Monthly Archives: April 2010

50 Monkeys

Reverter:  A gift of land recalls its purpose.

SANTA ANA, Ca–J. E. “Ed” Prentice came to Orange County in the early days, when it was wide open spaces with a few small towns known mainly for agriculture.

He had  been a teacher, lawyer, and sometimes farmer in his native Kansas when, in 1912, he and his wife Edith came west.

They settled in Santa Ana, the county seat, and Ed got into business trading mules and horses.  He owned a stable in town and folks called him “Judge.”  At home, he kept a pet monkey.

Judge Prentice with monkeys, ca. 1925

By 1923, Ed was busy buying orange groves and making loans to farmers.  He now had four pet monkeys.

Then came the depression.

It was 1931 and Ed, now 44, held a mortgage against the Melwood Estate on the outskirts of town.  Melwood was 19.23 acres with a sixteen room mansion, a producing orange grove, water plant and packing shed. The owner was in dire straits, and the mortgage was in default.  Ed foreclosed and got the property for $12,600.

Ed and Edith, who were childless, moved in at Melwood with their monkeys.  There, they rode out the depression until 1940, when Edith died.  After that, Ed lived alone with a succession of servants who were harassed by the monkeys and kept quitting.

By 1949, the Melwood grove was in decline, and suffered from disease, so Ed had the idea to give some land to the city for a park.  The gift was accepted, and a deed was recorded conveying twelve acres to the City of Santa Ana, with “conditions.”

The deed conditions were that the land was to be used for a park only, to be named “Prentice Park,” and “at all times ample accommodations shall be provided for 50 monkeys.”  If the monkey population should fall below 50, the land would automatically revert to Ed or his heirs.

The Santa Ana Zoo at Prentice Park opened in 1952.  Ed continued to live next door, but he became irritated that city officials underfunded the park and it looked shoddy.  He called them “knuckleheads,” and grumbled that they should return the zoo to him so he could run it.

Eventually Ed moved away, and he died in 1959 at age 81.

Santa Ana Zoo at Prentice Park

For more than 50 years all went well at the zoo.  Monkeys played and children came to ogle.  Then, in August 2008, the city got a letter from an attorney representing one Joseph Powell, a grand-nephew of J.E. Prentice.  The letter demanded proof that the zoo had 50 monkeys or, the letter said, “we plan to proceed with our rights under the grant deed to have the property revert back to Mr. Prentice’s heirs.”

It seems the cagey Mr. Powell had visited the zoo and counted monkeys.  There were only 49, he claimed, after the death of a 35-year-old silver langur named Geni.  Within months, the count dropped again with the death of a capuchin named Monty.

Then an amazing thing happened.  The little monkeys rose to the legal challenge mounted by Powell, and a golden-haired tamarin gave birth to twins.

In ensuing months, a pair of crested capuchins named Romeo and Juliet contributed their first offspring, a son named Matteo.

Juliet with baby Matteo

And zoo officials aren’t sitting on their tails, either.  They announced they will build their collection of “bona fide” monkeys (no lemurs or gibbons) to at least 55.  Romeo and Juliet are, after all, on loan from Brazil.

Moral: The reverter clause is legally enforceable by the Prentice heirs (and who knows how many there are), so this monkey census is serious business.

The stakes are high.  The twelve acres in central Orange County are now worth millions.

It’s the law; the law of the jungle!

The 1949 deed, with reverter

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Typo 2

“There must be some mistake….”

David and Roshan were the first owners of this house in San Marcos, California.

A buyer stuck with his sellers' debt

Within two years the couple refinanced three times, and took out a home equity credit line. Then Roshan filed for divorce.

The court ordered that the house be sold. Since Roshan was uncooperative, David handled the details.

The buyer, Kirk, was quite happy with the home, but puzzled by letters he was getting about an old credit line deed of trust. It seemed the credit line remained open, and was in arrears. Worse, the deed of trust continued to encumber Kirk’s property and the lender threatened to foreclose.

Kirk notified his title company, and within days the mystery was explained.

When it handled Kirk’s purchase, the title company searched the title but failed to find the problem deed of trust because of an error in its description of the property. Mainly, the deed of trust showed the correct lot number, but an incorrect map number. Instead of referring to Map No. 13915 (the correct number) the deed of trust made it Map No. 13925. Otherwise, the deed of trust had the correct property address and assessor’s parcel number.

In its search the title company relied on a geographical index in their automated (computer) database, and the deed of trust was missed since they entered Map No. 13915 in the search field. If instead the searcher had used the grantor-grantee index in the San Diego County recorder’s office, they would have found the deed of trust and it would have been taken care of when Kirk bought the house.

The recording laws in California, like other states, provide that a recorded document imparts constructive notice of its contents. So, legally speaking, Kirk acquired the property subject to the deed of trust and it was enforceable (by foreclosure if necessary) against his interest.

In other words, Kirk was stuck with the sellers’ debt.

Title insurance paid $110,000 to obtain a release of the deed of trust, and the insurance company has only hopes of recovery from David and Roshan.

Moral: To satisfy customer expectations title companies have attempted to streamline real estate transactions through computerized processes and new procedures. There may be new risks involved, but hidden risk has always been a reason for title insurance.

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Typo

A short course on constructive notice, and the bona fide purchaser.

TOPEKA, Ks–When they gave a mortgage against their home Jorge and Toni Colon could not have imagined what was to follow.

The trouble began with a typo. The Colons owned Lot 79 in the Arrowhead Heights Subdivision, but a typist made it “Lot 29” in the mortgage that got recorded.

The house on Lot 79

No one noticed the typo until the Colons filed Chapter 13 bankruptcy, and the bankruptcy court appointed a trustee for the debtors’ estate. Seeing opportunity, the trustee filed pleadings to avoid the mortgage as an interest in the debtors’ real property. If successful the trustee’s action would make the mortgage lender an unsecured creditor, perhaps getting cents on the dollar instead of full repayment.

The trustee’s action was based on section 544(a)(3) of the Bankruptcy Code. This statute gives a trustee (or a debtor-in-possession) legal status of a bona fide purchaser of the debtor’s real property as of commencement of bankruptcy. The purpose is to prevent a debtor from giving favored creditors preferential treatment just prior to bankruptcy.

So section 544(a)(3) offers a trustee protected status of a hypothetical bona fide purchaser, allowing the trustee to avoid a security interest in the debtor’s property (such as a mortgage) that has not been perfected (i.e., recorded) as of the bankruptcy filing date.  A bona fide purchaser, as we know, is one who pays value for property without notice of claims of others to the same property. The bona fide purchaser acquires property free of such competing claims, and has legal protections against them.

But what is legal “notice?” There are two types: Actual notice (what one knows) and constructive notice (as disclosed by public records).

In this case, the trustee argued a hypothetical bona fide purchaser would not have notice of the defective mortgage because it would not be found by a search of land records in the office of the county recorder for Shawnee County, Kansas.

The bankruptcy court agreed with the trustee, and ordered the mortgage avoided for the benefit of the debtors’ estate (controlled by the trustee). The mortgage lender could not foreclose, and would have to get in line as an unsecured creditor.

The court explained the county recorder maintains two indices for land records, a grantor-grantee index (an alphabetical listing by names of parties) and a geographical index (a listing by property legal description). The court said a purchaser (or a title searcher) might rely on the geographical index, solely, and in searching Lot 79 would not find the mortgage against Lot 29. It made no difference, in the court’s opinion, that the mortgage shows a correct property address and assessor’s parcel number.

The mortgage lender appealed and a federal court of appeals reversed the bankruptcy court decision.

The appeals court focused on the Kansas recording statutes, which state that each recorded document imparts notice of its contents, and that each county must maintain a grantor-grantee index. The geographical index is optional.

The court reasoned that the Kansas statutes charge a purchaser with constructive notice of an owner’s entire “chain of title,” to be found by searching names in the county grantor-grantee index. In this case, there were at least four documents in the chain of title linking the Colons with the correct lot number, and by comparing the documents a person with “common sense” should know the disputed mortgage was intended to encumber the Colon home.

So the mortgage lender won, and the mortgage is enforceable.

Moral: Forget the bankruptcy stuff, this is an important case for understanding constructive notice (and when you’re stuck with it). These notions of constructive notice, and rights of a bona fide purchaser, are at the heart of our system of property rights.

Most state recording statutes are similar to those in Kansas, and this well-written decision offers clarity for courts elsewhere. It should have nation-wide implications.

Today most searchers and title companies rely on geographical databases when handling real estate transactions. The geographical search is simply faster and less costly than a grantor-grantee search. But it’s also true the geographical search is prone to error and may miss the document with a bad legal description. Property owners and lenders look to title insurance to cover the risk.  See, for example, the next post, “Typo 2.”

The case is reported as In re Colon, 563 F.3d 1171 (10th Cir. 2009).

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Homeowners vs. Height Restrictions

The Riviera, overlooking Clear Lake

You were serious about that?

KELSEYVILLE, Ca–The Clear Lake Riviera Community Association governs a common interest development of 2,810 lots overlooking Clear Lake in northern California.  About half the lots are improved with homes.

The Riviera CC&Rs provide for an Architectural Control and Planning Committee to ensure that new construction is harmonious with the surroundings and adjacent homes.  Sometime prior to 1995 the architectural committee issued building guidelines stating, “maximum roof height must not exceed seventeen (17) feet above street level or control point for that lot.”

In early 2005 Mr. and Mrs. Robert Cramer bought a lot in Riviera and drew plans for a home.  They submitted the plans to the architectural committee and got approval with a note, “structure height not to exceed 17 feet from control point of lot.”  Since it was a sloping lot, the control point (marked on the plans) was the center of the lot.

Mr. Cramer acted as his own general contractor.  By mid-summer 2005 Cramer completed grading and installed forms for his foundation.  But a neighbor complained, so members of the architectural committee met with Cramer and told him if he chose to build where the forms were placed the house would be too high.  Later, Cramer did not recall a warning.

Cramer poured his foundation, and in ensuing months the committee sent two notices that the construction appeared to depart from approved plans.  Again they warned the house could be too high.

But Cramer forged ahead and, yes, the completed house varied from the plans.  It was bigger and exceeded the height restriction by nine feet.  Worse, it interfered with lake views previously enjoyed by two neighbors.

When the Cramers asked for a variance to approve the house as built, the committee faced a hard decision.  The variance was denied.

So it happened that the homeowners association sued the Cramers to bring the house into compliance.

At trial, Cramer denied being warned by the committee but admitted he never attempted to measure the height as work on his house progressed.  He said he’d relied on his grading contractor to set the proper elevation, but the contractor disputed Cramer’s story.

Cramer argued he should not be forced to tear down the house, and an expert witness said it could cost $200,000 to save it.  The expert said to preserve the structure Cramer would have to cut it in half, remove it from the foundation, re-grade the lot, and move it back on a new foundation.

Neighbors, on the other hand, we adamant saying the house interfered with enjoyment of their homes, and diminished their values.

The trial court ruled in favor of the association, and ordered the house be removed or made compliant.  The Cramers appealed.

Lake County Courthouse

On appeal, Cramer disputed authority of the architectural committee saying the height restriction was not properly created.  He also argued costs of fixing the violation would be excessive, and create hardship for his family.  At most, he said, he should have to pay money damages to a few neighbors.

This was a tough case.  Court-ordered injunctions and forced removal of improvements are rare.

But the court of appeals upheld the trial court decision, noting the association had enforced the height restriction consistently since at least 1995, and holding the forced removal was justified due to Cramer’s blatant disregard of the limit.  Nine feet, the court agreed, is no “trivial” violation.

Moral:  Homeowner associations are a force to be reckoned with.  They represent the community you bought into, and their decisions can be legally enforced.

The case is reported as Clear Lake Riviera Community Association v. Robert Cramer, 182 Cal.App.4th 459, 105 Cal.Rptr.3d 815 (2010).

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