Douglas N. Owens P.S.

Attorney At Law -  Your Legal Resource
360-299-3990
 dougowens@seattlerelawyer.com
 1610 Commercial Ave., Suite 207
Anacortes, WA 98221

   My Blog Page

SOMETIMES, YOU CAN FIGHT CITY HALL—AND WIN
DAMAGES
            In land use matters, the conventional wisdom is that it is difficult to “fight city hall’ in the sense that the costs of the fight can overwhelm the benefits, and market conditions can change dramatically due to the passage of time during the contest.  A recent Supreme Court case showed that sometimes the fight is worth pursuing despite these obstacles.
            Normally, land use decisions can be appealed under LUPA, the Land Use Petition Act.  Appeals under LUPA are limited to determining whether the local government’s decision was based on unlawful procedure, an erroneous interpretation of the law, was outside the agency’s power, was clearly erroneous based on the evidence or violated an appellant’s constitutional rights.  This recent case involved an appeal under LUPA and also a more unusual lawsuit for damages to the property owner that resulted from the two years that had been consumed in battling opponents in the administrative process including activists and officials of government agencies, and which delay had ended the business that would have used the permitted land.
            The case began with a company called Citifor which had manufactured munitions on property in Thurston County that was located on or near a significant prairie oak-wetland habitat, and which obtained from Thurston County a twenty year permit to engage in gravel mining on the site in 2005.  The permit was issued after negotiations with environmental opponents of the mine, one of which withdrew its opposition in exchange for concessions by Citifor as to the scope of mining and restoration activities after mining.  However before mining began Citifor sold the land with the permit to the Port of Tacoma for its use in building a freight transfer location.  The freight transfer location was never built and so the Port of Tacoma negotiated with a company called Maytown to sell the property and based on the assurance to Maytown by the Thurston County Department of Natural Resources that the permit was still valid, Maytown bought the property in 2009.
            Maytown’s problems after its purchase centered on four issues: an environmental opponent (not the one that had negotiated with Citifor) challenged the validity of the permit; because of the delay between the permit’s issuance and the expected commencement of mining certain water quality deadlines had already passed; there was a discrepancy between the type of water quality testing required by the permit and the groundwater monitoring plan; and the permit was due for a five year review by a Department hearing examiner.
            Maytown had proposed some amendments to the conditions in the permit to reflect changed circumstances but once the extent of the legal campaign against the mine became apparent, Maytown withdrew all of the proposed amendments except two that dealt with the timeliness of the water quality measurements.
            During the two year administrative review period, decisions were made by the Department and appealed to a hearing examiner and then to the Department’s Board of Commissioners, all within Thurston County local government, and all during a time when according to the Supreme Court, at least two of the County Commissioners had adopted a plan to try to torpedo the mine for political reasons.
            Accordingly, after the internal county appeals had been exhausted (at which one of the environmental groups that had negotiated and agreed with Citifor participated as a mine opponent) and then the LUPA appeals to Superior Court had also been exhausted, and Maytown and the the Port of Tacoma had largely been vindicated, the victory was a Pyhrric one because the mining market had changed and the business failed.  So the Port of Tacoma and Maytown sued the county for damages resulting from the intentional misuse of government processes to interfere with a valid permit for the use of land.
            The jury agreed with Maytown and awarded $13.1 million in damages against the county, and the county appealed to the Supreme Court.  Other than on the issue of whether the trial court could award Maytown damages for its attorney’s fees in the administrative process, the Supreme Court upheld the lower court.  This case should hearten property owners who face bureaucratic opponents over land use.
            The foregoing is not intended as legal advice and should be considered as educational only.
            
SIGNPOSTS IN THE RELATIONSHIP OF BANKRUPTCY
AND DEED OF TRUST LAW WHEN YOU INVEST IN FORECLOSURES

            Some investors these days look for opportunities to obtain residential properties in foreclosure sales, including trustee’s sales under the Deed of Trust Act.  The Deed of Trust Act specifies periods that must elapse between the notice of the sale and when the sale can legally take place.
            Sometimes the borrower who is in financial distress will file a petition in bankruptcy after the notice of trustee’s sale has been recorded but before the sale takes place.   This may be an attempt by the borrower to stave off the trustee’s sale or for other reasons.  The filing of the petition invokes the automatic stay provisions of bankruptcy law, making it illegal for the trustee’s sale to be held as long as the bankruptcy case is pending in the bankruptcy court.
Unless the petition is deemed meritorious by the bankruptcy court, it will be dismissed. This type of situation can present a quandary for the investor who attends and bids at the trustee’s auction after a petition in bankruptcy by the borrower has been dismissed.  A recent case in the Court of Appeals considered such a case in which the borrower filed a petition in bankruptcy the day before the scheduled trustee’s sale and after the petition was dismissed, the trustee’s sale which had been continued by the trustee, was rescheduled and went forward, resulting in the borrower’s loss of the home.
The borrower then sued the lender and the purchaser at the trustee’s sale and the trustee, arguing that the trustee was required to send out a new notice of trustee’s sale, giving forty-five days’ notice after the dismissal of the bankruptcy petition before the sale could legally go forward.  The borrower also contended that the continuance of the trustee’s sale by the trustee violated the bankruptcy stay, and for both of these reasons asked that the sale be set aside by the court.
The Court of Appeals analyzed the borrower’s first argument based on two different statutes. The first statute says that when a bankruptcy petition is filed by the borrower and then later dismissed the trustee can choose to issue a new notice of trustee’s sale and the date of the sale cannot be fewer than forty-five days from the date the bankruptcy petition is dismissed.  The second statute says that the first statute is permissive only and does not apply when a trustee’s sale has been properly continued for a period not exceeding one hundred twenty days.  Because the trustee in this case had properly continued the sale after the filing of the bankruptcy petition for about fifty-eight days, the court held that the trustee was not required by the Deed of Trust Act to record a new notice of trustee’s sale.  
The Court of Appeals considered the borrower’s second argument under a case decided by the federal appeals court for the Ninth Circuit.  That case said that the automatic stay in bankruptcy is not violated by any action of the lender that does not change the status quo or give the lender some advantage over the borrower or harass or interfere with the borrower.  The Ninth Circuit court held that a continuance by the lender of the date of the trustee’s sale by publishing a notice of postponement of the sale did not create any advantage in the lender or otherwise prejudice the borrower while the bankruptcy was pending and therefore such a postponement did not violate the automatic stay.
The Court of Appeals therefore concluded that the borrower’s second argument was without merit and affirmed the dismissal of the lawsuit.  The court rejected the borrower’s argument that the “permissive” statute described above did not apply since according to the borrower the trustee lacked power to continue the sale due to the bankruptcy stay and must necessarily issue a new notice.  
The teaching of this case is that while it is important to keep abreast of any bankruptcy filings by the borrower that affect a trustee’s sale of property in which an investor is interested, that due diligence includes reviewing how the trustee has reacted to the bankruptcy filing.
The foregoing is intended to be educational and should not be considered legal advice.
            

SEATTLE RENTAL HOUSING INSPECTION ORDINANCE WILL CHANGE LIFE FOR LANDLORDS

At a recent investor meeting I was asked about the recent Seattle rental housing inspection ordinance. This was a good question because for Seattle landlords of all types, life will not be the same after the ordinance takes full effect. The ordinance which was adopted October 9, 2012 replaces the existing Seattle business license requirement for landlords with a registration and inspection program. Each rental unit, from a mother in law unit in a home to a two hundred or more unit apartment building, must be registered with the city, and inspected on average once every ten years. Registration fees will be collected by the city from all landlords to pay for the bureaucracy necessary to handle the registration system. The city is developing rules to specify the amounts of the fees. Inspections are to be performed by privately contracted inspectors who have credentials that meet the city's standards. These inspectors will be known as Qualified Residential Housing Inspectors. There are some exemptions from the inspection requirement, such as units that are inspected by government pursuant to housing subsidies or by lenders, vacation home rentals and hotels or school dormitories.

The registrations are good for five years and certificates of compliance issued after successful inspections are also good for five years unless a violation is found in the unit later. The program phases in. The registration requirement begins January 1, 2014. Ten unit and above buildings must all be registered by July 1, 2014. Five to nine unit buildings must be registered by January 1, 2015. The remainder must be registered by December 31, 2016. Newly constructed units after January 1, 2014 must be registered within one year after a certificate of occupancy is issued. If a unit is sold the new owner has sixty days from closing to pay a transfer fee to the city and change the registration record.

Applications for registration shall contain the owner's declaration that the unit meets the standards in the ordinance and state whether that declaration is on the basis of an inspection by a Qualified Residential Housing Inspector, or not. The city will randomly select units for inspection and also it will inspect after receiving a complaint. If a violation is found after a complaint has been received, all other units owned by that landlord at the same location may be inspected as well. The city will audit certificates of compliance for collusion between inspectors and landlords and may send its own governmental inspectors into units for this purpose. Any collusion will result in enforcement action against both the landlord and the inspector.

The standards the inspectors will use are quite broad: minimum floor area for habitable rooms, minimum sanitation, minimum sheltering, minimum maintenance, minimum heating and ventilation, minimum electrical, minimum emergency escape window and door, requirements for garbage removal, extermination of pests, required keys and locks and smoke detectors. Civil penalties for violating the standards are steep: $150 per day for the first ten days of a violation and $500 per day for each subsequent day. A false application or certificate of compliance will generate an additional penalty of $5,000 and failure to register a unit carries a penalty of $1,000.

In 2007 a somewhat similar ordinance by the City of Pasco was challenged in court by both landlords and tenants as a violation of the Fourth Amendment. The state Supreme Court upheld the ordinance on the basis that no state action was involved in the inspections because the landlords were pursuing their private interests to maintain their business licenses (required by the ordinance) by hiring private inspectors who did not provide their reports to the city. The Seattle ordinance differs in a way that may cause the court to think about this issue if there is a challenge because the Seattle enforcers can directly inspect units in the course of auditing compliance certificates issued by the private inspectors.

Based on a 2008 city study there were approximately 140,000 rental units in the city, of which about 20,000 were subsidized housing. Probably the numbers are larger today. So there will be at least 12,000 rental unit inspections per year once all units are registered, and all of these will be paid for by landlords in addition to the payment of the registration fees every five years. The ordinance stated that it had "no fiscal impact because fees will be collected to cover the cost to the city." Fiscal impact depends on whose ox is being gored. It looks like being a Qualified Residential Housing Inspector is a growth occupation in Seattle.

The preceding is intended to be educational and should not be considered legal advice.

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Douglas Owens Attorney Seattle

Douglas N. Owens

1971 Graduate of University of Michigan Law School, twelve years service as Assistant Attorney General, thirty-four years private practice