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Category Archives: Commercial Real Estate

Ohio Commercial Litigation: Using text messages to defeat a “home defects” case

Author By Finney Law FirmPosted on

In a recent case, we defended a couple who were being sued by the buyers of their former home; alleging that my clients had engaged in fraud in completing the residential disclosure form. As has been discussed in previous blog posts here and here, Ohio law requires that the seller of residential property complete a disclosure form relating to potentially issues – chief among them water intrusion.

Our clients completed the disclosure form noting that they had experienced a water intrusion event when the sump pump failed; and that they hired a local water remediation firm for the clean-up.

Shortly after closing, Greater Cincinnati experienced record precipitation, and the basement flooded. The buyers filed suit claiming that the sellers had lied on the disclosure form.

Necessity of Justifiable Reliance

A claim for fraud requires that the plaintiff actually relied on the supposedly fraudulent misrepresentation, and that she was justified in so doing. This means that for instance, if the buyers were skeptical of the sellers’ disclosure form, or found their own evidence that contradicted the disclosure form, the buyers cannot be said to be “relying” or that their reliance is “justified.”

Additionally, in this instance our clients did disclose what they knew and therefore did not make any fraudulent misrepresentations at all. But simply disputing the allegations is not enough to win the day in court. We sought evidence to undercut all of the allegations.

 

Text Messages Undo the Buyers’ Claims

After the filing of the lawsuit, we conducted discovery, including requesting copies of text messages and emails between the buyers and their real estate agent. The text messages revealed that prior to even making an offer on the home, the buyers told their agent that they knew that water intrusion and mold was an issue. Indeed, the buyers “priced the risk into their offer.” In one text message the buyer stated: “A little concerned with the basement and flooding. They have had issues. Not sure it isn’t why these people are selling.” and “We love it. Just not for $300k . . . Especially with water damage . . . Don’t want to end up upside down or having to fix water damage etc.” And, true to their word, the buyers did not pay $300,000; they paid $275,000 for the home, pricing the potential cost of the anticipated water damage.

At one point the buyers asked their agent for a copy of the documents from the water remediation company the sellers had used. Unfortunately, the buyers’ agent never followed up and asked the sellers for those documents.

After signing the contract, the buyers hired an inspector and instructed him to conduct a mold test. For whatever reason, the inspector did not conduct a mold test, and the buyers did not follow up.

Summary Judgment

Armed with the buyers’ communications with their agent, and the disclosure form, we filed a motion for summary judgment. We argued that the disclosure form was accurate and put the buyers were on notice of water intrusion. Additionally we argued that the buyers’ communications with their agent proved that they were skeptical about the information the sellers provided (meaning they were not relying on the disclosure form) and priced the question into the purchase price.

The court agreed with our argument; “The [buyers’] personal notes and text messages with their real estate agent evince that they had ongoing, multiple concerns about water damage and mold based on the Disclosure Form and their own observations in inspecting the basement.” “Accordingly, the court finds that the [buyers] could not have justifiably relied on any fraudulent misrepresentation or concealment by the [sellers]. As such, their claim for fraud must fail, and summary judgment is appropriate as a matter of law.”

The Lessons

For attorneys defending these cases the lesson is clear, make ample use of discovery. Turn over every stone.

For the plaintiff’s attorney, ask more questions up front. Conduct your own “discovery” on your client, ask for those text messages before the defense attorney does. Don’t let your client waste your time litigating a bad claim.

For home sellers, make sure you complete the disclosure form to the best of your ability; knowing that there are brazen people out there who will file suit even though you disclosed issues and even when the are going to have to turn over the evidence that sinks their own case.

For buyers, remember in Ohio caveat emptor is the law. Make sure you get all the information you asked your agent to get you. Make sure your inspector conducts all of the inspections you asked for. And, when trouble arises in your new home (as it inevitably will) be honest with yourself about what you knew when you bought the house. Don’t bring lawsuits that are doomed to fail hoping the other side will roll over. Our civil litigation system only works when people do not abuse it.

Contact Christopher P. Finney at 513-943-6655 or using this form if you’ve sold a home and the buyer is now claiming that you did not disclose an issue.

Ohio Property Tax Valuation Reduction – Online auctions of bank owned property

Author By Finney Law FirmPosted on

We’ve heard it said a million times (and said it ourselves a million more), “the recent sale price of a piece of real estate is the best evidence of its value.” And the concept of sales price as value is so ingrained in our minds that we sometimes forget that this is just shorthand, that the actual language of the statute is what matters; and, ultimately, what must be proven before the board of revision or the board of tax appeals.

“In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot, or parcel has been the subject of an arm’s length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor may consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes.” R.C. 5713.03

 

What is “Arm’s-Length”

What the actual language of the statute means is that the sale has to be arm’s-length: “A transaction between unrelated parties under no duress.” (Appraisal Institute). Boards of Revision and the Board of Tax Appeals look for the following factors when determining whether a sale price should be adopted as the true value:

  1. Buyer and Seller are typically motivated.
  2. Both parties are well informed or well advised and each is acting in his/her own best interest.
  3. A reasonable time is allowed for exposure in the open market.
  4. Payment is made in terms of case in U.S. dollars or financial arrangements comparable thereto and
  5. The price represents normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The Board of Revision

Recently Ohio’s Ninth District Court of Appeals upheld a decision by the Board of Tax Appeals to reverse the decision of the Summit County Board of Revision to adopt the online auction price as the true value.

In Green Local Schools Board of Education v. Manolakis, et al. 2019-Ohio-4250, the property owners initially filed a complaint with the Summit County Board of Revision seeking to lower the value of their home from $1,498,350.00 to $836,300 – the owners’ purchase price in an online auction. Before the Board of Revision, the owners explained that the property had been subject of a sheriff’s sale and that the foreclosing bank had purchased the property at that sale. A few months later, the bank placed the property for sale via an online auction site, hubzu. The owner’s put in a bid and won.

The Board of Revision accepted the owner’s testimony and adopted the sale price. However, the school board appealed to the Board of Tax Appeals and pointed to a lack of evidence supporting a finding that the auction was “arm’s-length.”

The Board of Tax Appeals

After the property owners prevailed at the Board of Revision, the local school board (which typically receive 60-70% of the property tax collections) filed an appeal arguing that the owners did not meet their burden to show that the sale was “arm’s-length.”

The owners testified at the Board of Revision that they had no relationship with the seller but were unable to provide any information about the bank’s motivation in selling. Notably, the owners were unable to show that the property had been marketed for sale other than via a sign in the yard of the property one week before the auction, or whether there was a minimum bid for the auction, or any other bidders.

Another problem for the owners is that they agreed to let the Board of Tax Appeals decide the case without putting on any additional evidence. So the owners forfeited the right to supplement the evidence to bolster their claim that the sale was arm’s-length.

The Board of Tax Appeals, looking only at what was before the Board of Revision found that there was not enough evidence in the record to show that the sale was arm’s-length. And, once the sale price was disregarded, the only evidence of value was the auditor’s original value. So the Board of Tax Appeals reinstated the auditor’s value $1,498,350.00.

The Court of Appeals affirmed the decision of the Board of Tax Appeals, finding that “we cannot say that the BTA was unreasonable in concluding that the evidence of value presented by Mr. and Mrs. Manolakis to the BOR was not sufficient.”

The Lesson

Don’t take the Board of Revision process lightly. This is a serious endeavor – particularly when you are seeking a substantial  reduction in value. Remember, when you bring a challenge to the Board of Revision it is your burden to prove that your proposed value is right and that the auditor’s value is wrong. Bring everything you can think of to prove your case. And if there is an appeal, take the opportunity to bring in additional evidence to bolster your case.

Your Case

Finney Law Firm has represented commercial and residential property owners (and one school board) before the Boards of Revision throughout Ohio and before the Ohio Board of Tax Appeals in property tax valuation challenges.

Every case should be evaluated based on its own unique set of circumstances. The time to file a challenge begins January 1 of each year and ends March 31. If you have questions about the value of your property, or if you recently purchased property at a price less than the auditor’s value, we can help. More information about the property tax valuation process is available here.

Contact Christopher P. Finney at 513-943-6655 or contact us here.

Ohio Real Estate Law: Avoid creating “clouds” on title to your own real estate

Author By Christopher P. FinneyPosted on

The Ohio standard for “marketable title”

The standard for real estate title is, without putting too fine a point on it, pristine.  This is true not only in Ohio, but but in every state.

Indeed, one really could put a fine point on it.  Nearly any title defect can be a “cloud” on title that impairs its marketability.

Some minor title defects are OK

As is addressed here, some title defects can be “papered over” with title insurance; others are made acceptable under the marketable title act or standards and customs that allow title attorneys and title insurance companies to ignore minor defects.  Both of these solutions can allow a transaction to close.

But the standard in title is, essentially, perfection.  A buyer is not going to buy, a lender is not going accept a mortgage to secure a loan, and a title insurance company is not going to insure matters that are a “cloud” to title to real estate.

An unreleased Land Installment Contact “clouds” title

I recently helped a client who had “sold” their home on Land Installment Contract.  After three years of payments, the buyer was to pay the balance of the Land Installment Contract, a “balloon payment,” and then get a deed conveying title to the property.  Unfortunately, the buyer defaulted and moved out of the property at the end of the term.

[Is the buyer liable for monetary damages in such circumstance?  Probably.  But the cost to pursue those claims many times exceeds the recovery.  Many sellers are wise to just pack their bags and move on to the next opportunity.]

The seller was able to quickly re-sell the property to another buyer, but the recorded land installment contract constituted a “cloud” on title, making title unmarketable.  When the closing was set to occur, the title insurance company for the lender and buyer refused to pass on the title.

How do you clear title “clouds”

There are two ways to clear a “cloud” of this type: (a) buyer and seller jointly execute a notarized document in recordable form voluntarily terminating the Land Installment Contract or (b) a signature of a Common Pleas Court Judge in an appropriate proceeding extinguishing the Land Installment Contract and then the passage of an additional 30 days to avoid an appeal of that decision (or the exhaustion of appellate rights all the way through the Ohio Supreme Court).

Other than these two alternate steps, there is no “shortcut” to clear and marketable title to defeat a Land Installment Contract that is of record.

And the judicial proceedings could take 12 to 36 months, or even longer, to clear the title problems.

Many title problems can only be addressed in the same way: Either the party who has a colorable claim must sign a recordable instrument releasing the claim or a Judge, after appropriate due process of judicial proceedings, signs an Order wiping away the title claim.  This can be an extended and expensive undertaking.

How can an owner avoid the fate of a “clouded” title?

How can a seller avoid the fate of an impaired title?

First, buy property only after a title examination and with a proper owner’s policy of title insurance.

Second, once you own property that has clear title, don’t sign and record a Land Installment Contract clouding the title.  (Or, get a significant enough up-front down payment make it worth the while of judicially extinguishing the buyer’s interest at a later date if he defaults.)

Similarly, granting voluntary but poorly-thought-through covenants, easements, mortgages and other instruments can foul one’s real estate title and make the title either unmarketable or less valuable than otherwise might be the case.

Involuntary “clouds”

This blog entry addresses problems that an owner causes by his own signature.  But other title problems can arise from, for example, mechanics liens arising from unpaid claims of a contractor on real property, defects that existed when an owner took title to property, and affidavits that another party places of record unilaterally declaring an interest in your land.  These, too, may require one of the two steps noted above to clear, but they are not as easily avoided as ones created by the owner’s own hand.

Conclusion

The essential message of this blog entry is that title is a delicate thing, and can be “clouded” or impaired easily.  Thus, don’t voluntarily sign documents — even if they might initially seem like a good idea — that will constitute a cloud on title, at least not without careful consideration.  Cautiously think through the impact of documents that you voluntarily elect to place of record.

 

Ohio Commercial Law: A pitfall of private lending — a borrower committing fraud

Author By Christopher P. FinneyPosted on

We’ve seen to over and over again, individual lenders “conned” by a borrower into making a supposedly secured loan, but in fact the same borrower has “pledged” the same collateral to multiple lenders for duplicate loans.  That means, of course, when it comes time to pay the money back, there is not enough cash to go around to the various lenders and someone is left holding the bag (or everyone is left holding the bag).

This blog entry explains the scam, and tells our readers how to carefully avoid it.

The scam

Here’s how the scam works: The borrower has control of an asset.  It might be a piece of real estate or a business.  Using that asset, he is able to convince the lender of his “bona fides.”

The borrower says: “If I had enough cash, I could complete the improvements on this property, and repay you your money with a good rate of interest.”  Or, “if I had enough money, I could  stock the shelves of this business, sell more inventory, and pay you a good return on your loaned funds.”

Wanting to help the fraudster, or, more likely, motivated by the greed of an above-market rate or return, the lender lends money.

But either trusting the borrower or trying to save money on legal fees and other expenses like an appraisal, the individual lender advances the cash in anticipation of great rewards when the property sells or the inventory turns, but the lender fails to properly document and  secure his loan.

Because nothing is recorded in terms of a security interest from the first lender, the borrower then goes to a second, a third and a fourth lender, promising the same high returns, and showing unsecured business assets (real estate, inventory, accounts receivable) as assets to stand behind the obligation.   These subsequent lenders are similarly fooled.

The out-of-town investor

I once had an investor from Chicago.  He was lured in to a scheme whereby his Cincinnati borrower was purchasing single family homes, and supposedly renovating them with the investor’s cash.  For simplicity and to save legal fees, the investor did not get a mortgage against the real estate and did not come to Cincinnati to check on the progress of the improvements.  He simply trusted what the Cincinnati borrower was telling him, and relied upon some phony cell phone photographs of the progress on the improvements.  And he wrote check after check after check to the borrower.

What was really happening was that the local borrower was taking my client’s cash for the purchase and improvement of property, but (a) the borrower was not in fact completing the improvements and (b) he had pledged the proceeds from the same properties to three other lenders.

The result

The result of these scams is entirely predictable: eventually the lenders want to be repaid, usually when the real property sells, the inventory “turns,” or the business is supposed to become profitable.

And each of the multiple lenders wants their cash more or less simultaneously.

Of course, there is no cash to pay these various lenders, or perhaps even one of them.  The lenders are left holding the bag.

Sure, the lenders can try to recover their investment through either litigation or — more likely — bankruptcy court.  But in all likelihood the borrower has no assets and the process will be a big, expensive mess.

A $1.3 billion version of the scam

We were recently reminded of this scam by this article from the Los Angeles Times.  There, a scammer conned “thousands of investors” out of more than $1.3 billion in a more complicated version of the same scam.

One wonders why someone did not ask for proper documentation and a first mortgage position in these supposed real estate investments and why someone did not blow the whistle on this guy earlier.  Of course, folks still are asking the same question about Bernie Madoff

How to avoid being scammed

First, “neither a borrower nor lender be” /1/ is not a bad admonition for individuals with cash to loan.  The lure of high rates of return may not be — likely are not — worth the risk.  Banks are in the business of lending money — and collecting it back.  And they are pretty good at it: Assessing the risk, securing the asset, obtaining guarantors for debt, assuring a proper down payment.  These folks have actuaries who assess the risk of certain kinds of lending and have the experience to avoid pitfalls that amateurs make.

Thus, as a general rule, if a borrower needs to borrow funds, tell him to go to a bank, which can spread the risk among many loans, assess the risks make prudent lending decision, and require appropriate down payments, guarantees, and security.  They also know to check for pre-existing liens and to properly document each loan.  They also don’t tolerate excuses for late payments that private lenders might.  They do this for a living.

But if you feel you must lend privately (or simply elect to do so), here are some pointers:

  • Do your best to prudently assess the risk the best that you are able,
  • Lend only against assets that can secure the repayment of the debt — real estate, jewelry, stocks or a lien on inventory and demand that the borrower post adequate security for the funds borrowed.
  • Think about getting third party guarantees for the funds loaned.
  • Make sure the borrower’s husband or wife are also guaranteeing the debt, as the easiest place to hide assets and income is in the name of the spouse of the borrower.
  • Whether through a real estate title examination or a “UCC lien search” for liens on personal property, ascertain whether there are existing liens that stand before yours.
  • Obtain a first lien position in those assets.  There are different ways under Ohio law to assure that you are in “first position” as to real estate, as to stocks, as to inventory and other personal property and special assets such as cars or jewelry.
  • Purchase a lender’s policy of title insurance for the loan amount.  In fact, make the borrower pay the cost of this insurance.
  • Properly document the loan, the security, and the guarantees.
  • Properly track loan payments and vigorously enforce the note and other lending covenants.

Using these techniques, a private lender can avoid the “multiple lenders” scam, and or at least — among all the others — be properly documented and secured in a first lien position against assets to pay the indebtedness.

Our firm knows each of these methods and can help you implement them properly them.

Conclusion

You have worked hard and invested carefully to accumulate the assets you have.  But others don’t have that same success, that same diligence and that same honesty.  There are millions of fraudsters out there glad to take your cash today on the promise of paying you tomorrow.  And they have neither the intention or the ability to fulfill that promise.

Use a Finney Law Firm transactional attorney — Isaac Heintz (513-943-6654), Eli Kraft-Jacobs (513-797-2853), Rick Turner (513-943-5661), Chris Finney (513-943-6655) or Kevin Hopper (513-943-6650) — to make certain that you are properly secured in for the money you are lending.

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/1/ From the web site “LiteraryDevices.Net“:

This is a line spoken by Polonius in Act-I, Scene-III of William Shakespeare’s play, Hamlet. The character Polonius counsels his son Laertes before he embarks on his visit to Paris. He says, “Neither a borrower nor a lender be; / For loan oft loses both itself and friend.”

It means do not lend or borrow money from a friend, because if you do so, you will lose both your friend and your money. If you lend, he will avoid paying back, and if you borrow you will fall out of your savings, as you turn into a spendthrift, and face humiliation.

It”s amazing this same advice applies more than 400 years after this noted author’s death.

Ohio Real Estate Law: Creating a Private Tow Zone

Author By Julie M. GuginoPosted on

Ohio statutes provide that no person, without privilege to do so, shall knowingly enter or remain on the land of another or recklessly enter or remain on the land of another, where notice against unauthorized access is given by actual communication to the offender or by posting in a manner reasonably calculated to come to the attention of potential intruders or by way of fencing manifestly designed to restrict access.

Trespass is prohibited under Ohio law and subject to both criminal penalties and fines as well as subjecting the trespasser to a civil action in trespass. If individuals are trespassing on your Property by parking vehicles on the same, Ohio law sets forth the steps necessary to establish a tow zone on your private property.

O.R.C. §4513.601 provides that an owner of private property may establish a private tow-away zone on their property if the owner posts on the property a sign at least eighteen inches by twenty-four inches, that is visible from all entrances to the property and includes all of the following information:

(a) A statement that the property is a tow-away zone;

(b) A description of persons authorized to park on the property. If the property is a residential property, the owner of the private property may include on the sign a statement that only tenants and guests may park in the private tow-away zone, subject to the terms of the property owner. If the property is a commercial property, the owner of the private property may include on the sign a statement that only customers may park in the private tow-away zone. In all cases, if it is not apparent which persons may park in the private tow-away zone, the owner of the private property shall include on the sign the address of the property on which the private tow-away zone is located or the name of the business that is located on the property designated as a private tow-away zone.

(c) If the private tow-away zone is not enforceable at all times, the times during which the parking restrictions are enforced;

(d) The telephone number and the address of the place from which a towed vehicle may be recovered at any time during the day or night;

(e) A statement that the failure to recover a towed vehicle may result in the loss of title to the vehicle as provided in division (B) of section 4505.101 of the Revised Code.

Some other points of the statute:

  • In addition, the towing service utilized by the owner must ensure the vehicle is located within 25 linear miles of the Property, is well-lighted and is within a reasonable distance of a regularly scheduled route of one or more modes of public transportation.
  • If a vehicle is parked on private property that is established as a private tow-away zone without the consent of the owner of the private property or in violation of any posted parking condition, the owner may cause the removal of the vehicle by a towing service.
  • The vehicle owner and the operator of the vehicle are considered to have consented to the removal and storage of the vehicle, to the payment of the applicable fees and to the right of a towing service to obtain title to the vehicle if it remains unclaimed.
  • No towing service shall remove a vehicle from a private tow-away zone except pursuant to a written contract for the removal of vehicles entered into with the owner of the private property on which the private tow-away zone is located.
  • Additional requirements for the tow company exist within the statute.

If you’d like our assistance with a real property issue,please use our secure contact page, or call us at 513-943-6650.

 

Ohio Real Estate Law: Finney Law Firm wins yet another “Point-of-Sale Inspections” class action

Author By Christopher P. FinneyPosted on

In May, Finney Law Firm notched its fourth in a series of wins in class actions against point-of-sale inspection ordinances in Ohio and Kentucky.  Previous judgments or settlements have been achieved against Covington, Kentucky, Oakwood, Ohio and Portsmouth, Ohio.  Each Ohio case was co-counseled with attorney Maurice Thompson and the non-profit law firm the 1851 Center for Constitutional Law.

It seems to have become a trend for municipalities to enact ordinances that mandate municipal inspections of rental properties (interior and exterior) either before a new tenant moves in or annually and pre-sale.  Very simply, all of these ordinances are unconstitutional searches of property under the Fourth Amendment to the United States Constitution.

Maurice Thompson of the 1851 Center has proficiently developed and pursued this line of cases and the legal theory underlying each case.

Our suits have succeeded in each instance in obtaining injunctive relief against the impermissible enactment, and the class action recovers the illegally-obtained inspection fees for the property owners affected.

For more information on our public interest litigation practice, contact Christopher P. Finney at 513-943-6655.

 

 

 

Advanced Ohio Title Insurance Topics: To preserve General Warranty Covenants and benefits of title insurance, don’t “break the chain”

Author By Christopher P. FinneyPosted on

As we discuss here and here, title insurance provides a lifetime of coverage to the insured owner, and covenants in a general warranty deed also last forever.  This is true, however, only as to losses sustained by the insured under a title insurance policy and the grantee under a general warranty deed, and essentially as to no other party.  Let me explain.

Title insurance

An owner’s policy of title insurance is a one-time premium in exchange for permanent coverage of losses sustained by the insured.  And what this means is that coverage is in place as to both (a) losses sustained by the insured while he is the owner of the property and (b) claims against the insured after he  conveys the property by general warranty deed (only as to claims that existed before the policy was issued).

Warranty covenants

Similarly, when a grantee acquires title to real property from a grantor by a limited warranty deed or a general warranty deed, he benefits from those covenants forever (read about different warranty covenants here).  This extends beyond his ownership of the property to claimants who acquire the property through a chain of warranty covenants.  Each owner can sue “up the chain” to the grantor who conveyed property to him or her up to the party who first created the title problem.  This “chain” is created and maintained by successive general warranty deeds.

Breaking the chain

But the benefits of both of these forms of indemnity are destroyed when a grantor deeds property to another by limited warranty deed or quit claim deed.  This is because the insured, or grantee under a warranty deed, no longer has a risk or “an insurable interest” in title to the property when  he conveys the property away by quit claim deed.  And since a limited warranty deed only applies to title problems arising after the grantor acquired title, there is nothing to blame on anyone else “up the chain”.  Because that grantee can’t claim “up the chain,” the insured no longer has liability.  And further, since the insurance or warranty covenant covers only the grantee’s or insureds “risk,” and he no longer has any exposure, there is nothing to insure or against which to indemnify.

Insured’s estate planning or asset planning

Many times, an owner of real property will convey property into his own limited liability company or estate planning trust for liability protection or tax benefits.  And in doing so, whether on their own or through their attorney, the owner transfers the property by quit claim deed.  That’s effective to transfer real estate, but all of the benefit of the title insurance (that someone paid good money for) or the warranty deed is completely, unconditionally and forever destroyed.

A better option: General Warranty Deed

Thus, when conveying property between an owner, and his trust or his own LLC, it is advisable to do so by means of a general warranty deed, thus preserving all benefits acquired by an owner’s policy of title insurance or general warranty covenants.

 

The best expert witness cross examination question ever!

Author By Christopher P. FinneyPosted on

As I meet with clients to explain the expensive and drawn-out odyssey that litigation can become, it can be a challenge to explain the mind-bending mental gymnastics that attorneys can force parties to endure.  Things that are painfully logical and simple to ordinary folks (laymen, non-attorneys) can be expensive and difficult to establish in court as litigants want to argue over absolutely everything.

The best example I can give of this is an exchange I had in a trial held before Federal District Court Magistrate Litkovich in January of this year.

This trial was an MSD claim relating to the MSD’s administrative claims process for basements subject to sanitary sewer backups.  This case was an extreme instance in which our client experienced more than 9′ of effluent that came into his basement on a regular basis, and MSD simply refused to stand behind its obligations under a consent decree arising from prior litigation with the US EPA.

To win, we had to prove these things: (a) sanitary sewer “surcharge” flooded his basement, (b) on multiple occasions, (c) that MSD was unable to develop an “engineering solution” that would stop the flooding, and (d) that he had made a claim to the MSD hotline within 24 hours after an incident.

The flooding was so severe and repeated that these elements were easily proved.  Yet for two years, MSD had refused to negotiate a settlement in good faith.  They insisted upon a trial, even though there was no factual issue in dispute; from our perspective, there was simply nothing to try.

So, MSD’s attorneys adopted the defense at the hearing that our client, the Plaintiff, could not prove that it would actually rain again:

Tim Sullivan of Taft, Stettinius & Hollister represented MSD at the hearing and here he was questioning my client’s expert witness:

Q. And if we had no rain, if climate change really turns out to be as dire as some people tell us, you would agree this property would have no problem in the future?

A. If there was no rain?

Q. Right, or not enough rain to cause any surcharge from any part of the Sewer District system.

A. Yeah, I would think the property would be — certainly you could take another look at living there and going there if you have no risk of backups, any kind of backup.

I must admit it was a creative question: “What if it never rains again?”  Brilliant! And we already had our lineup of witnesses named.  Who could testify with requisite expertise that, in fact, Cincinnati would experience a rain event in the future?

We ultimately settled the case.  But after 30 years of doing this I once again learned the hard lesson that lawyers can argue over absolutely anything.

And for the record, since this hearing, Cincinnati has experienced 15″ in rainfall more than is average for this point in the year. Yes, Virginia, it is going to rain again.

_____________________

For help with your litigation challenges, call Bradley M. Gibson at 513-943-6661 and for help with MSD claims call attorney Julie M. Gugino at 513-943-5669.

_____________________

A copy of the transcript excerpt in this exchange is attached here.  The quoted language is at page 19, starting at line 13.

 

Ohio Real Estate Law: Buyers backing out of residential purchase contracts

Author By Christopher P. FinneyPosted on

The hot topic today in Ohio real estate law is the problem for sellers and Realtors of buyers backing out of residential purchase contracts and thus, after tying up a property for 15 to 30 days, putting the property back on the market for sale. This creates the problem of a “stale” listing and the further problem of other Realtors and buyers asking “what was wrong with that property that Buyer #1 backed out?”

How can your seller avoid this problem?

Defining the problem

First, let’s define the problem.  In today’s hot real estate market, residential properties come on the market and days or even hours later they are under contract and unavailable.  Buyers, fearful of missing out on a deal, have met this challenge by quickly placing a property under contract, figuring they could make their “real decision” during the inspection or financing contingency periods.

Thus, after 10 to 20 days, they perform their home inspection and decide — perhaps for no valid reason — to terminate the contract, leaving the seller holding the bag after having wasted that two to four weeks of prime marketing season.

So, I have had prominent Realtors ask me: What can sellers do to prevent this?  Here’s some perspectives:

Contracts mean something

As a starting proposition, even though the CABR Contract has some holes (read here) and contingencies (inspection, financing, etc.) can provide an “out,” contracts actually mean something. In other words, contracts are written to be enforced (i.e., use as a basis for a law suit), not to be put on a shelf.

If a buyer has not threaded the needle in terms of properly terminating a contract pursuant to a contingency, then the buyer is obligated to perform.  If he fails to, he can be sued for either specific performance (i.e., make him buy) or money damages for their breach.

Earnest money does not define or limit damages available

Here are two blog entries I have written on earnest money under Ohio real estate law:

The pertinent language I want to highlight is:

  • “a common misunderstanding of parties to a purchase contract is that the escrow money is some sort of measure of or limitation on damages for the buyer’s breach, or, conversely, that the return of the earnest money “cures” the seller’s breach and is the limitation on his damages as well. However, unless the real estate purchase contract specifically calls out either of those limitations, neither of those propositions is true.”
  • “This article seeks to bust a common myth about an escrow deposit: That a seller must return the earnest money of a buyer he claims is in breach before selling the home to a second buyer.”

Thus, forfeiture of the buyer’s earnest money in the event of a clear default is not the default remedy — although many times the parties settle for that.  The Buyer has open-ended exposure for the seller’s damages arising from a breach.

Residential property litigation is rarely cost-effective

For a host of reasons (see this blog entry), litigation is typically not cost-effective, meaning that frequently the cost of litigation will exceed the recovery.  This is so because (a) litigation is so incredibly expensive, (b) the damages recovery available to a seller are both difficult to determine and many times lower than a seller might anticipate, and (c) the outcome of litigation is incredibly unpredictable.  I tell clients that many times they would be better taking their money to the casino and betting it than investing in litigation.

However, using the cudgel of threatened or actual litigation can  either help (a) force a buyer to close or (b) leverage a favorable settlement for the seller in the event of breach.

Practical solutions

In a typical arm’s length purchase contract in the greater Cincinnati marketplace, the buyer has an inspection and a financing contingency, and places a low ($1,000 or less) in escrow with the buyer’s broker at the time of contract signing that is refundable if the contingencies are not fulfilled.

But in today’s “Seller’s market,” there’s nothing to say that a seller cannot demand a better position in the purchase contract to address the “backing out” problem.

  • Get more earnest money.
  • Limit the contingency period so the time “off market” is reduced.  (When I am a seller, this is paramount to me.  Don’t waste my time if you are not serious.)
  • More due diligence on the buyers to “know” they are serious (are they prequalified?, are the planning to buy and flip?, do they have a house they themselves need to sell first before buying?, what is their background?).
  • Did the buyer actually look at the property before making an offer?  This is a sure sign of a buyer who intends to “make his decision” at a later date.
  • Deal only with serious agents and serious brokerages on the other side.  In my experience, buyers are going to find a broker who meets their profile.  Flaky agent, flaky company = flaky buyer.
  • Make earnest money non-refundable and even payable directly to the seller, not in escrow.
  • Have the home pre-inspected, and have the buyer use that inspection report, thus no contingency needed.
  • Sue to obtain actual damages or to intimidate a buyer into closing.

Conclusion

We have a problem of balancing the legitimate interests between (a) the seller not wanting unserious buyers tying up their property on the one hand, and (b) buyers legitimately needing to “kick the tires” before closing on the other hand.  This balance in a traditional purchase contract is heavily tilted to buyers to give them an open-ended opportunity to walk away during the contingency periods.  It doesn’t have to be that way.  Sellers can “tighten things up” in a purchase contract to tilt that equation more in their own direction.

Shoddy construction and late completion claims are “trending”

Author By Christopher P. FinneyPosted on

As lawyers experienced in Ohio real estate  law, we get  calls from existing and new clients nearly daily with the problem du  jour.  We have seen mortgage fraud, we have seen fraudulent deeds, we have seen predatory lenders, and we have seen home builders go bust.

The calls we are getting lately (other than complaints  about basements leaking from all the rain), seem to be centered on shoddy home renovation projects.

Why?

We are never certain why one set of calls prevails over another, and sometimes with a small firm such as ours, it is just the “luck of the draw.”

But we surmise that with the red-hot real estate market, plenty of rehabbers  have newly entered the marketplace, and plenty of them don’t have  an experienced corral of professional subcontractors —  carpenters, electricians, plumbers, HVAC contractors, roofers, etc. –to do the work.  Or contractors and subcontractors are simply over-committing.  As a result, deadlines are not being met, and quality is dropping as contractors farm out work to entirely inexperienced subs.

The problem

This leads to the problems that deadlines are being missed, the quality of work is shoddy, and followup on warranty and punch list items is slow or non-existent.

The dispute

As with everyone else performing services,  the contractor wants to be paid.  But if the work is late and sub-standard, how is a homeowner to respond?  If it’s non-payment, the contractor many times quickly resorts to filing a mechanics lien as the “check mate” of a construction dispute.

But a lien is not the  end of the story.  A lien is merely a claim or an assertion by the contractor of what he is owed, and the property  owner can successfully fight it if it not  well-grounded.  Now a lien can cause title problems, and thus foul up the construction loan disbursements for the remainder of the work.  But if the client has some financial flexibility, a lien problem can be worked around.

From our experience, the key to a contractor dispute is as much an accounting problem as it is a legal problem: What was the original price of the work, what were the agreed change orders, and what other adjustments are appropriate?

A poor foundation

As is discussed here and here, a construction contract can be either a fixed-price contract, a cost-plus contract, or a hybrid thereof.  If a contract is straight cost-plus with no controls built in, a home buyer or renovator could be in for a rude awakening at the time of financial reconciliation.  A fixed price contract, however, may many times only adjust  with a written change order.

But  even worse than cost escalators is a contract that has no clear “beginning point,” in other words it states that in exchange for “X” amount of money, the home owner will pay “Y” cost.  But if “X” is not clearly defined  — the product to the built for that fixed consideration — enforcement of the contract becomes a mish-mash of he-said, she-said allegation.  Simply imagine if you were the Judge  or a  Juror deciding how much money is owing when (a) the parties have failed to state at the outset what the builder was giving in exchange for the payment from t he buyer? (b) change orders were not properly agreed upon  and documented, but in some instances  asked for and performed? These tasks are incredibly difficult for a fact-finder and thus require tremendous factual development to properly present.

Conclusion

The summation of this problem is: First, don’t assume someone has industry knowledge and experience just because they hold themselves our as experienced and knowledgeable on  the internet  or otherwise.   Check references and inspect their prior projects.  Talk to their former customers about cleanliness of the worksite, quality of work, and timely perrformance.

Second, carefully document the contractual agreement  with the Contractor from the first day of  the project to  the last.  Third, continuously monitor the  contractor’s performance and don’t accept half-solutions and shoddy work.

If you want our help writing the contact, that is fine, but  certainly if you run into  contract  disputes, consult our experiences attorneys.  I suggest  Eli Kraft-Jacobs (513.797.2853) to help with your construction disputes.

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