Real Property Law Update 2015[1]
This presentation is a general review of recent developments in case law and legislation over the last year which impact the use and ownership of real property or are of some interest to surveyors. If you have further questions about these recent developments, please feel free to contact the authors.
I. CONDEMNATION.
County of Dakota v. Cameron, 839 N.W.2d 700 (Minn. 2013), rehearing denied, Jan. 13, 2014
In order to perform reconstruction on a road, Dakota County brought a condemnation action involving Cameron’s liquor store. The reconstruction forced Cameron to relocate the liquor store, so Cameron was entitled to damages under Minn. Stat. § 117.187, which provides that upon relocation “the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community.” Cameron argued that no comparable property was available, and Dakota County should therefore pay the $2.175 million it claimed was necessary for the purchase of vacant land and construction of a new comparable building. Dakota County pointed to another recently-sold liquor store and argued that because the Cameron property had appraised for more than the sale price, Cameron should merely receive the appraised value of the Cameron property. The district court agreed with Dakota County and applied a market-value analysis, awarding Cameron $997,000.
The case made its way to the Minnesota Supreme Court, which took the opportunity to clarify the language of Minn. Stat. § 117.187. Noting that the statute does not define the term “community,” the Court concluded that the term refers to an identifiable locality that has a socially or governmentally recognized identity. Depending on the facts of the case, a community can be a neighborhood, town, city, county, or other locality. A community, the Court held, should not be defined as a location where a business can survive and be profitable, since application of such a definition to residential property would be unreasonable.
Next, the Court concluded that the phrase “comparable property” requires only enough like characteristics and qualities to permit the valuation of one property by comparison to another property. A property is not required to be available for purchase at the time of taking to constitute a comparable property under the minimum compensation statute. Ultimately, the Court upheld the lower courts’ determinations that the other liquor store was a comparable property located within the same community.
II. CONSTRUCTION.
Helmberger v. Johnson Controls, Inc., 839 N.W.2d 527 (Minn. 2013)
In 2010, Johnson Controls entered into a contract with the School District to provide construction and/or renovation of several school buildings for the district. Johnson’s contract did not contain any notice. Some months later, the plaintiff, a newspaper editor, sought copies from Johnson of a number of documents, including copies of a subcontract Johnson entered into with Architectural Resources. Johnson refused to produce a copy of the subcontract, and Helmberger sued under the Minnesota Government Data Practices Act.
The main question was whether a subcontract between two private businesses is subject to the requirements of the Data Practices Act. Minn. Stat. § 13.05, subd. 11(a) requires certain notices that a government entity include when contracting with a private business to perform a government function. The Court noted that this subdivision prescribes obligations of the government, not a private business. Johnson, as a private business contracting with another private business, was therefore not required to produce the subcontract.
Safety Signs, LLC v. Niles-Wiese Construction Co., Inc., 840 N.W.2d 34 (Minn. 2013)
Safety Signs was a subcontractor on a public project, and Niles-Wiese was the general contractor. Safety Signs completed its work in 2009. The City paid Niles-Wiese for the work, but the general contractor failed to pay Safety Signs in full. As a result, Safety Signs sent a notice of bond claim by certified mail to Westfield (who provided the payment bond) and to Niles-Wiese. The notice to Westfield was sent to the address in the bond, but the notice to Niles-Wiese was sent to the address listed on the subcontract, which was different from the address provided on the bond. The notice sent to Niles-Wiese was returned as “Unclaimed – Unable to Forward.”
The Public Contractors’ Performance and Payment Bond Act generally requires contractors on public projects to supply payments ensuring payment of all just claims for labor or materials furnished to the project. The statute requires that before an action can be brought on the bond, the claimant must serve written notice of claim under the bond, either personally or by certified mail upon the surety and the contractor at their addresses as stated in the
bond. Safety Signs argued that it substantially complied with the statute, but the Court refused to apply that looser standard. The Court compared the statute to the foreclosure by advertisement statute and, citing the recent case Ruiz v. 1st Fid. Loan Services, LLC, 829 N.W.2d 53 (Minn. 2013), held that the statute required strict compliance. The notice to Niles-Wiese was deemed insufficient.
III. FORECLOSURE.
Drews v. Federal Nat. Mortg. Ass’n, 850 N.W.2d 738 (Minn. Ct. App. 2014)
Borrower Drews defaulted on his mortgage loan and lender Fannie Mae commenced a foreclosure by advertisement. After 15 unsuccessful attempts to serve Drews with notice of the foreclosure sale as required by the foreclosure statute, the process server engaged in a stakeout at Drews’ home. Neighbors had confirmed Drews was the only resident of the property, so when the process server observed a man fitting Drews’ description through an open, lower-level window, the process server approached the home. With the man believed to be Drews standing three feet from the open window and making eye contact with the process server, the process server explained that he had foreclosure papers to serve, and requested that the man come to the door. When the man walked away from the window, the process server taped the foreclosure documents to the front door of the house and left. The property went to sale and the lender brought an eviction action.
Drews filed a lawsuit asserting that the foreclosure sale was defective because he had not been served with notice. Drews denied that he was home on the evening in which the process server alleged the interaction to have taken place, and denied having ever seen the process server before. After hearing evidence from a number of witnesses, none of whom could confirm that Drews was not home as alleged by the process server, the district court ruled that service had been proper and the foreclosure sale valid. Drews appealed.
The Court of Appeals affirmed the district court’s reliance on caselaw providing that when evidence of proper service is produced, the burden shifts to the party challenging service to show by clear and convincing evidence that service was improper. Although Drews argued that shifting the burden of production to the party challenging service was inconsistent with Minn. Stat. § 580.03, the Court of Appeals disagreed, finding that although strict compliance with service rules is required, a party challenging strict compliance is “not excused from rebutting prima facie evidence of proper service with clear and convincing evidence that service was invalid.” Because the district court had found credible evidence that the process server and borrower were within speaking distance and a reasonable person would understand that service was being attempted, the Court of Appeals affirmed.
Deutsche Bank National Trust Company v. Wilson, 2014 WL 349734 (Minn. Ct. App. 2014)
The Wilsons owned two adjacent parcels of land: Parcel 1 included the homestead; Parcel 2 was largely unimproved but for an outbuilding (and was worth far less than Parcel 1). Each parcel had distinct legal descriptions and property tax identification numbers; the Wilsons had purchased the parcels separately, in fact. In 2005, the Wilsons refinanced existing debts by granting a mortgage on their property: the mortgage included both parcel ID numbers, but only contained the legal description of the vacant outlot (Parcel 2). In 2011, Deutsche Bank went to foreclose the mortgage loan and discoveryd only Parcel 2 was described on the mortgage. It accordingly brought an action to reform the mortgage so as to add the legal description of Parcel 2 so that both parcels were the security for the mortgage loan. Deutsche Bank claimed that the parties had intended to encumber both parcels, while the Wilsons intended that they only ever intended to encumber Parcel 1 (not Parcel 2) and that the mortgage as written did not reflect the intent of either party when the instrument was entered into. The district court denied Deutsche Bank's claim and granted summary judgment to the Wilsons, leaving Deutsche Bank with a mortgage encumbering the relatively valueless parcel.
The Court of Appeals upheld the district court in favor of the Wilsons. Citing Nichols v. Shelard Nat'l Bank, 294 N.W.2d 730, 734 (Minn. 1980), the Court of Appeals explained that Deutsche Bank’s reformation claim required clear and convincing evidence that: (1) there was a valid agreement between the parties expressing their real intentions; (2) the written instrument failed to express the real intentions of the parties; and (3) this failure was due to a mutual mistake of the parties, or a unilateral mistake accompanied by fraud or inequitable conduct by the other party. Looking at each of these elements, the Court of Appeals found that Deutsche Bank did not meet its burden, particularly in light of the Wilson’s credible testimony that they only ever intended the mortgage to encumber Parcel 1.
IV. ALLOCATION OF FAULT.
Clark v. Connor, 843 N.W.2d 785 (Minn. Ct. App. 2014)
This case does not involve real property, but is interesting for its discussion regarding the allocation of fault among multiple parties, including the injured party. Connor’s pet pit bull chased Clark into the street where he was hit by a van driven by Jones. Clark sued Connor and Jones under Minn. Stat. § 347.22, the so-called Dog-Attack Statute. The jury allocated fault as follows: 10% to Jones (driver), 10% to Clark (injured party), and 80% to Connor (dog owner).
Minn. Stat. § 604.02, the Comparative Fault Statute, allows the allocation of fault for both negligent conduct and conduct that subjects one to strict liability. The Dog-Attack Statute was not intended to preclude the allocation of fault between a dog owner and the injured party. The decision was affirmed. Unless a statute says otherwise, liability is not absolute and the injured party’s negligence can be taken into account.
V. TITLE.
Trenne v. Eagle, 2014 WL 211377 (Minn. Ct. App. 2014)
Where a grant of an easement does not describe the location of the easement, it may still be sufficiently clear and unambiguous if the way or location of the easement was agreed upon at or prior to the time of the express grant and no contrary intention appears in the document. In determining the location and extent of the easement, the parties should look to the time of the grant.
Balback v. Irving Township Board, 2014 WL 268528 (Minn. Ct. App. 2014)
This is a Marketable Title Act case. Where a property owner owned lots abutting an unopened roadway (one to the east and the other to the west of the roadway), the court held that the conveyance of the abutting lots did not include the roadway.
Blomker v. Magedanz, 2014 WL 621695 (Minn. Ct. App. 2014)
A legal description is ambiguous and must be interpreted according to the intent of the parties where it is susceptible of two interpretations as to which parcel or parcels an exception may apply. The court emphasizes that it is the intent of the parties that will control, if such intent can be determined.
VI. MISCELLANEOUS.
Vadnais v. Federal National Mortgage Association, 754 F.3d 524 (8th Cir. May 13, 2014)
This is a deed tax case involving Fannie Mae and Freddie Mac. The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Company (“Freddie Mac”) are privately-owned and publicly-traded for-profit entities created by Congress to generate financial stability in the secondary market for residential mortgages. Fannie Mae and Freddie Mac buy mortgages originated by third-party lenders, gather them into bundles, and sell them as securities. Swift County, Minnesota brought an action in federal court wherein it argued that Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (“FHFA”) were violating state law by failing to pay the state deed tax imposed required by Minn. Stat. § 287.21. The district court dismissed the county’s action for failure to state a claim, and the county appealed to the Eighth Circuit.
The issue examined on appeal was whether Fannie Mae, Freddie Mac, and FHFA are exempt from the state deed tax.
The Court of Appeals rejected the county’s arguments and affirmed the district court’s dismissal of the county’s action. First, the court noted that the deed tax statute contains an exception when the “United States or agency or instrumentality thereof is the grantor.” The court further noted that the charters for the federal agencies state that the agencies “shall” be exempt from “all” taxation imposed by any state. The court rejected the county’s argument that the charters do not supersede state law, quoting from a Third Circuit opinion holding that the “assertion that a state’s taxing authority stands on equal footing with Congress’s power under the Commerce Clause was flatly rejected by the Supreme Court nearly 200 years ago.” Next, the court rejected the county’s argument that the agency charters were not valid exercises of Congress’s power under the Commerce Clause. Finally, the court relied on precedent to reject the county’s argument that the federal agencies ceased to be federal instrumentalities when they were privatized.