October 26, 2015
My 4-year-old nephew loves dinosaurs. His favorite is the Triceratops. Before my sister gave birth to her second son, their family discussed names for the new baby. My nephew wanted to name his little brother “Brachiosaurus.” Needless to say, his parents outvoted him on that! He would love to live in the New Territory Residential Community Association in Fort Bend, Texas.In New Territory, Nancy Hentschel pastured two large dinosaur sculptures in her front yard. The Tyrannosaurus Rex and Velociraptor caught the attention of her neighbors and news organizations. The response was overwhelmingly positive. Hentschel reported that, “I’ve never had so many people knock on my door, say hello, tell me they love the dinosaurs, and as if they can take pictures.” The “dino duo” received hundreds of likes on social media. Her HOA sent a disapproving notice stating that she violated the rules by erecting an unauthorized “addition” to her home. Are dinosaurs a nuisance? Hentschel admitted that she knew that the HOA would object to the statues when she bought them. “This is a form of art but it is also a form of protest.” In a September 12, 2015 interview with Shu Bartholomew on the radio show, “On the Commons,” Hentschel described an earlier dispute she had with her Board of Directors. The HOA’s leadership cited her for having a crack on the surface of her own driveway. The board members went so far as to come to her property and get down on their hands and knees to measure the crack for purposes of issuing the violation. Hentschel protests the use of HOA authority to create fear in her community. In her interview, she remarked about how it’s not conformity and uniformity that create property values or a sense of community.
My wife and I have cracks in our own driveway. They were there when we purchased the property. They didn’t factor much in our decision to buy the house. I’m sure that other prospective purchasers didn’t care much about the driveway cracks either. Sometimes I think that I’m the only person who ever notices them. Although we live on a busy street, I’ve never had a neighbor or visitor complain about them. When I applied crack filler a year ago, the compound cracked when it dried. Once a concrete or asphalt surface has cracks, winter ice can freeze in it, causing the surface to progressively deteriorate. As someone who drives into the District of Columbia regularly, I am stridently anti-pothole in my political outlook. Somehow, I suspect that the motivation of Ms. Hentchel’s board was not a paternalistic effort to save her family from future potholes in her driveway.
Hentschel is not the first homeowner to violate a HOA rule in intentional protest or knowing indifference to HOA rules. Sometimes homeowners deliberately paint their house in an unsanctioned color. Others erect American flags or religious symbols in attempts to exercise freedom of speech. Hentschel’s dinosaur display is different. Her “civil disobedience” is not manifested in mundane details like trash can storage or serious concerns about expression of core personal commitments. Instead, she her display is humorous and fun.
When I first heard about the Texas Dinosaur controversy, it reminded me of Dinosaur Land here in Virginia. The Shenandoah Valley is a tourism hot-spot. Dinosaur Land is a roadside attraction near Winchester, Virginia. For around $5 a person, tourists can tour a private park with dozens of large dinosaur statues. It’s been in business for decades (statues are easier to care for than live creatures). You can imagine the kid appeal. After a day of following one’s parents around civil war battlefields and nature sites, the novelty of dinosaurs is irresistible. People are willing to pay to take their children to see this, at least once. In Texas, Ms. Hentschel has created a small-scale Dinosaur Land in her front yard. She isn’t charging anyone any fees. In fact, as of September 12th she had a waiting list of neighbors who want to borrow the dinosaurs to graze on their own lawns. She only asks them to make a $50.00 donation to a charity of their choice. In my opinion, by keeping the dinosaur statues as livestock, Nancy Hentschel made her community more desirable, at least for now. This makes her dispute with her HOA interesting from a property rights perspective. What she’s doing looks like a lot of fun, although she must be prepared to pay the price if her HOA decides that they don’t care about public perceptions and decides to go full force in litigation. That’s something one has to be ready for when breaking the rules to prove a point. Don’t try this at home, kids.
Hentschel’s dinosaurs are a fun twist on the “spite fence” phenomenon. Periodically neighbors end up in litigation because one or both of them set up a fence or other structure for the purpose of harassing, intimidating or displeasing their neighbor. In 2007, one of these went up to the Supreme Court of Virginia. Thomas and Teresa Cline lived in Augusta, a rural county in Virginia. The Clines had a history of disagreements with their neighbor Roy Berg. Berg decided to construct an 11 foot tall tripod with motion sensors and floodlights pointing at the Clines’ windows. To make things even creepier, Berg installed surveillance cameras to watch the Clines on his television. After Berg refused to take down the floodlights and cameras, the Clines constructed a 32 foot high fence made of 20 utility poles. They attached plastic sheeting to the poles to block the intrusive lights and cameras. Berg sued the Clines, alleging that the fence was a nuisance to the community. The Clines asserted an “unclean hands” defense. They argued that the surveillance and floodlight apparatus disqualified Berg from asserting the nuisance claim. The county court found in favor of Berg and ordered the Clines to remove the fence because it was an eyesore. The Supreme Court of Virginia reversed, finding that the judge should have applied the doctrine of “unclean hands” to dismiss Berg’s suit. Cline v. Berg illustrates the difficulties inherent in these intractable neighbor disputes. In efforts to get it right, Courts can struggle with the question of who to punish and how. If Berg’s case is dismissed, then both of the spite structures would remain. No problems are solved. If the Court orders the Clines to remove the fence, then they are punished for their “eye for an eye, tooth for tooth” reaction. However, the lights and cameras would remain a problem.
Contrast the structures in Cline v. Berg with Ms. Hentschel’s dinosaur display. Kids love walking past dinosaurs and taking selfies in front of them. They distinguish Hentschel’s property. In the Cline case, the tripod and fence served no beneficial purpose outside of the neighbor conflict. In one case, there is fun and an increased sense of community, and in the other a scorched earth war. They are two ways to blowing off steam, with different effects on the community.
Property owners finding themselves in a dispute with a neighbor or community association, where rational discourse isn’t working may struggle with what to do next. Do I continue to suffer the indignity without complaint? Lash out by erecting a fence or other structure that serves no positive value? Bring a lawsuit? In a continuing education course I once attended, an experienced attorney explained that when these kinds of disputes arise, he asks the client if they have considered erecting a reasonable fence along the boundary of the property, as shown by the surveyor. Fences and walls define relationship boundaries in a physical way. When someone erects a fence, if their neighbor doesn’t like it, the burden is on them to bring suit requesting that the fence come down. Ms. Hentschel’s dinosaurs illustrate yet another alternative. I don’t know whether the dinosaurs violate her HOA covenants or not. If she broke the rules, at least she did it with something of popular value. In Virginia and other states, courts construe HOA covenants according to contract law. Where little damages are provable, potential court remedies may be limited. The outcome of particular cases will vary according to the facts and circumstances. If your neighbor or community association are interfering with your rights to use your own property, don’t give them the pleasure of responding to the provocation with an attack, escalating the conflict in a risky way. Contact qualified legal counsel to explore alternatives to protecting your rights. In many cases, review of a land records search and updated boundary survey may reveal overlooked possibilities for a favorable solution.
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October 19, 2015
What reasonable steps can investors take to build a better foreclosure property portfolio? People who have access to more information tend to make better decisions in the long haul. In the 1990’s Sci-fi TV show, The X Files, David Duchovny portrayed a rogue FBI agent determined to uncover a government conspiracy to cover-up the existence of UFO’s. In the opening sequences announcing the name of the show and the cast there was a message, “The Truth is Out there.” While few people claim to be able to relate to experiences with UFO’s (not me), shows like The X Files are popular because everyone experiences feelings of curiosity, distrust and fear from time to time. In the world of real estate foreclosure, investors owe it to themselves to get to as much of the “truth” as may be “out there” before making a commitment to purchase a property shrouded in mystery. There are ways purchasers protect themselves at foreclosure sales.
On March 4, 2015, I published a blog post comparing buying real estate through brokers vs. foreclosure sales. That article explained how foreclosures come at lower prices because of greater risks. These concerns rightfully discourage many shoppers from looking for a personal residence at a foreclosure sale. For those investors for whom bidding at foreclosure sales makes sense, how can they manage the risks and increase the likelihood that the purchase will be a rewarding? Even before making a bid, the purchaser makes a time investment by reading the classified advertisements, researching sales data, driving by the property, lining up the purchase money and going to go to the auction. Why should a purchaser spend any more time on one opportunity than it deserves? The following are strategies that foreclosure investors can easily take to increase their success:
- Research the Property. In some commercial foreclosures, the trustee evicts the occupants first and holds an open house for potential buyers. When this is not available, a potential purchaser can at least drive by the property. What are the neighboring land uses? The bidders can obtain comparable sales data online first to see what is happening in the neighborhood. City or county tax assessment data is publically available online.
- Research Pending Lawsuits. The purchaser is already at the courthouse to bid on the property. Why not check to see if there are any active lawsuits involving the property? Hopefully, the trustee would know this and react appropriately, but a bidder can only know for sure by checking.
- Obtain a Title Examination. Ordinarily, a purchaser would not worry about title problems until someone alerted them. This is normally the concern of the settlement company in origination of the title policy. Many investors assume that the trustee conducting the foreclosure will not sign the deed unless they are prepared to stand behind it. Experienced investors purchase title insurance as a precaution. While these steps are reasonable, there is nothing that prevents an investor from spending a couple hundred dollars on a title report or taking time to research land records themselves. Any deviation in the foreclosure process from the terms of the deed of trust may be grounds for a suit filed by the borrower. I discussed this in a May 14, 2014 blog post about a lender’s failure to conduct a pre-foreclosure face-to-face meeting with the borrower. In Squire v. VDHA, the deed of trust incorporated HUD regulations requiring an effort to conduct such a meeting. The Supreme Court of Virginia observed that,
A trustee’s power to foreclose is conferred by the deed of trust. That power does not accrue until its conditions precedent have been fulfilled. The fact that a borrower is in arrears does not allow the trustee to circumvent the conditions precedent.
Foreclosure trustees may be under various pressures to ignore provisions in the loan documents. Without a copy of the deed of trust, the bidder won’t know whether things are off course until after making a substantial deposit.
- Investigate the Community Association. Many properties are subject to covenants, rules and regulations of the neighborhood property owner’s association. A new purchaser will be bound by the governance of the board of directors and their property manager. Covenants and bylaws are found in the land records. Some associations post their rules and regulations on the internet. Whatever the new purchaser wants to do with the property may be limited by how the HOA rules are enforced. Associations can range from boards that reasonably collect and spend dues to cover essential maintenance of common areas to aggressive debt collectors using fines for rule violations to generate revenue. Under Virginia law, a purchaser becomes a party to the HOA covenants (contract) at the consummation of the sale. While not strictly a foreclosure related issue, dealing with the HOA is a part of the true cost of ownership. Many investors incorrectly believe their HOA responsibilities are limited to paying the monthly dues.
- Review the Memorandum of Sale. If the purchaser makes the highest bid, the trustee will give her a Memorandum of Sale. This written agreement functions similar to the Regional Sales Contracts that real estate agents complete for their clients. Foreclosure sales typically occur in front of the courthouse. Buyers may not feel motivated to carefully read these Memoranda. Everyone is standing up, the weather may be unpleasant and people are waiting to leave. These distractions do not diminish the commitment represented by signing the document and making the deposit. The terms of the Memorandum of Sale will define the rights of the parties in anticipation of the real estate closing. This includes if and when the Trustee or the purchaser can get out of the contract. A purchaser can compare the Notice of Sale, Trustee Appointment and the Deed of Trust to the Memorandum of Sale before signing anything. The Deed of Trust reflects the trustee’s authority to conduct the sale. A Trustee may even be willing to share a copy of their form before the sale occurs.
- Ask the Trustee Questions. Purchasers can have a hard time talking with people associated with a property. The current occupants probably aren’t talking much. When asked questions, the trustee may respond that they have duties to the lender and the borrower. The trustee may not volunteer as much information as a realtor would in a conventional transaction. However, to the extent the trustee and the purchaser are both signing the Memorandum of Sale, the purchaser has a reasonable expectation that the trustee answer questions about those terms.
Time constraints may not allow an investor to investigate all of these issues before every trustee’s sale. The property may go into litigation or have problems with its physical condition even if these steps do not reveal a problem. The same could be said about any investment. One of the other messages related in the opening sequences of The X Files was “Trust No One.” This reflect one extreme on the trust/distrust spectrum. People who live on this extreme are less likely to put themselves at litigation risk but often find themselves living in isolation or vulnerable to manipulation. In the world of real estate, many investors want to make quick, substantial returns while investing as little time as possible. Under these pressures, it is easy to operate to far on the opposite, overly trustful side of the spectrum. Potential buyers with the financial means to make this kind of investment have the discretion and the right to decide how much of these issues they want to deal with up front and which they can live with as a risk of doing business. Careful purchasers protect themselves at foreclosure sales. Expect the trustee to be an experienced foreclosure lawyer. Anyone investing in foreclosures should have qualified legal counsel of their own retained even before they make their first bid.
October 14, 2015
Home buyers want assurances that someone will correct defects in construction to make it conform to what they bargained for. In the sale of new homes, these assurances usually come in the form of the builder’s warranties. Homeowners must make serious decisions about whether to go under contract, go through with closing and allow a year or so to go by without making a warranty claim. The purpose of this blog post is to identify some of the top misconceptions buyers have about home builder warranties that interfere with good decision-making.
- “My Warranty Coverage is Only Shown in the Packet of Contract Documents.” In fact, warranties can also arise out of legislation or court decision precedents. Warranty law is a solution to the problem that a buyer can inspect something, pay for it and later discover that the construction was materially defective. In Virginia, the courts traditionally ruled that in every contract with a builder there is an implied warranty of good workmanship unless the terms of the contract provided specific disclaimers or modifications. This rule helped consumers by requiring that the contractor would have to stand behind their work unless there was some fine print otherwise. Builders responded by having their attorneys write-up those warranty documents that can range from a paragraph to over 50 pages. The Virginia General Assembly observed that contractors were finding ways to get buyers through real estate closings on properties that did not conform to contracts in spite of the efforts of local building code enforcement officials and the buyer’s inspections. They passed legislation that creates implied warranties of quality workmanship that arise in the sale of each new home construction. Unfortunately, both contractors and homeowners are often unaware of these statutory warranties and their relationship with the written contract documents including the written limited warranties. Homeowners find it much easier to negotiate with their builder if they know the full extent of their warranty rights from review of the agreements and statutes.
- “My Neighbor Couldn’t Make Use out of Her Warranty, So I’m Also Out of Luck.” Tragically, many homeowners allow their warranty rights to expire without preserving their right to exercise them. Builders, neighbors, building code officials and inspectors can give useless or misleading legal advice. Because the contract documents vary builder-to-builder and the implied warranty laws vary by state, it is impossible to give a general summary that can be applied in every case. Understanding warranty coverage requires compiling the contract and warranty paperwork and state statutes. Usually, the basic warranty lasts for only one year.
- “My Builder is the Best Person to Ask about what they are Required to Fix.” Builders know that the courts will not expect them to continue making warranty repairs to one house for as long as they continue to be in business. To the extent a builder is still working on a house they have already sold, they aren’t making any new money. Contractors sometimes use written warranty paperwork to confuse or limit the buyer’s warranty rights at the time of sale. The builder’s warranty too often is used as a sales tactic to assuage nervous buyers concerned about construction defects. If the homeowner complains to the builder about construction defects after move-in, some contractors try to keep them occupied with inspections and ineffectual repairs. If the builder’s employees are frequently at the house, the owner probably won’t invite independent inspectors, experts or other contractors who might diagnose serious warranty claims and help the owner protect their rights. Once the owner starts to lose confidence in the builder or the warranty period is approaching, the owner needs the help of independent experts.
- “The Only Construction Defects Worth Focusing on are the Ones I Look at Everyday.” Homeowners frequently focus on the types of construction defects that they notice everyday. Defects in drywall, painting, grout, trim and other finish work can add up to thousands of dollars in repair costs, but they may not be the most substantial defects made by the builder. Water may be leaking into the house. Major systems such as roofing, plumbing, electrical, HVAC, etc. may require extensive repairs or replacement if not properly addressed during a warranty period. In order to properly diagnose these problems, the owner must coordinate investigation with inspectors, experts or other contractors who are independent from their builder. Every homeowner owes it to themselves to know the truth about the condition of their house.
- My Realtor, Mortgage Broker, Settlement Agent or Builder Recommended This Home Inspector, so they must be fine.” In hiring a third party inspector to help with a home purchase, the independence of the home inspector is just as important as their competence. Most professionals in a real estate transaction are only paid when the deal goes to closing. If a home inspector or other participant does find a defect that would cause a deal to not go through or be substantially delayed, the other professionals won’t want them to be involved in the next sale. Most home inspectors know enough about houses to provide a report that is a great help to the buyer. What’s important to the buyer is having an inspector who isn’t allied with the people being paid out of settlement. That way, the buyer knows he is working for her.
A homeowner should not rely solely on the contractor to clarify what their warranty rights are. It’s better to find out from qualified inspectors, engineers or other contractors what, if anything is wrong with your house. A qualified attorney can help determine whether those defects are legally covered before time runs out. If the closing on the new home was less than 12 months ago, there is a strong chance the owner may be entitled to repairs or financial compensation from the builder for failure to make the house conform to the warranty.
Mann v. Clowser, 190 Va. 887, 59 S.E.2d 78 (1950)