates to participation by Boards of Education if Governor DeWine signs it into law.

Unlike the procedures in many other states, in Ohio, Boards of Education (the major recipients of property tax monies) may both initiate complaints to increase the valuation of real property (and thus increase property taxes owed) and may oppose a property owner’s legal attempts to secure a reduction in tax values as well.

Some major features of the legislation, Am. Sub. H.B. 126, follow:

  1. School districts may not initiate a complaint to increase valuation unless the challenge meets all of three requirements (a) the challenge is based upon an actual arm’s length sale of the subject property before the tax lien date in question (this would then, it seems, also rule out challenges at all of “entity transfer” sales and sales after the tax lien date in question), (b) the sale is at least 10% above the then-established Auditor’s valuation and (c) such sale price exceeds the Auditor’s valuation by at least $500,000 (that amount is then annually subject to a CPI adjustment).
  2. Boards of Education would have to carefully undertake extensive and detailed procedures to specifically authorize by resolution such challenges, on a property-by-property basis, with at least seven days’ advance certified mail notice to each affected property owner.  The level of detail of these procedures appears to be nothing more than a series of procedural traps for Boards of Education to discourage their involvement in the tax valuation process.
  3. The involvement of Boards of Education stop at the Board of Revision.  While property owners or the Auditor may pursue an appeal of a Board of Revision decision, Boards of Education will have no authority to appeal (or participate in a property owner appeal) of a Board of Revision decision.
  4. Presently, property owners may enter into private settlements with school districts to avoid or end their opposition to a valuation reduction or its attempts to seek valuation increases. H.B. 126 will outlaw the practice of entering into these “side deals.”

More minor changes include:

  1. Boards of Education may file counterclaims to property owner complaints to reduce valuations only if the initial Complaint seeks a reduction of at least $17,500 (Boards of Education rarely if ever file counterclaims below this level at present).
  2. Boards of Revision lose jurisdiction to increase valuations of claims by Boards of Education are not acted upon within one year of the date of the filing of the Complaint (in our experience, this delay only happens in a few large urban counties in the year following a triennial revaluation, so this type of prolonged delay is quite uncommon).

There is no language in the bill about its effective date, upon our initial review, and thus it would seem its effective date would be 91 days after it becomes law (under the Ohio Constitution).  Thus, some of these provisions (pursuit of appeals, for example) could have an impact on valuation complaints and school board counterclaims filed in calendar year 2022.

We will promptly update this blog when Governor DeWine either vetoes or signs the legislation into law. He has 10 days to act, or the bill automatically becomes law.

Read more about the legislation here:

Read the actual legislation here. Contact Chris Finney (513.943.6655) if you have questions about the legislation or desire to pursue or defend against an Ohio or Kentucky property tax valuation challenge.

 

Chris Finney talks to 700 WLW’s Bill Cunningham about unanimous jury verdict against the Ohio Civil Rights Commission Commission (outrageous)

Author By Christopher P. FinneyPosted on

Listen in as Chris Finney discusses his 8-0 unanimous victory against the Ohio Civil Rights Commission as they attempted to extract money for a tenant in an entirely frivolous case.  The conduct of the Ohio Attorney General’s office and the Ohio Civil Rights Commission was shameful and outrageous in this case.

 

Team Finney notches big unanimous victory in jury trial versus Ohio Civil Rights Commission

Author By Christopher P. FinneyPosted on

Truth can be stranger than fiction.  And the last few weeks at the Finney Law Firm that has been the case.

Yesterday, Chris Finney, Jessica Gibson and Julie Gugino racked up a unanimous jury verdict (8-0) to defeat a case of claimed retaliation in response to a tenant’s claimed request for a disability accommodation that was met with a non-renewal of a residential lease.  The case was styled Ohio Civil Rights Commission v. Abundant Life Faith Fellowship in front of Judge Christian Jenkins in Hamilton County Common Pleas Court.  The Civil Rights Commission was also suing the Church’s pastor who had served for 41 years.  In candor, the Civil Rights Commission did a terrible job of vetting its own case with a terrible, dishonest plaintiff and a very sympathetic defendant.  Its attorneys at trial also were not exactly prepared or stellar.

The Civil Rights Commission case was full of demonstrable untruths about a kind-hearted 74-year-old African American minister who had suffered two strokes.  By the testimony of two of her fellow tenants in the building, the complaining tenant had plotted starting fewer than two weeks into her tenancy to drum up a fictitious lawsuit against the landlord as a way to extract money from him — she told this to her fellow tenants.  And for a year, she made his life a living hell, with incessant complaints about inadequate heat and fabrication about needing more light for a vision disability (in fact, her complaints about lighting had been adequately addressed early in her tenancy).  Dozens of complaints were addressed by visits by with servicemen, engineers, and repairmen to cater to her many whims and incessant gripes.  The Cincinnati Health Department came out and confirmed the unit in every room was heated to a comfortable 72°F to 73°F (the tenant lied to the jury — never a good idea — and said the readings were 62°F, 64°F and 66°F).

In the funniest part of the trial, the tenant at first denied and then admitted sending a bizarre text message to the landlord in the depth of winter, after he noticed that the windows of every unit in the building were open, including those of the tenant who constantly complained it was too cold!  Here is the text message, grammatical errors and misspellings included:

Yes, her crazy assertion to the landlord was that he must maintain the heat in the unit at 70°F even if the windows of the unit are left open!

Of course Pastor Brown and the Church had to fund the 4-year defense of the Civil Rights Administrative Complaint and the lawsuit, which he did with aplomb, but at great expense.  For the benefit of all landlords subject to outrageous prosecutions from obstinate public agencies, he saw this case through to its appropriate and proper end.  He refused to be bullied by the Ohio Civil Rights Commission, the office of the Ohio Attorney General and Housing Opportunities Made Equal (H.O.M.E.) (which manufactured evidence and knowingly lied to the Civil Rights Commissions in “building their case”).

For more information or to avoid being bullied by these same agencies: (a) DO NOT TALK TO THEM in an investigation EVER and (b) contact Jessica Gibson  (513.943.5677) for assistance with your case.

Another public interest class action win — Cincinnati Alarm Tax

Author By Christopher P. FinneyPosted on

As we wrote here, in November the Ohio First District Court of Appeals in White v. Cincinnati unanimously ruled in favor of clients of the 1851 Center for Constitutional Law and Finney Law Firm in a challenge to the City of Cincinnati’s alarm tax scheme. The City of Cincinnati asked the Ohio Supreme Court to review that decision, a discretionary call by Court.  Historically, Ohio’s top Court accepts only about 5% of such cases for consideration.

Today, the Ohio Supreme Court declined to accept for review the First District decision.  Since that was the last stop on the railroad for the City, the inevitable next legal steps are injunction against further collection of the tax, class certification and an order of restitution before Common Pleas Court Judge Wende Cross.

Amazingly, even after the First District ruled that the tax was illegal, through today the City of Cincinnati insisted on continued collection of the tax. So, an injunction by the trial court now will be necessary.

If you are a Cincinnati alarm fee payor, you should be expecting a refund once the amount has been calculated and the procedural hurdles cleared, perhaps later this year.  If the City continues to attempt to extract alarm charges from you, respectfully decline and send them this blog entry!

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