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Category Archives: real estate development

Missouri judges have discretion in creating private road maintenance plans

Posted on October 4, 2018 by Harry Styron

In 2012, the Missouri General Assembly gave circuit court judges the ability to create road maintenance plans over shared private roads under some circumstances, enacting what is now section 228.369 of the Revised Statutes of Missouri. I wrote about the promises of this legislation when it was enacted, pointing out some of its features and limitations. Now we have the first appellate decision concerning this statute, which indicates that judges in trial courts can exercise discretion in:

  • the manner in which assessments for road maintenance are allocated among the property owners who use the road
  • designating which portions of a road are to be maintained by particular classes of property owners.

The case is Stieren v.  Grothaus, which arose in Jefferson County, Missouri, where Sugar Mountain Road ran from a public road a distance of 713 feet to the Caress home. Later, Fordee Ridge Estates subdivision was created, and Sugar Mountain Road was extended another 3,207 feet to provide access to and from the lots in Fordee Ridge Estates.

The judge in the trial court ordered that the Caress property would be responsible only for the 713-foot portion of the road, (which the appellate opinion refers to as the “Entrance and Hill”) while the owners of lots in Fordee Ridge Estates would be responsible for the Entrance and Hill, plus the 3,207 portion of Sugar Mountain Road (referred to as the “Subdivision Road.”). Some Fordee Ridge owners were unhappy with the trial court’s order and appealed, claiming that:

  • the court erred in apportioning the maintenance costs for the Subdivision Road equally among the Fordee Ridge Estates owners, omitting the Caress property owners whose properties were not in the Fordee Ridge Estates subdivision, and
  • the court was without authority to divide Sugar Mountain Road into two sections (the Entrance and Hill section and the Subdivision Road section).

The appellate court pointed out that the language in section 228.369.2 gives the trial court the discretion to apportion the road maintenance costs “commensurate with the use and benefit to the residences benefitted by the access” by various methods, “including, but not limited to equal division, or proportionate to the residential assessed value, or to front footage, or to usage or benefit.” Thus the court’s apparent conclusion that Caress property outside the subdivision did not benefit at all from the Subdivision Road was justified on the basis of evidence of use and availability for use by mail trucks and emergency vehicles.

Even though the use by Fordee Ridge Estates owners was not equal, the appellate court noted that it “was reasonable for the the trial court to find that the very existence of a road providing access confers the same benefit to all properties: access.”

On the issue of whether the trial court was authorized to divide Sugar Mountain Road into to portions for the purpose of allocating the financial responsibility for maintenance, the appellate court looked at the evidence that the Entrance and Hill portion was built and used earlier and that the Caress properties did not use or benefit from the Subdivision Road, built later as an extension of the original Sugar Mountain Road. The appellate court concluded under these facts, “[t]he only way to apportion costs commensurate with these findings was for the trial court to establish a separate assessment for each portion of the road.”

The appellate decision should give trial judges confidence that they can take evidence and essentially force a maintenance contract on those who benefit from a private road that falls under section 228.369, with the method of allocating the costs to be based on the evidence, allowing the judge to divide the private road into sections as necessary under the circumstances.

While section 228.369 is intended to address a very real problem, it puts judges in a position of creating permanent, substantial financial relationships, which is much different from judges determining the extent of liability based on existing contracts or other relationships. Some judges will be comfortable with this expanded role, and others will wonder why the legislature would grant them a power that is in many cases beyond their expertise.

 

 

 

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Breaking bad; closing good. So is walking away.

Posted on August 16, 2016 by Harry Styron

The rebound of the real estate market in the Ozarks seems very real, judging from the calls I get from stressed out buyers and sellers who are approaching closing dates.

Buyers sometimes want break contracts, and sellers want to force the buyers to close.

If the buyer has not made objections to the condition of the property in the proper time, or if the reason for wanting out seem weak (by “weak” I mean petty or based on alleged fraudulent concealment that shouldn’t have fooled an inspector), I tell them to either close or buy their way out with money. It is difficult for a buyer to prove that a seller has breached a contract, and spending two or three years in a lawsuit  is a very expensive way to not have fun.

If a seller calls me because a buyer is threatening to walk away from the contract, I tell the seller that a suit for specific performance (asking the judge to force the buyer to close) is unlikely to be successful and would result in the property being taken off the market while the suit is pending.

The seller’s other alternative is to sell the house to someone else, then sue the buyer for damages, which are the difference between the contract price in the first contract and the price at which the property actually sells. In a rising market, there’s a good chance of finding another buyer and perhaps getting a better price, so litigation is unnecessary.

When I get these calls, here’s what I’m really thinking. I might have been able to prevent this situation if I had been asked to assist in the preparation of the contract. I would get to meet the client when the client was happy, rather than angry.

I could have looked at the title history to the property. I could have given advice based on my long experience in this market and knowledge about such things as:

  • subdivision covenants,
  • the developer of the subdivision,
  • the builder’s reputation,
  • how well the HOA is functioning,
  • drainage and road maintenance,
  • past or pending litigation involving the property or the subdivision

Instead, I speak to people who are already upset, who seem to resent that I don’t see the other party as a villain, and who have to make a decision in the next 24 hours.

It’s a joke among lawyers that a friend or client will call a lawyer to complain about a $200 traffic ticket, but will not talk to the lawyer about a $300,000 real estate contract. So when I get the call, I have to work really hard to be sympathetic.

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Missouri Court of Appeals upholds architectural committee’s ban on outbuildings

Posted on February 5, 2015 by Harry Styron

Stanley Sellers bought a home in Woodfield subdivision and wanted to build an outdoor kitchen. He applied to the Woodfield property owners’ association’s architectural committee, which approved his plans. Without asking for approval, he then built a storage building in his yard. The POA told him that the architectural committee had adopted a rule that prohibited storage and utility buildings. Sellers asked the POA and the architectural committee to change its rules or grant him a waiver, which did not happen.

(For clarification, the document that is referred to here as “covenants” is also referred to as a “declaration” or “subdivision restrictions” or “covenants, conditions and restrictions” or “master deed” or “subdivision indenture,” depending on where you are. An association of lot owners is called a property owners’ association (POA) or homeowners’ association (HOA). “Architecture committees” are sometimes called “architectural control committees (ACCs) or design review committees (DRCs), or some other variation.)

Sellers sued, arguing that the rule against storage buildings  was invalid, because Missouri law prohibits adoption of additional subdivision covenants (“new burdens”) without unanimous approval of all lot owners, unless the covenants permit addition of new burdens on real estate by less than unanimous consent. The trial court ruled for the POA, indicating that the covenants in place before Sellers’ purchase of a lot empowered the POA to regulate “accessory structures” and allowed the architecture committee to make “guidelines and policies for the development and [sic] a residential community which is harmonious and aesthetically pleasing.” Thus the prohibition of storage buildings was a burden within the scope of the recorded covenants rather than the imposition of a new burden.

The appeals court’s decision in Sellers v. Woodfield POA, upholding the trial court’s decision, makes a few points worth remembering:

  • A court reviewing the decision of an architectural committee reviews only for reasonableness and does not substitute its opinion (for the architectural committee’s opinion) as to harmony or disharmony.
  • It doesn’t matter whether the homeowner was aware of the requirements. Though the court of appeals didn’t explain this, a purchaser of a lot is deemed as a matter of law to have knowledge of subdivision covenants applicable to the lot, if the covenants are recorded.
  • If the covenants authorize the POA or the architecture committee to make additional rules not in the recorded covenants, the lot purchaser also is deemed to have notice of this rulemaking authority and should ask about the existence of additional rules.

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Missouri appeals court reverses trial court, slaps down bank that manipulated HOA

Posted on November 11, 2014 by Harry Styron

The Missouri Supreme Court, on June 30, 2015, reversed much of this Court of Appeals decision discussed in this post, reinstating the judgment of the trial court, after determining that Jefferson Bank’s amendment of the covenants was proper. The amendment removed the requirement that the HOA’s board members be residents; the Supreme Court reasoned that unanimous consent of the lot owners was not required since the nature of the amendment was to remove rather than add a restriction.

After the real estate bubble burst, many Missouri banks ended up owning a majority of lots in subdivisions, standing in the shoes of the developers–the banks’ previous customers. Banks face many challenges in their effort to sell the lots that they had to take through foreclosure; not the least is high-end architectural standards imposed by the original developer that seem unworkable in this more austere era.

Jefferson Bank & Trust found itself in this fix after it became the owner of 13 of the 18 lots in the Arbors at Sugar Creek subdivision. In 2005, the developer had recorded covenants that gave the board of the homeowners’ association (HOA) approval rights over any new construction. The owners of the five existing homes  protested when the bank and its new partner proposed to build what the homeowners characterized as “tract houses.”

Because the original HOA had been dissolved by the Missouri Secretary of State for failing to file annual reports, the bank formed a new HOA and recorded a new declaration of covenants, since it had more than 67% of the voting power, as required by the old declaration for amendment. The new declaration eliminated the old declaration’s requirement that HOA board members be residents, and the bank appointed its executives to be the new board.

After a bunch of wrangling in court, the trial court ruled that the new HOA was legitimate, that the new board acted reasonably in approving the new building plans, asking that the HOA reimburse the bank for subdivision maintenance costs paid by the bank, and awarding other damages against the lot owners.

The appeals court in this October 28, 2014 decision, agreed that the new HOA was the successor to the old HOA, but threw out the rest of the trial court’s judgment, to find that the bank acted in bad faith, having

  • relied on its acquisition of majority voting power to unilaterally deny homeowners the benefit of self-governance that they received under the original declaration
  • used its command of the subdivision’s affairs to advance in own financial interest in redeveloping the subdivision in a manner contrary to the wishes of the newly disenfranchised residents
  • violated the implied covenant of good faith and fair dealing by amending the declaration and removing the residency requirement for board members so it could appoint its own executives to the board.

Having stacked the board of the new HOA, the appeals court ruled “all the board’s subsequent actions are null and void,” including the approval of development plans submitted by the bank’s partner.

The critical factor here is the requirement of the original declaration that the HOA board members be residents. The overreaching on this issue tainted everything else that the bank did.

It’s unusual to see a court roll over a bank in favor of homeowners. My guess is that the Missouri Supreme Court will be asked to review this decision.

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Posted in homeowner association, Missouri, Missouri economy, Missouri law, real estate development, real estate law and tagged , . Bookmark the permalink.

Chasing manufacturing jobs? Good luck.

Posted on November 18, 2012 by Harry Styron

Every civic-minded American believes that prosperity is simply a matter of a factory coming to his town. Not one one that belches pollution, but “light industry” or “clean manufacturing.”

While a few such factories exist and a new one will come to the Ozarks once in a while, I’m doubtful that a policy directed at reeling in these factories should be a major part of an economic development strategy.

In his very brief essay, “Fetish for making things ignore real work,” John Kay breaks down the purchase price of an iPhone, which (ignoring the carrier subsidy, or what Verizon or ATT discounts it to you to get you to sign a contract) is about $700. He says the valuable parts–the camera and flash drive, not likely to be made by Ozarks labor–account for about $200. The assembly and the cheap parts amount to about $20. Most of the rest of the purchase price is returned to those brilliant people who designed the iPhone, its operating system, and its advertising and their shareholders.

Kay’s main argument is relevant to the local economic development director and chamber of commerce committee:

Where will the jobs come from in a service-based economy, manufacturing fetishists ask?

From doing here the things that cannot be done better elsewhere, either because of the particularity of the skills they require, or because these activities can only be performed close to home.

Manufacturing was once a principal source of low-skilled employment but this can no longer be true in advanced economies.

Most unskilled jobs in developed countries are necessarily in personal services. Workers in China can assemble your iPhone but they cannot serve you lunch, collect your refuse or bathe your grandmother.

If you’re wondering where in the USA the good technical jobs are, and which regions are experiencing growth, check out “The emerging technical, professional and scientific sector” by Rob Sentz. Missouri and Arkansas are losers, though the Kansas City area has significant growth.

If we want to have good jobs in the Ozarks, we have to invest our own money and energy. A big and difficult part of this challenge lies in raising expectations of our children, our schools, our civic and business organizations and our elected officials.

Otherwise, the best that many of our children can hope for is a job serving lunches, collecting refuse and bathing their elderly parents and grandparents.

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Cassville Aldermen take on Cassville Board of Adjustment to challenge carport variance

Posted on March 22, 2012 by Harry Styron

It might seem odd to you that the Cassville board of aldermen would appeal a decision of the Cassville board of adjustment, since the board of aldermen appoints the members of the board of adjustment, and both boards are a part of the same city government. It seems odd to me that the point was not raised by the respondent on appeal.

Under Missouri statutes, boards of adjustments have some independence, and the appeal of the board of adjustment’s decision to grant a variance is the novel method that the Cassville board of aldermen chose to maintain the uniform application of their zoning regulations.

In Board of Aldermen of Cassville v. Board of Adjustment and Gerald Shaffer, nobody raised the question of whether the Board of Aldermen had the right to attempt to control the board of adjustment by appeal to circuit court. The Southern District of the Missouri Court of Appeals reversed the decision of the board of adjustment, with the effect of requiring Shaffer to remove the portion of his carport that extend over the setback line.

What are these boards?

A board of aldermen, under Missouri’s statutes for fourth-class cities, is the governing body of the city. It is the city’s legislative body, by adopting ordinances, and also the city’s executive branch, by giving orders to the mayor and city administrator. The mayor doesn’t even vote, except to break a tie.

The board of adjustment is authorized by Missouri’s planning and zoning statutes for cities, (Missouri counties have separate planning and zoning statutes) specifically sections 89. 080 through 89.110. Section 89.090 gives boards of adjustments three kinds of power:

  1. to hear and decide appeals of errors made by the planning and zoning staff,
  2. to hear and decide other appeals, as required by city ordinances, and
  3. to hear and decide applications for variances from the city’s codes relating to construction and alteration of buildings and the use of land.

The board of adjustment has the power to reverse, affirm or modify decisions of the planning and zoning board and its staff.

Under section 89,110, persons aggrieved by the decision of the board of adjustment may appeal the board’s decision to the circuit court of the county. Rather than hear evidence, the circuit court reviews the record of the proceedings of the board of adjustment, as though the circuit court were an appellate court.

Why did the Cassville board of aldermen take this matter so seriously?

Was the Cassville board of aldermen aggrieved by the decision of the board of adjustment to allow  Mr. Shaffer to have a carport that extended closer to his property line than the five feet allowed by Cassville zoning regulations?

In most challenges to the right of a party to appeal a board of adjustment’s decision, Missouri courts have been reluctant to give that right to just anyone who claims to be aggrieved. In other cases, neighbors who did not protest the decision at the board of adjustment hearing have been denied the right to appeal, as has a St. Louis alderwoman.

Regardless of the issue of whether the Cassville board of aldermen had the right to appeal the decision, the aldermen apparently wanted to hold the board of adjustment to compliance with the standards of the Cassville ordinances pertaining to variances.

Variances for structures and uses

Variances from strict application of zoning codes are allowed when the board of adjustment (or another board having such powers) has determined that the criteria for granting variances have been met. Cassville’s ordinances required that all five criteria contained in the ordinance be met, all highly subjective except that the hardship alleged to exist must not have been created by the owner or applicant and that the condition for which the variance is required must be unique to the property.

The Court of Appeals judges agreed with the Cassville aldermen’s contention that nothing about the Shaffer property was unique and that the alleged hardship–which was that visitors might have to walk to his door in the rain–was trivial.

 

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Subdivision developer gets nailed for assessments and has no special developer rights

Posted on February 16, 2012 by Harry Styron

Missouri Western District Court of Appeals just affirmed a trial court’s judgment in a way that will resound with homeowners’ association (HOA) boards across the state, many of which are struggling to raise sufficient revenues to take care of streets and amenities, even though many of the developer-owned lands that benefit from the streets are apparently exempt from assessments.

Lenders that have foreclosed on developers may find that this opinion undermines the lenders’ ability to claim to enjoy the developer’s exemption from assessments on lender-owned land. Parties purchasing land from lenders, hoping to have the status of the former developer, may find themselves heavily in debt to the HOA, perhaps blaming the lenders who sold them the land.

In Woodglen Estates Association v. Dulaney, Dulaney obtained 17 parcels of land from the FDIC. This land had once been owned the original developer Braeman, then passed through the hands of a few different parties, before ending up with the FDIC, which had taken the parcels of land from a failed bank.

The Woodglen Estates Association hired an auditor to review its finances. The auditor discovered that land owned by Dulaney had not been assessed for several years. The association then sued Dulaney, and Dulaney asserted two defenses:

  • As successor to the original developer, Dulaney should be exempt from assessments on land it owned.
  • Much of the land that Dulaney owned in Woodglen was in “parcels,” not having been subdivided into “units,” so that it should not be assessed.

The appellate court looked at the line of Missouri case law that holds that the special rights and privileges of a developer, typically reserved in the declaration of covenants for the subdivision, do not automatically pass with ownership of the developer’s real estate. These rights, called “developer rights,” “declarant rights” or “development rights,” may be assigned, but a party claiming to hold these rights has to be able to prove to have acquired them by assignment. Dulaney had no proof of assignment of declarant rights.

To make matters worse for Dulaney, the Woodglen declaration did not contain an exemption for the developer’s real estate–which is a common feature of declarations–and the appellate court noted that developers do not receive an automatic exemption. Under current Missouri law, other than in condominiums, a developer may lawfully reserve an exemption from assessment for its own real estate. The original developer simply failed to create the exemption when filing the declaration and made the mistake of including land in the declaration that was not ready to be developed.

Dulaney argued that its “parcels” were not subject to assessment, since only “units” and “unit owners’ could be assessed. The appellate court noted that some of the declaration’s provisions were ambiguous when addressing the respective rights of owners of units and parcels, but the assessment provisions were clear:  “each owner shall be obligated to pay to the Board such sum as shall have been established….,” without distinguishing between owners of units and parcels. The legal description attached to the declaration had included Dulaney’s parcel, placing this land under the provision of the declaration.

For lenders, the lesson is that any loan documents for a development loan should include a security interest in the declarant rights, and any documents showing the recovery of the developer’s real estate should include a specific assignment of the declarant rights. When the lender sells the former developer’s property, the conveyances to the purchaser should include the assignment of declarant rights. These issues are covered in more detail in this essay.

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Addressing water supply issues in the Western Ozarks

Posted on November 9, 2011 by Harry Styron

Imagine this headline:

Taneycomo trout die as officials refuse to release water from Table Rock Lake

It’s not far-fetched. Something similar happened in the fall of 2011 below Lake Tenkiller, in the Ozarks of eastern Oklahoma, where low water levels resulting from the prolonged drought left that reservoir with no unallocated water. You can get an idea of the reactions from this article in the Sequoyah County Times.  All the water in Tenkiller was spoken for, and the trout fishery suffered.

What’s this about allocation of water? In reservoirs managed by the Corps of Engineers and other federal agencies, the reservoir storage capacity is allocated to various uses. For example, some of the storage capacity in Table Rock Lake is allocated to the Southwest Power Administration, a government agency that sells electricity to private and public utilities. In some reservoirs, some of the capacity is allocated to municipal water supplies or industrial users of water, such as Sequoyah Fuels, mentioned in the article about Lake Tenkiller. The Corps of Engineers is also obligated to store and release water to meet statutory mandates relating to maintenance of adequate water levels for barge traffic downstream. In the western United States, a “recreational allocation” is made to support the whitewater rafting industry.

Water scarcity is moving east, and the pace seems to be accelerating. Jim Milton’s blog, Oklahoma Water Law, does a great job covering water supply issues in Oklahoma and neighboring states. On his blog, you can read about Oklahoma’s proposed comprehensive water plan and conflicts between rural water districts and municipalities, the Tenth Circuit Court of Appeals upholding Oklahoma’s statutes prohibiting the export of water to another state, and the fight over water in Sardis Lake, where Oklahoma City’s attempt to buy the water has been blocked, at least for now, by the assertion of federal power. In reviewing recent blog entries, I was struck by the intensity of the water disputes in eastern Oklahoma and Kansas; Missourians need to pay attention to what is occurring just over the state line.

The Tri-State Water Resource Coalition has been exploring the alternatives for future water supplies for the Western Ozarks. Its annual conference, Securing Our Water Future, will be held in Springfield on November 17 and 18. I’ ll be giving a short presentation at this conference to contrast Missouri’s lack of any allocation system with the ways that surface water and groundwater are allocated in Kansas and Oklahoma. A copy of the text of my presentation is here.

Missouri and Arkansas have had the luxury of pretending that water is free. Unfortunately, the supply is finite. The Tri-State Water Resource Coalition is providing leadership and a forum for discussion. We need wise leaders to learn from the experiences of Kansas and Oklahoma, so that we can be better stewards of the water we all need.

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Posted in Ozarks economy, real estate development, water law (streams, lakes and groundwater) and tagged , , . Bookmark the permalink.

Taxpayers vs. Ratepayers: Taxpayers lose

Posted on August 31, 2011 by Harry Styron

St. Charles County wanted to widen a road, which required moving the gas line within the right-of-way of Pittman Hill Road. Pittman Hill Road was created by subdivision plats which designated the road’s right-of-way as a utility easement for gas lines (among other utilities), dedicating the entire right-of-way to the public. 

The County asked Laclede Gas Company to pay for the relocation of its gas lines to the right-of-way of the reconstructed road. Laclede claimed that this amounted to an unconstitutional taking of its property. On a motion for summary judgment, the trial court ruled for the County, requiring Laclede Gas to pay for the relocation. Laclede appealed directly to the Missouri Supreme Court.

On appeal, the County made four objections: Read the rest of this entry →

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Pondering intentional flooding: why are we in this mess?

Posted on June 4, 2011 by Harry Styron

The random aspect of tornado damage is one thing. But people have put themselves in the paths of floodwaters. Now the Missouri River’s flood is moving downstream. Who knows what it will do to the Mississippi?

But can you blame people for building homes and businesses in the floodplains? We spent billions to control our rivers and create an economy that depends on our controlling them.

Have we lost the ability to manage our environment, or we were just kidding ourselves that our engineering ability (incorporating politically-mandated compromises) would be effective?

I ponder these things in a longish essay: Unnatural disasters: flooding from managed rivers and what to do. Of course, I don’t know what to do. Maybe you have an idea.

Please read and comment.

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Posted in agriculture, Missouri, Missouri economy, Ozarks, Ozarks economy, real estate development, table rock, water law (streams, lakes and groundwater) and tagged , , , . Bookmark the permalink.
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