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MD Court of Special Appeals: Greentree Series V, Inc. v. Hofmeister

In a matter of first impression, the Maryland Court of Special Appeals held in Greentree Series V, Inc. v. Hofmeister that the word “or” in Md. Rule 14-305(g) was to be read literally to give a trial court an either/or option, thus precluding the trial court from granting both options in relief. The Rule in question states that when a purchaser at foreclosure defaults, the trial court “may order a resale at the risk and expense of the purchaser or may take any appropriate action.” Greentree was the winning bidder at foreclosure, put down a deposit, but then failed to close. The trial court ordered the resale of the property, but also ordered that Greentree’s entire deposit was forfeited per the terms of the foreclosure ad. Greentree was the winning bidder at the second foreclosure sale, at a significantly higher bid price, and eventually (after defaulting again) closed. Greentree demanded its first deposit back in full. The trial court denied Greentree’s request, and the Court of Special Appeals, in a unanimous panel opinion by retired Judge Salmon, reversed. The Court first reasoned that the forfeiture could not be sustained under contractual law since it functioned as a penalty, not as a proper liquidated damages clause (although that finding may have been different had the second bid price not been higher), and Greentree’s defaults did not amount to unclean hands. The Court then held that the plain language of Md. Rule 14-305(g) gave the trial court two mutually exclusive options upon Greentree’s default, and thus did not give the trial court the power to order a resale and forfeit Greentree’s deposit. If the second foreclosure sale resulted in a lower sale price, then the seller would be entitled only to that portion of the deposit that would make it whole.  A link to the April 29, 2015 opinion is here.

DC: Emergency Legislation on April 14– Pop-ups

Photo Credit: Stop The Pop DC

Photo Credit: Stop The Pop DC

Pop-ups (upper-level expansions of DC row houses) have recently become the topic of discussions, particularly in light of some fairly ugly or disproportionate examples. The DC Council will hear emergency legislation absolutely and immediately banning pop-ups until regulations are issued.

In light of recent discussions about “pop-ups”, the District of Columbia’s Office of Planning recently proposed rules that alter the permitted height (up to 35 feet) and quantity (3) of units of R-4 zoned.   Current law also regulates pop-ups in the more dense R-5 zones.

Although the Zoning Commission has approved the proposed Rules,  emergency legislation has been proposed in the form of the “Prohibition on Single Family Dwelling Conversions Emergency Amendment Act of 2015” in which proponent Councilmember Vincent Orange proposes a complete moratorium on all pop-ups, regardless of zoning, until the final regulations are promulgated.  The moratorium would prohibit the issuance of any building permit “to increase the height, or otherwise convert an existing one-unit or 2-unit house, including a row house, into a multi-unit dwelling [of 3 or more units]” and would expire “upon the issuance and implementation of final regulations by the … Zoning Commission pertaining to pop-up construction.”.

If this matter relates to you or your clients, you may want to weigh in by contacting your Councilmember.

DC: Income and Expense Forms Due on April 15 for Commercial & Multi-Family Properties

Income Expenses Files Show Budgeting And BookkeepingDC’s Office of Tax and Revenue (OTR) uses the income analysis approach (among others) to determine the assessed value of commercial and multi-family real estate. It is important to remember the April 15 deadline for the filing of the appropriate income and expense form. The filing can be done on-line at http://otr/cfo.dc.gov. Select the Forms tab, then Real Property Tax Forms and Publications, then select the I&E report tab and select the form to complete. Alternatively, you can file a paper copy by mailing it certified mail to:

Real Property Assessment Division
Income and Expense Reporting
P.O. Box 71440
Washington, DC 20024

Or delivering by hand to:

OTR Customer Service Center
1101 4th St SW
Suite W270
Washington, DC 20024.

Be sure to note the Square/Suffix/Lot number. Failure to file by April 15 can result in a penalty in the amount of 10% of the tax bill. For information, contact Anthony Daniels at (202) 442-6794 or at anthony.daniels@dc.gov.

MD Court of Special Appeals Holds that Actions Filed During Bankruptcy Stay are Void

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 Kochhar v. Bansal, ____A.3d ______; 2015 WL 848166 (Md. Spec. App. February 27, 2015)  –In a case of first impression in Maryland, the Court of Special Appeals recently held that an action filed during a bankruptcy stay is void ab initio, not voidable.  During the pendency of a bankruptcy stay, a Court is without subject matter jurisdiction to hear the action, regardless of whether or not the party initiating the action had knowledge of the bankruptcy.

Factual Summary

Baljit Kochhar borrowed money from several members of the Bansal family and defaulted on the loans, for which judgments were entered against her.  Subsequent to the entry of the judgments against her, Baljit Kochhar transferred three residential real properties to her daughter, Sonia Kochhar.  Unbeknownst to the Bansal family, Baljit Kochhar filed bankruptcy on October 2, 2012 and Sonia Kochhar filed bankruptcy on October 5, 2012.  The Bansal family filed suit against the Kochhars in the Circuit Court for Montgomery County on October 9, 2012 alleging fraudulent transfers of the three residential properties and requested that the Court permit a Sheriff’s levy on the properties, order that the properties be retained to satisfy the judgments against Baljit Kochhar, award attorney’s fees, and enter judgment against the Kochhars for compensatory and punitive damages.  The Kochhars filed notices of the bankruptcies on October 25, 2012.  Sonia Kochhar’s bankruptcy was dismissed on November 19, 2012, and Baljit Kochhar’s bankruptcy was dismissed one week later for failure to compete the required filings.  The Circuit Court action proceeded thereafter with Sonia Kochhar filing a motion to dismiss arguing that the Court lacked jurisdiction to hear the action filed by the Bansal family since the action had been filed during the time period when the bankruptcy stay was in effect.  That motion was denied, and defaults were entered against the Kochhars.  Following an ex parte hearing, the Court entered judgment against the Kochhars, which was timely appealed by Sonia Kochhar.

Holding

In a matter of first impression, the Court of Special Appeals held that an action commenced in a State Court in Maryland in violation of a bankruptcy automatic stay is void ab initio.  In doing so, the Court of Special Appeal followed the vast majority of courts which have found that any action commenced in violation of the automatic stay is void ab initio.  A stay commences automatically upon the filing of a bankruptcy, and halts any and all collection efforts.   The bankruptcy court is then vested with exclusive jurisdiction over the property in the bankruptcy estate , thus depriving a state court of subject mater jurisdiction.  There was no dispute that the action filed by the Bansal family was in violation of the automatic bankruptcy stay.  Since the action was filed in violation of the stay, the Court was without subject matter jurisdiction and the action was void ab initio.

Practice Pointers

In Maryland, an action filed in violation of a bankruptcy stay is void ab initio for lack of subject matter jurisdiction.  A termination of the stay alone cannot vest the state court with subject matter jurisdiction retroactively.  There may, however, be a means to rescue an action filed in violation of the automatic stay.   A bankruptcy court may annul a stay or may grant retroactive relief from a stay upon a motion of a party who finds itself in such a situation.

DC Economic Interest Purchase Money-Recordation Tax

taxDC Expands Exemptions for Recordation Tax on D/T’s Association with Deeds of Economic Interest

While it has long been the practice and law that deeds of trust filed simultaneously with the acquisition of real estate are exempt from recordation tax, the exemption was limited to interests in real estate. Since a Deed of Economic Interest (“DOEI”) conveyed no interest in land, the accompanying Deed of Trust was not exempt.  The result was that the buyer paid full recordation and transfer taxes on the DOEI and pay an additional recordation tax on the deed of trust.

Effective May 9, 2014, the regulations were changed to loosen this narrow application of the exemption law.   9 DCMR 519 was amended to include 519.3a  which provides for an exemption if:

Deed of trust is on a purchase money note used to secure the economic interest (i.e. to purchase the stock or membership interest)

  1. Deed of trust is filed either
    1. simultaneously with the DOEI, or
    2. executed within 30 days of the DOEI and recorded within 30 days of the recordation of the DOEI

If you have paid a recordation tax on a deed of trust related to a DOEI, you might consider filing a Claim for Refund and forwarding it along with supporting documentation (including proof of who paid the recordation tax )  and sending the package to the attention of at Ciania Botchway at OTR.

VA Supreme Court: Shevlin Smith v. McLaughlin

Virginia-Supreme-Court

The opinion in Shevlin Smith v. McLaughlin provides a veritable cornucopia of rulings—15 assignments of error were considered!—that touch on important areas of legal malpractice and civil litigation that all practitioners should review. The case concerns a legal malpractice case by McLaughlin against his former firm of Shevlin Smith, whom he had hired to file a legal malpractice complaint against his former criminal counsel (two different firms). With McLaughlin’s approval, Shevlin Smith negotiated a settlement against one firm, but not the other. Four months later, the Court issued its opinion in Cox v. Geary, 271 Va. 141 (2006), holding in part that a settlement and release of some co-defendants to a legal malpractice claim released all co-defendants. McLaughlin sued Shevlin Smith for not, among other things, anticipating the Cox ruling, which precluded him from obtaining judgment against the other criminal defense firm, and obtained a $5.75 million verdict.

Justice Millette, for a unanimous Court, vacated the judgment and remanded. Among the rulings: (1) a plea in bar can be sustained even if it only partially bars the plaintiff’s recovery; (2) while not adopting the “judgmental immunity rule,” an attorney acting with “a reasonable degree of care, skill, and dispatch” in an unsettled area of law does not engage in legal malpractice, which is an issue of law, not fact, when “reasonable minds could not differ” on the issue; (3) a legal malpractice plaintiff need not prove collectability as an element of his actual injury, although it is a relevant factor that the defending attorney can raise as an affirmative defense, as a “growing number” of states have held; (4) non-pecuniary damages are not recoverable in a legal malpractice claim; and (5) a party cannot request more in his opening statement or closing argument than is set forth in his ad damnum. Justice McClanahan filed a partial dissent, arguing that a legal malpractice plaintiff must prove collectability of any judgment on the underlying lost claim, but otherwise joining in the Court’s rulings. A link to this important opinion is here.

DC: Home Seller is not a merchant under CPPA; Buyer’s Claim of Withholding Information fails – no detrimental

closing-on-a-homeIn Sundberg v. TTR Realty, Buyers entered into a contract to purchase a home and alleged that, after the contract was signed, but before closing,  the Seller and his real estate agent and brokerage withheld information and provided false information about construction that was to occur across the street. Buyers further allege that the construction reduced the value of the property and they would not have proceeded to closing had they known about the construction.  The conduct, according to the Buyer, constituted violations of the D.C. Consumer Protection Procedures Act (“CPPA”) as well as a violation of the covenant of good faith and fair dealing.

The court rejected arguments made by the broker and agent that the complaint should be dismissed because the sales contract had been subsumed into the deed (which had no representations therein) and that any obligation to disclose was limited to physical conditions of the property and not the condition of other properties.

 D.C. Consumer Protection Procedures Act

The trial court was more receptive to the Seller’s arguments, eventually upheld on appeal.  Notwithstanding the court’s long tradition of construing the CPPA and applying it “liberally to promote its purpose”,  the court held that the CPPA only covers “trade practices arising out of the consumer-merchant relationship.  A “merchant” is one who, in the ordinary course of business, sells or supplies consumer goods or services.  D.C. Code §28-3901(a)(3).   The Seller was not in the business of selling properties and even an argument that Seller had conspired, aided, or abetted the Broker would not be enough to subject Seller to the CPPA in light of the explicit exclusion.

In so holding, the court reiterated that the tort of aiding and abetting has not been recognized in the District, nor does a claim of conspiracy to violate a statute (here, the CPPA) sound at law.

Fraudulent and Negligent Misrepresentation or Omissions

The complaint alleged both fraudulent and negligent misrepresentation or omissions were made.  While both theories have elements in common, fraudulent misrepresentation requires “proof that the defendant had knowledge of the falsity of the misrepresentation or intent to deceive.”  But both causes of action must be based upon a defendant’s false statement about a material issue that the defendant had to duty to disclose.

The Buyers claimed that the misrepresentations gave them the “right” to breach the contract and that this right was somehow abridged by the representations or omissions.

The Court disagreed, finding that there is no “right” to breach a contract and it can not serve as the basis for a claim of detrimental reliance.

Breach of Covenant of Good Faith and Fair Dealing

The Court recognized that all contracts contain an implied covenant of good faith and fair dealing and to state a claim for breach of this covenant, the plaintiff must allege either “bad faith or conduct that is arbitrary and capricious” noting that “bad faith may be over or consist of inaction, and fair dealing may require more than honest”.

But here, the representations made involved the house to be sold.  Title was conveyed and the property was in the condition required by the contract.  The contract said nothing about neighboring properties and that there was no term that imposed upon the Seller, Broker or Agent to inform the Buyer.    Had there been a duty to disclose, a claim of violation of the covenant of good faith and fair dealing may sound if there were misrepresentations or omissions between the time the contract was signed and closing, but such was not the case here.

DC: Defect in notice of foreclosure did not create substantial risk of misleading record owner

foreclosure (1) In Dennis T. Comer v. Wells Fargo Bank, NA, No. 13-CV-1025 (D.C. Jan. 29, 2015), the D.C. Court of Appeals was called upon to review whether the trial court had properly dismissed counts of an amended complaint in connection with a wrongful disclosure

In 2008, Mr. Comer was approved for a 203(k) Rehabilitation Mortgage Insurance Loan through Wells Fargo to purchase and renovate a home  under the National Housing Act. Mr. Comer executed a loan agreement that included approximately $337,000 for the purchase of the Property and $427,925 for renovations to the Property, with the latter amount held in escrow. On January 12, 2010, Wells Fargo foreclosed on the home.

In 2011, Mr. Comer filed a wrongful foreclosure suit, alleging that Wells Fargo failed to observe FHA underwriting guidelines when it approved his 203(k) loan. Specifically, Mr. Comer alleged Wells Fargo overstated his income, relied on high debt-to-income ratios, and failed to provide Mr. Comer with accurate information concerning the repayment timeline. Mr. Comer thereafter filed an amended complaint, alleging that Wells Fargo implemented a pattern and practice of targeting African-Americans for deceptive and unfair mortgage lending practices.

The trial court subsequently dismissed the additional counts of the amended complaint as time-barred because such new claims (based on racial discrimination) did not relate back to the original complaint. The trial court also dismissed Mr. Comer’s wrongful foreclosure claim because he failed to plead specific facts demonstrating he was harmed or prejudiced by the notice of foreclosure.

As to Mr. Comer’s amended complaint, the Court of Appeals affirmed the trial court’s dismissal of the FHA claim, but reversed the dismissal of the CPPA claims and negligent misrepresentation claims. Specifically, the Court noted that the CPPA claims and the negligent misrepresentation claims were new legal theories based on the same set of facts as in the original complaint, and properly related-back; while the FHA claim was a new legal theory based on an entirely new set of facts. The FHA claim, therefore, did not relate-back to any portion of the original complaint.

The Court of Appeals also affirmed the dismissal of the wrongful foreclosure claim, holding that Mr. Comer did not plead sufficient facts showing that the balance owed was inaccurate or that he suffered any harm from the alleged inaccuracy. The Court of Appeals stated that immaterial defects in a notice of foreclosure are insufficient to invalidate the foreclosure. The Court stated, “[t]o determine whether a defect in notice is material enough to invalidate the foreclosure sale, or merely technical or de minimis, we assess whether the deficiency affects the accuracy of the notice or creates a substantial risk of misleading the record owner about any of the information contained therein.” (Internal quotations omitted).

DC: Filing a lis pendens may expose filer to claim if the underlying lawsuit was filed in bad faith

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In Havilah Real Property Services, LLC v. VLK, LLC, et al., the D.C Court of Appeals recently addressed the merits of litigation and the privilege associated with the recordation of lis pendens in a lengthy dispute between Havilah and VLK that was directly related to a personal dispute between the respective two owners, Joan A. Alderman and Vicky Lynn Karen, over the affections of one man, LaMar Carlson. In connection with a civil suit filed by VLK against Havilah, Alderman, and Lamar Carlson in the Circuit Court for Montgomery County, Maryland alleging interference with a business plan to purchase distressed properties in the District of Columbia, VLK recorded fifty-one lis pendens in the Land Records of the District of Columbia against properties owned by Havilah. During the pendency of the Maryland action, Havilah and Alderman sued VLK Karen in the Superior Court of the District of Columbia for malicious prosecution and tortious interference with contract and/or prospective advantage based upon the recordation of thirty-one of the fifty-one recorded lis pendens, and the case was stayed pending the outcome in the Maryland litigation. Ultimately, VLK and Karen did not prevail on their claims against Havilah and Alderman in Maryland and the D.C. Superior Court action recommenced.

In the D.C. action, the trial judge granted VLK and Karen summary judgment on the malicious prosecution claim, finding that the recording of the lis pendens was not a “special injury” sufficient to maintain the cause of action. The trial court denied VLK and Karen summary judgment on the claim tortious interference, and the jury found in favor of Havilah and Alderman on their claim awarding $602,942.00.

At issue in the appeal was whether the privilege attached to the recording of a lis pendens was absolute or conditional and whether or not the recording of thirty-one lis pendens was a “special injury” sufficient to support a claim for malicious prosecution and. The Court of Appeals clarified the privilege that attaches to the recording of a lis pendens, resolving a division within the Courts of the District of Columbia.

In the majority of jurisdictions, the privilege of recording a lis pendens is absolute. However, the D.C. Court of Appeals, in adopting the minority rule, held that the act of engaging in litigation is conditionally privileged against a claim of tortious interference with contract and/or prospective advantage. The finding of a conditional privilege was compelled by the Court’s adoption of the Restatement on tortious interference. The filing of a lis pendens shall be protected so long as the underlying litigation was pursued in good faith. If the underlying litigation was filed in bad faith, the filing party may be liable for all damages proximately caused by the filing, and any damages resulting from the recordation of lis pendens related to the litigation. Those damages include damages for the diminished fair market value of the property.

The Court further held that the numerous lis pendens did not constitute a special injury sufficient to support a claim for malicious prosecution, and reaffirmed that the Court follows a narrow “special injury” requirement. The Maryland litigation that resulted in the recoding of numerous lis pendens involved a dispute over numerous properties, which would not be different from similar suits involving multiple properties. Any injury caused by the lis pendens was incidental.

Parties and attorneys should be certain when recording lis pendens that the litigation has been filed in good faith, or suffer the consequences.

National: TILA Rescission Notice Valid if Sent Within 3 Years

TILA-1The Truth in Lending Act (“TILA”) requires that borrowers receive certain required disclosures.  TILA provides for two types of rescission by borrowers.  The first, and most common, right is to rescind certain types of loans within three days of closing, but before any other money is disbursed either to the borrower or to pay off a prior debt.

A second right to rescind under TILA may be exercised when a lender fails to provide the required documents to the borrower.  To exercise this right, a borrower must notify the lender within three (3) years and include proof that the required documents were omitted.  It is this second right to rescind that was the matter recently addressed by the Supreme Court in  Jesinoski  et ux. v. Countrywide Home Loans, Inc., et al.

Prior to the Supreme Court case, lower circuits disagreed on whether a borrower could simply send the TILA rescission notice or whether the borrowers were required to file a suit against the lender.   The Supreme Court made it clear that “rescission is effected when the borrower notifies the creditor of his intention to rescind.  …[A]s long as the borrower notifies [the creditor] within three years … his rescission is timely.  The statute does not also require him to sue within three years.”

The pleadings can be found here.

 

 

MD: Fed Tax Lien subordinate to Mortgage Filed Thereafter

tax-liensA debtor owed federal taxes and the IRS issued a notice and demand for payment in December, 2004.  Even though IRS had not yet recorded its tax lien, the effect of the notice was to give IRS a super-priority lien on all the debtor’s property upon issuance of the notice and demand.  This super-priority, however, is “not valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor” until there is an actual recordation [ of the tax lien]. 26 U.S.C. § 6323(a).   In January, 2005, the debtor executed and delivered a deed of trust.  A few days later, the IRS filed its lien.  Thereafter, the lender recorded its deed of trust.

The U.S. District Court for the District of Maryland, citing Md. Code Ann., Real Property § 3-201, held that the recordation of the deed of trust related back to its execution and delivery and thus gave priority to the Bank .  Alternatively, the Court held that, even if the “relating back” doctrine were not available, Maryland law provides that the Bank received an equitable security interest at the time of the execution of the deed of trust, thus trumping the IRS, even if the Bank had never recorded its deed of trust.

The U.S. Court of Appeals for the 4th Circuit, in In re Restivo Auto Body, Inc.  2014 WL 5488166 (4th Cir. 2014) disagreed with the District Court, finding that, 26 U.S.C. § 6323(a) protects only those security interests “protected under local law” and that  Md. § 3-101(a), provides that a deed of trust is not effective to protect a creditor unless it is “executed and recorded”.  Because the deed of trust had not yet been recorded at the time of the filing of the IRS lien, the deed of trust did not relate back to the date of execution and the doctrine would not provide priority to the deed of trust.

However, the Circuit Court did find persuasive the District Court’s alternate grounds for upholding the priority of the Deed of Trust under the theory of equitable conversion, finding that 26 U.S.C. § 6323(h)(1)(A) recognizes state law principles of equitable conversion and that a security interest exists if the interest “has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation”.    Maryland case law provides that a good-faith purchaser  of real estate receives equitable interest in the property at the time of contract, even if unrecorded, and that this equitable interest is superior to the interest of any creditor obtaining judgment  after execution of the contract.   Stebbins-Anderson Co. v. Bolton, 117 A.2d 908, 910 (Md. 1955).   Because a lienor or judgment creditor stands in the shoes of the debtor, if the debtor had already conveyed out an equitable interest in the real estate, a judgment lien (and, in this case, the IRS lien) is subject to that prior undisclosed equitable interest.  Washington Mut. Bank v. Homan, 974 A.2d 376 (Md. Ct. Spec. App 2009).    The court held that equitable conversion requires that “equity treats that as being done which should be done” and that Maryland law has held lenders should receive the same protections as are accorded good-faith purchasers.  The Circuit Court noted that both Texas and New York have similar laws which accords priority to a lender with a deed of trust over subsequent lien creditors regardless of whether the deed of trust was recorded.  The state recordation requirement is designed to protect purchasers and not lienors.

The Bank prevailed under the theory of equitable conversion, but the case serves as a reminder of the need to promptly record to take priority over subsequent good-faith purchasers.  Further, lien creditors should be aware that their interests may be subordinate to unrecorded equitable interests.

 

 

 

How the ‘Drummer Boy’ Decision May Affect Us Locally

SuperLien

The D.C. Court of Appeals recently ruled that the super-priority status given to six months’ worth of condominium liens under D.C. Code sec. 42-1903.13 can wipe out all other liens on the condo   unit, including a first-position mortgage, but that Court has not yet determined whether the six months applies to all condo liens, or to each condo lien. In other words, could a condo association get priority for more than six months of assessments by suing under multiple liens? Construing a nearly identical statute, the Appeals Court of Massachusetts answered in the negative. In Drummer Boy Homes Assn., Inc. v. Britton, Judge Brown for a unanimous three-judge panel held that the plain language of the statute allowed super-priority only for a single six-month span of assessments “immediately preceding institution of an action to enforce the lien”; multiple liens would not create multiple six-month priority liens. The court noted that the super-priority language “was intended as an ‘equitable balance between the need to enforce collection of unpaid assessments and the obvious necessity for protecting the priority of the security interests of mortgage lenders,’” and allowing multiple six-month priority liens would disrupt that balance. A link to this important decision, which may influence any future analysis by the D.C. Court of Appeals, is here.

VA Supreme Court Opinion: DRHI, Inc. v. Hanback

Virginia-Supreme-CourtIn DRHI, Inc. v. Hanback, The Virginia Supreme Court considered appeals in a property development dispute. The Court heard this case because it was not immediately apparent from the petitions for appeal whether this case involved a monetary judgment, a civil contempt fine, or both, in the interests of judicial economy the appeal to this Court was granted, and the case before the Court of Appeals was certified pursuant to Code §§ 17.1-409(A) and (B)(2), transferring jurisdiction to this Court over the entire case, regardless of the outcome on the merits.

DHRI, Inc. entered into an agreement to purchase a piece of property from William Hanback. DHRI later sued Hanback over performance of the land purchase contract. A trial court ruled on June 9, 2004 that Hanback should sell the property to DHRI and DHRI should pay to Hancock for the property. But that order did not contain definite terms as to the total amount to be paid or when such payment was due. On November 21, 2012, Hancock filed a petition for rule to show cause, stating that after closing on the property, DHRI refused to pay him the amount owed to him under the June 9, 2004 order.  After a hearing, the circuit court issued a rule to show cause to DHRI. The circuit court’s September 20, 2013 order is a judgment of civil contempt, finding that DHRI had not paid Hancock the required amount of $350,000.The Supreme Court reversed the lower court’s decision and dismissed the rule to show cause, maintaining that the circuit court abused its discretion by holding the respondent in contempt for violating the June 9, 2004 order and by ordering it to pay petitioner $350,000 when order did not contain definite terms as to the total amount DRHI was required to pay and when such payment was due. The dissenters argue that the Court lacked subject matter jurisdiction to hear the appeal.

VA: General Contractor Necessary Party for Mechanic’s Lien

mechanic's lienIn an action to enforce a mechanic’s lien filed by a subcontractor, the circuit court erred in concluding that a general contractor, which served as construction manager for the project but had no pecuniary interest in the bond posted to release the real estate subject to a subcontractor’s mechanic’s lien, was a necessary party in the subcontractor’s mechanic’s lien enforcement action. In Synchronized Constr. Servs. v. Prav Lodging, the general contractor had no mechanic’s lien of its own and, thus, the circuit court could render complete relief in the subcontractor’s mechanic’s lien enforcement action because, even in the absence of the general contractor, there was no monetary claim upon which the circuit court could award judgment in the general contractor’s favor, and no interest held by it which might need to be shielded from an adverse judgment. Under the facts of this case, the general contractor was a proper party but not a necessary party to a subcontractor’s mechanic’s lien enforcement action. The judgment dismissing the mechanic’s lien enforcement action is reversed and the case is remanded for further proceedings consistent with this opinion. The dissenters argued that the statutory scheme enforcing mechanic’s liens by a subcontractor innately require that the general contractor be a necessary party to such proceedings.

DC Court Clarifies Requirements for an Easement or a Prescriptive Easement

easementOn September 18, 2014, the D.C. Court of Appeals provided a “clearer explication of the requirements to claim an implied grant of an easement or a prescriptive easement” to help guide D.C. landowners as to their rights. In Martin v. Bicknell, two neighboring townhouse owners got into a fight over a driveway that bridged their common property line, by which each could access their respective garages. The Martins used that driveway in peaceful cooperation with the prior owner of the Bicknell property, but evidently things soured after the Bicknells moved in. One day, the Bicknells blocked the driveway with their car, and the Martins sued claiming an implied grant of an easement to use the portion of the driveway that lay on the Bicknells’ property, as well as a prescriptive easement over the same portion. Although the trial court dismissed the case for failure to state a claim, the Court of Appeals, in a unanimous opinion authored by Judge Easterly, reversed.

First, the Court distinguished between an implied grant of easement and an implied reservation of easement. An implied grant is where a property owner has subdivided and sold some or all of his property, but it is implied that he also granted to the purchaser of one parcel, the dominant estate, an easement over the other parcel. There, the owner of the dominant estate must prove the easement is “reasonably necessary to the use of his property.” On the other hand, an implied reservation arises where an owner has subdivided but retained possession of the dominant estate, impliedly reserving use over a portion of the servient estate. In that case, the owner of the dominant estate must show the easement is “strictly necessary.” The trial court incorrectly held the Martins to the higher “strictly necessary” standard to state a claim, the Court found. Finally, the Court clarified that there is no “exclusivity” requirement for a claim of prescriptive easement, finding that in prior citations by the Court it was “a layabout; it has never done any work[,]” and was not in harmony with the general understanding of prescriptive easements. To clarify the point, the Court cites to and quotes with approval from the relevant sections of the Restatement
(Third) of Property on Servitudes.

MD: Real Estate Agents Beware of Making Referrals

real estate agents

In a sweeping change, the Maryland Department of Labor, Licensing, and Regulation (DLLR) issued a change that requires Maryland real estate agents, to confirm that an entity is licensed and provide a link to the government site for easy confirmation before referring clients to contractors and appraisers. Effective August 18, 2014, real estate agents are required to take certain actions before referring people to “a mortgage lender or mortgage broker, a real estate appraiser, a home inspector, a home improvement contractor, a plumber, an electrician, or a heating/ventilation/air conditioning/cooling (HVAC) contractor”. The agent must first verify that the referral is licensed and must include a link to the governmental site so the client can easily re-verify the licensing status of the referred business or person.

DC: No slander of title for Lis Pendens; Other sanctions appropriate

downloadIn Bloom v. Beam (D.C.C.A. Nos. 13-CV-433 & 13-CV-484) the D.C. Court of Appeals held that a memorandum of lis pendens may not constitute slander of title, even if the underlying law suit fails, but that the trial court could assess attorneys fees under D.C. Code 42-1207(d)(1).

A law suit was filed by a downstairs condominium owner, complaining that the upstairs neighbor had installed hardwood floors, creating a noise problem.  The theory of the case was the new flooring granted the downstairs neighbor an equitable interest in the upper unit to allow him access to the unit to repair defective installation.  A memorandum of lis pendens was filed which stated that the “action affects title and interest [in the upper unit]… and to obtain an [o]rder imposing a constructive trust on the [upper unit].”

The lis pendens caused a pending sale of the upper unit to fall apart and the property could not be sold until the lis pendens was eventually released.

The jury found against the downstairs neighbor’s nuisance claim and awarded the upstairs neighbor $99,738 in damages against the downstairs neighbor and the court imposed a sanction of $32,775 under D.C. Code 42-1207(d)(1) which provides  “When appropriate, the court [ ] may impose sanctions for the filing [of an improper lis pendens]”.

The upstairs neighbor failed to preserve his right to claim that the filing of the lis pendens was absolutely privileged and could not form the basis for a slander of title claim.  He had failed to raise the privilege in his Rule 50(a) motion for directed verdict.

The Court of Appeals examined the elements of a claim for slander of title:

  • a communication relating to the title of property was false and malicious;
  • damages resulted from the publication of the statement
  • if special damages are sought, the underlying damages must be pled with specificity.

In the instant case, the element of falsity was not met.  The trial court had found that  “the underlying claim for relief … provides no basis for any interest in the [upper unit”  and that the jury could rely upon this lack of basis to find that the lis pendens was false.  Not so, says the Court of Appeals.  “The lis pendens in this case cannot be characterized as false because it merely recites the fact that Bloom filed a law suit in which he alleged an interest in [the upper unit];  it did not assert that a noise nuisance was legally sufficient to establish a constructive easement….. This statement of fact in the lis pendens, regardless of the outcome of the suit, is not false.”

The attorneys fee award was upheld.  The elements of D.C. Code 42-1207(d)(1) were equated with Super Ct. iv R. 11 standards wherein the court should assess:

  • whether the filing was for an improper purpose
  • unwarranted by existing law or a frivolous argument for the extension, modification, or reversal of existing law, or was without evidentiary support.

A trial court need not make a finding of bad faith in order to exercise its discretion in imposing sanctions and even a claim of privilege would not impede the court from imposing sanctions.

DC: L&T Insufficiency of Service of Process and Insufficient Intent to Occupy to Terminate Leasehold

Landlord’s claim to occupy premises for “immediate” use fails because the intent to occupy is in the future and claim of “occupancy” also fails because Landlord only intends to occupy the property sporadically, which falls short of constituting “occupancy”. Service upon a spouse in a residence without further inquiry by process server does not constitute service upon the defendant.

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Mayor Gray Has Signed Bill Into Law Moving Electric Feeder Wires Underground

The Electric Company Infrastructure Improvement Financing Act of 2013 has been signed into law.

Mayor Gray has signed a historic power line bill, B20-387: the Electric Company Infrastructure Improvement Financing Act of 2013, into law. Prompted by concerns that certain electric feeder lines are prone to damage during winds and storms, the District may finance the one billion dollar price tag through securitized debt, debt and equity funding to Pepco, and capital improvement funds through the DC Department of Transportation. Customers may be billed for
some surcharges resulting from capital improvement costs.

| Roy L. Kaufmann

Online Filing – Income and Expense Report DC and Building Permits.

DC moves its technology forward to facilitate easy on-line filing.

Commercial property owners can anticipate receipt of notification from OTR that on-line filing
of Income and Expense forms is available. While online filing will be option for this year, it will
be mandatory next year. The due date for the form remains unchanged: April 15. The paper
forms are available at the OTR website. All pertain to the Income and Expense Report DC form.

Not to be outdone by OTR, DCRA has already automated the online process of submitting
building permit applications. The ProjectDox program is in full swing and building plans and
supporting documentation can be submitted electronically. Payments will be made on-line and
DCRA hopes that faster turnaround will result from handling less paper. For training in this new
system, contact DCRA at (202) 442-4538 or see the instruction manual here.