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

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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.
            

THE NEW LANGUAGE IN THE NORTHWEST MULTIPLE LISTING SERVICE PURCHASE AND SALE AGREEMENT INSPECTION ADDENDUM: A TRAP?

The Northwest Multiple Listing Service (NWMLS) has recently promulgated a revised Form 35 which covers the pre purchase inspection process for residential purchase and sales, in a way that can provide a trap for the unwary.  The new inspection addendum provides that the buyer shall not provide the inspection report to the seller unless the seller asks for it.  The scenario is that a buyer hires an inspector and an inspection is done, showing that there are defects in the home.  The buyer then files the form 35R with the seller indicating a desire for specific repairs to be done.  

            It has been fairly common in the past for the buyer to provide the pertinent parts of the inspection report to the seller along with the request for repairs, in order to substantiate the request.  Apparently this practice alarmed sellers who became concerned that if the seller were to refuse to correct the conditions shown in the report and the buyer terminated the contract, the seller’s possession of the inspection report would trigger a requirement for disclosure under the Form 17 requirements the next time the property was listed for sale.  Some sellers apparently believed that their opportunity for a later sale would be harmed by the requirement to disclose information in their possession about the property and this would be unfair because the seller would not have voluntarily acquired the information by hiring the inspector and paying for the report.  Some sellers also apparently feel that the inspection report can provide leverage to the buyer for “nickel and dime” repair demands.

            The potential trap is in the fact that the new Form 35 does not say what will happen if the buyer does provide the inspection report to the seller without the seller first having requested the report.  The consequences could vary between having the contract terminated, with possible forfeiture of the earnest money deposit, to leaving the seller to a lawsuit for damages for breach of this condition of the contract.  The new Form 35 does not say that a buyer who provides the seller the report without the seller’s request will thereby forfeit the earnest money.   However it apparently has happened that at least one seller whose buyer provided the seller with the inspection report, declared the contract terminated and demanded the forfeiture of the earnest money.  This type of dispute may increase as a result of the new Form 35, resulting in litigation over the earnest money.

            Presumably the earnest money is not forfeited if the buyer simply terminates the agreement because the seller has refused to make requested repairs, without the buyer having provided the inspection report to the seller.  If the buyer chooses to proceed with the purchase, having breached the condition in new Form 35 by providing the inspection report to the seller, it is difficult to see how the seller would have any damages from this technical breach of the contract for which he or she could recover against the buyer.

            Of course many investors do not make offers using NWMLS purchase and sale agreements, but it is also the case that some sellers who are not represented by NWMLS member licensed brokers also include similar terms in their agreements.  It is therefore a good idea for anyone considering making an offer using a form prepared by someone else to review carefully the wording of the document, for this reason and others.

            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-five years private practice