DR Legal News: Legal Case Studies May 2017

Legal Case Studies

Research and analysis by Lisa Harms Hartzler, Sorling Northrup Attorneys

Fraudulent misrepresentation claim against licensee lacked required evidence.  

In Beckman v. Wells Fargo Bank, N.A., Ct. App. Minn., A15-1819 (October 3, 2016), the listing for a residential property claimed that it included 1,500 feet of lakeshore located across the road, although an appraisal of the property completed for the seller stated that it contained 900 feet of lakeshore.  After viewing the property, the buyers questioned the listed amount of lake frontage. Their agent contacted the listing broker, who replied with a link to the county website, which contained a map of the property showing 900 feet of lakeshore. Following up again, the broker told the buyers’ agent that the property had 600 additional feet of shoreline on a “flowage.”  

The buyers did not have the property surveyed and bought it “as is.”  Upon moving in and discovering numerous problems with the house, the buyers were also told by a neighbor that they only owned half of the 900 feet of lakeshore because their two parcels had been divided by the previous owner. The buyers confirmed with the county that the legal description of their property showed only 450 feet of lakeshore, even though there was no document on file effecting the lakeshore division. The buyers sued the seller bank, the selling broker and his firm and their own agent under a number of theories, including fraudulent misrepresentation.  

Although the buyers produced evidence that the lakeshore footage of the property was false, they also needed to produce evidence that the defendant broker intended to defraud the buyers. “Fraudulent intent is, in essence, dishonesty or bad faith. What the misrepresenter knows or believes is the key to proof of intent.” In this case, therefore, the buyers had to produce evidence that the broker knew that the property had less than 900 feet of lakeshore or that he represented that it had 900 feet of lakeshore without any basis or by relying on a basis that he knew was inadequate or unreliable. The court held that the evidence produced by the buyers was insufficient. First, the mere fact that the broker also had sold the neighbor’s parcel did not show actual knowledge of the lakeshore discrepancy. Second, there was no evidence that the broker had read the legal description of the property or could understand what it meant. Third, there was no reason the broker should have doubted the map from the county website that showed 900 feet of lakeshore.  Finally, the appraisal also showed the same amount. As a result, the court could discern no genuine issue of material fact as to fraudulent intent and granted summary judgment for the defendant broker.  

Broker was owed commission when seller caused deal to fall through.  

In Wing v. Still Standing Stable, LLC, 2016 UT App 229, the seller of a land-locked parcel in Utah was required to pay a real estate commission of three percent plus attorney’s fees to a real estate broker who had a FSBO agreement with the seller. The agreement required the seller to pay a commission if the seller accepted an offer from the potential buyers the broker introduced to the deal. The commission would become immediately due and payable if the sale was prevented by default of the seller. The buyers and the seller signed a contract for the sale of the property requiring good and marketable title to be conveyed at closing by general warranty deed. All was proceeding well until, prior to the closing, the seller’s attorney informed the buyer’s attorney that the seller would convey title by special warranty deed.  

As the court explained, the difference between a special warranty deed and a general warranty deed “is that grantors of special warranty deeds only promise that no title defects have arisen or will arise due to the acts or omissions of the grantor, whereas grantors of general warranty deeds promise to defend all claims.” That difference was significant in this case because the property had no access when the seller purchased it. The seller tried but was unsuccessful in obtaining access from adjacent property, so that pre-existing defect remained. A special warranty deed, therefore, would not guarantee access or provide the buyers with any remedy against the seller because the seller did not create the defect. The buyers’ attorney was willing to accept a special warranty deed if title insurance could be obtained to insure access. However, no title insurance company was willing to insure access, so the buyer did not appear at closing.

The seller in this case tried in a number of ways to blame the real estate broker for the sale going sour, but the court concluded that it was the seller’s own fault that caused the deal to fall through. He had agreed to convey title by general warranty deed but refused to do so. The sale failed to close because of the seller’s default alone. Having produced the buyers who signed a contract with the seller, the broker was entitled to his full commission.  

Challenge to Chicago’s Shared Housing Ordinance failed.  

In Keep Chicago Livable v. City of Chicago, No. 16 C 10371 (N.D. Ill. March 13, 2017), a federal court declined to issue a preliminary injunction against Chicago’s ordinance regulating short-term rentals facilitated by internet platforms like Airbnb, VRBO, and HomeAway. Chicago’s Shared Housing Ordinance (SHO) required rental hosts to register with the City in order to list and rent their homes on these internet sites, imposed various restrictions and regulations on the hosts, and also required the listing platforms to obtain licenses and provide the City with information on the units listed on their sites.  The plaintiffs, who included City residents, primarily argued that the SHO violated their First Amendment free speech rights and that it was void for vagueness under the Due Process Clause.  

To obtain a preliminary injunction, a plaintiff must show (1) it is reasonably likely to succeed on the merits; (2) it will suffer irreparable harm absent an injunction before final resolution of its claims; and (3) it has no adequate remedy at law. In this case, the court found that the plaintiffs were not likely to succeed on the merits of the case because the SHO regulated economic activity and only incidentally, if at all, regulated speech. The plaintiffs argued that their short-term rentals were not primarily commercial undertakings—they cited other reasons for their endeavors, such as making new friends, learning about different cultures, showing off the City to a newcomer, and simply wanting to help travelers unable to afford downtown hotels. The court did not buy any of that.  All of the plaintiffs charged for their rentals, making them primarily economic activities. Consequently, the First Amendment was not violated. In addition, the plaintiffs failed to present any substantive explanation as to how the SHO was vague. For these reasons, the plaintiffs were unlikely to prevail on the merits of the case and were denied a preliminary injunction.  

Church stated valid claims against village ordering costly repairs to historic house.  

Village of West Dundee v. First United Methodist Church of West Dundee, 2017 IL App (2d) 150278, pitted the Village’s interest in preserving its historic district against a church’s rights under the federal Religious Land Use and Institutionalized Persons Act (“RLUIPA”). In this case, the church owned a house constructed in 1849 and situated in the Dundee Township Historic District.  It was used as a parsonage from the 1950’s to 2004, when its deteriorating condition made it uninhabitable. The church applied for a demolition permit in 2007 in order to use the lot for needed parking but was denied.  In 2012 the Village inspected the building and ordered 14 maintenance violations corrected. According to the church, repairs would cost $700,000 and just “mothballing” the house would cost $300,000.  Either option was substantially more than the estimated $100,000 value of the house and would cause the small congregation financial ruin.  The Village filed a complaint in circuit court to order the repairs made under Section 11-31-1(a) of the Municipal Code. That section authorizes the Village to seek demolition or repair of dangerous and unsafe buildings. The church filed counterclaims asking for demolition instead and that the Village was infringing its rights under RLUIPA. The trial court dismissed the church’s claims, holding that the church had no ability to request an alternative remedy because it failed to exhaust its administrative remedies in 2007 when its application for a demolition permit was denied. The court ordered repairs to be made in 14 days. The church appealed.  

The appellate court first held that when the Village sued the church to force repair under Section 11-31-1(a), the church was entitled to file a counterclaim seeking an alternative form of relief. The church’s failure to administratively appeal the denial of a demolition permit in 2007 was not relevant.  Second, the court found that the church stated a valid claim against the Village for violation of RLUIPA. That statute protects the use, building, or conversion of real property for the purpose of religious exercise (which includes the need for parking) from government enforcement of a land use regulation. The Village’s continued denial of a demolition permit and its efforts to force the church into financial ruin by ordering costly repairs constituted a “substantial burden” on the church’s free exercise of its religion. In addition, RLUIPA prohibits imposing a land use regulation in a manner that treats a religious assembly on less than equal terms with a nonreligious assembly. Consequently, the church also stated a claim that the Village violated RLUIPA by approving demolition permits for at least three other structures in the historic district while denying the church’s application. The appellate court vacated the trial court’s judgment for the Village and reversed its dismissal of the church’s counterclaims. 

Daughter who occupied house by agreement could not quiet title by adverse possession.  

In Knorrek v. Hoeksema (In re Estate of Cargola), 2017 Il App (1st) 151823, Anne Cargola died without a will and left two daughters, Diane Briese and Lynn Knorrek, as her only heirs. A special administrator (Hoeksema) was appointed for the estate. When Cargola died, she held title to a residence. However, Knorrek claimed that she actually owned the house.  She asserted that Cargola had purchased the property and obtained a mortgage on her behalf in 1991 in order to keep the property out of a contentious divorce Knorrek was undergoing. Knorrek provided the down payment and paid the mortgage, all utilities, taxes and other debts and liabilities associated with ownership.  In 2001 and 2003, the mortgage was refinanced, listing both Cargola and Knorrek as borrowers. Knorrek filed a complaint to quiet title in her name, asserting that she was the legal owner through adverse possession.  

To establish title by adverse possession, Knorrek needed to prove that she possessed the property for 20 years and that such possession was (1) continuous; (2) hostile or adverse; (3) actual; (4) open, notorious and exclusive; and (5) under a claim of title inconsistent with that of the true owner. Knorrek did not have to demonstrate any actual ill will between herself and her mother, but she had to show clearly that her use was adverse. If it was permissive, it could not be hostile or adverse. In this case, Knorrek’s complaint stated that she and her mother expressly agreed on the arrangement by which Cargola would take title to the property so that it would remain outside Knorrek’s divorce proceedings. Cargola clearly consented to Knorrek’s occupancy and possession. According to the court, that arrangement defeated Knorrek’s claim for adverse possession. “Even if the agreement was initially intended to only be temporary, permission to use land can never ripen into a claim for adverse possession.” (The court did indicate that it was expressing no opinion on whether some other legal theory that Knorrek might employ could be more successful.)