On November 3, 2023, we won a big victory for our client, a humble carpenter who lives in Clifton, at the First District Court of Appeals of Ohio.¬† In the decision, the Appeals Court affirmed a verdict in our client’s favor for the removal of a large tree from his property without his permission.

At trial, our firm not only proved the trespass and actual damages but also proved malice by the Defendant by “clear and convincing evidence,” entitling the client to receive as part of his award reasonable attorneys fees and expenses for taking the case to trial.

A copy of Friday’s appellate court decision is here.

Background

We regularly counsel our clients on the time, expense and sometimes disappointing outcomes in civil litigation.¬† It is a major part of the challenges our firm and our clients face in court.¬† And typically small dollar cases — regardless of how just the cause may be — are just not worth pursuing.

Nonetheless,  in 2019 we met with client William Chapel at his property and discussed the removal of his 50+ foot black walnut tree by his neighbor without permission.  He came home from work one day, and the tree was gone, it was taken down, along with an old wood screening fence that had been on his property, all without his permission.  We believed in the case and in the client, so we accepted the case.

Scorched earth strategy of defendants

It is typical in litigation that opposing counsel does not intend to win on the merits of their case, but rather by running out the clock and running the bill to heights that the amount in dispute will not justify, hoping our firm and our clients will “just go away.”¬† ¬†Well, we never “go away.”

Victory at trial court

We here wrote about the $222,836.53 verdict that was rendered in our client’s favor last December before the trial court for the removal of that tree, the majority of that verdict being punitive damages, attorneys fees and out-of-pocket expenses associated with the exhaustive litigation path chosen by the Defendants.

Conclusion

In addition to the $222,836.53 award at the trial court, the Court indicated that attorneys fees and expenses incurred in collections matters and in appellate work would supplement the award, so this week we will be preparing a supplemental fee application,  hoping to finalize the significant win for our client, and the delivery of justice to our community.

Thanks to our able and persistent team of Christopher Finney, Julie Gugino, and Jessica Gibson who saw this case through to the end.

Fraudsters — both high-tech and old school — daily attempt to use real estate and other transactions to scam our law firm, our title company and our clients out of money and property.¬† To date, we have not been hit (some of our client have been), but we are always on guard.¬† Fraudsters forever keep trying.

As you are growing your business — and these tips apply to businesses large and small, old and new — it is a good idea — from time to time — to gather your financial team and key executives, along with your IT professionals, and simply have a conversation about “tightening things up” and avoiding common scams.

  • Are your checks (and cash) — incoming, outgoing and blank checkbooks — tightly secured and under watchful eyes?
  • Are your systems too open and accessible (a simple question such as automatic screen savers with passwords that trigger when an employee is away from his desk)?
  • Do you have proper insurance to protect your real risks?
  • Do you have proper training and systems in place to avoid common and emerging risks?

In the end, we all have some exposure.¬† So, eternal vigilance, the latest technology protection and training of employees new and old, is the only answer.¬† Part of this caution is constantly “tightening up” and “changing up” your transactional practices and security procedures to avoid the latest scam.

Here are some common scams we and our clients have seen:

  1. In the low-tech world, fraudsters simply borrow money based upon false promises and representations.¬† This is a time-tested and common scam.¬† It is borne of two human instincts: (a) we want to trust people and (b) we are lured by the promise of a better-then market return on investment (if it’s “too good to be true,” it’s probably fraud).¬† Many of these fraudsters have the appearance of business stability and financial success, but are willing to offer above-market interest rates for a personal or business loan.¬† In the end, these loans are not properly secured and are not properly guaranteed, and the fraudster never had the ability or intent to pay back the monies.
  2. Similarly, we have seen clients purchase assets or entire businesses that are subject to liens or governmental enforcement actions, or the purchase price is based upon false financial documents or hidden property condition.  In a business transaction, be careful of slippery buyers, sellers and attorneys who can make fraudulent closing adjustments as the numbers are flying about in a closing.
  3. Another low-tech fraud is thieves who rifle U.S. Postal Service mail boxes (both the blue drop boxes and mailboxes at your home or business), steal checks, and then change the payee and amount on the check and cash it.
  4. Pay attention here: In the high-tech world, fraudsters hack into a Realtor, investor or title company email system, and steal their email signature and logo, and the details of an imminent transaction.¬† Then, they establish a similar email domain (with maybe one letter changed or a “dot” added).¬† Using the new domain, they send an email to the party who is to originate a wire with false wire instructions — instructions straight into the fraudster’s overseas wire address.¬† The email by all appearances looks entirely legitimate and it’s from a name you know and with whom you actively are dealing.
  5. We have written about sellers who don’t own actually property attempting to mortgage or sell the same.¬† Read here and here.
  6. Finally, fraudsters use sophisticated hacking and ransomware viruses to invade your critical computer systems.  They corrupt your data and hijack control of your systems, relenting only when an exorbitant ransom has been paid.  Extortionists have taken over critical infrastructure such as oil pipelines, hospitals, and municipalities.  Most recently, the vendor running the Cincinnati Multiple Listing Service and dozens of MLSes nationwide was the victim of a weeks-long ransomware attack that was costly and disruptive.

So, how can you protect yourself in this world increasingly fraught with risk of theft of your valuable data, money and time by those with malintent?

Here are a few ideas:

  • Stay in your lane.¬† Let lenders lend.¬† In most cases, they are good at it.¬† If a borrower is coming to you for a loan, it’s likely because he’s not eligible for conventional financing, and that ineligibility is for a good reason — he’s either lying, broke or both.
  • Carefully use due diligence and proper documentation.¬† If you are going to lend money or buy assets or a business, perform the kind of due diligence a prudent and sophisticated buyer or lender would undertake and obtain appropriate security and guarantees of a loan.¬† We discuss some of the pitfalls of private lending here.¬† Similar risks can exist in buying assets and buying whole operating businesses.¬† Part of this process is assuring that the borrower actually owns the assets he is selling or pledging (free and clear) and that your security interest is properly and timely perfected as against that asset.¬† In a real estate-based loan, title insurance is a key way to assure this is so.¬† In purchasing a business, the risk is even greater in that the corporate entity may have significant residual undisclosed liabilities or governmental enforcement problems. That seller — and your purchase monies — will completely disappear by the time you learn of the fraud.¬† Finally, the #1 “due diligence item” is to know your employees, know your borrowers, know your sellers.¬† The internet (and now artificial intelligence tools) is an incredibly powerful way to do background on parties to a business transaction,¬† Use it.¬† Cautiously heed the lessons of what you find.
  • Properly perfect security interests and document guarantees.¬† When banks lend money, they want proper security for their loans and appropriate guarantors for their repayment.¬† In most cases, banks are over-protected, and they want it that way.¬† You do too.¬† In both real estate and equipment-based transactions, we have seen borrowers pledge the same assets to different lenders as security for two or more loans.¬† Obviously, in that circumstance someone is going to be left holding the bag.¬† (Yes, fraudsters are that shameless.)¬† Using proper real and personal property title examinations and lien searches and using appropriate documentation for loans and guarantees is critical.¬† For example, in Kentucky, in order for a personal guarantee of debt to be enforceable, it must follow specific statutory requirements.¬† Without that, it’s worthless.
  • Don’t put checks or other key financial documents in blue U.S. Post Office boxes on the streets and don’t have checks sent to a mail box at your business or residence that is accessible by others.
  • As to wire fraud, you can’t be careful enough.
    • The sender of a wire should assume everything you see is a lie, the fax, the email, the logo, the wire instructions, the sender web site, the sender.¬† Everything.¬† Always verify everything via voice using a trusted and known telephone number for the wire recipient.
    • If you smell a rat, don’t initiate the wire.¬† Wait and check some more.¬† Urgency — especially inappropriate urgency — is a key indicator of fraud.
    • Read carefully the sender email addresses and the email.¬† Many times the email domain of a fraudster does not exactly match the domain name with which you have been dealing.¬† Note misspellings and grammatical errors in the text of an email that may come from a foreign sender or one unfamiliar with the parties and the transaction.
    • Note last-minute changes, especially of wiring instructions.
    • Note changes made on the Friday before a holiday weekend or before another holiday, and before the end-of-month, when Realtors and title company employees are more likely to be busy and careless.
  • Buy cyber insurance.¬† Your property and casualty insurance agent can offer your business cyber protection.¬† It requires you to use good practices for the insurance to invoke, but both the coverage and the required procedures are a critical part of best practices protection.
  • As to ransomware attacks, we have two pieces of advice:
    • First, according to the Harvard Business Review (citing IBM), 60% of cyber attacks originate inside your organization.¬† Either a malevolent employee or ex-employee intent on theft or vandalism (75% of attacks) or a negligent employee (25% of incidents) who falls for a phishing attack scam cause most losses.¬† So, hire and retain employees of good character, monitor their activities, and carefully, comprehensively and quickly cut off computer access of former employees.¬† Segregate access to data in your organization to those who need that data, and no one else.
    • Second, every computer system is vulnerable.¬† Every one.¬† But homegrown (premises-based and self-maintained) servers are more vulnerable to a hack (in my opinion).¬† As a result, we (a) have migrated the vast majority of our data into the Microsoft cloud (other providers are also available) (heaven help the world if they hack the Microsoft cloud!), (b) have segregated access to data to employees who need that access, and (c) have make serial backups of data that is not in the cloud.
  • Understand the risks, develop training and systems to avoid the risk, and train all of your employees on cyber security procedures.

As our attorneys can assist with due diligence and proper documentation (including title insurance) of your transactions, call us!

As real estate attorneys and licensed Ohio title insurance agents, we must constantly be on the lookout for the latest scheme to defraud buyers, sellers, lenders and others in real estate transactions.  We have already written about ever-persistent attempts at wire fraud.  (This one is never going away, we fear.)  But yet another fraud that is borne from the bountiful information available on and the anonymity of the internet is on the rise: Seller impersonation schemes.

According to one of our underwriters, First American Title Insurance, Seller impersonation schemes have increased 73% in 2023.¬† We personally have seen this attempted — but caught — to two separate commercial Realtor clients.

Here’s how the scam works, according to First American:

  1. Scammers search public records to identify real estate that is free of a mortgage or other liens. These often include vacant lots or rental properties. The identity of the landowner is also obtained through these public records searches.
  2. Scammers pose as property owners and contact a real estate agent to list the property for sale. All communications are through email and other electronic means and not in person.
  3. The listing price of the property is typically set below the current market value to generate immediate interest in the property.
  4. When an offer comes in, the scammer quickly accepts it, with a preference for cash sales.
  5. The title company or closing attorney transfers the closing proceeds to the scammer. The fraud is typically not discovered until the time of recording of transferring documents with the applicable county.

The natural reaction of a Realtor or buyer is: “that it’s the job of the closing attorney or title agent to ascertain the true identity of the seller,” but in the cases of limited liability companies and corporations, there typically is no public information at all (including the Secretary of State’s records), to ascertain the true owners and officers of these entities.¬† In the case of individual sellers, if they are shipping to Ohio a notarized deed signed out of state, it is possible that no one even asked for their I.D.

Thus, not only is it not negligence on the part of the attorney or title agent to fully ferret out the “authority” question, it’s something that’s not even possible in many instances.¬† In short, it’s one of the inherent risks in real estate transactions.

Thus — and it sounds self-serving to say this, but it’s true — one of the only sure ways a buyer can protect himself against his scam is to purchase an Owner’s Policy of Title Insurance at the time of the acquisition.¬† (And, no, simply buying coverage for the lender is simply insufficient — it is in fact NO COVERAGE AT ALL for the buyer).¬† In the above scenario, a non-fraudulent buyer who purchases an Owner’s Policy is covered if they fall victim to this scam.

__________

We are tremendously proud of the title presence we have in Ohio and Kentucky through Ivy Pointe Title.¬† Our residential division headed by Rick Turner (513.943.5660), and our commercial division headed by Eli Krafte-Jacobs (513.797.2853) are — as our tag line says — “accurate and on time, every time.”¬† They are here to protect you from these kinds of scams and schemes.¬† Let us know how we can help you safely close your next transaction.

For both commercial properties as well as single family homes, owners have flooded us with inquiries about their notices from County Auditors in Hamilton, Butler, Clermont and Montgomery Counties as to new property valuations.¬† We can’t imagine the number of calls the County Auditors must be getting.

A few guideposts for you:

  • First, read this important blog entry that essentially tells you that the first 30% of the valuation increases in southwest Ohio will not result in an increase (or at least not a significant increase) in your actual tax bill.
  • Second, Auditor’s property valuation is not some magical number — for the January 2024 tax bill, it is to be the fair market value as of January 1, 2023.¬† Thus, if your property was worth more then than in the prior valuation period, you should expect a valuation increase — perhaps one even above average for all properties in the marketplace.¬† Some clients seem to think that since valuations were less than what they thought the property was actually worth in the past, the Auditor’s valuation process is supposed to yield a lower number.¬† Well, it’s not.
  • Third, if your property was purchased since the last triennial valuation date (January 1, 2020), the sale price likely will be reflected in the valuation.¬† As this blog entry addresses, a recent arm’s length sale essentially — and largely irrebuttably — IS the value by law.
  • Fourth, if your property falls in one of the gazelle categories of properties whose values have leaped ahead of the market — single family homes, warehouse and industrial properties, and apartment buildings — you should both celebrate your good fortune and expect a bigger tax bill as a result.
  • Fifth, on the flip side, if you are a victim of the weak office market or the mall or downtown retail market weaknesses, you should should see some tax relief in the January tax bills.
  • Sixth, gas prices are up, grocery prices are up, car prices are up.¬† You have not had a valuation increase in three years.¬† Wouldn’t you expect your tax bill would rise some, at least modestly?
  • Seventh, for both buyers and sellers in today’s market, the looming valuation increases create both a possible problem and an opportunity as to contractual tax prorations for sales between now and January when the new — very different — valuations come out.¬† Read here for more detail on this.
  • Eighth, remember, the Board of Revision process to challenge property valuations is a two-way street.¬† If your property truly is undervalued, you risk an increase.¬† Cautiously keep in mind the upward dynamics of the real estate market over the past three years.¬† You could wind up with an increased valuation as opposed to the sought reduction if you overplay your hand.
  • Finally, I had a client recently ask me “why would single family home valuations be increasing in Cincinnati?” and I swear he must live under a rock.¬† I responded, “haven’t you seen newspaper articles explaining that Cincinnati has had one of the hottest housing markets in the nation since the start of COVID?”¬† The response, “ummm, no.”¬† It is surprising since we deal with this every day, and to some extent it is just denial of the obvious fact that we are blessed in Cincinnati with a fantastic housing and commercial real estate market.¬† Enjoy it while it lasts!

If, after reading this and the prior blog entry on the new valuations coming out in January, you still have tax valuation questions, please contact me (513.943.6655) or another member of our tax team.  We are glad to help.

In the category of “you learn something new all the time,” this week I learned something new about Remote Online Notaries (“RONs”) used for real estate closings.

The scenario was that a seller was unaware until he reached the closing table that the signature of his wife — married since the house was acquired — was needed on the deed in order to release her rights of dower.¬† Unfortunately, the wife was (a) a non-citizen of the USA, (b) she had a green card and had resided in the US for years, and (c) was physically located in Germany as of the time of the closing.

In the days before RONs, the only option was (a) email the deed to the signer and have them print it out in the remote jurisdiction (usually on funny-sized paper), (b) make an appointment at the U.S. Embassy for an overseas equivalent of a notary (or acknowledgement) (typically you can’t just drop in unannounced), (c) wait for that¬† appointment and (d) Fed Ex the deed back to Cincinnati.

The wife was able to get a quick appointment at the U.S. Embassy and would be able to get a deed back to Cincinnati about five days after the initial closing (even including an intervening weekend).  Unfortunately, the buyer just could not wait the five days and was throwing a fit, demanding thousands of dollars of concessions for (what we saw as) a relatively short delay.

So, RON to the rescue, right?

Not so fast.¬† The title underwriter’s (the guys who ultimately make the call as to whether we can close or not) first reaction was “so long as she is a US citizen, we can use a RON closing.”¬† I replied, “well no, in addition to being out of the country she is not a US citizen.”

Digging deeper (which we appreciate our title underwriter doing), it turns out that the “US citizen” thing is not a bright line test.¬† Rather, RON closings use sophisticated Knowledge-based Authentication (“KBA”).¬† These are whose odd security questions that pull and query minute details from your past (many times when I am asked a KBA question, I don’t even know the answer, even though the question is about something I should know!).¬† Well, as it turns out, those KBA questions are primarily pulled from information contained deep in your credit report, and — if your contacts to the US and its credit-reporting system ae sufficiently robust — RONs can possibly work for non-US citizens, including those who at the time are overseas.¬† (You actually find out “if it works” during the execution of a RON closing.)

So, the closing was saved — RON got it done within hours of the first phone call.¬† And I learned more about RON, citizenship and what “KBA” is.

#MakingADifference

 

Our phones are ringing and email boxes are filling up at Finney Law Firm about notices from County Auditors throughout the state of Ohio about dramatic property tax valuation increases coming with the January 2024 tax bills.

Read this shocking paragraph from an article from Paula Christian at WCPO (Channel 9):

The [Ohio Department of Taxation] recommended a 43% increase in property values in Clermont County and 42% in Butler County. The updates will be reflected in 2024 tax bills, which are sent out early next year and will last for three years until reappraisal.

So, the natural reaction from property owners receiving such notices is that their tax bill (i.e., the amount of taxes they are obligated to pay) will rise a similar amount.¬† This is not true — not by a long shot — given the intricacies of Ohio property taxation.

How could that be?  We explain:

  • First, the County Auditors throughout Ohio are charged by statute with re-valuing properties in their County every three years (a “Triennial”).¬† The statutory duty is to value each parcel at its fair market value (in the case of new tax valuations coming in January of next year, that is a January 1, 2023 valuation).
  • In southwest Ohio, January of 2024 will see new valuations for each of Hamilton, Butler, Clermont and Montgomery Counties.¬† Warren County will have new valuations in January of 2025.
  • It is not the Auditor’s job to show mercy, or to “shade” the fact that the real estate market has changed dramatically since the prior 3-year valuation date (in the case of Counties having new valuation in January of 2024, that would be a January 1, 2020 valuation as a comparison).¬† They are obligated by statute to value properties fairly (i.e., what a reasonable buyer would pay a reasonable seller for that property).
  • Your property taxes are, very roughly, a result of this formula:

(Tax Valuation * Tax rate) – certain credits = tax bill.

  • Thus, it is natural to assume that to the same degree your valuation rises, so does your tax bill.
  • However, it is much more complicated than that.
    • About 10% of your tax bill is¬†inside millage which does stay at the same tax rate (i.e., it does generate more revenue in direct proportion to your increasing valuation).¬† But that is a very small part of your tax bill.
    • About 90% of your tax bill is outside millage, which is a result of tax levies that year after year generate a fixed amount of revenue for the levy recipients (depending on the district, schools are about 55-70% of your tax bill).¬† For example, a specific levy passed by the voters years ago may generate a fixed $40,000,000 in taxes each year (regardless of inflation or valuation increases).
    • That means that for the great majority of your Ohio tax bill, as the valuations increase, the rate rolls back, generating the roughly same revenue for the levy recipient overall each and every year.
    • Therefore, if your property has a lower-than-average valuation increase, the outside millage portion of your tax bill will actually decrease.¬† To the extent that your increase is merely average for that taxing district, the outside millage portion stays the same.¬† And to the extent that your valuation increase is more than average, the outside millage portion of your taxes will rise, but only to the extent of that excess increase.
    • Remember the last school levy campaign where the pro-levy advocates told you that “taxes don’t keep pace with inflation”?¬† Well, as a result of the formula set forth above, that’s actually true.

Do remember that when you get a changed value, that’s the first change in three years, so the increase reflects that entire Triennial period (i.e., 8% per year compounded would exceed a 25% valuation increase over three years).

Also keep in mind that certain categories of real estate have in fact seen dramatic changes since three years ago.¬† Indeed, our region has seen much greater-than-average appreciation than the rest of the nation for single family homes: “Cincinnati has seen the highest percentage of home-sale price increases in the country over the last year.”¬† ¬† As a result, our view is that property values in certain categories of real estate have skyrocketed in the past few years, especially single family residential and apartments, as well as warehouse and industrial properties.¬† Office properties, especially downtown, may have seen a decrease in valuation.¬† County Auditors simply are required by state law — as overseen by the State Department of Taxation — to recognize the full measure of those increases in their triennial valuation work. They have no choice.

Chicken Little cries from taxpayers that “the sky is falling” as a result of these properly-recognized valuation hikes are vastly over-stated.¬† For most taxpayers, the increase in their tax actually paid will be less than the inflation over that Triennial cycle.

By the way, two of the primary bases we see clients try to raise against the valuation increases of their properties are simply not valid in Ohio:

  • “My property could not have risen in value by this amount.”¬† While that statement well could be true, the Auditor may have¬†undervalued your property in prior years, resulting in an above-market hike.
  • “The Auditor has valued four similar houses on my street lower than my valuation.”¬† As entirely unfair as it may seem, the value the Auditor places on another property — as similar in location, size, age and other characteristics as it may be — is irrelevant as a matter of law.¬† What is relevant are sales of similar properties (which is different than the Auditor’s opinion as to values).

This all leads to a significant caution for those desiring to charge into the Board of Revision and challenge the value of their property: The Board can raise your property value even more if the then-current valuation does not reflect market.  Proceed with great caution.

If you have questions about your new tax valuation, please call the professionals at the Finney Law Firm.  We can answer your questions as well as challenge any valuation that exceeds fair market value of your property.  Contact Jessica Gibson (513.943.5677) or Chris Finney (513.943.6655) to help with that assignment.

 

We will write more on this later, but we are pleased to announce that — six years after we first filed in State Court, and nearly four years after we moved the case to Federal Court — on Tuesday of this week Federal U.S. District Court Judge Douglas R. Cole certified our firm’s RICO and breach of fiduciary duty claims against the following Defendants as a class action:

  • Build Realty, Inc.
  • Edgar Construction, LLC
  • Cincy Construction, LLC
  • McGregor Construction, LLC
  • Cowtown Holdings, LLC
  • Build NKY, LLC
  • Greenleaf Support Services, LLC
  • Build SWO, LLC
  • Gary Bailey (as trustee and individually)
  • George Triantafilou (as trustee and individually)
  • G2 Technologies, LLC
  • GT Financial, LLC
  • Five Mile Capital Partners, LLC
  • First Title Agency, LLC

In doing so, Judge Cole certified all victims of the alleged RICO and breach of fiduciary duty scheme as class members and certified a sub-class of investors who had their properties improperly taken away by scheme participants.

A class notice is being negotiated and should be sent to class members within the coming month or so.  If you have an updated physical address or email address please email it to Chris@FinneyLawFirm.Com and we will try to keep you updated on developments.

This is a major victory for victims of this scheme, but we have many miles to trial to achieve final justice in this matter.  We will endeavor to keep the public updated through this blog.

For more background on this case, read here, here, here, here and here.

Our able co-counsel in this case is Bill Markovits and the firm of Markovits, Stock and DeMarco.

We are pleased to be “Making a Difference” for our now many clients in this long and very complex litigation.

You may read the Class Certification Order below.

 

Today brought to a Finney Law Firm client a judgment for $222,836.53 for trespass onto his residential property and the removal of a tree and a portion of a wooden fence.

It’s been a big week for the Finney Law Firm in many ways, closing out yet another record year for the law firm.¬†¬†And today we got our second huge, years-in-the-works victory in one week.¬† The Cincinnati/Alarms Registration case (final entry linked here) was five years in the making and this new “tree” case took 39 months to bring to conclusion.

The win was significant for several reasons.¬† First, this was the last civil trial for Hamilton County, Ohio Common Pleas Judge Judge Robert Ruehlman, the longest-ever serving Judge on the Hamilton County Common Pleas bench.¬† He retires from the bench January 2, 2023.¬† ¬† Second, awards of punitive damages and attorneys fees are fairly uncommon (either cases settle or the requisite legal standard is not met for punitive damages).¬† But, the Judge ruled that such standard for proof of the case and an award of attorneys fees was met by Plaintiffs, and was met by “clear and convincing evidence.”

A copy of this “tree case” order is here.¬† Congratulations to our client, William Chapel, and to our team consisting of Christopher Finney, Julie Gugino, Jessica Gibson and Kimi Richards, along with our expert witnesses and A/V consultant (Kevin Lewis and Media Stew!) for a wonderfully executed case from intake and filing to trial and judgment.

Now on to collections!

 

In pre-litigation and litigation, we frequently have clients who are understandably anxious to resolve their disputes.¬† They typically are concerned with the open-ended liability that can result from a claimed breach of real estate contract or a business deal gone bad — and the legal fees that inevitably will come from them.¬† And as a result of that unknown exposure, they want swift finality to the matter.¬† They are constantly on pins and needles to close this small chapter of their life.

A good settlement versus a quick settlement

Unfortunately, getting a¬†good resolution frequently is inconsistent with the desire for a quick resolution.¬† Patience, many times, is a virtue that pays good dividends.¬† This does not mean we typically recommend litigation as a solution.¬† Litigation is lengthy, unpredictable and terribly expensive, and is accompanied by the same sense of unease until that long course to resolution.¬† But the other side can sense when you are anxious to put a dispute behind you — attorneys are especially good at dragging things out to achieve a more favorable resolution than the courts would provide to them precisely because of that desire of the opposing party for quick closure.¬† Showing that insistence on a quick and final settlement can drive up the cost of a resolution exponentially.¬† So, slow down.¬† Relax.

Why the anxiety?

The nature of our legal system is that we frequently need to give “lawyerly” answers to what seem to be simple questions:

  • Am I liable?
  • What is the extent of my financial exposure?

These vague answers are so because many times the answer from a review of the documents and a review of the correspondence and oral exchanges leave a conclusion unclear.¬† Many times — most times — clients don’t tell us the whole story.¬† Sometimes, we are wrong.¬† And even if we as attorneys can give a clear anticipated outcome and we are correct in our analysis, the Judge (or Arbitrator) may in the end not agree with us.

We read the documents and do our best to understand the facts, and conclude: “Your exposure should be limited to ‘X,'” but the Judge may later conclude it is “X” times 3.5.¬† And that is so because we can be wrong or the Judge can decide the case incorrectly (in our opinion).¬† Further, we conclude “the fees and expenses to get to that conclusion should be ‘Y,'” but opposing counsel and judges can make the odyssey much more expensive.

Perhaps my bedside manner makes clients uneasy because I do have and share “worst case scenario” war stories where liability and legal fees well exceed that which should reasonably be anticipated.¬† But for every one of those legal calamities, we have 20 or 40 cases that resolve quickly and fairly, if not inexpensively.

So, relax

I recently was consulted by a physician who had contracted to purchase a small investment property, and he had decided he contractually¬† agreed to pay too much and wanted to back out of the deal.¬† He was more or less crawling out of his skin to have resolution of the matter — and his total exposure if he was in fact found to be in breach of the contract was on the order of maybe $20,000.¬† And this was the worst case for him.

But he was anxious, and called me four or five times in a two-day period stressing about this “what if” and that “maybe” scenario.

I asked him: “You are a doctor.¬† What kind of doctor?”¬† He responded: “I am an oncologist.”¬† So I said: “OK, let me understand.¬† Every day you have to tell someone — and their family — that they or their loved one has cancer.¬† Is that right?”¬† He says: “Correct.”¬† And, I further inquired: “Yet you are stressed about a simple contract claim that might cost you $10,000 or $20,000 if you ultimately are sued, is that right?”¬† “That’s right,” he responds,¬† “But I see your point.”

Another case I have my client terminated a residential purchase contract because the strict terms of the financing contingency were not met — the bank had a higher interest rate and a higher down payment than the contingency contemplated. The buyer sent a contract termination letter and the seller responded with a rejection of that — but then just sat and sat and did not place the house back on the market — at least not right away.

I explained to the client that “these almost all work themselves out without litigation.”¬† Further, he has an appraisal of the property at the purchase price.¬† If that is the value that would be adopted by a court in litigation, then the seller has no damages anyway.¬† Further, if they refuse to place the home back on the market, the seller will have violated his duty to “mitigate his damages,” weakening the seller’s claim in court.

Still, the client and his wife are anxious, concerned about the many possible outcomes to the suit.¬† And we don’t as of this writing know exactly how it will turn out.

Conclusion 

No one has cancer.¬† No one lost an arm or an eye.¬† No one is going to die.¬† You are not going to end up in bankruptcy court as a result of this contract claim.¬† Be patient and allow the other side to work out their “mad” and realize the cost and time that litigation will take.¬† It will all be OK.¬† That does not mean fighting until the last breath and last dollar is the best strategy, but being somewhat patient as a settlement works its way out can be advisable.

Legal disputes are rarely cut-and-dried to the point that the other party is without any legal defense to the action.¬† It seems there is always something about which to argue (read here, for example).¬† But it certainly seems to us — by reading the statute and by using it — that a statutory partition action in Ohio (O.R.C. Chapter 5307) is just such a “perfect” solution.

Two or more parties own property; one or more parties wants “out”

In this case, the statute addresses the issue where two or more parties own real property together but cannot agree if or when to sell it.

We are not addressing multiple shareholders in a corporation that owns real property or co-members of an LLC that own real property, but two or more parties named as grantees in a deed who own property together (known in the law as co-tenants).  Those shareholder or member disputes are handled in another manner.

Perfect power of partition

In short, in a partition action, one party can force the judicial sale of the property to the highest bidder with the net proceeds divided among the co-owners (the parties may argue, and this firm has argued about proper adjustments to the distribution of net proceeds).  There is no defense to the action although the process can take time as the Court permits discovery over the course of the partition proceedings.  However, the right to partition of jointly owned property is statutory Рif one party brings the action, the property will ultimately be judicially sold.

How to proceed to partition

Thus, if you own property jointly in Ohio and you want to liquidate your interest (for any reason at all or for no real reason at all), but the other party or parties do not wish to sell what are your options?

For this situation, let’s assume two things:

  • The co-owners are not married as that would be handled in Domestic Relations Court.
  • There is no written agreement, what we call a co-tenancy agreement (see here), whereby the parties have established in writing how they will handle disagreements between them as to how the property will be held and disposed.¬† In that case, the agreement likely will control.

Then, what options do you have to resolve differences over the ownership and disposition of jointly owned real estate? The answer lies in an action in partition.

What is partition?

A real estate partition is a formal legal proceeding through which a joint owner of real estate can ask the court to split the property. ¬† An “action for partition is equitable in nature, but it is controlled by statute.”¬† McGill v. Roush, 87 Ohio App.3d 66, 79, 621 N.E.2d 865 (2d Dist. 1993). A Partition Action is a lawsuit which existed at the common law for the purpose of passing down family farms.[1] When the heirs could not agree on how to run the farm together, one or more could commence a partition action, asking the court to fairly divide the farm between the heirs. Partition of the property itself is favored over sale and division of proceeds, however a property may be sold if it can be shown that it cannot be divided without manifest injury.[2]

Sale if property cannot reasonably be divided

Thus, a party can ask that the property be sold if it is determined that it cannot be divided. Certainly, this is the usual case for typical residential properties today. In this situation, the Court will appoint a commissioner or commissioners under O.R.C. ¬ß 5307.09.¬† When the commissioner(s) are of the opinion that the estate ‚Äúcannot be divided without manifest injury to its value‚ÄĚ they will provide a ‚Äújust valuation of the estate‚ÄĚ to the Court. One or more of the parties can elect to take the estate at the appraised value and pay to the other parties their proportion of the same. Alternatively, if neither party desires to purchase the property or cannot agree on the proportionate purchase of the same, the property will be sold at auction to the highest bidder.¬† Often, cases are resolved and settled among the parties prior to this occurring.

Under O.R.C. §5307.07, when partition of more than one tract is demanded, the Court will set off to each interested party its proper proportion in each of the several tracts. Thus, when multiple parcels of land are owned jointly, the separate parcels can be conveyed to separate owners so that each owner will have total control over their now separately owned parcel.

If a property was acquired upon someone’s death, a partition cannot be ordered within one year from the date of the death of the decedent, unless it is proven that either (i) all claims against the estate have been paid, (ii) secured to be paid, or (iii) that the personal property of the deceased is sufficient to pay those claims.

Attorney’s Fees

Under O.R.C. ¬ß5307.25, reasonable attorney‚Äôs fees can be paid from the proceeds of the sale to Plaintiff‚Äôs counsel and may also be paid to ‚Äúother counsel for services in the case for the common benefit of all the parties‚ÄĚ as the Court determines.

Conclusion

Thus, a Partition Action can be used to force the sale of jointly owned property where a recalcitrant party refuses to act.  Partition is a powerful tool to unwind and unstick a longstanding problem with a co-owner that will not budge.

 

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[1] The Appellees assert that the “Commissioner made a good faith effort to¬†partition¬†the Property, but there is no way to physically¬†divide¬†this family¬†farm¬†into four sections based on the lack of frontage, the inconsistent and varying nature and uses of the land, and the physical location of the parcels. Simon v. Underwood, 2017-Ohio-2885, ¬∂ 65 (Ct. App.).

[2] “Since the¬†partition¬†of property is to be favored over the sale of property, when a party objects to a commissioner’s report, that party should have a right to a hearing to contest the commissioner’s findings before the property is appraised and subsequently sold.” Stiles v. Stiles, 3d Dist. Auglaize No. 2-89-3 (May 10, 1991)]. Court must comply with statutory procedures to appoint a commissioner, make an independent valuation and recommendation regarding whether the property could be divided without a manifest injury to the property‚Äôs value and providing a joint owner opportunity to elect the property, and no was provided. Thrasher v. Watts, 2011-Ohio-2844, (Ohio Ct. App., Clark County 2011).