Most Wills and Trusts contain an in terrorem or no contest provision which disinherits a beneficiary that challenges a Will or Trust. While the provision is designed to prevent against baseless challenges, Arizona invalidates such provisions if probable cause exists for the challenge. The Arizona Court of Appeals in Wulf v. Barrow recently reconfirmed the invalidation of a no contest provision and further stated that a challenger only needed to show that one of the claims was supported by probable cause to invalidate the provision. This is good news for individuals seeking to challenge the actions of a Personal Representative of an Estate or the Trustee of a Trust.
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Does a Real Estate Agent Owe a Duty to Disclose to the Other Party in the Transaction?
In Arizona, a licensed real estate agent owes fiduciary duties to the party the agent represents. But what about the other party in the transaction? Arizona Administrative Code R4-28-1101(A) requires that real estate agents “deal fairly” with all parties in the transaction. Real estate agent must disclose to the other party material information about the transaction that their client is required by law to disclose even if the client does not disclose. Lombardo v. Ablu, 199 Ariz. 97, 14 P.3d 288 (2000). Thus, a real estate agent has a duty to disclose material defects in the property or transaction itself if the agent’s client has a duty to disclose. Material information could include the buyer’s financial ability to close the sale, the seller’s ability to convey title as well as knowledge of the physical condition of the property. If an agent violates the duty to deal fairly with the other party in the transaction, that party may have a negligent or intentional misrepresentation claim against that agent and the agent’s broker.
Boundary Line Disputes, Boundary Line Acquiescence and Adverse Possession
What are the legal rights of two property neighbors that discover the location of property line is not where they thought? In some cases, the party possessing the property can obtain title through a quiet title action lawsuit.
BOUNDARY LINE ACQUIESCENCE
Arizona recognizes the legal theory of boundary by acquiescence. To support a claim of boundary by acquiescence, the boundary in question must be definite, visible, and clearly marked. Mealey v. Arndt, 206 Ariz. 218, 76 P.3d 892 (App., 2003). Fences and roadways are strong evidence of an acquiesced boundary line. Regardless of how the boundary is marked, the marking must be sufficient to identify the boundary with certainty. Id.
ADVERSE POSSESSION
Another legal theory applicable to boundary line disputes is adverse possession. Adverse possession occurs when: a person, acting under a mistake as to the true boundary line between his land and that of another, takes possession of land of another believing it to be his own, up to the mistaken line, claims title to it and so holds, the holding is adverse and, if continued for the requisite period. Berryhill v. Moore, 180 Ariz. 77, 881 P.2d 1182 (Ariz. App. Div. 1, 1994). The fact that the party was ignorant of the true property line when taking possession does not impact the claim. Id.
Both theories have similar elements of proof and if the claims are proven, the title to the possessed property is transferred to the possessor. Depending on the facts of the case, one or both of the theories may be appropriate to assert in a quiet title lawsuit.
Both theories have similar elements of proof and if the claims are proven, the title to the possessed property is transferred to the possessor. Depending on the facts of the case, one or both of the theories may be appropriate to assert in a quiet title lawsuit.
The Arizona Court of Appeals Limits Application of Arizona’s Anti-Deficiency Statute.
Properties sold at a Trustees Sale rarely sell for amount sufficient to pay the mortgage on the property. In some cases, lenders can pursue the remaining balance due on the promissory note (deficiency). Arizona law, however, protects many homeowners from lender collection actions following foreclosure. A.R.S. § 33-814(G) provides that:
If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee’s power of sale, no action may be maintained to recover any difference between the amount obtained by the sale and the amount of the indebtedness and any interest, costs and expenses.
Most residential properties meet the definition of A.R.S. § 33-814(G) but does the statute apply to builders, properties under construction or vacant land on which the owner intended to build and occupy the home?
The Arizona Supreme Court held the anti-deficiency statute does not apply commercial developers building homes that would otherwise qualify under A.R.S. § 33-814(G). Mid Kansas Federal Sav. and Loan v. Dynamic Development Corp., 167 Ariz. 122, 804 P.2d 1310 (Ariz. 1991).
In M&I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011), the Arizona Court of Appeals extended A.R.S. § 33-814(G) to include residential property under construction if the owner intended to occupy the home after construction.
In BMO Harris Bank N.A. v. Wildwood Creek Ranch, LLC, CA-CV 12-0728 (decided January 16, 2014) the Arizona Court of Appeals refused to extend A.R.S. § 33-814(G) to vacant land upon which the owners intended to build and occupy a home. The Court of Appeals found the fact that no development of the property had occurred to be a significant factor in deciding Wildwood Creek Ranch. No guidance was provided as to amount of development required to trigger A.R.S. § 33-814(G) protection or whether a party could start construction on a property solely for the purpose of avoiding a deficiency judgment.
If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee’s power of sale, no action may be maintained to recover any difference between the amount obtained by the sale and the amount of the indebtedness and any interest, costs and expenses.
Most residential properties meet the definition of A.R.S. § 33-814(G) but does the statute apply to builders, properties under construction or vacant land on which the owner intended to build and occupy the home?
The Arizona Supreme Court held the anti-deficiency statute does not apply commercial developers building homes that would otherwise qualify under A.R.S. § 33-814(G). Mid Kansas Federal Sav. and Loan v. Dynamic Development Corp., 167 Ariz. 122, 804 P.2d 1310 (Ariz. 1991).
In M&I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011), the Arizona Court of Appeals extended A.R.S. § 33-814(G) to include residential property under construction if the owner intended to occupy the home after construction.
In BMO Harris Bank N.A. v. Wildwood Creek Ranch, LLC, CA-CV 12-0728 (decided January 16, 2014) the Arizona Court of Appeals refused to extend A.R.S. § 33-814(G) to vacant land upon which the owners intended to build and occupy a home. The Court of Appeals found the fact that no development of the property had occurred to be a significant factor in deciding Wildwood Creek Ranch. No guidance was provided as to amount of development required to trigger A.R.S. § 33-814(G) protection or whether a party could start construction on a property solely for the purpose of avoiding a deficiency judgment.
The Trouble with Form Contracts
Form contracts are available on the internet through websites such as Legal Zoom and through local office supply stores; but is it a good idea to use a form contract? The trouble with a form contract is that it requires that the parties “fill in the blanks” with key terms of the agreement. Having litigated several contract disputes involving contracts drafted by the parties, I have observed the difficulties parties face when drafting proper contract language. Terms often have legal meaning that differ from how the word is used in common discussion. Also, party drafted contracts frequently lack specificity which leads to differing interpretations of the actual agreement.
A good contract avoids ambiguous and conflicting terms and clearly states the parties’ obligations and remedies in the event of a breach. I often find that clients do not fully understand the contractual options that are available and can be written into the contract. Past clients were surprised to find out a form contract limited their damages under the contract, waived a jury trial, agreed to arbitration or waived their right to recover attorneys’ fees in the event of a dispute.
While form contracts can save some money upfront, they can cost you dearly in the end.
A good contract avoids ambiguous and conflicting terms and clearly states the parties’ obligations and remedies in the event of a breach. I often find that clients do not fully understand the contractual options that are available and can be written into the contract. Past clients were surprised to find out a form contract limited their damages under the contract, waived a jury trial, agreed to arbitration or waived their right to recover attorneys’ fees in the event of a dispute.
While form contracts can save some money upfront, they can cost you dearly in the end.
January 13th, 2014
Defect Disclosure Obligations IN As-Is Real Estate Transactions
There is a growing trend in residential real estate transactions for sellers to offer the property “As-Is”. In the typical as-is transaction the seller does not provide a Sellers Property Disclosure Statement (SPDS) or make any representations about the condition of the property. But does the as-is designation excuse the seller from all obligations to disclose?
The seller of real property in Arizona is must disclose latent defects in the property that are known to the seller, notwithstanding the existence of a burden-shifting as is clause or disclaimer of warranties in the agreement. S Dev. Co. v. Pima Capital Mgmt. Co., 201 Ariz. 10, 31 P.3d 123 (App., 2001). A latent defect is defined as a hidden or concealed defect which could not be discovered by a reasonable inspection. Id. Examples of latent defects include foundation problems as well as plumbing and electrical issues. The decision in S. Development, was based upon the duty of good faith and fair dealing implied in all contracts. Id. If a seller knows of a material issue that is unknown to the buyer, the seller must disclose issue.
The failure to disclose a latent defect could result in seller’s liability on a theory of negligent disclosure. There is also potential liability for undisclosed repairs as fraudulent concealment if the repairs are not completed properly or are a symptom of a larger defect.
Sellers must understand that the as-is clause only limits liability for undisclosed defects – it does not eliminate liability.
The seller of real property in Arizona is must disclose latent defects in the property that are known to the seller, notwithstanding the existence of a burden-shifting as is clause or disclaimer of warranties in the agreement. S Dev. Co. v. Pima Capital Mgmt. Co., 201 Ariz. 10, 31 P.3d 123 (App., 2001). A latent defect is defined as a hidden or concealed defect which could not be discovered by a reasonable inspection. Id. Examples of latent defects include foundation problems as well as plumbing and electrical issues. The decision in S. Development, was based upon the duty of good faith and fair dealing implied in all contracts. Id. If a seller knows of a material issue that is unknown to the buyer, the seller must disclose issue.
The failure to disclose a latent defect could result in seller’s liability on a theory of negligent disclosure. There is also potential liability for undisclosed repairs as fraudulent concealment if the repairs are not completed properly or are a symptom of a larger defect.
Sellers must understand that the as-is clause only limits liability for undisclosed defects – it does not eliminate liability.
Arizona Court of Appeals Limits Subcontractor Liability.
In Yanni v. Tucker Plumbing, Inc., 233 Ariz.364 (App. 2013), the Arizona Court of Appeals held that a homeowner cannot pursue claims against subcontractors for the breach of the Implied Warranty of
Workmanship and Habitability. The homeowners argued that the Implied Warranty arises from the construction of the home and should extend to subcontractors because the actual construction is
performed by the subcontractors rather than the general contractor. The Court of Appeals disagreed, finding that the exceptions to the general privity requirement did not extend to subcontractors.
While this is good news for subcontractors, a subcontractor could still be liable for defective workmanship as a result of an indemnity claim brought by the builder/developer. The homeowner may also have a negligence claim against the subcontractor.
Workmanship and Habitability. The homeowners argued that the Implied Warranty arises from the construction of the home and should extend to subcontractors because the actual construction is
performed by the subcontractors rather than the general contractor. The Court of Appeals disagreed, finding that the exceptions to the general privity requirement did not extend to subcontractors.
While this is good news for subcontractors, a subcontractor could still be liable for defective workmanship as a result of an indemnity claim brought by the builder/developer. The homeowner may also have a negligence claim against the subcontractor.