When banks and other lenders make a loan for real estate financing, they typically take back from the borrow a promissory note (promising to re-pay the sums borrowed) and a mortgage against the real estate financed (securing the payment of the loan).
And under that scenario, even a borrower in default has certain rights as against the lender.
First, there is a statutory right of redemption of the property in the foreclosure process under O.R.C. Section 2329.33:
…in sales of real estate on execution or order of sale, at any time before the confirmation thereof, the debtor may redeem it from sale by depositing in the hands of the clerk of the court of common pleas to which such execution or order is returnable, the amount of the judgment or decree upon which such lands were sold, with all costs, including poundage, and interest at the rate of eight per cent per annum on the purchase money from the day of sale to the time of such deposit, except where the judgment creditor is the purchaser, the interest at such rate on the excess above the judgment creditor’s claim. The court of common pleas thereupon shall make an order setting aside such sale, and apply the deposit to the payment of such judgment or decree and costs, and award such interest to the purchaser, who shall receive from the officer making the sale the purchase money paid by the purchaser, and the interest from the clerk. …
Second, the borrower has the right to the net proceeds from the foreclosure sale beyond the court costs and the amount due to the lender (i.e., any built-up equity in the property belongs to the borrower).
Finney Law Firm alleges in a recent class action complaint that Cincinnati companies Build Realty, Inc., Edgar Construction LLC, and certain investors associated with them have created a tremendously complicated scheme to impermissibly attempt to deprive a broad group of real estate investors of these statutory rights in the lender/borrower relationship.
From the Complaint:
This case involves a complex business scheme where Defendant Build Realty, Inc. and Defendant Edgar Construction LLC solicit investors to purchase and improve real property from/through them under a fraudulent structure, prohibited by Ohio law. To effectuate this transaction, Edgar Construction, LLC (“Edgar Construction”), purchases certain real property from a third party, then immediately resells the property at a higher price to itself as trustee of a trust under which the investor is the beneficiary. Edgar Construction’s affiliated entity, Build Realty, Inc. (“Build Realty”) agrees to lend the investor the after–renovation-value of the property, including the higher purchase price and an additional amount for improvements (held in escrow). As part of this transaction, the investor, Build Realty, and/or Edgar Construction simultaneously execute numerous agreements, under which the investor is obligated as a mortgagor and borrower on a note for the amount loaned by Build Realty. One of the documents signed during this transaction also purports to allow Defendants to reclaim the property, extinguishing the investors’ rights therein, upon any default and without the opportunity for cure or any subsequent foreclosure or deed in lieu of foreclosure.
The Ohio Supreme Court and courts throughout the state have recognized the structure of the Transaction as an improper clog on the right to redemption. Additionally, the Transaction is fraudulent, void for unconscionability and as against public policy, and involves numerous breaches of the fiduciary duties owed to the investors (which are the beneficiaries of the trusts). This Transaction effectively allows Defendants to profit at the expense of their investors/beneficiaries, including (i) the retention of the down payments paid on the properties, (ii) the difference in the purchase price that Edgar Construction paid and the purchase price for the conveyance from Edgar Construction to Edgar Construction, as trustee, and (iii) any foreclosure proceeds the investor(s) would have realized.
The Class Action Complaint seeks compensatory damages and disgorgement of profits, punitive damages and a declaration that such transactions by these defendants are impermissible under Ohio law.
For more information on this suit, contact attorney Casey Taylor at (513) 943-5673 or [email protected].
If you are purchasing a home in a county with a countywide water system (e.g. Butler County), you should be aware of a little known wrinkle in the law that could leave you on the hook for your seller’s water bill.
R.C. 6103.02(G) gives a county water works three options to collect unpaid water bills: create a lien against the property; collect against the owner or tenant; or even terminate the water service until the outstanding bill is paid.
These methods of collection apply not only to the tenant or owner who incurred the water bill, but subsequent purchasers as well.
This has become an issue in recent years as Butler County Ohio has become aggressive in its collection efforts, often ensnaring unwitting homebuyers.
Protect Yourself
One thing every homebuyer can do is simply ask the question: Are there any outstanding water bills?
State law gives buyers another option, R.C. 6103.02(G) allows a buyer, or her agent, to request that the county have the meter read and to provide a final bill for the property before the closing. Such request must be made at least fourteen days prior to the closing date, and the county has ten days to read the meter and provide the final bill.
Make sure any unpaid balance is paid prior to closing.
Those steps will help you avoid an unpleasant water bill as you settle into your new home.
Learn more about important questions to ask when you buy a home here.
A recent change to Ohio Revised Code Section 5717.04 will remove the option to file an appeal from a Board of Tax Appeals decision directly to the Ohio Supreme Court.
Starting September 29, 2017, Ohioan’s unhappy with a Board of Tax Appeals decision will now have to file their appeal with the local Court of Appeals. Under the previous law, appellants had the choice of filing directly with the Ohio Supreme Court.
However, a party to the appeal can file a petition with the Ohio Supreme Court requesting that the Court take jurisdiction over the appeal. The Supreme Court may do so if the appeal involves a substantial constitutional question or a question of great general or public interest. In order to attempt to bypass the Court of Appeals, one must still first file the appeal with the Court of Appeals and then file a petition with the Supreme Court within thirty days after the appeal is filed with the Court of Appeals.
Passed as part of the state budget, this change will add additional litigation, time, and expense to obtaining finality in tax disputes.
Finney Law Firm practices extensively before the Board of Tax Appeals in property valuation measures. Click here to learn how we can help you navigate through the property valuation process.
Every parcel of real property in Ohio undergoes a major “reappraisal” by the County Auditor’s office every six years and then a minor “update” in the three years in the middle of that six-year cycle. Different counties in Ohio are on a different six year and three year cycle.
Below is a list of the counties going through either a major “Reappraisal” or a minor “update” this year. These values will appear on your January 2018 tax bill.
In Southwest Ohio, Hamilton County is undergoing a full reappraisal this year. Butler and Clermont Counties are update counties.
It is important to note that because these counties will be starting new triennials, property owners may bring a complaint before the Board of Revision regardless of whether a prior challenge has been brought. Every property owner has a right to challenge her property assessment before the Board of Revision in the new triennial.
While property owners in Hamilton and Clermont Counties have already received notices of the tentative values for the new triennial, the official notice of the 2017 value will come with your January 2018 tax bill. Remember you will have until the end of March 2018 to challenge the 2017 valuation.
Finney Law Firm will be giving presentations on the Board of Revision process later this year. If you are interested in attending a presentation, contact us here. Learn more about Finney Law Firm’s property tax practice here.
The schedule of counties starting a new triennial this year follows:
Reappraisal Counties
Auglaize
Clinton
Darke
Defiance
Delaware
Franklin
Gallia
Geauga
Hamilton
Hardin
Harrison
Henry
Jackson
Licking
Mahoning
Mercer
Morrow
Perry
Pickaway
Pike
Preble
Putnam
Richland
Seneca
Shelby
Trumbull
Vanwert
Wood
Update Counties
Ashland
Ashtabula
Athens
Butler
Clermont
Fulton
Greene
Knox
Madison
Montgomery
Noble
Summit
Wayne
In a widely anticipated decision that will have major implications for Ohio businesses, the Ohio Supreme Court today ruled that, for purposes of property tax valuation, sale-leaseback transactions are not “arm’s-length.” Meaning that county auditors and boards of revision should not simply adopt the sale price in such transactions as the “true value” when valuing real estate.
Writing separately, but concurring in the judgment, Justice Pat DeWine wrote to clarify that this same reasoning should apply when a third party purchases a property that was subject to an earlier sale-leaseback transaction, “if the initial sale does not reflect the true value of the property because for the leaseback arrangement, then neither should a subsequent sale of the same property subject to the same lease.” The majority opinion leaves some question on that issue.
As first-year law students and many even outside of the legal community know, the “statute of frauds,” codified in Ohio R.C. 1335.04, requires that any interest in land be evidenced by a writing.
Principle of Part Performance
But this general principle is not without exception. One of the more commonly referenced exceptions is part performance. Sites v. Keller, 6 Ohio St. 483, 489-490 (1834) (“Whenever an agreement has been partly performed, and the terms of it are satisfactorily found, it will be enforced notwithstanding the statute.”); Shahan v. Swan, 48 Ohio St. 25, 37, 26 N.E. 222 (1891) (“[I]f the acts of part performance clearly refer to some contract in relation to the subject matter in dispute; its terms may then be established by parol.”).
Other exceptions
However, lesser-known exceptions exist, as well, and are frequently neglected in the statute of frauds discussion. This has resulted in a misunderstanding among many as to the scope of the statute of frauds and when it precludes a claimed interest in land. Specifically, there are two types of equitable trusts that effectively circumvent the harsh consequences of requiring strict compliance with the statute of frauds: a constructive trust and a resulting trust.
Ohio Constructive Trust
“A constructive trust arises by operation of law against one who through any form of unconscionable conduct holds legal title to property where equity and good conscience demands that he should not hold such title.” Dixon v. Smith, 119 Ohio App.3d 308, 319, 695 N.E.2d 284 (3d Dist. 1997). Where one “who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means . . . either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy,” equity will create a constructive trust. Ferguson v. Owens, 9 Ohio St.3d 223, 225, 459 N.E.2d 1293 (1984).
Additionally, at least one Ohio court has suggested that, “[d]espite the above cited language . . . a constructive trust may exist even where there is no evidence that the title to the property was obtained by improper means.” McGrew v. Popham, 5th Dist. No. 05 CA 129, 2007-Ohio-428. ¶¶ 17-19, citing Groza-Vance v. Vance, 162 Ohio App. 3d 510, 520 (10th Dist. 2005). The creation of a constructive trust is premised upon the unjust enrichment that would result if the person holding legal title to the property were allowed to retain it. Ferguson, at 226.
Ohio Resulting Trust
The Ohio Supreme Court has also recognized “a resulting trust as one that the court of equity declares to exist where the legal estate in property is transferred or acquired by one under circumstances indicating that the beneficial interest is not intended to be enjoyed by the holder of the legal title.” Univ. Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St.3d 118, 772 N.E.2d 105, 2002-Ohio-3748, at ¶ 56, citing First Natl. Bank of Cincinnati v. Tenney, 165 Ohio St. 513, 515, 138 N.E.2d 15 (1956). This concept is easily understood in the purchase-money context – “where property is transferred to one person but another pays the purchase price, the law presumes a resulting trust exists in favor of the person paying for the property.” Hollon v. Abner, 1st Dist. No. C960182, 1997 Ohio App. LEXIS 3814, at *5 (Aug. 29, 1997); Perich-Varie v. Varie, 11th Dist. No. 98-T-0029, 1999 Ohio App. LEXIS 3990, at *7-*8 (Aug. 27, 1999).
For example, in the Perich-Varie case, the court found that where an individual had been making the mortgage payments on property legally held in his former in-laws’ names, he had a full ownership interest in the property. This was true even though the in-laws argued that the mortgage payments were merely “rent” and even though he had only paid $12,000 of the $33,000 mortgage on the property. Perich-Varie, at * 4-5, * 10-11. To eliminate any inequity (after all, that’s what a resulting trust is all about), the Eleventh District required the lower court to order that the mortgage first be satisfied so that the in-laws were not obligated under a mortgage on a property in which they had no interest. Id., at * 14.
Conclusion
As you can see, constructive and resulting trusts represent some pretty significant departures from the rigid statute of frauds in the name of “equity.” While a lot of confusion, disagreement, and, ultimately, litigation can be avoided by putting matters involving real property in writing, those who find themselves in a situation where their interest has not been reduced to writing are not necessarily without recourse if one of these equitable remedies applies.
In April of this year, the Ohio legislature passed an updated Good Funds Law for transactions involving residential real estate to mandate, among other things, wire transfers for amounts in excess of $1,000, with a few exceptions.
Now, that amount has been increased to $10,000.
So, the new rule is that a ll funds coming into a title company to fund a residential real estate transaction must come in in one of the following ways:
Electronically-transferred funds, including wire transfers;
Personal checks, cashier’s checks, money orders or Official Checks of $10,000 or less;
Automated clearing house (ACH) transfers; or
Checks from a real estate broker’s escrow account.
We will keep you updated with further changes in the law so that we can continue to be “accurate and on-time, everytime.”
I want to extend a warm and sincere “Thank You” to the attorneys, staff, vendors, and clients of Finney Law Firm, LLC who have joined together to make our firm — dedicated to “Making a Difference” for our clients and in our profession and community — a tremendous success in our first four years in operation.
We started our new firm in Eastgate in the fall of 2013 with a great group of attorneys, a loyal and experienced staff, a top-notch lineup of vendors and a solid core of clients. Since then, we have attracted more talented attorneys and staff, and have been met with simply overwhelming response from our clients.
We started with just four attorneys and three staffers. Since then, we have grown to nine full-time attorneys, and are about to add our tenth. We have expanded the law firm at Ivy Pointe in Eastgate three times, and eventually added space in the Rookwood Pottery building in Mt. Adams. Just weeks ago, we tripled our space at Mt. Adams, so that the two offices are now roughly equal in size.
Under the leadership of attorney Rick Turner, we started Ivy Pointe Title, LLC in the fall of 2014 to support our commercial real estate closings and added to that base residential transactions. He started with one full-time staffer, and now oversees an operation of seven full time employees. Due to tremendous success under his leadership, in November, we plan on doubling the size of the title company.
These accomplishments are the result of the combined efforts of many people, and to each and every one of them I owe my deep gratitude. The engine of commerce, the laboratory of legal innovation, and the commitment to client service we have made together is enduring and flourishing, ultimately, because we all work together to provide value for our loyal clients in each assignment.
Thank you, most sincerely, for making this such a fun, rewarding adventure!
How do I obtain an Ohio commercial real estate broker lien?
Attorney Casey Taylor
First, let’s be clear: There is no lien right for real estate brokers for property consisting solely of between one and four residential units. (O.R.C §§1311.85 and .86).
However, licensed real estate brokers dohave lien rights in transactions involving commercial properties, i.e., anything other than between one and four residential units. (O.R.C §§1311.86).
The lien rights extend to brokerage contracts for the provision of services for selling, purchasing, and leasing. (O.R.C §§1311..86(A) and (B)). They do not appear to cover the provision of property management services.
What is a lien?
In one sense, a lien does not get you anything more than the contract rights you already have: You have a signed listing agreement, you have earned your commission, you can sue in a court of competent jurisdiction, and you can thus get paid the amount of money you are owed.
But as a practical matter, lien rights are tremendously powerful in “turning the tables” on a property owner, giving quick, inexpensive and powerful leverage to the Realtor to resolve a commission dispute.
Why is a lien important?
Leverage often is the “whole ballgame.” So often, (a) debtors will avoid debts they clearly owe just because they can, for purposes of the time-value of money (by delaying the payment, they can use your money in the interim) and (b) the reality is that most creditors will not go to the trouble and expense of hiring and paying an attorney to collect the sums owed to them.
Litigation can cost as little as $20,000 per case, up to hundreds of thousands of dollars for a vigorously-contested action. So, the question for a Realtor claiming a commission is: Can I “check” or “checkmate” a property owner (seller or landlord) into recognizing, dealing with and paying my claim without the two years and tens of thousands of dollars in legal fees needed to vindicate that right?
A lien is a powerful tool — it encumbers real property
A lien is an encumbrance on real property. In most cases, real property encumbrances have the same priority of the order of filing, i.e., the first-filed is paid first from the sale proceeds, the second, second and so forth. (Ohio mechanics liens are the major exception to this rule, dating back to the date of first work on a project.)
This gives the lien holder two distinct advantages, many times powerful advantages: (a) their claim is secured against the real estate (i.e., the owner cannot further squander the equity in the property by a sale or mortgage) (b) the claimant has placed a cloud on the title with what may still be a disputed claim, effectively preventing the owner from selling or mortgaging the asset until the earlier of (i) the statutory expiration of the lien or (ii) the judicial disposition of the claim and the lien rights.
Thus, as a practical matter if the property owner wants to sell his property or take out a new mortgage or refinance an existing mortgage, he will have to “deal with” the Realtor’s claims before doing so.
A broker’s lien is unilateral — it does not require the owner’s signature or consent
Contrary to what many clients ask of us in a simple contract or tort claim (“please lien their property”), in most circumstances a lien cannot be placed against real property until either (a) the owner signs a voluntary instrument such as a mortgage or (b) the conclusion of litigation, which usually takes years. In the meantime, a defendant can sell and mortgage the property, or otherwise encumber it, and then squander the asset without concern for the plaintiff’s claims. (This is constrained by concerns about fraudulent conveyance issues that will be discussed in another blog entry later.)
The right to place a unilateral lien against real estate is very narrow, being limited to government liens (such as tax liens, assessments, environmental liens, etc.) and mechanics liens (for work done on real property and materials delivered to real property for incorporation therein).
Commercial brokerage lien rights
O.R.C. §1311.86 provides such unilateral lien rights for the collection of a commission in commercial transactions in specific circumstances set forth in the statute. Being a unilateral filing, means that the Realtor claiming the lien simply signs and files a piece of paper in the Hamilton County Recorder’s office. It does not require a signature (on the lien filing) of the property owner.
Statutory requirements
Because the lien arises from the statute, strict compliance with the statutory mandates will be required. F. W. Winstel Co. v. Johnston, 103 Ohio App. 525, Paragraph 1 of the Syllabus (1st Dist. 1957). These are set forth in O.R.C. §1311.86:
It is for written brokerage contracts only (O.R.C. §1311.86(A) and (B)).
It is for “for services related to selling, leasing, or conveying any interest in commercial real estate” (O.R.C. §1311.86(A)) and “for services related to purchasing any interest in commercial real estate.” (O.R.C. §1311.86(B)).
“The lien is effective only if the contract for services is in writing and is signed by the broker or the broker’s agent and the owner of the lien property or the owner’s agent.” (O.R.C. §1311.86(A) and (B)).
The lien is for the broker only, not his salespersons. (O.R.C. §1311.86(C)(1).
The lien amount is either the brokerage commission due, or if due in installments only that portion due on conveyance. (O.R.C. §1311.86(C)(2) but in the case of commercial leasing, (O.R.C. §1311.86(C)(3).
Only the property subject to the brokerage agreement can be liened. ((O.R.C §§86(C)(5)).
Lien contents
To perfect a lien, the following steps must be followed:
The claimant must prepare, sign and have acknowledged (notarized) an affidavit containing each of the following: (a) name of the broker who has the lien, (b) the name of the owner of the lien property, (c) a legal description of the lien property, (d) the amount for which the lien is claimed, (e) the date and a summary of the written contract on which the lien is based, and the real estate license number of the broker. R.C. 1311.87(B)(2).
Additionally, the lien affidavit must state that the information contained in the affidavit is true and accurate to the knowledge of the broker. Id.
Lien deadlines
The timeframes within which a commercial broker’s lien must be filed are:
For a sale of liened, the Affidavit must be recorded prior to the conveyance of the property. R.C. 1311.86 (B)(3).
For a purchase of liened property the Affidavit must be recorded within ninety days after the conveyance of the property. R.C. 1311.86 (B)(4).
For liens based upon a leasing commission, the Affidavit must be recorded within ninety days after a default by the owner in payment. R.C. 1311.86 (B)(5).
Notice to property owner
One other requirement not to overlook: “On the day the lien affidavit is recorded, the broker shall provide a copy of the lien affidavit to the owner of the lien property and, where a contract for the sale or other conveyance of the lien property has been entered into, to the prospective transferee, where known, either by personal delivery or by certified mail, return receipt requested. O.R.C. 1311.86 (B)(6).
Be careful — “Slander of title” claims can be nasty
If one files a lien against real property that is later determine to have been in bad faith, the lien claimant can find himself the target of a suit for a cause of action known as “slander of title.” Slander of title is the tort of impairing title to someone’s real estate without a reasonable basis therefor. McClure v. Fischer Attached Homes, 2007-Ohio-7259, ¶ 21, 882 N.E.2d 61 (Clermont Co. C.P. 2007), citing Green v. Lemarr, 139 Ohio App. 3d 414, 433 (2d Dist. 2000).
The really bad part of a slander of title claim is that it can include an award to the property owner of an award of his attorneys fees and a punitive damages amount. Additionally, the commercial brokerage lien statute specifically allows for the prevailing party to recover its attorney’s fees. O.R.C. 1311.88(C) (“[A] court may assess the nonprevailing parties with costs and reasonable attorney’s fees incurred by the prevailing parties.”). However, in cases involving general slander of title claims (i.e., outside of the commercial brokerage lien context), the attorney’s fees have been limited to the those “necessary to counteract a disparaging publication,” and did not include those incurred in prosecuting the slander of title. Cuspide Props. v. Earl Mech. Servs., 2015-Ohio-5019, ¶ 40 (6th Dist. 2015).
Thus, we recommend moving forward with the filing of an affidavit for a commercial broker’s lien cautiously, only where the broker is certain of the merits of his position and even then still willing to withstand the possible claim for slander of title from an owner.
Conclusion
The Finney Law Firm is privileged to have many real estate brokerage clients, including commercial Realtors. The commercial lien right is a very powerful one, and one that we think is under-utilized in commission disputes.
Consider one of our attorneys to assist you in such a dispute, including the use of the right to a commercial lien.
