the case of the disappearing lease

On July 22, 2010, the Washington Supreme Court by a vote of 5 to 4 issued its decision in Little Mountain Estates Tenant’s Ass’n v. Little Mountain Estates MHC, LLC, a case which should be of interest to the owners of Washington mobile/manufactured homes and parks.  The case involves a rather unique provision in leases which were offered by the Little Mountain Estates manufactured home park in Mount Vernon.  Essentially, the park owner offered 25-year leases which could be assigned, but if assigned the (remaining?) lease term would be reduced to between one and two years.  Since the Manufactured/Mobile Home Landlord Tenant Act (MHTLA) in RCW 59.20.060 (2) prohibits leases which require a tenant to waive her right to assign her lease, the Tenant’s Association argued that this weird assignment provision was unenforceable.  The court disagreed, albeit narrowly, and decided that this restriction on assignment was implicitly allowed by virtue of the “unless otherwise agreed” clause in RCW 59.20.090, and that the parties were allowed to structure an agreement which determined the term of the lease by reference to some formula or by reference to the happening of some event (i.e., the assignment).  Four members of the Court dissented, arguing that the “unless otherwise agreed” clause of RCW 59.20.090 refers to the term of the lease and not to the tenant’s statutorily-protected assignment right. 

The obvious slippery slope problem with this ruling is that–and here I’m tipping my hand–if a lease term can be reduced to one year upon assignment, it could by the same reasoning be reduced to one day.  Although this may be fine as a negotiated provision in a commercial lease, for example, it becomes mighty problematic where the legislature has shown especial care to protect mobile home and manufactured home tenant’s assignment rights.  It was not a willy nilly decision of the legislature to protect mobile/manufactured home tenant while remaining silent on the assignment rights of other types of tenants.  Rather, it was surely a recognition of the particular abuses to which these tenants are subject when they often own a significantly valuable mobile or manufactured home but not the land on which it sits.  

The majority sidestepped the slippery slope argument deftly, stating in a footnote:

This does not open the gates for a landlord to surreptitiously circumvent a
tenant’s right under the MHLTA to assign his or her rental agreement by adding an assignment provision that essentially extinguishes the lease.  Here we address an assignment provision that affects the term of the rental agreement; the MHLTA specifically provides that the parties can agree upon the term of the lease.  Furthermore, the assignment provision provides for, at minimum, a one-year term.  A one-year term is the default term set forth in the MHLTA.  See RCW 59.20.090(1); see also, RCW 59.20.050(1).  We have no occasion here to determine whether a shorter term might run afoul of the MHLTA or raise issues of unconscionability.    

Almost certainly, this leaves the door open for the case of the disappearing lease, part II. 

In fairness the majority opinion does raise some valid policy arguments in support of “creative” lease term structures, but ultimately fails by refusing to place some sort of limit on that creativity and protect the particularly vulnerable tenants of mobile and manufactured home parks.  Although the case on appeal was only dealing with the MHLTA claims, the Tenant’s Association still has Consumer Protection Act claims pending in the Superior Court (or did at the time the appellate opinion was filed)–arguing that the disappearing lease provisions were unfair and deceptive. 

Little Mountain Estates looks to be a rather tidy looking community with some pretty valuable manufactured homes. 

Little Mountain Estates -- Mount Vernon, Washington

Home in Little Mountain Estates Community

ninth circuit decides CERCLA case of first impression

On July 22, 2010, the United States Court of Appeals for the Ninth Circuit held that–for purposes of determining liability under the Comprehensive Environmental Response, Compensation and Liability Act (known as “CERCLA”), specifically, 42 U.S.C section 9607 (a)(1)–the ”owner” should be defined as the owner of the property at the time the cleanup costs are incurred.  The losing party in this case argued that “owner” should have been defined as the person owning the property at the time a lawsuit is initiated to recover cleanup costs from other parties.  The court in State of California Department of Toxic Substances Control v. Hearthside Residential Corporation pointed out that its analysis was necessary because the date from which ownership should be measured is not defined in CERCLA.  As you may have guessed, this case arose because two different parties owned the property at the time the cleanup was performed and at the time the recovery action was filed. 

In 1999, Hearthstone Residential Corporation bought an undeveloped parcel of wetland property known to contain PCB contamination.  In 2002, at the outset of Hearthstone’s cleanup efforts, it was determined that neighboring residential parcels were also contaminated with PCBs.  Hearthstone completed cleanup of its wetlands parcel in 2005 and promptly sold the property to the California State Lands Commission.  Meanwhile, in 2002-2003, the Department of Toxic Substances Control took it upon itself to clean up the neighboring contaminated residential properties.  In 2006, after Hearthstone had sold the wetlands parcel, the Department filed suit.  So, the court asked, who was liable as an “owner”, Hearthstone or the Lands Commission? 

The court ruled against Hearthstone, reasoning from a policy standpoint that Hearthstone’s position, if accepted, would undermine the policies of encouraging timely cleanup and encouraging settlement among the potentially responsible parties.  From the opinion: 

First, measuring ownership from the date that the recovery lawsuit is filed requires that a recovery lawsuit be filed.  A rule that produces a lawsuit in every case is the opposite outcome that CERCLA seeks to promote.

help! my landlord is in foreclosure. what are my rights?

This is a question I get a lot from tenants.  Since some of the laws have changed in the relatively recent past, and since the entire foreclosure milieu is in a state of flux right now, the following Q & A should provide a good starting point.  Remember, this is intended as general information and not as legal advice.  The facts and circumstances of your particular case may drastically change the application of the  law.

Is the foreclosure sale valid?

• First of all, RCW 61.24.040 requires that the notice of foreclosure sale, at least 90 days prior to the sale date, be posted in a conspicuous place on the property or be served on the occupants of the property. If the trustee cannot prove that the notice was properly posted on the property or served on you, then you may have a claim that the foreclosure action is ineffective as to you and all tenants and occupants whom the trustee did not properly post/serve.  In general, as soon as you learn that there is going to be a sale, you should immediately work to figure out the appropriate action.  Courts are in general not sympathetic to those who wait and wait before asserting their rights.  Also, after the foreclosure sale has happened, your options for relief become much more limited. 

Has the proper vacate notice been served?

• If the notice was properly posted or served, then federal law—Protecting Tenants at Foreclosure Act of 2009—provides you with a minimum of 90 days after* the sale in which to move.  Although the act is not specific on this point, it is important to keep paying your rent during this 90-day period—or if you don’t know who to pay rent to after the sale, make diligent efforts to determine who is entitled to receive your rent payments. Alternatively, even if you do not pay your rent, Washington law provides you with a minimum of 60 days after the sale in which to move. See RCW 61.24.146.  *The federal act does not specify that the notice must be given after the sale, only that the “new owner” must give the notice.  It is possible that the new owner-to-be may give the notice before the foreclosure sale and argue that it is valid.  In my opinion, this is gamesmanship that skirts the spirit of the law and therefore is a risky position to take in court.   

Are there any applicable exceptions to the 90/60 day notice protections?

• There are a few exceptions to the 90 day notice required by federal law.  You don’t get the protection if you are not a “bona fide” tenant (for example, the sister of the foreclosed-on owner. See the federal act for more details if you think the bona fide tenant exception may apply to you); if the mortgage being foreclosed on is not a federally-regulated mortgage (this is not common); or if you are the former owner of the foreclosed-on dwelling.  Also, you do not get the protection of the Washington 60-day notice if you commit waste (damage the property).

What if I have a lease that is longer than the 90 day period?

• If you have a written lease that doesn’t expire until well after the sale (i.e. more than 90 days), then you have a right under federal law to stay until the end of your lease term, as long as you keep paying your rent, except in situations where the new owner is going to personally occupy the home

What if a “private lender” is the one doing the foreclosure?

• If the lender who is foreclosing made its loan after you signed your lease (this is unlikely) then their foreclosure may not affect your lease rights.  Arguably, if a “private lender” not subject to federal mortgage regulation is foreclosing its loan, the new owner will not be subject to the 90-day notice requirement of federal law, but will still be subject to Washington’s 60-day notice requirement.   

 

What if the sale was a market sale, a “short sale” or “deed in lieu”, instead of a public auction?

• Keep in mind that if the house is simply sold privately in a market sale or “short sale” as opposed to a public foreclosure auction, the federal and state laws providing 90/60 days to move do not apply, but the good news is that the private sale does not cancel your lease, so you will continue to have whatever rights with the new landlord that you had with the old landlord.  If your landlord simply turned the keys over to the bank (called a “deed in lieu of foreclosure”), it is unclear whether the new owner, the bank, would be required to give the federal and state notices. 

How long do I have to move, once the notice period is over?

• If the new owner properly serves a 90 or 60 day notice on you and you have not moved out by the end of the notice period, then the new owner may start an eviction action against you.  Once you have been served with the eviction summons and complaint, the eviction action can take as little as 9-10 days before the sheriff’s eviction notice is posted on your door (although it could be a little longer, depending on how fast the landlord’s attorney gets the papers filed and how long it takes the sheriff to post the notice).  The sheriff’s notice will then give you three additional days in which to vacate.

Can I negotiate a lease or rental arrangement with the new owner?

• Oftentimes, yes.  Because the new owner wants to avoid the hassles and expense of serving the proper notices and pursuing an eviction action, not to mention the risk of having his new property damaged or neglected by a disgruntled tenant, the new owner is sometimes willing to negotiate different move-out timelines, payment of moving expenses, or new leases.  Remember that the new owner, if she is intending to use the property as a rental, may very well want to keep you as a tenant (especially if you have been diligent in payment of rent) rather than have a vacant property.  This is sometimes the case even if the new owner wants to sell the property, but anticipates it may be on the market a while.

Should I have an attorney review my case?

• Every case is different, and the above guide contains very general principles, so you should always seek the advice of an attorney to determine exactly how long you have before you can expect to be evicted, and what sort of terms you may be able to negotiate with the new owner.

state supreme court extends bona fide purchaser doctrine

On Thursday, June 24, 2010, the Washington State Supreme Court released its opinion in S. Tacoma Way v. State, expanding the age-old bona fide purchase doctrine as it relates to the sale of publicly held real estate.  In general, the bona fide purchaser doctrine–in the real estate context–gives bona fide purchaser status to a person who in good faith has paid valuable consideration for property without having notice of the adverse rights of another person.  Historically, at common law and through operation of our recording statutes, bona fide purchasers are held to have the superior right, as against those persons whose interests the bona fide purchaser had no notice of.  The doctrine is usually applied in cases where two parties have competing claims to some title in the real estate.  This could arise, for example, where two parties have been given deeds to the same parcel of land but only one party records its deed.  

In South Tacoma Way v. State, however, the court applied the doctrine in a novel situation.  In this case, the Washington State Department of Transportation mistakenly failed to properly notify potentially interested parties of a proposed sale of public land as required by RCW 47.12.063.  Hence, one interested party did not get notice of the sale until the property had already been sold to the high bidder.  The disgruntled potential buyer disputed the sale, arguing that the sale should be voided because the DOT had no authority to sell the property without the proper notice.  The winning bidder, Sustainable Urban Development #1, LLC, argued that “the sale should be upheld because, under the circumstances of this case, no evidence of fraud or collusion existed, that it had no actual knowledge of the State’s failure to comply with the statutory requirements, and that it paid the assessed value for the property.”  Ultimately, the court found these arguments persuasive and used the bona fide purchaser doctrine to support its ruling, noting that although the doctrine has usually been implemented to resolve a dispute between two title holders, the court has never limited the doctrine to that sort of situation.  Presumably, the aggrieved would-be bidder may have had a case against the DOT for damages, but that issue was not before the supreme court.

division II clarifies deed warranty law–somewhat

In Erickson v. Chase, on May 18, 2010, the Division II Court of Appeals for Washington issued an opinion which clarifies some of the law surrounding deed warranties–specifically, future warranties.  The court kindly set forth the three elements for establishing a breach and right to recover under a statutory deed warranty to defend: 

(1) a third party must assert a superior right to the property,
usually through a lawsuit that results in the grantee’s actual or constructive eviction;

(2) the grantee must properly tender defense to the grantor; and

(3) the grantor must refuse the tender. 

The court provided another clarification of existing law by ruling that, where a real estate contract is quit claimed and assigned to another party, the “quit claim” does not affect the deed warranties of the eventual fulfilment deed.  In other words, the deed warranties follow the assignment.  Neither of these holdings are very novel or shocking, but the court’s clarification and crystallization of existing law, if correct and well-reasoned, is always welcome.

“overcharge” not a necessary element of plaintiff’s RESPA claim

On Monday, June 21, 2010, the 9th Circuit Court of Appeals aligned itself with the 3rd and 6th “sister circuits” by deciding that an “overcharge” for title services was not a necessary element of Ms. Edwards’ Real Estate Settlement Procedures Act (RESPA) claim against First American Title Insurance Company for violations of RESPA’s “anti-kickback” provisions (see 12 U.S.C. 2607).  Although the plaintiff was not overcharged for the title services she received, her complaint was based on First American’s conduct in controlling competition by entering into exclusive agreements with individual title companies.  The court in Edwards v. First American Corporation noted:

These RESPA provisions are clear. A person who is charged for a settlement service involved in a violation is entitled to three times the amount of any charge paid. The use of the term “any” demonstrates that charges are neither restricted to a particular type of charge, such as an overcharge, nor limited to a specific part of the settlement service. Further, the term “overcharge” does not exist anywhere within the text of the statute. 

This decision should change the nature of the “controlled business arrangements” used by the large title insurers in Washington.  Interestingly, though, the 9th Circuit court did not award attorney fees to either party, nor explain why, so the case’s impact could be somewhat limited.  In this case, the plaintiff stood to be awarded something less than $2,000 for her trouble in bringing the case to the federal circuit court of appeals.

seattle city council adopts rental housing licensing and inspection ordinance

In an apparent effort to avoid the application of the new state law on rental housing inspections, Substitute Senate Bill 6459, the Seattle City Council has passed an ordinance, C.B. 116857, requiring Seattle landlords to obtain inspections and licenses before leasing properties to tenants, effective April 1, 2012.  The provision to which the Council is apparently looking to is section 2 (11) of the state law:

(11)As of the effective date of this section, a local municipality may not enact an ordinance requiring a certificate of inspection unless the ordinance complies with this section. This prohibition does not preclude any amendments made to ordinances adopted before the effective date of this section.

 While Seattle’s new ordinance is relatively specific in some areas, this is clearly an enactment designed to be amended later, after input by the various stakeholders–and the Council states as much in its resolution 312o21.