Recent Cases Cause Uncertainly Regarding Residential Restrictions and the N.C. Real Property Marketable Title Act

You may have heard about the recent pair of cases decided by the North Carolina Court of Appeals involving the North Carolina Real Property Marketable Title Act, which is codified at NCGS Chapter 47B.  The two decisions are C Investments 2, LLC v. Auger et al., and C.E. Williams III et al. v. Reardon et al. These decisions will have a significan adverse impact to North Carolina HOAs and condominiums if allowed to stand - but we don't believe that they will be allowed to stand.

The Marketable Title Act was passed almost 50 years ago and was designed to extinguish certain title flaws or encumbrances, if they had not appeared in any recorded documents within a given chain of title within the past 30 years.  The point was to clarify title and remove minor, old or forgotten matters of title if they had not reoccurred, been rerecorded, or been litigated within the past 30 years of when the title was being examined.  The Marketable Title Act has a number of exceptions for things which are not extinguished even though they may be more than 30 years old, including an exception for "covenants applicable to a general or uniform scheme of development which restrict the property to residential use only, provided said covenants are otherwise enforceable."  This exception had always been interpreted by real property and homeowners association lawyers to mean that restrictive covenants for residential subdivisions were excepted from the Marketable Title Act and therefore remain in place in perpetuity, as most covenants specifically provide, even if they are older than 30 years and even if they don't appear in a given chain of title within the past 30 years.

The Court of Appeals unfortunately ruled contrary to the longstanding common opinion and practice, interpreting the above-quoted provision to mean that residential restrictive covenants which have not appeared in a given chain of title within the past 30 years are completely extinguished, other than any provision specifically restricting the property to residential use only.  While the Court of Appeals took the position that this was a plain reading of the plain words of the statute, that reading if allowed to stand would upend every subdivision with restrictive covenants 30 years or more old and cause chaos in the chains of title of thousands of homes and residential subdivisions statewide.

For example, imagine an older subdivision with residential restrictive covenants of the typical sort, which were originally recorded more than 30 years ago.  Mr. and Ms. Jones reside on Lot 1 and have lived in their home for 31 years.  Mr. and Ms. Smith live on Lot 2 and just bought their home last year.  Based on these Court of Appeals rulings, the covenants are now extinguished on Mr. and Ms. Jones' property, other than the restriction that it can only be used for single family residential purposes.  So they can quit paying dues, maintain old junked cars on cinderblocks in their front yard, and allow their home to fall into complete disrepair.  On the other hand, what is the situation next door at the Smiths?  It depends on what the deed they received said, and what the deeds of all the other folks in the chain of title for their lot in the past 30 years said.  If the recorded restrictive covenants were mentioned in any of those deeds, then by the Court of Appeal's reasoning, they have been revived and the Smiths must comply with every provision of those restrictions.  If none of the deeds mentioned the restrictions, then they get to be scofflaws just like their neighbors the Joneses.  What if their deed said something vague like, "This deed is subject to all documents of record"?  Who knows?  The Court of Appeals doesn't tell us.  Thus, chaos.

It is a universal opinion among real property and homeowners association attorneys in the state that these decisions were wrong.  The General Assembly is currently reviewing legislation to make corrections to the Marketable Title Act that will put things back the way they have always been.  The chaos which will result if that does not happen it is a strong assurance that it will. 

Bottom line: We do not believe that this is a situation which should be of concern for North Carolina HOAs or condominiums at this time. We believe the General Assembly will remedy the matter. Of course we will be monitoring the situation and will provide further updates as they occur.

Contact us if we can provide any further information, and thank you for following the NC HOA Law Blog.

When it Rains, it May Pour on Your Homeowners Association

Do you have one of these lovely structures in your yard?

 

It seems like it rained most all of this past winter.  It rained for 4 days straight as this post was being written, and regardless of your beliefs regarding climate change, it is a fact that we in the Carolinas have had more than our fair share of rain over the last few years.

Rain, and the flow of it across the ground that we call storm water management, is probably the most common issue we face regularly as homeowners association attorneys.  I've certainly been fielding a lot of calls lately about it. 

The general rule regarding storm water is that a property owner is not liable to neighboring property owners for storm water flowing across his or her property onto their property, unless the property owner has changed the natural flow of storm water across his or her property in a way that adversely affects the neighbor by directing more water onto the neighbor's property than would otherwise naturally occur.  

Thus, in general, each homeowner in a homeowners association is responsible for storm water flow across his or her property and cannot blame his or her uphill neighbor for storm water naturally flowing downhill onto his lot, unless he can show that the neighbor made changes to his lot which are directing an unnatural amount of water onto him/her.  It is important to keep this common law concept in mind if you are having grading work done on your property or putting in an in-ground swimming pool, for example.  You must do so in a way in which manages the storm water on your own property and does not direct additional storm water onto your neighbors.

We often hear from our homeowners association clients when property owners in the neighborhood demand that the association step in to correct adverse drainage across the owner's lot.  Take a look at this awful situation:

Unfortunately in almost all cases, the homeowner's wish to make poor drainage the association’s responsibility is headed down the drain.  Unless the restrictive covenants provide otherwise, storm water pipes, drains, swales, ditches, and the like on a homeowner's lot are that homeowner's responsibility to maintain, and an individual homeowner rarely has recourse against any other parties for excessive storm water coursing across the surface of his or her lot, or for the maintenance and repair of storm water pipes installed within their lot. That bell tolls for him or her and no one else.

In general, homeowmers own their lots down to the center of the earth and up into the sky as far as the eye can see, and everything in between.  This includes any storm water pipes installed on or under the property, even though the storm water pipe was probably installed by the developer or the home builder, not the homeowner, and even though the storm water pipe may drain water from other lots, common areas, or roads of the neighborhood and not just from the homeowner's own lot.  

From the prospective of the homeowner's association, this is the correct result.  The primary purposes of a homeowner's association are to maintain property values and maintain the common elements.  It is not a police force, nor is it a public works department.  The association did not design, approve, or construct the lots or the roads, nor does it usually have the right to go upon lots to correct topography or drainage, nor does it typically have the financial resources to do so.  The homeowner must generally look to his or her own resources or confer with their neighbors to address storm water problems.  

Occasionally, storm water apparatus may be maintained by the local municipality, and if so that municipality should always be the first recourse to assist with storm water issues.  Most cities and counties have storm water engineers on staff due to the increasing requirements of the federal government under the Clean Water Act and most are more than willing to come out and meet on site to examine issues.  Occasionally, there may also be issues with storm water catch basins or drains constructed within city streets or state-maintained roads, so the city transportation department or North Carolina Department of Transportation, if a state road, are often good resources.  Remember that in North Carolina, counties do not maintain roads, so do not call your local county government with street or road related issues in most cases.

 The only instances where a homeowner's association might have liability for storm water issues are where the association owns adjacent common area.  If the association itself has made topographic changes to common area it owns and which is causing adverse drainage onto a neighbor's lots, then it of course may be liable.  And in some case, the restrictive covenants for the neighborhood specifically provide that the association is to maintain the storm water management structures throughout the neighborhood.  (This would occur more often in a commercial property owners association, or sometimes in a condominium or townhome situation – almost never in a single-family detached subdivision.) 

 If the subdivision has private roads which are maintained by the association, the same situation as described above with city or state roads might apply, so the association needs to make sure any catch basins or storm drains within its privately-maintained roads are properly maintained so that they are draining the roads as originally designed.  But again, the association did not design, approve, or construct the roads, so it generally cannot be held liable for inadequate design, but only for failing to reasonably and properly maintain those specific storm water management devices which are within its private roads, or any catch basins or similar devices it owns or maintains.  Storm water pipes, ditches, drains, and swales on individual lots generally do not fall within this area of responsibility.

Don't hesitate to contact us if we can assist your association, whether during rain or shine or sleet or dark of night!

What if Fred and Barney lived in your HOA?

And what if Fred and Barney were goats? Fortunately for us, the Court of Appeals had occasion to address this burning issue recently in Steiner v. Windrow Estates HOA.

                                                                                                    

Mr. and Mrs. Steiner lived in Windrow Estates in southeast Mecklenburg County, and had as their beloved pets two “certified Nigerian Dwarf” goats named Fred and Barney. Of course, the CCRs prohibited “livestock”, as most do, although interestingly, they did allow horses as Windrow Estates is an equestrian community. The case turned on whether Fred and Barney were livestock, as the HOA contended, or household pets as the Steiners argued. The trial court had found in favor of the Steiners on summary judgment.

The drafter of these particular CCRs failed to define the word “livestock”. When that happens, courts typically look to determine the “ordinary meaning” of the word in question, which means they usually simply look it up in the dictionary. Here, the Court referred to Merriam-Webster’s Collegiate Dictionary and determined that “livestock” are “farm animals kept for use or profit” whereas pets are “domesticated animal[s] kept for pleasure rather than utility.”

The Court set forth excerpts from Mrs. Steiner’s affidavit in lengthy and sympathetic detail. Mrs. Steiner had been diagnosed with health problems and her physician recommended pets to speed her recovery. After some research, she determined that Nigerian Dwarf goats made excellent pets and could also live comfortably with the horses that the Steiners already kept on their property. The goats were bought from an outfit (Peach Tree Farms in nearby Oakboro) that sells them solely as pets, she said, and they were neutered and don’t produce milk or meat, so they could not be used for profit. Mrs. Steiner also testified that the goats were “affectionate, gentle, and make great companions.” (Apparently these particular goats don’t eat everything they see like the garden-variety goats I am familiar with – especially the one that once ate my uncle’s dentures. But that is another story.)

Dwarf Nigerian Goat from Peach Tree Farms' website.

Mrs. Steiner also testified that the goats lived outside in the stable with the horses, which to me seems more suggestive of livestock than household pets, but the Court somewhat facilely glossed over this issue by stating that household pets don’t necessarily have to live inside the house to be considered pets.

As often is the case when a court chooses to quote liberally from the one side’s testimony in its opinion, the Court of Appeals decided in favor of the sympathetic plaintiffs Mr. and Mrs. Steiner, holding that Fred and Barney were indeed pets and upholding the decision of the Superior Court. But the bigger question is, why did the Court decide the way it did and what, if anything, can we learn from this opinion? I see at least three takeaways for HOAs:

The first and most obvious takeaway is that it is critically important to define terms in CCRs. Obviously, had the CCRs clearly stated that goats were included in the term “livestock”, it would have helped the HOA’s case, but most likely this wouldn’t have changed the outcome, because it appears that the goats in this case were in fact pets.

Second, the plaintiffs in this case came across very sympathetically, and since judges are people too, this was an important part of why the decision ended up the way it did. HOAs facing litigation should very carefully consider the relative sympathies of the parties involved before incurring the expense of protracted litigation, even if they feel the legalities are on their side. Don’t miss the forest for the trees when deciding whether litigation is warranted.

Finally, it is crucially important for HOAs to be aware that North Carolina courts look upon all CCRs with a jaundiced eye. The Court of Appeals spent a good portion of its opinion harping on this particular doctrine, summarizing it as follows:

“The law looks with disfavor upon covenants restricting the free use of property. As a consequence, the law declares that nothing can be read into a restrictive covenant enlarging its meaning beyond what its language plainly and unmistakably imports.”

This gave the Court the legal support it was looking for to read the term “livestock” very restrictively (even though the careful reader will note that the Merriam-Webster definition states that livestock includes “farm animals”, and I can’t imagine anyone arguing that goats are not generally considered farm animals) and to find in favor of plaintiffs it clearly found to be worthy of its support, even on summary judgment. In addition, and perhaps I am just being paranoid here, this allowed the Court to hand the HOA community another in a fairly consistent string of losses at the North Carolina appellate level on facts that seemingly could have gone either way.

The case is Steiner v. Windrow Estates Home Owners Association, Inc., 713 S.E.2d 518 (July 19, 2011). Read the full text of the opinion here: http://appellate.nccourts.org/opinions/?c=2&pdf=MjAxMS8xMC04NjUtMS5wZGY=