Presentation to: Real Estate Law Update December 6,

Presentation to: Real Estate Law Update December 6,

Presentation to: Real Estate Law Update December 6, 2018 Presented by: Kevin Gray Bradley Arant Boult Cummings LLP Attorney-Client Privilege. Legislative Update SB49 Authorizes new income tax credits through 2022 (unless further extended) with respect to voluntary assessments from homeowners and business owners that are members of Neighborhood Infrastructure Authorities Authorities exist to expedite improvement projects relating to: resurfacing streets; sidewalks; sewer installation; fire protection; domestic water service; underground utilities; curb and gutter; drainage improvements; paving and engineering and consulting costs. Ala. Code 11-71-1, et seq.

2 Legislative Update cont. HB90 Amends Ala. Code 6-5-248 with respect to the right of redemption on residential property. Section 6-5-248(h) requires a notice to mortgagor from mortgagee foreclosing residential property at least 30 days prior to the foreclosure date. The right of redemption does not begin to run until notice is given. Amended to provide that under no circumstances may a right of redemption be exercised later than one year after date of foreclosure. May produce proof of mailing as an affirmative defense to any action related to notice requirement. 3 Legislative Update cont. Act 2018-433; S.B. No. 230 Creates additional classes of community development districts and authorizes the sale of alcoholic beverages in one of these districts for on-premises and off-premises consumption. Adds subsections (m), (n) and (o) to 35-8B-1 to create additional classes of community development districts. May be located on private property; may consist of

golf courses, social clubs, dock and lake-front establishments, etc. 4 Case Law Update GHB Constr. & Dev. Co., Inc. v. West Alabama Bank & Trust, 2018 WL 4871133 (Ala. Sept. 21, 2018). April 8, 2015, Guin purchased real property located in Walker County. On the same day, Guin executed a promissory note and future advance mortgage in favor of West Alabama Bank & Trust secured by the property in the amount of $410,870. The bank did not advance any money to Guin on that day. April 9, 2015, Guin enters into a contract with GHB to build a house on the property. The record does not indicate the date on which materials were first delivered or construction commenced. On April 10, 2015, the bank recorded the mortgage in the probate records.

On October 16, 2015, the bank issued the first advance under the note to Guin in the amount of $105,000. 5 GHB Constr. & Dev. Co., Inc. v. West Alabama Bank & Trust, 2018 WL 4871133 (Ala. Sept. 21, 2018). On July 25, 2016, GHB submitted its final bill for the work completed. Due to nonpayment, it filed a verified statement of lien on December 20, 2016, and instituted a civil action on January 6, 2017, naming Guin and the bank. With respect to the bank, GHB sought a declaration that its lien had priority over the banks mortgage. The bank filed a motion to dismiss pursuant to Rule 12(b)(6), arguing that its mortgage had priority over GHBs lien because it was recorded before GHB delivered materials or commenced work on Guins house. GHB argued that the banks mortgage did not secure until the

first advance, which occurred after GHB commenced work. The trial court granted the banks motion. 6 GHB Constr. & Dev. Co., Inc. v. West Alabama Bank & Trust, 2018 WL 4871133 (Ala. Sept. 21, 2018). The only issue before us is whether it is possible for GHB to demonstrate that its materialmans lien is superior to [the banks] mortgage. It is undisputed that GHB did not deliver any materials to Guins property or begin construction of Guins house until after April 10, 2015. GHB argues that the banks mortgage lien was not created at the time of execution because it argues that the mortgage did not secure any indebtedness. Basically, GHBs position is that the

mortgage did not exist as a security instrument until the date of first advance October 16, 2015. GHB relies on Morvay v. Drake, 325 So. 2d 165 (Ala. 1976). Morvay did not concern a future advance mortgage. 7 GHB Constr. & Dev. Co., Inc. v. West Alabama Bank & Trust, 2018 WL 4871133 (Ala. Sept. 21, 2018). If the mortgage secured a promised but unconsummated loan from the mortgagee to the mortgagor, the trial judge is authorized to declare the mortgage void for failure of consideration. The rule of Morvay is clear: A mortgage that does not secure an actual debt may be declared void for failure of consideration. Court then recognizes that future advance mortgages are valid in Alabama. But, the Court states it has not discovered a single Alabama case

involving a future advance mortgage that did not initially secure some debt. The Court goes on to cite treatises and cases from other jurisdictions for the proposition that a future advance mortgage only takes effect as a lien from the time some debt or liability secured by it is created. Based on the rule set forth in Morvay, we conclude that a future advance mortgage does not create a mortgage lien until some indebtedness is incurred by the mortgagor under the future advance mortgage. 8 Case Law Update cont. Portersville Bay Oyster Co., LLC v. Blankenship, 2018 WL 4124504 (Ala. Aug. 29, 2018) Inverse condemnation and state immunity A landowner on waterfront property has a statutory right to plant and harvest oysters from the bottom in an area 600 yards from the shoreline in front of the property. (Ala. Code 9-12-22)

The Alabama Department of Conservation and Natural Resources grants shellfish aquaculture easements on state-owned submerged lands for the purpose of cultivating and harvesting shellfish, including oysters. Oyster company leased the rights from the landowner to harvest oysters from the bottom and entered into easement with the Department to raise oysters in cages above the area encompassed by one of the landowner leases. 9 Portersville Bay Oyster Co., LLC v. Blankenship, 2018 WL 4124504 (Ala. Aug. 29, 2018). While the leases were in effect, the Department contracted with a construction company to construct a breakwater and marsh for coastal protection in Mobile Bay. Undisputed public benefit. Sediment and silt removed and released during construction deposited on the oyster beds located in the easement and areas of leases.

Sediment and silt killed off a large percentage of companys oyster population. Oyster company files suit, naming construction company and Blankenship, Commissioner of the Department. Asserts claims of negligence, wantonness and nuisance against construction company and two claims of inverse condemnation against Commissioner. Trial court dismisses inverse condemnation claims, finding the Commissioner is entitled to immunity in his official capacity. 10 Portersville Bay Oyster Co., LLC v. Blankenship, 2018 WL 4124504 (Ala. Aug. 29, 2018). Dismissal pursuant to Rule 12(b)(6).

Art. I,14, Ala. Const. 1901 the State of Alabama shall never be made a defendant in any court of law or equity. A State official sued in his official capacity is entitled to the protection of State immunity from suit when the action is in effect one against the state. Phillips v. Thomas, 555 So. 2d 81 (Ala. 1989). Art. I,23, Ala. Const. 1901 contains an exception from State immunity based on the taking of property for public use. Inverse condemnation typically involves the taking by a governmental entity without invoking available statutory bases for such taking under which the property owner would have been entitled to just compensation. 11 Portersville Bay Oyster Co., LLC v. Blankenship, 2018 WL 4124504 (Ala. Aug. 29, 2018).

In inverse condemnation actions, a governmental authority need only occupy or injure the property in question; upon the property owner discovering the encroachment, the property owner has the burden of taking affirmative action to recover just compensation. Complaint alleges that the Department knew sediment and silt from the project could impact the areas embraced by the leases and easement. Leasehold interests can be taken by eminent domain, and therefore by reverse condemnation. Similarly, easements, another real-property interest allowing the use of a property held by the owner of the land, can be taken by eminent domain and therefore by inverse condemnation. 12 Case Law Update cont. Newman v. Skypark Properties, LLC, 2018 WL 2995728 (Ala. Civ. App. June 15, 2018).

Two actions involving boundary disputes between coterminous landowners. One filed in 2010, and the subsequent action in 2014. The 2010 action resulted in a finding that the Newmans had constructed improvements and adversely possessed a portion of Skyparks adjacent tract and into a strip of land described as a public right-of-way between the parties respective tracts and a public road. The Court entered on order adjusting the boundary line accordingly. Skypark filed the 2014 action, alleging that the Newmans had encroached on the revised boundary line with the construction of certain improvements. 13 Newman v. Skypark Properties, LLC, 2018 WL 2995728 (Ala. Civ. App. June 15, 2018).

The trial court held evidentiary hearings in 2015, 2016 and 2017. Issued an order in 2017 finding for Skypark, requiring the Newmans to remove all encroaching improvements and awarding Skypark $15,000 in damages. The Newmans appealed. The Court of Civil Appeals first instructed the parties to address whether any part of the trial courts judgment in the instant action or the 2010 action were void, citing two cases (Boles v. Autery, 554 So. 2d 959 (Ala. 1989) and Johnston v. White-Spunner, 342 So. 2d 754 (Ala. 1977)). The issue specifically dealt with joinder under Rule 19 and whether the county should have been a party in the 2010 action because it involved portions of a public right of way. Because the county was no a party, the Court of Appeals reversed the portion of the trial courts judgment related to the public right of way and remanded so the County could be joined. 14

Newman v. Skypark Properties, LLC, 2018 WL 2995728 (Ala. Civ. App. June 15, 2018). With respect to the trial courts finding that the Newmans had encroached the adjusted boundary line, the Court affirmed. Finding that the Newmans presented sufficiency of the evidence type arguments, the Court reiterated that when boundary line disputes are tried ore tenus, the trial courts decree is presumed to be correct and need only be supported by credible evidence. If, under any reasonable aspect of the case, the decree is supported by credible evidence, it should be confirmed. Finally, as to the $15,000, the Court reversed because Skypark failed to present any testimony regarding economic damages to its property resulting from the encroachment.

In the absence of actual damage to property resulting from a trespass, the owner of the property is entitled to only nominal damages. 15 Case Law Update cont. G.R.L.C. Trust v. Garrison Decatur Crossing, LLC, 2018 WL 2996982 (Ala. June 15, 2018). Case involves Ala. Code35-4-6 and35-4-51.1. Section 35-4-6 provides among other things that a lease for a term longer than 20 years is void for the excess over 20 years unless the lease or a memorandum is recorded in the probate records within one year after execution of the lease. Section 35-4-51.1 sets for the requirements for the memorandum of lease: (1) the names of the lessor and lessee; (2) the term of the lease; (3) options of the lessee to renew or extend the term; and (4) the specific legal description or a survey or plot plan. Parties entered into a 50-year ground lease. The ground tenant assigned its interest to Garrison Decatur Crossing and timely

recorded a Memorandum of Lease. BUT, while the Memorandum referenced an Exhibit A setting for the legal description, Exhibit A was not attached to the recorded Memorandum. 16 G.R.L.C. Trust v. Garrison Decatur Crossing, LLC, 2018 WL 2996982 (Ala. June 15, 2018). Garrison Decatur sued the Trust (the landlord under the ground lease), seeking reformation of the Memorandum to include Exhibit A and a declaration that the Memorandum as reformed related back to the date of its original execution. The Trust counterclaimed, seeking a declaration that the ground lease was void beyond 20 years. Remember, the Trust entered into the Memorandum to begin with. The trial court granted summary judgment in favor of Garrison Decatur and reformed the Memorandum on the basis of mutual

mistake. The Trust appealed and the Supreme Court affirmed. 17 G.R.L.C. Trust v. Garrison Decatur Crossing, LLC, 2018 WL 2996982 (Ala. June 15, 2018). The Supreme Court stated: It is well settled that a trial court may exercise its equitable powers to reform a written instrument that, through mutual mistake, does not truly express the intention of the parties. See Ala. Code35-4-153. A mutual mistake exists when the parties have entered into an agreement, but the [instrument] does not express what the parties intended under the agreement. See Daniels v. Johnson, 539 So. 2d 259, 260 (Ala. 1989). The party seeking to reform an instrument on the basis of a mutual

mistake bears the burden of proving by clear, exact, convincing and satisfactory evidence that the intention he seeks to substitute was that of both parties. See Beasley v. Mellon Fin. Servs. Corp., 569 So. 2d 389, 394 (Ala. 1990). 18 G.R.L.C. Trust v. Garrison Decatur Crossing, LLC, 2018 WL 2996982 (Ala. June 15, 2018). The Court rejected the Trusts argument that there was not a mutual mistake. Two primary facts: (1) the Trust had signed the Memorandum clearly providing for the legal description to be attached as an exhibit; and (2) the Trust had signed an estoppel certificate in favor of Wells Fargo acknowledging that the lease had a term of 50 years and was in full force and effect. Interesting note: Justice Sellers authored the opinion of the Court and also authored an opinion concurring specially. The concurring opinion states that [f]or reasons that can be attributed only to greed, the Trust argues that the memorandum of lease failed because of the omission of Exhibit A and was void . Not to leave anyone out, he writes with respect to Garrison Decatur: this matter could have been handled expeditiously had [Garrison

Decatur] simply attached Exhibit A to the memorandum of lease, paid the minimum filing fee , and re-recorded the memorandum of lease . 19 Case Law Update cont. Morrow v. Pake, 2018 WL 1886769 (Ala. Civ. App. Apr. 20, 2018). Uniform Residential Landlord and Tenant Act case. Landlord initiates unlawful detainer action in district court, filing Alabama Unified Judicial System Form C-59. Pre-printed, fill in the blank Statement of Claim for Eviction/Unlawful Detainer. Did not fill in any of the blanks requesting money damages, and later sent a letter to the district court asking the court to dismiss the complaint because the tenant had moved out.

The district court dismissed the action, apparently with prejudice. The tenant then sued the landlord in district court, alleging various violations of the URLTA. The landlord filed a motion to dismiss on the basis that the tenants claims were compulsory counterclaims under Rule 13(a) and therefore barred by the doctrine of res judicata. 20 Morrow v. Pake, 2018 WL 1886769 (Ala. Civ. App. Apr. 20, 2018). Tenant appealed to circuit court. Landlord filed an answer generally denying the claims, again asserting they were barred by res judicata, and asserting a counterclaim for sanctions under the Alabama Litigation Accountability Act. Court identifies an exception contained in the rule regarding compulsory counterclaims: [T]he pleader need not state the claim if . . . (2) the opposing party brought suit upon his claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim . . ..

Citing the Committee Comments: The rule does not apply to the bar to subsequent action if the defendant is before the court only by in rem jurisdiction. 21 Morrow v. Pake, 2018 WL 1886769 (Ala. Civ. App. Apr. 20, 2018). In unlawful detainer actions, recovery of rent is a mere incident to the recovery of possession, making the proceeding quasi in rem. Krasner v. Gurley, 29 So. 2d 224, 227 (1947). At most, Landlord sought only possession of the property and unpaid rent. As a result, the relief sought in the landlords complaint invoked only the district courts quasi in rem jurisdiction. Based on Rule 13(a), the tenants claims were not barred by the doctrine of res judicata.

22 Case Law Update cont. Autery v. Pope, 2018 WL 1559789 (Ala. Civ. App. Mar. 30, 2018). Landlord and tenant; implied contract; unjust enrichment. Son sued his mother and step-father because they failed to deed him certain property that the son and step-father had improved. The trial court found there was no binding promise to convey the property to son, but awarded son $29,415.39 for money he spent improving the property. Mother and step-father appeal and the Supreme Court reverses with instructions to render judgment in favor of appellants. 23

Autery v. Pope, 2018 WL 1559789 (Ala. Civ. App. Mar. 30, 2018). In the absence of an express agreement, a tenant who voluntarily makes improvements to leased property for its own convenience or accommodation cannot recover from the landlord the value of the improvements under the theory of unjust enrichment. A tenant may recover the reasonable value of improvements upon the property of the landlord if the tenant had been induced to make the improvements by fraud, duress, undue influence or mistake. Benedict v. Little, 264 So. 2d 491, 496 (Ala. 1972). The remedy of restitution is designed to address the detrimental effects caused by unjust enrichment. Utah Foam Prods., Inc. v. Polytec, Inc., 584 So. 2d 1345,1351 (Ala. 1991). The amount of recovery on an unjust enrichment claim is limited to the value of the benefit gained by the defendant, regardless of the extent of the detriment to the plaintiff. American Family Care, Inc. v. Fox, 642 So. 2d 486, 488 (Ala. Civ. App. 1994). 24

Autery v. Pope, 2018 WL 1559789 (Ala. Civ. App. Mar. 30, 2018). The measure of the defendants liability is limited to the value received, whether or not it is equal to, less than, or greater than the plaintiffs loss. Opelika Prod. Credit Assn Inc. v. Lamb, 361 So. 2d 95, 99 (Ala. 1978). Son only presented evidence of the costs of the renovations; not evidence of the benefit received by the defendants. The defendants testified that the renovations did not increase the value of the property or make it more marketable. 25 Case Law Update cont. EvaBank v. Traditions Bank, 2018 WL 797542 (Ala. Feb. 9, 2018). Mortgages; Estoppel.

The Robertsons, customers of EvaBank, entered into a purchase agreement to sell their property to Williams. Traditions Bank was financing Williams purchase. Mr. Robertson requested a payoff of the loans secured by mortgages on their property from EvaBank. Instead of providing the payoff for the Robertsons, EvaBank provided the payoff for a Roberson; a different person, different loan and secured by different property. The transaction closed, Traditions delivered a payoff check to EvaBank, and EvaBank applied it to the Roberson loan. 26 EvaBank v. Traditions Bank, 2018 WL 797542 (Ala. Feb. 9, 2018).

When the Robertsons loan became past due, EvaBank realized the problem. It informed Traditions that it would not release the mortgages secured by the Robertsons property until the Robertsons loans were satisfied. Traditions sued EvaBank alleging slander of title and seeking a declaratory judgment that it was the first lienholder on the property. EvaBank counterclaimed seeking a declaration that its mortgages were entitled to priority. Trial court granted summary judgment in favor of Traditions, in part, based on equitable estoppel. Essential elements of estoppel: (1) the person against whom estoppel is asserted, who usually must have knowledge of the facts, communicates something in a misleading way, either by words, conduct, or silence, with the intention that the communication will be acted on; (2) the person asserting estoppel, who lacks knowledge of the facts, relies upon that communication; and (3) the person relying would be harmed materially if the actor is later permitted to assert a claim inconsistent with his earlier conduct. General Elec. Credit Corp. v. Strickland Div. of Rebel Lumber Co., 437 So. 2d 1240, 1243 (Ala. 1983). 27

EvaBank v. Traditions Bank, 2018 WL 797542 (Ala. Feb. 9, 2018). Court reverses summary judgment and remands, finding that Traditions did not establish the elements of equitable estoppel. Factors: EvaBank mistakenly provided the wrong payoff, therefore, it could not have intended to induce reliance; Traditions had numerous documents identifying the Robertsons, the address of the property, the dates of the two mortgages and the amount of the loan secured by the two mortgages; The payoff statement EvaBank provided identified a different borrower (Roberson, not Robertson), contained a different property address for property located in a different county and did not reflect the amount of the loan. The party invoking estoppel must have in good faith been ignorant of the facts at the time a representation is made to him, and must have acted with diligence to learn the truth. 28

Case Law Update cont. Hubbard v. Cason, 2018 WL 670470 (Ala. Civ. App. Feb. 2, 2018). Challenders conveyed to Hubbard 40 acres and a roadway. The Morrows had conveyed the roadway to the Challenders by virtue of an instrument that purported to be a deed. The deed described the land conveyed as: A RIGHT OF WAY AND EASEMENT for road construction, maintenance, ingress, egress, utility construction . Hubbard filed suit against adjacent landowners the Casons, asserting ownership of the roadway and seeking an injunction to prohibit the Casons from using the roadway to access their property. Talladega Circuit Court found that Hubbard had only an easement and that the Casons were entitled to a 20 foot portion for joint ingress and egress. 29 Hubbard v. Cason, 2018 WL 670470 (Ala. Civ. App. Feb. 2,

2018). The granting clause in a deed determines the interest conveyed, and unless there is repugnancy, obscurity or ambiguity in that clause, it prevails over introductory statements or recitals in conflict therewith, and over the habendum, too, if that clause is contradictory or repugnant to it. Moss v. Williams, 822 So. 2d 397 (Ala. 2001) (citations omitted). Where the granting clause designates no particular estate, any intent to overcome the statutory presumption that the conveyance is of fee-simple estate must of necessity be found in lucid, unambiguous language used to express it, rather than statements merely contradictory or repugnant to that found in the granting clause. Id. The deed from the Morrows to the Challenders described the interest conveyed as A RIGHT OF WAY AND EASEMENT. As grantee of the Challenders, Hubbard could not have fee simple title because a landowner cannot convey a greater interest in property than he possesses. Chancy v. Chancy Lake Homeowners Assn, 55 So. 3d 287, 297 (Ala. Civ. App. 2010).

Court also found that Cason established a prescriptive easement by adverse possession. 30

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