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Archive for June, 2013

“Squatters Rights” – How Easy Is It To Acquire Property By Adverse Possession?

June 26, 2013 1 comment

 

I had a client recently come to me about a concern about her boundary line – she was concerned that her neighbor’s actions towards her property might mean that he now owns the property.

 

She raised a good question – how easy is it go gain property by adverse possession?

 

The answer to this question is, in general, – not too easy.

 

A Recent Unpublished Michigan Court of Appeals case highlights this fact.  Arbour v. Albert, 307234, 2013 WL 2278124 (Mich. Ct. App. May 23, 2013)

I. Facts: 
Plaintiffs Richard and Debra Arbour purchased a lot along the Escanaba River in 1994. Because untrained individuals imprecisely divided and described the lots decades earlier, the Arbours believed that their northern border was a triangle marked by a copse of trees. That triangular piece of land actually belonged to the Arbours’ northern neighbor, currently Katrina Albert.
In 2010, after two years of disagreement regarding the boundary line, the Arbours filed suit to quiet title to the disputed land. The Arbours claimed title by adverse possession or, in the alternative, that the neighbors had acquiesced to a new border for the statutory period.
During a bench trial, the parties presented conflicting evidence regarding their historical use of the disputed land and the dates on which significant events occurred.
II. Law:
MCL 600.5801(4) – “Squatters Rights” – More formally Known as Acquiring Title by Adverse Possession
Anyone claiming  ownership by adverse possession has the burden to establish all the required elements, by “clear and cogent” evidence.2 Beach v. Lima Twp, 489 Mich. 99, 106; 802 NW2d 1 (2011), citing Burns v. Foster, 348 Mich. 8, 14; 81 NW2d 386 (1957).
A Court must  strictly construe the evidence “with every presumption … in favor of the record owner of the land.” Rozmarek v. Plamondon, 419 Mich. 287, 292; 351 NW2d 558 (1984).
Therefore a party claiming squatters rights must bring a high level of evidence – “clear and cogent” that all the following elements were met:
  • have had actual;
  • visible,
  • open,
  • notorious,
  • exclusive,
  • uninterrupted possession,
  • hostile to the owner and
  • under cover of claim of right,
  • for a period of 15 years.
Arbour v. Albert, 307234, 2013 WL 2278124 (Mich. Ct. App. May 23, 2013).
Any of these elements not met by clear and cogent proof is fatal to a claim for ownership by adverse possession.
III. Result in Arbour:
In the case of Arbour, the Court affirmed the trial Court’s decision denying that the Arbours’ acquired the property by adverse possession, finding that the Arbour’s ownership was not exclusive. The Arbours’ testified that it was exclusive, but Ms. Albert testified otherwise – and the court found her testimony more credible. Case over.
IV. Application:
There are situations where a property owner should be legitimately concerned about an adverse possession claim; however, the presumption is against it. In fact a high level of proof of various elements must be proven, the most obvious element being possession for 15 consecutive years.
Questions? Comments?
Email me at: Jeshua@dwlawpc.com
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Real Estate Transaction Mistakes: Consequences of Forgetting About “Dower” Interests

June 14, 2013 1 comment

I was finalizing creating an easement agreement for a client of mine – a married couple. They reminded me of a recent case that I read this week, Zaher v Miotke, Docket NO. 307394 (March 28, 2013), concerning a married couple who forgot to include the spouse when he created an easement document.

The case of Zaher v Miotke

In Zaher, the husband, Greg Hoover (“Greg”) granted an easement to his neighbor and did not include his wife’s, Linda Hoover, (“Linda”) name in the easement.  Greg didn’t think he needed to include Linda in this easement document since he owned the property individually, he did not have Linda’s name on the document.

I see Greg’s logic. It makes sense, right?

Well, not in Michigan, where our laws recognize a married woman’s right of a “dower interest” in real estate.

i. What is a Dower Right?

Michigan Compiled Laws 558.1 governs a wife’s dower interest:
“The widow of every deceased person, shall be entitled to dower, or the use during her natural life, of 1/3 part of all the lands whereof her husband was seized of an estate of inheritance, at any time during the marriage, unless she is lawfully barred thereof.
Basically, dower provides a wife a life estate to one-third of her husband’s real property after his death. Stearns v. Perrin, 130 Mich. 456, 459; 90 NW 297 (1902)

So as you can see, Greg granted his neighbor an easement, and an easement under Michigan law is an interest in land. Forge v Smith, 458 Mich 198, 205 (1998).

The problem is readily apparent – Linda has a rights in Greg’s property, and she didn’t sign off on the easement. This transaction therefore violated Michigan law, particularly what is known as the “statute of frauds”  which provides that every conveyance of interest in land must be in writing for it to be valid. MCL 566.108.
ii. Moving on to the Facts:
Greg granted his neighbor, Zaher, a “joint driveway easement”  over part of his lot, so that Zaher could have a larger access to his driveway. The easement was recorded.
The problem comes into play when Greg sells his house to Miotke. Miotke doesn’t like the Joint Driveway and actively puts brick pavers in and plants rose bushes to divide the driveway. Zaher was out of town at the time and returned to his home to discover he could no longer park his vehicles in his garages.
Thus the litigation begins.
Zaher sought an injunction to return the property to the way that it had been before, Miotke sought an order compelling Zaher to demolish his garage – you can tell from the facts that emotions must have been flying high on both sides.
Miotke argued that the joint driveway easement was void from its inception, since it did not include Linda’s dower interest.
Zaher argued that Linda’s failure to sign the easement did not render it “void” but merely created an uncertainty in title – that would only be realized if Greg died before Linda.
iii. The Court’s Ruling
The Court went into an in depth analysis of case law that seemed to offer rulings in favor of both parties. However, at the end of the day the Court of Appeals held that the failure to include Linda does not void the Easement.   That “an inchoate dower interest is merely a potential future interest….This is not an ownership interest that prevents a current transfer to another.”
The court recognized that both parties in the case were asking the Court to make an “equitable decision”.  They weren’t asking specifically for money damages, but they were asking the Court to order the other party to do something.  The Court made the equitable decision here.  As it noted: “[p]roperty law is equitable at its core and voiding a contract because of a murky potential interest can be unjust.
Lesson:
Real Estate Transactions can be nuanced.  Making sure all the right parties are signing off in a conveyance is crucial.
I think another takeaway is simply this: real estate disputes involved “equity”.  A Court judging a dispute in equity will look at whether injustice would result if the Judge does what a party is asking.  In Zaher  the court realized that if it would do what Miotke asked it to do – an injustice would result.  That certainly played a role in its decision.
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Shareholder Oppression? When Relationships In Closely Held Businesses Go Bad.

June 8, 2013 3 comments

Yesterday I posted an encouraging statistic – that more business entities in Michigan have been formed in the last fiscal year than in years – since fiscal year 2005. That is encouraging news!

It also reminded me that most of these new businesses are likely smaller closely held companies – typically either owned and operated by family members or by a small group of individuals.  These types of business relationships are valuable – since they are often  formed between people who know each others’ strengths and weaknesses and based on the assumption they would work well together, decided to go into business together.

These closely held businesses also pose unique challenges. The fundamental challenge that I have seen is this:

In a closely held company it is very easy for one group of owner[s] to freeze out another owner.

I guess the first question is, “freeze out from what*?”

                         Control – Decision-making

                         Disclosures of Company Business

                         Profits in the Company

                         Employment in the Company.

What should a business owner/operator do to protect himself/herself?

Well, you have two readily apparent choices – address the issue before the business is formed, or address it once the problem arises.

     1. addressing the problems before the business starts.

The easiest way is this option: Get an Attorney involved at the onset of the business relationship.

Many of these business disputes in closely held companies could be resolved if, before going into business, the parties openly communicated their expectations, concerns, and clearly articulated in the formation documents (articles of incorporation/organization, Bylaws, Operating Agreement) a way out of the business relationship.

This could be the most cost-effective way to ensure to resolve business disputes – address them before they happen – with open communication, and clearly and concisely drafted (and executed!) documents.

       2. addressing the problems once they occur: Shareholder/Member Oppression Lawsuit.

I have had several clients recently who have had to proceed with this second option – in one instance my client, the minority shareholder, wanted out of the business and the controlling shareholders, who had not made distributions to my client in over a decade, while they paid themselves hefty salaries, would not “buy him out” according to, based upon our interpretation, the proper mechanism called for in the formation documents.

The problem was that the documents did not clearly spell out the proper mechanism for buying a shareholder out  (and  importantly to me, this document was drafted by some other law firm :))

So, Michigan law provided my client a cause of action against the shareholders:

Minority Shareholder Oppression, MCL 450.1489

“A shareholder may bring an action…to establish that the acts of the directors or those in control of the corporation are:
illegal;
fraudulent;,
or willfully unfair and oppressive to the corporation or to the shareholder.” (*this is most often the scenario where these cases arise – from the “freezing out” the minority owners from the business)
“If the shareholder establishes grounds for relief, the circuit court may make an order or grant relief as it considers appropriate, including, without limitation, an order providing for any of the following:
(a) The dissolution and liquidation of the assets and business of the corporation.
(b) The cancellation or alteration of a provision contained in the articles of incorporation, an amendment of the articles of incorporation, or the bylaws of the corporation.
(c) The cancellation, alteration, or injunction against a resolution or other act of the corporation.
(d) The direction or prohibition of an act of the corporation or of shareholders, directors, officers, or other persons party to the action.
(e) The purchase at fair value of the shares of a shareholder, either by the corporation or by the officers, directors, or other shareholders responsible for the wrongful acts.”

Although this Statute applies to closely held corporations, there is also a virtually similar Michigan statute that applies to LLCs.

Therefore, if a court finds that those in control of the business committed misconduct against a minority owner, it has broad discretion to create the type of relief it deems is best.

Lesson:

Although sometimes filing a law suit for Minority Oppression is warranted due to the egregious misconduct of those in control of the company- it is always best to avoid litigation when possible.  The obvious take away points are two-fold:

1. Get an attorney involved before the business relationship begins and clearly document the business relationship, especially an exit strategy.

2. If you are being frozen out of control in a business – Michigan law gives you broad remedies, including the minority shareholder oppression statute.

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Michigan 90-Day Foreclosure Moratorium – Set to Sunset June 30th? – Senate Says “Not so Fast”

June 3, 2013 2 comments

 

I had indicated in a previous post that the 90 day moratorium on all foreclosures by advertisements in Michigan was set to expire on June 30th, 2013 – with no indication it would be extended.

 

Well, the Michigan Senate HAS indicated it will be extended – to January, 2014 – in Senate Bill 380.

 

The Bill was tie barred with 3 other bills and all are on a fast track, sent to the Finance Committee on May 22nd, and as of May 28th, the Senate Finance Committee has proposed that the Bill be given “immediate effect”

See the Senate Fiscal Analysis here: http://www.legislature.mi.gov/documents/2013-2014/billanalysis/Senate/pdf/2013-SFA-0380-F.pdf

 

Some of these various other bills would actually seek to reduce the redemption period in certain circumstances. See an article yesterday in the Detroit Free Press for a further discussion of these bills. http://www.freep.com/article/20130602/NEWS06/130602001/Michigan-bill-could-cut-foreclosure-redemption-period

 

For Lenders, this potentially looks like a compromise; the legislature undoubtedly sees the value in homeowners being offered loss mitigation opportunities as opposed to foreclosure. After all,  loss mitigation efforts are intended to help those who can actually be helped- people experiencing temporary hardships, as opposed to those who likely could not have realistically afforded the loan they entered into.

it makes sense that once foreclosure has taken place, to get the property into the hands of the lender, and off their books, as soon as possible.  These bills seem to address both values – home ownership and reducing the amount of  vacant/foreclosed real estate in Michigan.

 

 

 

 

 

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Lesson From Real Estate Litigation: Disclose, Disclose, Disclose!

Currently I have a handful of real estate disputes that involve these common facts:

1. parties enter into a real estate transaction;

2. After the contract is executed;

3. the Buyer finds some condition in the Property that:

a. was not, in buyer’s opinion, properly made known to them, and

                    b. if it would have been disclosed they would not have purchased the property.

 

I think the important take away from these basic facts are this:

any party to a real estate transaction, whether its a developer, private investor, prospective homeowner, real estate broker, sales agent, etc… could find themselves on one side or the other of a dispute!

Here are a few quick take-away points:

 Buyers:

Do your due diligence! don’t simply rely on the representation of the seller or agent. Get a professional opinion in the form of inspections, surveys, environmental assessments, title searches, whatever is appropriate for the specific transaction.

Sellers (and Agents):

Disclose, Disclose, Disclose!  Even if you think an issue can be “glossed over” or isn’t that material to your transaction, you may have a buyer who feels quite the contrary after the fact. The benefit of avoiding the possibility of a lawsuit certainly outweighs the possibility of losing a prospective buyer.

I can tell you for certain that my current clients embroiled in litigation over these scenarios would certainly agree .

Questions? Comments?

Contact me! Email: Jeshua@dwlawpc.com  Ph: (616) 454-3883

 

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