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Real Estate 101: Breach of general warranty covenants can be costly mistake

Author By Finney Law FirmPosted on

A common form of conveyance when selling real estate is the general warranty deed. With a general warranty deed, not only does the seller transfer title to the property, but also promises that she has good, marketable title and will defend any claims against the property otherwise.

For example, if you sell property using a warranty deed and there is an unpaid lien against the property, you must either pay an attorney to defeat the lien, or you must pay off the lien. Failure to do so is a breach of the warranty; and will entitle the buyer to damages, and attorney fees. Read more about types of deeds here.

Hollon v. Abner (1997 WL 602968), a 1997 Hamilton County Court of Appeals case, illustrates the point precisely. The sellers failed to account for tax liens that had attached to the property during the brief time that the property was in their son’s name.

The Abners came to own the property when their son, under contract to purchase the property, was unable to complete the purchase. The Abners stepped in and gave him the money to complete the purchase. Title transferred to the son’s name, and he immediately transferred the property into the parents’ names. But just that one moment during which the property was in the son’s name was enough for IRS liens for the son’s unpaid taxes to attach to the property.

After owning the property for five years, the Abners sold the property to Hollon (by general warranty deed). When Hollon later tried to sell the property, a title report the buyer insisted on revealed the tax liens.

In order to complete the closing, Hollon was forced to place over fifteen thousand dollars in escrow. Despite repeated demands from Hollon, the Abners refused to either defend against or pay off the liens. Eventually, Hollon brought suit against the Abners for breach of warranty, because the title they transferred to him was not free of encumbrances, and the Abners refused to defend or pay off the liens.

Hollon was granted summary judgment against the Abners, and the trial court ordered the Abners to pay damages in the amount of the tax liens, plus the escrow fees, and Hollon’s attorney fees.

While it is generally understood that attorney fees are only awarded in a breach of warranty claim where the buyer incurred attorney fees in defending against the lien, in this case, the Court Appeals ruled that that the trial court’s award of attorney fees was appropriate because Hollon only incurred fees because the Abners both failed to convey marketable title, and refused to defend or pay the liens; that is, it was only because of the Abners’ failure to live up obligations that the lawsuit was necessary.

The lesson being, if you sell real estate via general warranty deed and the buyer later contacts you regarding a lien that had attached before you sold the property, live up to your obligations before the court forces you to.

Volokh dissects Supreme Court moves on yard signs

Author By Christopher P. FinneyPosted on

Oh, the intrigue involved with reading the smoke signals emanating from the U.S. Supreme Court!  For those who love the law, it can be fascinating to watch.

Today, the Court accepted for review  Central Radio Co. v. City of Norfolk, which examines the question as to whether an exemption from a sign ordinance for religious and governmental emblems renders the sign ordinance unconstitutionally content-based.

This question in Central Radio is similar to one the Court has been grappling with for several months in Reed v. Town of Gilbert, heard at oral argument on January 12 of this year.  There, the Court will decide if restrictions placed upon temporary signs due to their content is unconstitutional.  The Town of Gilbert gives favorable treatment to temporary political, ideological and other messages as compared to directional signs placed for church services.

Volohk speculates that SCOTUS’ plan is to “grant, vacate, and remand the case back to the Fourth Circuit” from whence it came in light of the decision in Town of Gilbert, coming before the end of this month.

We expect that the Court’s decision Town of Gilbert will impact on our pending case, Wagner v. Garfield Heights, addressing similar content-based issues.  That interrelationship is addressed here.

Read the Washington Post article analyzing the Central Radio case here.

 

Chapter 7 debtor cannot strip wholly unsecured 2nd mortgage

Author By Finney Law FirmPosted on

In the important case of Bank of America, N.A. v. Caulkett, 135 S. Ct. 674 – 2014, the US Supreme Court has held that debtors in a Chapter 7 bankruptcy proceeding may not void a wholly unsecured junior mortgage lien under 11 U.S.C  §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the credi­tor’s claim is both secured by a lien and allowed under §502 of the Bankruptcy Code.   The Court overruled and reversed the Eleventh Circuit decision  rendered in McNeal v GMAC Mortgage, LLC, 735 F.3d 1263 (11th Cir. 2012) which allowed wholly unsecured liens to be stripped.

The Supreme Court ruled that  §506(d) does not permit bankruptcy courts to “strip off” completely unsecured junior mortgage liens on the property even if the value of the property acting as collateral is less than the amount the Chapter 7 debtor owes to the first (senior) mortgage holder.   In making its decision the Court extended on its ruling in Dewsnup v. Timm, 502 U.S. 410 (1992), which held that §506(d) does not allow a Chapter 7 debtor to “strip down” a partially mortgage lien to the current value of the collateral.

Chapter 7 Debtors are now left to look to filing for Chapter 13 or Chapter 11 reorganization plan to obtain the partial or complete lien strip that Dewsnup and Caulkett denies to a homeowner.

Read the complete decision here.

800th Anniversary of the Magna Carta and the Rule of law

Author By Christopher P. FinneyPosted on

The concept that man is subject to the rule of law, rather than the rule of law being subject to the whim of man, was birthed 800 years ago this month with the execution of and affixing of his royal seal upon the Magna Carta at Runnymede by King John.

The Wall Street Journal, here, has an excellent article on the world-changing importance of this document, and all freedoms that flowed therefrom: “uncensored newspapers, security of property, equality before the law, habeas corpus, regular elections, sanctity of contract, jury trials.of the things.”

But this 800 years of freedom is, and always has been, under constant threat.  We all must remain vigilant.

New construction: The “When”

Author By Christopher P. FinneyPosted on 2 Comments on New construction: The “When”

This article is the second in a series on new construction.  The contents of this series of articles apply to commercial as well as residential projects.

In this blog entry, we discuss the “what” is to be built under a new construction contract, residential or commercial.  The problem is that, unlike with an existing building, in order to properly contract for the construction of a new building, the parties must carefully define “what” is to be built using words and drawings.

I teach continuing education classes on new construction, and there I define this problem of describing the improvements to be built as a 4-dimensional problem, with the first three dimensions being the height, width and depth of a project — the physical description of what is to be built.  The 4th dimension, then,  is “when” the project is to be delivered.

This blog entry addresses that topic — the 4th dimension of a construction project — when will the finished product, or substantially finished product, be delivered to the buyer.

There are a myriad of issues that can impact the “when,” starting with selections to be made by the buyer.  Here are just a few of the issues impacting the timing of completion:

  • The buyer’s inability to make timely design and selection decisions for finish items.  This is the item most frequently cited by builders as to why the buyer has slowed the project and driven up costs.
  • Design changes.
  • Unexpected site conditions, such as bad soil or environmental problems.
  • Regulatory issues,such as zoning and building permits and roadway access..
  • Utility availability at the property line.

The timing issues encountered in a construction contract significantly impact both construction costs and operational issues confronted by both buyer and seller.  Thus, having a realistic understanding of timing issues at the front end of a construction project is important, and deciding how to allocate the risk of timing issues is a critical contract consideration.

This article is one in a series on the Finney Law Firm blog on new construction.  Read more here:

New construction: The problem of “what” is to be built >>

New construction: Change orders, allowances and selections can significantly impact price >>

New construction: On whose land are you building? >>

New construction: Cost-plus versus fixed-price >>

New construction: What form of contract?

New construction: Ohio residential buyers absolutely protected from liens in limited circumstances

New construction: The problem of “what” is to be built

Author By Christopher P. FinneyPosted on

This article is the first in a series on new construction.  The contents of this series of articles apply to commercial as well as residential projects.

Defining “what” is to be built in a new construction contract can be tricky.

For starters, when buying an existing commercial building or house, you can see, touch, feel and inspect what is there, and based upon those observations decide whether or not to buy.   But in a new construction contract, we must define — using words and drawings — the end product.  And it is an end product with hundreds and thousands of components.  Thus, we must carefully use the contract to describe what the builder will build.

This would include dimensions, construction materials, fixtures, mechanical systems and equipment, appliances, and finish materials, such as millwork (cabinets), countertops, flooring, landscaping, etc.

Some of these items are left out of the contract, and references as “allowances,” which are to be addressed in a later article.  Be cautious with allowances, as they are frequently the basis for price disputes between builders and buyers.

Second is the intangible of “quality.”  The flatness of concrete floors, the waviness of walls, the precision of miter joints, are all exceedingly difficult to describe.  One way to tackle this drafting challenge is to refer to a “model” or “sample” that the builder has held out as the general quality of construction.  For example: “the general quality of construction — to the finishes and selections — will equal or exceed that of the model home shown to buyer by builder located at 1234 Main Street.”  Others try to reference objective standards of quality, but this can be cumbersome to wade through– and be cautious of who drafted these standards as they will invariably be tilted towards the drafter.

So, consider carefully how you define what is to be built, and the quality of the construction.  It can mean the difference between a quality project and a disappointment.

This article is one in a series on the Finney Law Firm blog on new construction.  Read more here:

New construction: The “when” >>

New construction: Change orders, allowances and selections can significantly impact price >>

New construction: On whose land are you building? >>

New construction: Cost-plus versus fixed-price >>

New construction: What form of contract?

New construction: Ohio residential buyers absolutely protected from liens in limited circumstances

An interesting set of title problems — how could the buyer have been protected?

Author By Christopher P. FinneyPosted on

We recently were consulted by a couple who had purchased three residential lots with lake frontage.  They intended to build a home that straddles all three lots, so clear title to all three is critical to their plans.

Unfortunately, when they went to the bank for a loan on the properties to build their dream home, they learned that title to two of the lots is impaired.

Before buying the two lots, they had the title checked, and they thought the attorney wrote to them with a title opinion on both.  As they checked their paperwork, they did have one title opinion letter, but it recited neither of the lots in question, but rather a lot they had sold.  

Thus, they were ready to start construction of their home, but were “stuck” either with bad title, or waiting for the title to be cleared.

How could this situation have been avoided?

  • First, they could have purchased an owners’ policy of title insurance;
  • Second they could have read the policy — to make sure it covered the right property and that it did not have unacceptable “exceptions” to coverage (that topic is addressed in this blog entry); and
  • Third, they could have dealt with experienced real estate attorneys from the outset.

This firm worked to assure that the attorney handling the closing will in fact “stand behind” his deficient legal work, but with proper legal work or title insurance coverage in place, they could be proceeding to build their dream house music sooner.

Forcing a reluctant seller to close

Author By Christopher P. FinneyPosted on

We discuss here the power of a lis pendens action, which is the combination of a law suit to force a seller to perform combined with a public notice to all prospective purchasers and mortgage lenders that the buyer in the litigation has a claim to the title to the real estate.

In addition to litigation — which always runs the risk of becoming expensive, there is another tool available under Ohio law that should have the effect of preventing a seller from conveying title to a second buyer or mortgage lender free from claims of the buyer number 1: An Affidavit of facts relating to title.

Ohio Revised Code Section 5301.252 sets forth the requirements for an Affidavit of Facts Relating to Title.  Essentially, one includes the legal description of the disputed land, and then  recites the name of the owner and the recording reference for his deed, along with the facts underlying the buyer’s claim.  So, if a buyer has a contract to buy real estate that the seller is breaching, one attaches that contract to the Affidavit, recites that pursuant to that Contract the buyer has the right to buy the subject property and places that claim of record.

A subsequent buyer “should” not buy the land, as long as his title examiner catches the claim (which he should).  (We have seen circumstances where subsequent buyers blow past these claims.)

Thus, the seller of real property is placed in the position of needing to address the buyers’ claims before he can sell the property to another, or mortgage the property.

An Affidavit of Facts Relating to Title can be a powerful tool to force sellers to deal with a title claim from a buyer whom he would rather ignore.

 

Cincinnati Public Golf Courses Entitled to Property Tax Exemption

Author By Christopher P. FinneyPosted on

For five years, the issue has been percolating through the Ohio Department of Taxation and the Courts: When Cincinnati leased its municipal golf courses to Billy Casper Golf Management, did their real property become taxable?

The State Tax Commissioner said the property did become taxable.  The Board of Tax Appeals disagreed, and the Ohio Supreme Court unanimously agreed with the City of Cincinnati last week that the privatization agreement did not render the property taxable.

Court News of Ohio has the story here.

The decision, Joseph P. Testa, Tax Commissioner of Ohio v. City of Cincinnati, is here.

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