Introduction to Property II

1. Introduction to Property II • Co-Ownership and Marital Interests • Landlord-Tenant Law • Private Sector Control of Land Use through Easements and Other Servitudes • Judicial Control of Land Use through Nuisance Law • Legislative Control of Land Use Through Zoning and Other Mechanisms • Eminent Domain and the Problem of Regulatory Takings Donald J. Weidner

2. Introduction to Forms of Concurrent Ownership Concurrent ownership can be thought of in terms of the vehicles through which two or more individuals can own a property interest—any kind of property interest. Tenants in common may, for example, own a fee, a leasehold estate or a piece of personal property. • We shall consider the following forms of concurrent ownership: • tenancy in common • joint tenancy • tenancy by the entirety • tenancy in partnership Donald J. Weidner

3. Introduction to Forms (Cont’d) • Forms of co-ownership we shall not consider in this course • limited partnership • corporation • limited liability company • trust • Each form involves two kinds of issues: • What are the rules that govern the relations among co-owners? • What are the rules that govern relations between co-owners (or the co-ownership vehicle) and third parties? Donald J. Weidner

4. Tenancy In Common • Tenancy in Common • “sole and several” tenancy without the right of survivorship. • Have separate but undivided interests in the property. • The interest of each is descendible and may be conveyed by deed or will. • There are no survivorship rights between Ts/C. Donald J. Weidner

5. Tenancy in Common (cont’d) • Suppose my mother dies and leaves her condo to my sister and me, saying nothing about the form of co-ownership? • What form is created? • How do I tell my sister what she has? • Recall the text: “Each tenant in common owns an undivided share of the whole.” • In the case of a condo, what do you think is “the whole?” • What if we both want to use it on the same week? • Note the range of practical problems that can arise almost immediately. Donald J. Weidner

6. Tenancy in Common (cont’d) • Suppose my sister and I are tenants in common who conclude that we cannot satisfactorily arrange our mutual undivided ownership of the whole. • My sister seeks your help. • What do you advise her are her rights? Donald J. Weidner

7. Joint Tenancy • Form of concurrent ownership in which each joint tenant is considered to be the owner of an undivided part and of the whole estate. • Per my et per tout. • Suppose my mother dies and leaves her condo to my sister and me as joint tenants, and not as tenants in common. • Each of is seized per my et per tout. • What happens if my sister and I take the condo, own harmoniously, then I die? • Does my half “pass” to my sister? • The answer has been stated in terms of the entity theory of the joint tenancy. • I vacate the entity. Donald J. Weidner

8. Hypothetical: My Mom • Assume that Mom has two children, S, age 58, and D, age 42. • M wants to transfer the condo so that D will own the condo outright when S dies, which is expected to be long before the death of D. • Is it not clear that Mom’s intent will be realized by conveying the condo “to S and D as joint tenants with right of survivorship, and not as tenants in common?” Donald J. Weidner

9. My Mom (cont’d) • How Fragile the “Right” of Survivorship • What is clear is that Mom’s intent may not be carried out. • What are the things that might happen to defeat her intent? • S might file an action for partition • S might convey S’s interest to a third party • S’s creditors may pursue his interest • What alternatives might more clearly secure mom’s goal? Donald J. Weidner

10. Possible Alternatives for Mom:What do you advise her to do?) • Convey: “To S and D for their joint lives, remainder to the survivor.” --Creating a tenancy in common for their joint lives with a contingent remainder in fee to the survivor. • Or convey: “To S and D and their heirs, but if S predeceases D, then to D and her heirs, but if D predeceases S, then to S and his heirs.” --Creating a tenancy in common in fee, with an executory interest in the survivor. Donald J. Weidner

11. Joint Tenancy (cont’d) • Problems of Creation • The common law required that the interests of joint tenants be equal in all respects. • “Four unities” were considered essential to the creation of a joint tenancy: • Unity of time—the interest of each joint tenant must be acquired at the same time • Unity of title—each joint tenant must acquire by the same instrument or adverse possession. • Unity of interest—each joint tenant must have an equal undivided interest, even as to duration. • Unity of possession—each joint tenant must have a right to possess the whole. Donald J. Weidner

12. More on Joint Tenancies • At common law, if the 4 unities do not exist, a joint tenancy is not created. • Rather, a tenancy in common is created. • Statutes in some states abolish the requirement of the 4 unities and provide that a joint tenancy may be created by an explicit statement of intent to do so. • Joint tenants can change their interests by “severing” the four unities. • Joint tenants can agree that they will hold as tenants in common rather than as joint tenants. • An individual joint tenant my unilaterally sever the interest. • As a general proposition: the creditor of any person can attach that person’s property rights. Donald J. Weidner

13. Tenancy By The Entirety • At common law, a tenancy by the entirety can only be created in husband and wife. • Rare exceptions today, see Hawaii’s “reciprocal beneficiaries” statute • Embraces same-sex couples • Also embraces parent and child • 5 unities are traditionally required: • time, title, interest, possession (as in a joint tenancy); plus • unity of marriage. Donald J. Weidner

14. Tenancy by the Entirety (cont’d) • Tenants by the entirety are considered to hold as one person. • Neither has a separate undivided interest in the underlying property • Each is said to be seised per tout et non per my. • As a result, neither can unilaterally defeat the survivorship right of the other (except by divorce). • Divorce terminates the tenancy by the entirety • usually resulting in a tenancy in common. Donald J. Weidner

15. Some Policies External to the Doctrinal Logic • At common law, there was a policy against dividing land into very small parcels. • One consequence was presumption in favor of the creation of a joint tenancy rather than a tenancy in common. • Today, in most states, the presumption is reversed. • often by statute • some states expressly require mention of survivorship to create a joint tenancy • except, in some states, in the case of a conveyance to a husband and wife. • Can you see why there might be a modern presumption in favor of a tenancy in common as opposed to a joint tenancy? Donald J. Weidner

16. Problems and Note • Problem 1 at p. 342: • O conveys Blackacre “to A, B, and C as joint tenants.” • A subsequently conveys his interest to D. • B dies intestate, leaving H as his heir. • Consider first the state of the title upon O’s conveyance. • Consider next the state of the title after, and as a result of, A’s conveyance to D. • What result is suggested by the logic of the 4 unities? • What result is suggested from the intent of the parties? • Consider finally the effect of B’s death intestate. • What result if B had died leaving a will devising B’s interest to X? Donald J. Weidner

17. Problem 3, p. 342. • A and B are planning to be married. Two weeks before the ceremony, they buy a house and take title in “A and B as tenants by the entirety.” • Several years after the marriage, A moves out of the house and conveys his interest to his brother C. • C brings an action to partition the property. • What result? Donald J. Weidner

18. Problem 3 (cont’d) • What was the state of title at the time of the initial conveyance? • According to the logic of the four unities? • How do you implement the parties intent? • What of the presumption of tenancy in common? • Is it overcome by a showing of contrary intent to have a right of survivorship? • Statutes may play a role • What effect did the marriage have? • Is the law of equitable conversion relevant? Donald J. Weidner

19. Problem 3 (cont’d) • Equitable conversion: if there is a specifically enforceable contract for the sale of land, equity regards as done that which ought to have been done. • The buyer is viewed in equity as the owner from the date of the contract. • The seller has a claim for money secured by a vendor’s lien. • The seller is said to own legal title as trustee for the buyer • Ex ante, how would you accomplish the goal of A and B? • As their lawyer, ask: “How do I help them?” Donald J. Weidner

20. Note 4 at 342 • Conveyance to grantees, “jointly, as tenants in common, with equal rights and interest in said land, and to the survivor thereof, in fee simple . . . . To Have and to Hold the same unto the said parties hereto, equally, jointly, as tenants in common, with equal rights and interest for the period or term of their lives, and to the survivor thereof at the death of the other.” • What has been created? Donald J. Weidner

21. HYPO: A conveys Abeleacre “to A and B as joint tenants, and not as tenants in common.” Assume A dies first and A’s heirs want to establish that they have an undivided ½ interest in Blackacre. What are A’s heirs likely to argue in opposition to a joint tenancy? • Based on the 4 unities? • That an owner cannot transfer his ownership to himself – it was there all along. • Therefore, the conveyance communicated only an undivided ½ interest to B. • Therefore, A and B did not get their interests (1) by the same document or (2) at that same time. • Therefore, the unities of time and title are lacking, and no joint tenancy is created. • Based on intent? • Based on statute? Donald J. Weidner

22. Ableacre Hypo (cont’d) • B’s Arguments to find a joint tenancy. • Clear intent of the grantor. • Theory: the creation of the joint tenancy is a conveyance to an entity. • Therefore, it is not like A conveying directly to himself but only indirectly through the entity. • The application of the 4 unities in this case places an excessive emphasis on formalism. It would have been entirely permissible for A to have conveyed to a Straw, who then immediately conveyed to A and B. • That is, no fundamental policy was being violated by the creation of a joint tenancy. • In general, the law should avoid imposing unnecessary transactions costs. Donald J. Weidner

23. Avoidance of Probate • Joint tenancies are particularly popular and useful to avoid probate. • Probate is the judicial supervision of the administration of a decedent’s property that passes to others at the decedent’s death. • The probate court appoints an “administrator” or “executor” who collects the decedent’s assets, determines and pays liabilities, including taxes, and distributes or changes title to the remaining property. Donald J. Weidner

24. Avoidance of Probate (cont’d) • Probate can be costly and lengthy. • Under the theory of a joint tenancy, no interest theoretically passes on the death of a joint tenant. Therefore, there is no property that must “pass” through probate. • In effect, we adhere to the fiction that nothing passes • because it lowers transaction costs throughout our society. Donald J. Weidner

25. A Word on Taxes • The entity theory conclusion that nothing passes is not useful from the point of view of a government seeking to raise revenue from an estate tax. • For federal estate tax purposes, when a joint tenant dies, her share of the jointly held property is subject to taxation. • If the joint tenants are husband and wife, one-half is subject to taxation when one spouse dies • although no taxes are paid because the amount passing to the surviving spouse qualifies for the marital deduction and passes tax-free. • If the joint tenants are not husband and wife, when one dies, the portion of the value of the jointly held property attributable to the consideration furnished by the decedent is subject to federal estate taxation. • Under most state inheritance laws, the fractional share of a joint tenancy owned by the decedent is taxed; • That is, state laws do not follow the federal approach of looking at who furnished the consideration. Donald J. Weidner

26. RIDDLE v. HARMON Wife, in the process of planning her estate, discovers that her husband takes all as surviving joint tenant if she dies first. • Her intent: Terminate the joint tenancy so she can dispose of her interest by will (so she can “devise” it). • Her means: • a) prepare a grant deed from herself as joint tenant to herself as tenant in common, reciting in the deed its purpose to terminate (“sever”) the joint tenancy; and • b) prepare a will disposing of her interest. Donald J. Weidner

27. Riddle v. Harmon (cont’d) • ISSUE: Is a conveyance to a straw person required to sever a joint tenancy? • W was advised by counsel. In light of • what you know, or • in light of the earlier case of Clark v. Carter (saying the straw person was indispensable [because one can not convey property to oneself]), • was her counsel negligent? • Recall, the trial court held: NO SEVERANCE • What might the 1955 California statute (fn. 5, p. 346) have said about this case? (13 yrs. before Clark v. Carter). Donald J. Weidner

28. RIDDLE v. HARMON (cont.) • Cal. Civil Code Sec. 683(1955) provides: “A joint interest is one owned by two or more persons in equal shares, by a title created by a single will or transfer, when expressly declared in the will or transfer to be a joint tenancy, or by transfer [a] from a sole owner to himself and others, or [b] from tenants in common or joint tenants to themselves or some of them, or [c] to themselves or any of them and others, or [d] from a husband and wife, when holding title as community property or otherwise to themselves and others or to one of them and to another or others, when expressly declared in the transfer to be a joint tenancy, or [e] when granted or devised to executors or trustees as joint tenants.” Donald J. Weidner

29. Riddle v. Harmon (cont’d) • What did Riddle v. Harmon say about the requirement that there be “two to transfer?” • Is Riddle v. Harmon, then, an enlightened opinion? • Setting aside formalities from the time of livery of seisin • “Common sense as well as legal efficiency dictate that a joint tenant should be able to accomplish directly what he or she could otherwise achieve indirectly by the use of elaborate legal fictions.” Donald J. Weidner

30. Riddle v. Harmon (cont’d) • Stated differently, does Riddle’s “enlightened” approach reach the wrong result? • Burke said the wife was “subject to ethical criticism” and that her approach was “stealthy” • Is it enlightened to facilitate behavior like hers? • Should a single-party severance instrument be effective: • without notifying the other joint tenant; • without notifying any third party; and • without recordation? • Are H and W in a fiduciary relationship? Donald J. Weidner

31. Notice And Commitment • Riddle v. Harmon allows severance by conveyance to one’s self (without a conveyance to a straw) to permit a J/T to become a T/C who may then devise her interest • Why not simply permit a J/T to directly devise her interest (eliminate the unnecessary paperwork entailed in the formality of the conveyance to one’s self, arguably reducing transaction costs even further)? • To preserve a device to avoid probate? • To avoid questions about the intent of a will? • a general devise of all real property? • a residuary clause? Donald J. Weidner

32. Was it ethical to help the “unethical,” “stealthy” client? • Model Rule of Professional Conduct 1.2(d): “A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.” • The Model Rules also provide: “’Knowingly,’ ‘Known,’ or ‘Knows’ denotes actual knowledge of the fact in question. A person’s knowledge may be inferred from circumstances.” Donald J. Weidner

33. RECORDING • Should a deed such as the wife used in Riddle v. Harmon be effective without recordation? • California statute provides that a severance of a joint tenancy of record is effective against the right of survivorship of the non-severing joint tenant only if either: • an instrument severing the joint tenancy is recorded prior to the death of the severing joint tenant; or • the severing instrument is executed and acknowledged before a notary public within 3 days before the death and recorded within 7 days after the death of the severing joint tenant. Donald J. Weidner

34. Indestructible Right of Survivorship • Riddle v. Harmon concludes by emphasizing that it does not eliminate the three basic ways to create an indestructible right of survivorship: • by a joint life estate with contingent remainder in fee to the survivor; • by a tenancy in common in fee simple with an executory interest in the survivor; or • by a fee simple to take possession in the future. Donald J. Weidner

35. Deed Fee Simple Subject to Condition Subsequent Borrower Lender Lender’s fee ends ONLY if borrower pays everything off exactly on time EVOLUTION OF PROTECTION OF MORTGAGORS • Stages to Present • Defeasible fee enforced according to its terms Donald J. Weidner

36. Evolution of Mortgage Law (cont’d) • Equity relieved a borrower in special circumstances (part of an equity court’s general jurisdiction to grant relief from a forfeiture). • Special circumstances were always found: • Equity of Redemption became an estate in land. • Rule developed: a contemporaneous waiver of the equity of redemption is unenforceable. • The procedure of strict foreclosure was created to preserve for the lender the value of the conveyance as a security. • The strict foreclosure decree said simply: pay late or take nothing. Donald J. Weidner

37. Evolution of Mortgage Law (cont’d) • The procedure of foreclosure by judicial sale was created to add some protection for the borrower. The resulting decree can say: • The borrower has a right to redeem from the mortgage (pay it late). • If the borrower can not pay up, the property will be sold to pay the lender the lender’s due and give the borrower any surplus. • If the sale proceeds are insufficient to pay the lender the lender’s due, the lender is entitled to a deficiency judgment. • Many states have added a statutory right to redeem from the foreclosure sale. • Maitland states that the history of the mortgage deed “is one long suppresio veri et suggestio falsi.” Donald J. Weidner

38. SELLS for $100,000 DEED $10,000 cash Bob & Betty Byar Seller $75,000 Note 1st Mortgage to secure $75,000 note $75,000 BANK 2nd Mortgage to secure $15,000 forbearance BANK Byars default on bank loan. Bank forecloses. The property is sold for $60,000. How is this $60,000 distributed? Suppose Byars keep paying on the Bank loan but default on the 2nd mortgage to seller. What are the rights of the 2d mortgagee? Donald J. Weidner

39. 3 BASIC THEORIES OF MORTGAGES • Title Theory: The mortgage conveys title (in accordance with the traditional language in the mortgage instrument). • Intermediate Theory: No matter what the mortgage states, title does not pass at the execution of a mortgage • However, title does pass automatically on default. • Lien Theory: No matter what the mortgage states, a mortgage is nothing but a lien. • What is a lien? • The theory of a mortgage came to have little predictive value. • For example: Assume there is a casualty insurance policy that states that it ends if the insured transfers the title. The insured executes a mortgage. There is a casualty. In a title theory jurisdiction, has there been a transfer of title that ends the insurance policy? Donald J. Weidner

40. Harms v. Sprague • In 1973, William and brother John bought land as joint tenants. • Without William knowing, brother John executed a mortgage on John’s interest in the joint tenancy • The mortgage was to secure the payment of a note to purchase the Simmons property with his friend Sprague • The mortgage was executed to the Simmons • John and Sprague purchased the Simmons property and moved into it. • December 10, 1981, John died, devising Sprague his entire estate. • December 29, 1981, the mortgage to the Simmons was recorded. • Sprague claims the mortgage severed the joint tenancy and he takes John’s half subject to the mortgage. Donald J. Weidner

41. HARMS v. SPRAGUE (cont’d) Surviving J/T William and his brother John were J/Ts. Sprague was the devisee of brother John. K to buy Buyer Sprague Joint Tenants William Harms John Harms Seller Simmons K to sell RO $18,000 cash $7,000 note (w/John Harms) W/out Wm.knowing John Harms Executes $7,000 note with Sprague to Simmons 6/12/81 M on his ½ interest Note: “the principal sum of $7,000 was to be paid from the proceeds of the sale of John Harms’ interest in the joint tenancy property, but in any event, no later than 6 months from the date the note was signed.” Donald J. Weidner

42. 5 ½ months after execution M is recorded 12/29/81 John Harms moved on to the Simmons property with Sprague John Harms died, devising Sprague his entire estate (all real and personal property) Sprague 12/10/81 1. Did the mortgage by one joint tenant sever the joint tenancy? 2. If not, did the mortgage nevertheless survive the death of the mortgagor? Donald J. Weidner

43. Harms v. Sprague (cont’d) • Who is suing whom and for what? • William seeks to quiet title, naming as defendants: • His deceased cotenant’s devisee; and • His deceased cotenant’s alleged mortgagee. • As to the severance issue: • In what direction are you taken my an application of the logic of the 4 unities? • In what direction are you taken by an examination of the intent of the parties? • Court says that an “involuntary” severance of any of the 4 unities will sever the joint tenancy. • How do you mesh the logic of the 4 unities with the theory of a mortgage? Donald J. Weidner

44. Harms v. Sprague (cont’d) • What happens if there is execution under a judgment lien and a judicial sale of the interest of a joint tenant? • Is it not clear that the sale severs the joint tenancy? • No, it is not clear. • Indeed, it is not so: for this purpose, “there would be no conveyance until the redemption period had expired without a redemption.” • “A lien on a joint tenant’s interest in property will not effectuate a severance of the joint tenancy, absent the conveyance by a deed following the expiration of a redemption period.” Donald J. Weidner

45. Harms v. Sprague (cont’d) • Is “no severance” the right result? Hasn’t much more happened here than in the first case of a more secret severance? What did the parties intend? • Given no severance, such that surviving joint tenant takes pursuant to the “right of survivorship,” does he take the deceased joint tenant’s ½ interest subject to the mortgage? • What is the answer of the court and why? Donald J. Weidner

46. Harms v. Sprague (cont’d) • The court responds with what sounds like the entity theory of the joint tenancy: • “A surviving joint tenant succeeds to the share of the deceased joint tenant by virtue of the conveyance which created the joint tenancy, not as the successor of the deceased. The property right of the mortgaging joint tenant is extinguished at the moment of his death.” • Nothing passes from one cotenant to another • The deceased simply vacates the entity • This is the same reasoning that prevents a joint tenancy from being viewed as an invalid testamentary transfer. Donald J. Weidner

47. Harms v. Sprague (cont’d) • The joint tenancy defeated Sprague, even though Sprague was the devisee of the deceased joint tenant’s entire estate. • Is this the right result? • From the point of view of the estate of the deceased joint tenant? • From the point of view of that joint tenant’s mortgagee? • Should the lender take the risk of losing security if one of the joint tenant’s does not agree to the mortgage? • Some cases hold that the surviving joint tenant takes the decedent’s ½ subject to the mortgage. Donald J. Weidner

48. Statute in Harms v. Sprague • What is the effect of the statute at p. 355? • “When any real estate . . . subject to an encumbrance . . . is specifically bequeathed or passes by joint tenancy with right of survivorship . . . the legatee [or] surviving tenant . . . takes it subject to the encumbranceandis not entitled to have the indebtedness paid from other real or personal estate of the decedent.” Donald J. Weidner

49. Heydon’s Case (1584) on statutory construction • What was the common law before the making of the Act? • What was the mischief and defect for which the common law did not provide? • What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth? • The true reason for the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions to continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico. Donald J. Weidner

50. More on the Harms Statute • The common law before the making of the Act: • A specific devisee of mortgaged property is entitled to have the mortgage paid off (“exonerated”) out of the residuary estate. • The mischief and defect: • the maker of the will probably only intended to leave the specific devisee the net equity in the property. • The remedy: • Provide that the right to exoneration does not exist • The construction that will advance the remedy • Hold that, in either situation, the specific beneficiary is only entitled to the net equity in the property, not to its value? • But this only applies if the mortgage survives? • That is, if the real estate was subject to the encumbrance [as opposed to the interest of a deceased joint tenant] Donald J. Weidner