June 18, 2019

Colorado Court of Appeals: Treasurer Should Use Diligent Efforts to Notify Occupant of Property Tax Deed

The Colorado Court of Appeals issued its opinion in Red Flower, Inc. v. McKown on Thursday, November 3, 2016.

Kevin McKown owned 320 acres of farmland in rural Baca County. From 2004 to 2011, he had an oral sharecrop agreement with Don Lohrey to farm the property. Lohrey visited the property every week or two to check on his crops, but he lived about ten miles away. McKown failed to pay his county property taxes, and the county treasurer sold tax liens for the real property and the mineral rights. Red Flower bought the liens in November 2007. In August 2010, Red Flower applied for treasurer’s deeds. The treasurer unsuccessfully attempted to notify McKown and published notice in the local paper in September 2010. In December 2010, she issued the deeds to Red Flower.

The following year, Red Flower filed a C.R.C.P. 105 action to quiet title to the property. McKown appeared and defended on the grounds that the tax liens were defective due to insufficient notice to himself and Lohrey. The district court determined the treasurer had made a diligent inquiry to find McKown, and a division of the Colorado Court of Appeals affirmed that ruling, but remanded for determination of whether the treasurer had complied with the separate requirement to notify the property’s occupant, Lohrey. On remand, the district court struggled with the statutory language, and ultimately concluded that the treasurer’s notice to Lohrey was deficient and the tax deeds were void.

Red Flower appealed, arguing that the district court’s construction cannot be squared with the language or intent of the statutory scheme. The court of appeals agreed with Red Flower that the district court’s reasoning was incorrect as to the mineral deed. After analyzing C.R.S. § 39-11-128, the court concluded that it was illogical to require the treasurer to put forth more effort to locate the occupant of the property than the property owner. The court, however, noted that it was presumed that the occupant of the property could be found on the property. The court found that the district court correctly concluded that treasurer need not conduct “diligent inquiry” to determine the location of the occupant, but it erred in determining that the treasurer had some limitless duty to locate the occupant. The court instead may simply serve notice to occupants at the property. Because Lohrey was not an actual occupant of the property, but the parties stipulated to his occupancy, the court of appeals remanded for a determination of whether the treasurer made a “diligent inquiry” as to his whereabouts before conveying the mineral deed.

As to the real property deeds, the court of appeals found an error in publication. The court noted that the statute requires publication once a week for three weeks, and publication must take place not more than five months nor less than three months before the tax deeds may issue. Because the tax deeds issued less than three months after publication, the notice was deficient. The court declined to say the deeds were void, since the taxing authority had jurisdiction to issue them, but instead determined the deeds were voidable. The court affirmed summary judgment to McKown as to the real property deed.

The court of appeals affirmed in part, reversed in part, and remanded for further proceedings.

Colorado Court of Appeals: Evidence of Project Funds Inadmissible in Condemnation Proceeding

The Colorado Court of Appeals issued its opinion in Town of Silverthorne v. Lutz on Thursday, February 11, 2016.

Matthew Lutz and Edward Lutz (landowners) own a stretch of land over which the Town of Silverthorne wanted to build a trail. The town applied for and received funds from the Great Outdoors Colorado Program (GOCO) to use in construction of the trail. Landowners objected to having a portion of the trail built on their land. The town offered landowners $6,000 to purchase an easement, but landowners did not respond. The town next offered $75,000 for two easements, but landowners again did not respond. The town then filed a condemnation action under its eminent domain powers, and the matter proceeded to an immediate possession hearing and subsequent valuation trial. The district court granted the town’s motion for immediate possession and the landowners were compensated according to the jury’s valuation.

On appeal, the town initially argued the landowners waived any defense by failing to challenge the condemnation proceedings or make a counteroffer. The court of appeals found no error in the district court’s allowance for the landowners to reply to the condemnation proceedings out of time. The court noted, “Technically, there is no need to file an answer in a condemnation case, but it is good practice to do so.” Next, the court addressed the landowners’ assertion that the town was barred from exercising eminent domain power because of its receipt of GOCO funds, and the district court erred in granting the town’s motion in limine to exclude evidence of the source of funds. The court found it was bound by the Colorado Supreme Court’s decision in Pub. Serv. Co. v. City of Loveland, 79 Colo. 216, 233, 245 P. 493, 500-01 (1926), to exclude evidence of the source of funding for the eminent domain action, finding that the source of funds requires analysis of corporate finance which is wholly separate from a home rule city’s eminent domain authority. The court found no error in the district court’s grant of the town’s motion in limine to exclude evidence of the source of funds.

Landowners also argued the town acted in bad faith by planning the development of its trail in such a way as to receive all GOCO funds before commencing the eminent domain action. The landowners argue this is a jurisdictional challenge to the town’s condemnation suit. The court found several flaws with the landowners’ arguments that the town failed to act in good faith, and again affirmed the district court’s decision to exclude evidence of the GOCO funds. The court also rejected landowners’ contention that the district court erred in denying their motion for attorney fees.

The court of appeals affirmed the district court.

Comment Period Open for Proposed Changes to Rule 120

The Colorado State Judicial Branch announced proposed changes to Rule 120 of the Colorado Rules of Civil Procedure, “Orders Authorizing Sales Under Powers.” The changes are extensive, and include changing the title of the rule to be “Orders Authorizing Foreclosure Sale Under Power in a Deed of Trust to the Public Trustee.”A redline of the proposed changes is available here.

The supreme court is now accepting comments on the proposed changes to Rule 120. Comments may be made in writing via email to Christopher Ryan, the Clerk of the Supreme Court, or via U.S. Mail at 2 E. 14th Ave., Denver, CO 80203. Comments must be received no later than 5 p.m. on April 6, 2016. Comments will be posted on the State Judicial website after the close of the comment period.

Top Ten Real Estate Programs and Homestudies

As the end of the year approaches, and the end of the compliance period looms for a third of Colorado’s attorneys, we continue examining the Top Ten Programs and Homestudies in several areas of law. In case you missed it, we already profiled the Top Ten Ethics Programs and Homestudies, the Top Ten Family Law Programs and Homestudies, and the Top Ten Trust & Estate Programs and Homestudies. Today we turn to real estate law. Although there are many great programs to choose from, we have narrowed down our list to these ten programs.

10. HOA Basics: Common Interest Communities. HOA law is a booming subset of real estate law. This program details the basics of representing a client in an HOA, or representing an HOA as your client, including providing an overview of common interest communities and the Colorado Common Interest Ownership Act (CCIOA), collection actions for HOA dues, covenant enforcement, transparency, and ethical issues related to representing HOAs and developers. Seven general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

9. Eminent Domain Law for Pipelines in Colorado. In 2012, the Colorado Supreme Court ruled that a 100-year-old pipeline condemnation statute was not applicable to petroleum pipelines, only electrical conduits. The petroleum industry unsuccessfully petitioned to legislatively overturn the decision in 2013 and 2014. In this one-hour course, learn about the history of pipeline condemnation statutes and the powers they grant, as well as important safety considerations. One general credit; available as MP3 audio download and Video OnDemand.

8. Foreclosure Law — All the Latest and Greatest. In 2011, Colorado had one of the highest foreclosure rates in the nation. Since then, foreclosures have waned in the metro area, but despite the decrease in foreclosure proceedings, real estate lawyers need to be aware of the ins and outs of foreclosure law, especially because Colorado’s foreclosure process is unique compared to other states. This program details Colorado’s public trustee foreclosure process from start to finish, and also addresses issues such as bankruptcy, tax liens, and receiverships, that are commonly seen alongside foreclosures. Seven general credits; available as CD homestudy, MP3 audio download, and Video OnDemand.

7. The Life of a Residential Real Estate Transaction. Everything you need to know about residential real estate practice, from the offer to the closing, is explained in this helpful program. Learn about the Colorado Real Estate Commission forms and how to use them, get an overview of title commitments and title policy issues, learn about types of conveyance deeds and when to use each type, hear about mortgage lender concerns and issues, and discuss the ethics of being both an attorney and a real estate broker. Seven general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

6. Eminent Domain. Eminent domain involves the acquisition of private property by public entities for public projects or, in certain specific circumstances, by private parties for private use. Learn about key aspects of representing condemning authorities or private landowners during the various stages of eminent domain proceedings in this informative program, including immediate possession hearings, eminent domain appraisals, and ethical considerations in condemnation actions. Three general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

5. 25 Cases Every Real Estate Lawyer Should Know. Fred Skillern, seasoned practitioner and former judge, hand-picked 25 cases from the repertoire he has amassed by doing the case law update at the Real Estate Symposium for the last 16 years. From an obscure attorney discipline case that sets precedent on recording attorney liens to a well-publicized case that revolutionized easement disputes, from cases that interpret statutes to cases that seem to rewrite the law, Fred Skillern discusses it all. Three general credits. This program will take place January 21, 2016. Click here to register for the live program and click here to register for the webcast. Also available as CD homestudy, MP3 audio download, and Video OnDemand after the program.

4. Colorado Real Estate Practice with Willis Carpenter. No list of real estate programs would be complete without mention of Willis Carpenter’s legendary 10-week course, “Colorado Real Estate Practice.” Although this was Willis’s last year teaching the class, we hope to continue his legacy in 2016. Stay tuned. Eighteen general credits, including four ethics credits.

3. Anatomy of a Commercial Real Estate Transaction — Real Estate Spring Update 2015. Commercial real estate transactions are complex, and present a different array of issues than residential transactions. This program offers a look at the commercial real estate contract, including key provisions, due diligence, and common issues, as well as leasing issues, financing the transaction, construction and construction defects, environmental concerns, zoning, and more. Seven general credits; available as CD homestudy, MP3 audio download, and Video OnDemand. NOTE: The Real Estate Spring Update occurs annually with a different theme. Click here for the 2014 program.

2. Hot Topics! — Real Estate Fall Update 2015. The ABA, ACMA, and ACREL developed guidelines for typical and appropriate real estate opinions, which were discussed at this Hot Topic update. Also covered were HOA assessment lien priority, available insurance products for clients, and recent changes in conservation easement and urban renewal laws. Six general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand. NOTE: The Real Estate Fall Update is repeated annually with different themes. Click here for the 2014 program, and click here for the 2013 program.

1. Annual Real Estate Symposium. For 33 years, the annual Real Estate Symposium has been THE event for Colorado’s real estate lawyers, with top-notch presentations, wine tasting, and beautiful scenery in the Colorado mountains. For the 2015 Symposium, topics discussed included legislative and case law updates, ditch rights, section 1031 exchanges, recent changes to foreclosure law, ethics, eminent domain, and more. The 2016 Symposium is scheduled for July 21-23 in Breckenridge. Registration is not yet open but keep an eye on http://cle.cobar.org/realestatesymposium for details. 2015 Symposium—20 general credits, including 2.7 ethics credits; available as CD homestudy, MP3 audio download, and Video OnDemand.

Colorado Court of Appeals: Special District May Regulate Use of Property It Owns

The Colorado Court of Appeals issued its opinion in Aspen Springs Metropolitan District v. Keno on Thursday, July 16, 2015.

Metropolitan District—Real Property—Trespass—Willful—Fence Law—Contempt—Remedial Sanctions—Purge Clause.

Keno maintained a flock of sheep and grazed it on a parcel of land known as the “Greenbelt.” The Greenbelt was owned by Aspen Springs Metropolitan District (Aspen Springs). In 2011, the Aspen Springs Board passed a resolution prohibiting the grazing or tethering of livestock on the Greenbelt without the Board’s prior written permission. Keno continued to graze his sheep on the Greenbelt, and Aspen Springs sought an injunction preventing the grazing. Keno nonetheless continued to pasture his sheep on the Greenbelt and had twice been found in contempt by the time the court issued its final judgment permanently enjoining Keno from allowing his animals to graze on the Greenbelt.

On appeal, Keno contended that, as a special district and creature of statute, Aspen Springs lacks authority to regulate the use of property it owns. Among the express powers granted to special districts are the powers “[t]o acquire, dispose of, and encumber real and personal property including, without limitation, rights and interests in property, leases, and easements necessary to the functions or the operation of the special district.” The right to own property is necessary to these express powers. Property ownership generally includes the power to exclude others. Therefore, a special or metropolitan district may regulate the use of and access to property it owns. Accordingly, the district court did not err in holding that Aspen Springs has the power to prohibit and limit grazing activities on the Greenbelt.

Keno also contended that the district court erred in concluding that the Fence Law protects Aspen Springs from a willful trespass onto the Greenbelt, despite the fact the Greenbelt is unenclosed by a lawful fence. The Fence Law does not protect livestock owners who deliberately pasture their livestock on unenclosed lands of another, particularly when done against the owner’s will. Accordingly, the district court did not err in concluding that the Fence Law protects Aspen Springs from willful trespass onto its property.

Keno further asserted that the court erred in awarding attorney fees and costs as a remedial sanction after finding him in contempt a second time for violating the preliminary injunction. A remedial sanction must include a purge clause. Because the sheep grazing activities that resulted in Keno’s contempt citation were not ongoing at the time of the contempt hearing, Keno could not purge his contempt because he could not undo what he had done. Therefore, remedial sanctions, such as the assessment of costs and attorney fees, could not be imposed against Keno under these circumstances, and the trial court erred in awarding them. Instead, the court could impose only punitive sanctions. The judgment was affirmed in part and the order was vacated in part.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Army Corps of Engineers Appropriately Considered Risks of Oil Pipeline Under Clean Water Act

The Tenth Circuit Court of Appeals issued its opinion in Sierra Club, Inc. v. Bostick on Friday, May 29, 2015.

The U.S. Army Corps of Engineers issued a nationwide permit (NWP 12) for construction of an oil pipeline pursuant to its permitting authority under § 404(e) of the Clean Water Act (CWA). TransCanada Corporation, relying on the permit and subsequent Corps verification letters, constructed the Gulf Coast Pipeline, a southern segment of the Keystone XL Pipeline, which traverses 485 miles and crosses approximately 2,000 waterways. Sierra Club, along with two other environmental groups, challenged the validity of NWP 12 and the verification letters, but the district court rejected the challenges.

On appeal, the environmental groups raised three sets of claims: (1) the Corps violated the National Environmental Policy Act (NEPA) by issuing NWP 12 without considering the risk of oil spills and the cumulative environmental impacts of the pipelines, and issued the verification letters without first conducting a NEPA analysis; (2) the Corps violated the CWA by authorizing activities with more-than-minimal environmental impact and unlawfully deferring the minimal-impact analysis to project management personnel; and (3) the Corps issued NWP 12 without analyzing cumulative effects and documenting the analysis. The Tenth Circuit addressed and rejected each set of claims.

The Tenth Circuit first addressed the NEPA claims. The environmental groups argued the Corps failed to consider the risks of oil spills in its environmental analysis, and failed to conduct an environmental analysis when it verified the pipeline was permissible under the nationwide permit. The Tenth Circuit found the environmental groups’ arguments that the Corps failed to consider the risk of oil spills and the cumulative impacts of the pipelines waived, since the groups did not raise these concerns during the comment period. The environmental groups argued that the risk of oil spills is obvious, but they instead were required to show an obvious flaw in the Corps’ evaluation, which they did not do. The Tenth Circuit found this argument waived. The groups also pointed to comments about the Keystone XL pipeline about oil spills, but the Tenth Circuit noted these comments were directed to other agencies, and in those comments no one questioned the Corps’ assessment. Similarly, the Tenth Circuit found the environmental groups’ arguments about the cumulative impacts of the pipeline waived, since they were not raised in the comment period. Although the cumulative effects were discussed in other contexts, they were never mentioned regarding the Corps’ work in dry land areas.

Next, the environmental groups argued the Corps should have prepared a NEPA analysis for the entire pipeline before issuing the verification letters. The Tenth Circuit disagreed, finding the verifications did not constitute “major federal action” necessitating NEPA review, since the verifications did not result in significant impact. The Tenth Circuit held that the Corps neither acted like a “gatekeeper” nor approved the whole project. Instead, it simply verified that TransCanada’s work was covered by NWP 12. The groups next contend the Corps should have evaluated the impacts of the whole project because the agency had “control and responsibility” over the project. However, the Tenth Circuit found the appendix to NEPA relied on by the environmental groups was inapplicable, and even if it had applied the Corps did not have “control and responsibility” over the entire project.

The Tenth Circuit next addressed the environmental groups’ argument that the Corps’ issuance of NWP 12 violated § 404(e) of the Clean Water Act by authorizing linear projects with significant environmental impact and by deferring part of the minimal-impact analysis to project-level personnel. Again disagreeing, the Tenth Circuit found that the Corps’ conclusion regarding the minimal environmental impacts involved the agency’s technical expertise, and the environmental groups were required to show the agency’s determination lacked any substantial basis in fact, which they did not do. The Corps, in analyzing the future impacts of dredge-and-fill activity, required project-level personnel to ensure that particular activities would not have more than a minimal impact on the aquatic environment. These were additional safeguards, and the Tenth Circuit found no error in the Corps’ delegation.

Finally, the Tenth Circuit addressed the environmental groups’ argument that the Corps violated the terms of its own permit by failing to document analysis of cumulative impacts in the verification letters or administrative record. The Tenth Circuit found no error. Although the district engineers were required to analyze cumulative impacts, they need not document their analysis in the verification letters. The Tenth Circuit noted that although the letters did not contain the analysis, it appeared in the record, and the Corps’ issuance of the verifications was not arbitrary or capricious.

The Tenth Circuit affirmed the district court’s judgment.

Colorado Court of Appeals: Use of Stock Certificate as Exhibit Does Not Qualify as a Filing or Recording

The Colorado Court of Appeals issued its opinion in Battle North, LLC v. Sensible Housing Co. on Thursday, June 18, 2015.

Spurious Documents—CRS §§ 38-35-201(3) and -204.

This case involves a dispute over ownership of real property in Eagle County (Pine Martin parcel). In 1998, Mortgage Investment Corporation (MIC) filed for judicial foreclosure on a deed of trust encumbering the Pine Martin parcel and the Piney Lumber parcel. Defendants included Pine Martin Mining Company (PMMC) and Piney Lumber Company (PLC). PMMC claimed ownership of the Pine Martin parcel and PLC claimed ownership of the Piney Lumber parcel. This essentially converted the foreclosure case to a quiet title action.

In 2000, PMMC and PLC moved for partial summary judgment and MIC filed a cross-motion for partial summary judgment. In 2004, the motions still pending, MIC assigned its interest in the matter to Ginn Battle Lender, LLC (Ginn). PMMC and PLC purported to transfer their interests in the parcels to respondent Sensible Housing Company (Sensible) by quitclaim deeds that Sensible recorded in the Eagle County Clerk and Recorder’s Office. Two of the deeds, one recorded in 2006 and one in 2008, were from PMMC to Sensible and concerned the Pine Martin parcel. These deeds are at issue in this case.

Pursuant to an approved stipulation for how to proceed to resolve the quiet title case, Sensible filed as an exhibit a purported 1915 Stock Certificate certifying that 1,251,000 shares of the capital stock of PMMC had been issued to Bouvier. Sensible’s principal, Tucker, claimed he had obtained those shares from Bouvier’s heir in 1996. On that authority, Tucker created and recorded the 2006 and 2008 quitclaim deeds.

In 2009, the district court granted Ginn’s cross-motion for summary judgment and denied Sensible’s motion. It found the 1915 Stock Certificate and related documents were incredible as a matter of law and therefore Sensible had no interest in either parcel. Sensible appealed, and a division of the Court affirmed summary judgment as to the Piney Lumber parcel but reversed as to the Pine Martin parcel, finding the 1915 Stock Certificate not “so incredible that no reasonable jury could believe it.”

In April 2012, Battle North, LLC (Battle North) filed a petition for an order to show cause pursuant to CRS § 38-35-204 and CRCP 105.1, alleging the 1915 Stock Certificate was a spurious document and requesting an order directing Sensible to show cause why it should not be declared invalid. Battle North amended the petition to request that the two quitclaim deeds also be declared invalid as spurious documents. Following a hearing, the district court made extensive findings, including that the 1915 Stock Certificate was created by Tucker and was a sham, and that both it and the two quitclaim deeds were spurious documents; the court therefore “released” the three documents. The court also awarded Battle Mountain attorney fees and costs pursuant to CRS § 38-35-204(2).

On appeal, Sensible argued that the priority rule required the district court to stay this case pending resolution of the quiet title action. The Court disagreed, holding that CRCP 105.1 allowed Battle North to bring this petition in a separate action and that staying the case would not further the policies behind the priority rule.

Sensible then argued that allowing Battle North to litigate this action contravened the mandate of the Court in an earlier appeal of the quiet title action where it remanded for further proceedings as to the Pine Martin parcel. The Court found nothing in that order precluding Battle North form proceeding as permitted by CRS § 38-35-204 and CRCP 105.1.

Sensible contended that its use of the 1915 Stock Certificate as an exhibit in the quiet title action did not entitle Battle North to relief under CRS § 38-35-204; filing a document as an exhibit in a civil case does not qualify as recording or filing a document within the meaning of the statute. The Court agreed. It held that “recorded or filed” as used in CRS § 38-35-204(1) is limited by its having to affect a person’s real or personal property. The filing of an exhibit in a civil case does not affect a person’s real property. Moreover, there would be no way to “release” such a document (the remedy in the statute). Thus, although the Court did not disturb the finding that the 1915 Stock Certificate was a sham, it was error to rule it was a spurious document under the statute, and that part of the order was reversed.

Sensible argued that the quitclaim deeds were not spurious because a quitclaim deed can convey only the title or interest that the grantor had, and the district court determined that the newly created PMMC had no title or interest to convey. Therefore, Battle North’s property could not have been affected by the recording of the quitclaim deeds. The Court found this argument to be without merit. Sensible argued that unless a document was a valid lien or encumbrance against real property, it cannot be a spurious document, because it cannot affect real property. However, in that case, the document would not be spurious.

Sensible argued that Battle North is not a “person whose real . . . property is affected by” the 1915 Stock Certificate and quitclaim deeds because it does not own the Pine Martin parcel. This argument was based on deficiencies in the treasurer’s deeds by which Battle North claimed title. The Court rejected those arguments on multiple grounds.

The Court also awarded Battle Mountain reasonable appellate attorney fees for defending the judgment as to the quitclaim deeds. The case was remanded to the district court for a determination of that amount.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Developer Not Liable for Disclosure Failures Under Interstate Land Sales Full Disclosure Act

The Tenth Circuit Court of Appeals issued its opinion in Dalzell v. RP Steamboat Springs LLC on Tuesday, March 24, 2015.

RP Steamboat Springs, LLC, was formed in 2005 to develop a mixed-housing master-planned subdivision in Steamboat Springs called Wildhorse Meadows. RP entered into an agreement with Steamboat to develop Wildhorse Meadows in eight parcels, each originally owned by RP, one of which was Trailhead Lodge. RP entered into a marketing agreement with S&P Destination Properties, and marketed the subdivision as a whole and Trailhead specifically.

A group of investors formed Trailhead Lodge at Wildhorse Meadows, LLC, for the purpose of developing Trailhead Lodge condominiums. RP transferred title to Trailhead LLC in 2007 by special warranty deed. Two days before the deed transfer, a group of buyers entered into substantially similar preconstruction purchase and sale agreements with Trailhead LLC. At the time Trailhead LLC entered into the contracts with Buyers, no one had filed a statement of record with the Department of Housing and Urban Development and Buyers were not provided a property report, both of which were required under the Interstate Land Sales Full Disclosure Act. Buyers had the right to rescind the contracts within two years of signing as a result of these failures, which they did. Trailhead LLC, now insolvent, has not returned the Buyers’ deposits.

Buyers filed an action in the U.S. District Court for the District of Colorado against Trailhead LLC, RP, and S&P, alleging all three qualified as developers under the Land Sales Act and they violated the Act by failing to file a statement of record and failing to provide a property report when Buyers purchased the condominium units. The district court granted summary judgment to Buyers against Trailhead LLC, including a specific award of damages to each Buyer and an order rescinding the contracts, and Buyers settled with S&P. The only claims remaining were Buyers’ Land Sales Act claims against RP, which did not include any allegations of fraud. The district court ultimately concluded RP was not liable under the Land Sales Act because although it qualified as a developer, it did not exercise enough control over the sales to qualify as a direct or indirect seller. Buyers appealed.

The Tenth Circuit analyzed the applicable provisions of the Land Sales Act. Buyers argued RP’s status as a developer made it liable under the disclosure provisions, and even if developer status was not enough to establish liability, RP was liable as an indirect seller. The Tenth Circuit disagreed, finding the use of the term “to sell or lease” in some provisions but not others meant that Congress intended to limit liability of developers in some provisions of the Act. Although RP probably would have been liable under the fraud provisions of the Act as a developer, it was not liable under the disclosure provisions because these were limited to sellers. The issue had not been decided by the Tenth Circuit before, but it found a similar case from the Fourth Circuit instructive.

The Tenth Circuit similarly rejected Buyers’ argument that RP was an indirect seller under the Act, agreeing with the district court that RP did not exercise sufficient control over the sales to qualify as an indirect seller under the definition. The Tenth Circuit found RP was not involved in efforts to sell the Trailhead Lodge condominium units, despite its marketing targeting the Trailhead Lodge subdivision. The Tenth Circuit also found there was not a significant ownership relationship between RP and Trailhead, LLC.

The Tenth Circuit affirmed the district court’s finding that RP was not liable under the Land Sales Act. Judge Lucero dissented.

Colorado Court of Appeals: In Prescriptive Easement Case, Mere Silence is Not Proof of Permissive Use

The Colorado Court of Appeals issued its opinion in LR Smith Investments, LLC v. Butler on Thursday, December 18, 2014.

Prescriptive Easement—Quiet Title—Permissive Use.

In this prescriptive easement case, LR Smith Investments, LLC (Smith) claimed prescriptive easements for ingress and egress across two roads owned by Butler. The roads cross a ranch owned by Butler northwest of Craig in Moffat County. The trial court found that Smith and its predecessors continuously, openly, and notoriously used the roads from the mid-1950s until late 2011, when Butler dug ditches preventing access to the roads and thereby precipitated this litigation.

The trial court held that Butler did not meet her burden to overcome the presumption of adversity, and that Smith had satisfied the elements for prescriptive easements to use the roads. The court quieted title to Smith’s nonexclusive right to use the roads for ranching and agricultural purposes, to access the Smith property for hunting and guiding purposes, and for all other similar uses.

On appeal, Butler argued that the court erred in finding that Smith’s use of the road was not permissive, which would defeat Smith’s prescriptive easement claim. The trial court found that Smith’s use of the property was open and notorious for a period in excess of eighteen years. Moreover, the court’s finding that there was no agreement, explicit or implied, between the parties that established that Smith’s use of the roads was permissive was supported by the record. Mere acquiescence or silence is not proof of permissive use. Therefore, Butler did not overcome the presumption of adversity. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (1)

Editor’s note: This is Part 4 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

Gattis v. McNutt (In re Estate of Gattis)
Colorado Court of Appeals, November 7, 2013
2013 COA 145
Residential sales contract; nondisclosure; economic loss rule
.

This case presents another test of the outer limits of the economic loss rule. The buyer of a house, Carol Gattis, sues for fraudulent concealment and recovers a judgment against McNutt. McNutt’s company acquired the property to “fix and flip,” and obtained detailed soils reports outlining damage that was caused by shifting soils. On the disclosures form included in the standard form residential purchase and sale contract, McNutt disclaimed any “personal” knowledge of defects, and identified only the name of a company which had performed structural repairs — without describing the nature of the repair. McNutt appeals on the basis that the fraud claim is barred by the economic loss rule. He argues that the contract calls for specific disclosures, which were given, and that tort actions are precluded by the economic loss rule, as the requirement for disclosures “subsumes” the common-law duty to disclose material information.

The appeals court disagrees and affirms the judgment. Under the economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” The court rejects the economic loss rule defense for two reasons. First, home sellers owe consumers an independent duty to disclose latent defects of which they are aware. Second, the court reasons that the disclosure provisions in the commission-approved form do not subsume the independent duty so as to trigger the economic loss rule. Although sellers were not required by the disclosure form to disclose their involvement with the entity that had performed repairs, the trial court found that this fact was material and should have been disclosed. Gattis could have prevailed on this nondisclosure claim without relying on the form disclosure. In short — the seller was perhaps “too cute by half.”

The court distinguishes two recent decisions in which a real estate seller has successfully invoked the economic loss rule to avoid a fraud claim. In those cases — Former TCHR, LLC v. First Hand Mgmt. LLC, 2012 COA 129 (Colo. App. 2012), and Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282 (Colo. App. 2009) — the parties negotiated “transaction-specific” contracts. Here, the parties used standard real estate commission forms. The court holds that neither the Seller’s Property Disclosure nor any other term in the form contract limits or subsumes the home sellers’ common-law duty to disclose latent defects of which they are aware.

 

Planning Partners International, LLC v. QED, Inc.
Colorado Court of Appeals, July 1, 2013.
2013 CO 43
Contracts; attorney fee shifting provision; discretion to reduce fee claim to account for successful claim for offsets; no mandatory rule.

Our supreme court accepts this case to decide a recurring issue in attorney fee hearings pursuant to contractual fee shifting provisions. The court of appeals held that the trial court erred in failing to apportion a fee award to account for an offset caused by judgment or a counterclaim. The Supreme Court rejects a per se rule of mandatory apportionment in this circumstance. Requiring proportional diminishment in all cases where the judgment based on a note or contract had been reduced by a counterclaim arising out of the transaction would undermine the trial court’s ability to determine a reasonable fee under the specific facts of the cases before them. The widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment. In the current case, the trial judge proceeded methodically through the planning company’s accounting, discounting the fees incurred in a claim he found to be unsupported by the evidence and reducing the entire amount of requested fees by 20%. He further determined that the attorney’s fee issues were sufficiently intertwined and inter-related that apportionment was not appropriate.

The court notes that a trial court’s discretion may be circumscribed by the statute or contract giving rise to fees. It points out that the note provision here did not require or preclude apportionment, which is a factor that a drafter of such a note or contract might consider. As a result, a trial court may determine that some apportionment is necessary for a fee to be reasonable, or it may not. The court here holds only that the widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Condemnation, Eminent Domain

Editor’s note: This is Part 3 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

Regional Transportation District v. 750 West 48th Ave, LLC
Colorado Court of Appeals, December 5, 2013
2013 COA 168
Qualification of eminent domain commissioner; partiality.

The only question for a trial to a panel of three commissioners is, in most cases, the value of property taken by the government. Three commissioners were appointed by the court, including a Cassidy Turley broker, Ms. Hook. The commissioners were approved after a 90-minute voir dire hearing in the district court. Six months later, but before trial, RTD challenged the partiality of Ms. Hook, on the basis that two other brokers in her firm had testified on value issues in a separate but similar RTD eminent domain case. The question raised here is whether the standard of review on the disqualification motion is based on the standard applicable to a judge, or a juror. The eminent domain statute, C.R.S. § 38-1-105(1), instructs the trial court to disqualify a proposed commissioner who is “not disinterested and impartial.” Under C.R.C.P. 97 and Colorado Code of Judicial Conduct Rule 1.2, by contrast, judges may be disqualified if they “appear” partial. In the latter case, courts have held that the test for appearance of partiality of a judge is whether a reasonable person, knowing all the relevant facts, would doubt the judge’s impartiality.

Applying the plain language of the eminent domain statute, the court agrees with the trial court and affirms. The applicable standard for disqualifying commissioners is not “an appearance of partiality,” a standard applicable to sitting judges, but whether the commissioner was “in fact interested and partial.” The court holds that Hook’s professional relationship with two fellow employees who had testified against RTD did not make her interested or partial.

The court comments on the special role of a condemnation commissioner: “The court relies on their experience and knowledge of the law of real estate to make the appropriate determination of just compensation. Because commissioners are supposed to bring expertise to valuation proceedings . . . they could not do so if the very knowledge and experience that made their views desirable also disqualified them.”

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Common Interest Communities, Covenants, and CCIOA

Editor’s note: This is Part 2 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

Triple Crown at Observatory Village Association v. Village Homes of Colorado
Colorado Court of Appeals, November 7, 2013
2013 COA 150
Construction defect claims; interlocutory review; relationship between revised Nonprofit Corporation Act and the Common Interest Ownership Act.

Arising from alleged construction defects in a common interest community, this interlocutory appeal under C.A.R. 4.2 presents four questions of first impression in Colorado, which the court answers as follows:

  1. Where an association is a nonprofit corporation, the Colorado nonprofit act establishes the time limit for amending its declaration based on action taken without a meeting;
  2. The statutory power to engage in “litigation” under C.R.S. § 38-33.3-302(1)(d) includes arbitration;
  3. C.R.S. § 38-33.3-302(2) does not invalidate the mandatory arbitration provision, because the dispute resolution procedures apply to parties other than the declarant; and
  4. Colorado consumer protection act claims may be subject to mandatory arbitration, because the CCPA does not include a nonwaiver provision.

Village Homes, a residential developer, built homes subject to recorded covenants, and thereby created an association, Triple Crown. Triple Crown was set up as a nonprofit corporation under C.R.S. §§ 7-121-101, et seq. In the declaration of covenants, the developer included a dispute resolution procedure for claims arising from the design or construction of homes in the Triple Crown development. The declaration required that construction defect claims be arbitrated under American Arbitration Association rules.

In 2012, residents began a campaign to amend the declaration by repealing the arbitration clause. Unfortunately, it took more than sixty days to gather the votes to amend the covenants. After sixty days, 48% of the members had cast votes in favor of revocation. After another sixty days, the Association had obtained the required 67% of votes to effect the amendment. The Association recorded the amendment, and then brought this action against Village Homes, alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Village Homes moved to dismiss for lack of jurisdiction, based on the arbitration clause in the declaration. It argued that the amendment repealing the arbitration provision was ineffective because the Association failed to amend Article 14 within the time limits in the Nonprofit Corporations Act, specifically C.R.S. § 7-127-107(2), which deals with time limits for actions taken without a meeting. The trial court granted the motion, dismissed the case, and ordered the case to arbitration. This order is affirmed on appeal. The court holds that when an association amends its declaration without a meeting under the CCIOA, the association, if it is a nonprofit corporation, must comply with the 60-day time limit provided in section 7-127-107.

The Court also agreed that the Common Interest Association Act gives power to associations to “institute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community.” However, the court reasons that “litigation” includes both civil actions in court and arbitrations. It holds that the mandatory arbitration clause did not infringe on the association’s statutory power to “institute litigation.”

The association then argues that CCIOA § 38-33.3-302(2) invalidated Article 14. The trial court rejected this argument. The court agreed with the trial court, finding that the CCIOA section forbids only restrictions unique to the declarant. Article 14 controlled disputes between all parties.

The trial court rejected the association’s argument that its CCPA claims should not be subject to mandatory arbitration, because CCPA provisions by statute “shall be available in a civil action.” The court holds that such a right can be waived, and that Article 14 of the Triple Crown declaration was such a waiver.

 

Ryan Ranch Community Assn., Inc. v. Kelley
Colorado Court of Appeals, March 27, 2014
2014 COA 37M
Liability for homeowner association assessments; annexation; developer side agreement.

This is an interesting situation involving a developer, a side agreement with another landowner to exempt that owner’s land from subdivision covenants, and the annexation provisions of the CCIOA. As a prequel, the following general principles stated in the dissent by Judge Terry set the stage.

  • “Provisions of this article may not be varied by agreement. . . . A declarant may not . . . use any . . . device to evade the limitations or prohibitions of this article or the declaration.” C.R.S. § 38-33.3-104. . . .
  • Members are not “entitled to set up agreements reached with the developer as defenses to the obligation to pay assessments . . . . [T]he developer does not have the power to waive the assessment obligations imposed on property within the common-interest community.” Restatement (Third) of Property: Servitudes, 6.5, cmt. e (2000).

Nice notions, but the developer here found the approval process for a second filing of his development sometimes required some last-minute adjustments. He had a side agreement with Kelley, an owner of a minority of land to be included in a second filing of a large development, to keep the “Kelley Lots” from control of any covenants or new HOAs. At the late stages of approval of the new filing, however, the developer included Kelley’s land in the filing – Kelley signed the plat – and sold the lots in bulk to Ryland.

Ryland, going along with the deal, sold the Kelley lots immediately back to developer, and the developer then deeded the land to Kelley. Kelley sold the lots to another builder, who sold homes to consumers. Several years go by, during which the consumers enjoy neighborhood improvements, and then the HOA takes action to collect assessments – including back fees totaling $70,000. The homeowners had constructive notice of the plat and the declaration from exceptions to their deed warranties. In defense, the homeowners and Kelley argued that their lots had not been appropriately “annexed” into the association. The decision goes through the statutes, and two judges reverse the trial court and hold that the requirements for annexation had not been met.

The reasoning of the majority goes like this. To exercise a development right under CCIOA, a developer must comply with the plat and map requirements of C.R.S. § 38-33.3-209 and the recording requirements of C.R.S. § 38-33.3-217(3). The homeowner defendants argue that to exercise a reserved development right, CCIOA requires the recording of an amendment to the declaration that must contain certain information and be properly indexed. The court agrees that the recording of an Official Development Plan and the declaration was not sufficient to meet these requirements. The original declaration cannot logically be considered an amendment to itself such that it could annex the Kelley Lots. Moreover, nothing was denominated as an amendment, nothing assigned identifying numbers to newly created units, there was no reallocation of interests among all units, and no common elements were described. Nothing on the Filing 2 plat map subjected the described property to the Declaration.

On the other hand, the dissent notes, the Declaration provides that the additional lots will be annexed into the HOA when (1) a plat for additional properties to be annexed is recorded, and (2) either an annexation form is recorded, or a deed for real property within the plat is conveyed from Ryland to a third party other than Ryland. “On November 17, 2005, Ryland recorded the Filing 2 plat, which included the Kelley Lots. On December 20, 2005, Ryland conveyed the Kelley Lots back to the developer by deed. These two actions — filing of the plat and conveyance by deed — fulfilled the requirements of the Declaration to annex real property to the HOA.”

CCIOA fans and developers’ counsel will want to dive into this discussion — and avoid those shortcuts.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.