Water Easements

November 5, 2014

A common document for which I have not see a standard form is the water easement.  The laws of the various states different in the treatment of these easements but nonetheless there are some common technical issues that the drafter should consider.  The term “water easement” commonly means one of two things.  First, it might transfer the right to draw water from a site.  The phrase is also used to describe the right to convey water by pipe or trough across or beneath the land of another.  A water easement of either sort should also contain an access easement and auxiliary rights related to the maintenance, repair, replacement and possibly construction of improvements.

The easement may either be given to the owner of land so that the easement rights pass automatically with the transfer of title to the land or given to a person or entity.  The first type of easement is called an appurtenant easement, even though in Washington the two parcels are not necessarily required to have a common boundary.  The second mentioned type of easement is somewhat awkwardly called an easement in gross.  (American law is derived from English law but easements in gross are not recognized in England.  This concept is derived from Roman law.) It should be clear which of these alternatives is intended and if the easement is intended to benefit a person or entity, then the drafter has to be concerned that the easement is valid under state law.

If the intention is merely to give a person permission to draw water or convey it across land, then consideration should be given to calling the right a license, rather than an easement.  Licenses are less formal and less likely to impact title.  They are also usually revocable.  An irrevocable license requires consideration and is best treated with the formality of a commercial easement in gross.

In any case the instrument should always contain all intended conditions on the use.  For example, there might a set duration, a limit on amount of water, limitations on access, size of pipe, licensing, type of use, who may use the easement, a condition related to the land owner’s use of the property.  From the land owner’s perspective rather than having a long list of conditions, it might be best to use a nonassignable, revocable license.

Easements should contain the legal description of the land that is subject to the easement and should in most cases be recorded. Easements appurtenant should also describe the benefitted land.  It is prudent to specify the amount of water that is authorized to be taken from the source, permitted use and sometimes the depth of a well.  Remember that in Washington the land owner will be required to sign a covenant that prohibits use within one hundred feet of a well used for drinking water.

If the easement is given for future development it is best to make it immediately effective, not effective whenever the development occurs to avoid creating a voidable future interest.


Water Rights: Let the Buyer Beware.

November 4, 2014

Water rights issues are cropping up with increasing frequency as water becomes a diminishing commodity. In the Puget Sound area this is a somewhat ironic concept, as flooding seems to have been on the uptick and the drizzle for which the area is renown has certainly not disappeared. Flooding however is often attributed to logging and development which causes rainwater to become surface water, rather than groundwater, available through wells. The expansion of the population beyond areas served by water systems has created a proliferation of wells, drawing from largely unknown underground estuaries. This increased burden on the supply of water diminishes the quantity of water available to wells, sometimes with disastrous results.

Care must be taken when purchasing water rights or acquiring property with water rights. The value of property is often dependent on water rights but too often property is purchased without a thorough investigation of those water rights. Scrutiny of a title report may give the buyer false confidence in the availability of water.

In verifying the validity of a water source the inquirer enters into the Byzantine realm of Washington water rights, which defy easy explanation. Broadly speaking there are three levels of inquiry. First water systems must be permitted by the State Department of Ecology. However, there are certain exemptions from state permitting requirements and water systems that predate the water code of 1917 need not be permitted. Roughly 166,000 systems claim to have originated before 1917 but very few claims, if any, have been adjudicated. Next the county determines compliance with health requirements and conducts routine inspections. This is usually a fairly straight forward inquiry for the purchaser.

The last common level of inquiry relates to the assignment of water rights. The right to draw water is assignable. As to any water source that is off-site, the validity of the transfer of water rights must be verified. If there is a well on site, all documents transferring rights to others, or allocating rights of use, must be verified. When creating a joint-use well a great deal of difficulty can be avoided by carefully delineating each user’s rights and duties. This warrants as much care as the determination of the rights and regulations governing a home owners’ association.


Selling and Financing Real Estate

November 13, 2008

On November 8, the Washington Post wrote this about the real estate market:

In soft and declining housing markets, lenders are making a big deal of “comps,” the comparable sales of properties used as benchmarks in home real estate appraisals. Some sellers are forced to renegotiate lower prices with buyers, even after they have a signed contract. Rather than accepting sales of similar properties that closed as much as six to 12 months ago, lenders and mortgage investors are demanding that appraisers include only the freshest comps, ideally those closed within the previous 90 days, to support their valuations. In Richmond, appraiser Perry Turner of P.E. Turner & Co. said his firm has seen numerous cases where using newly mandated 90-day or more recent comps, as opposed to those six months or older, has contributed to valuations lower than the price on the sales contract. Turner said that in 95% of those cases, the listing and selling agents have gotten together and renegotiated the contract rather than lose the deal

Both buyers and sellers should be wary of prices based on comparable sales more than 90 days prior to the appraisal or “market survey.” Sellers need to be wary because a listing based on even six month old sales might be artificially high so that even if a buyer is found, financing may not be available.

In this eroding market, it behooves buyers to be sure that there is a good contingency for financing and to put little down as a deposit. Sellers on the other hand are motivated to get a large deposit. Financing contingencies are sometimes rather unclearly written, so both sides should be quite clear about the meaning of this part of the agreement.


Selling Short: What You Need to Know

September 10, 2008

A “short sale” in Washington State real estate agent parlance is selling during the pendency of a foreclosure. It involves convincing the foreclosing lender to accept less than the full amount owed.

One of the things to watch out for here is a fairly subtle manipulation by the real estate agent to profit by the situation. The case I’m familiar with involved a home owned by a very unsophisticated woman. The real estate agent disclosed that a relation was the buyer and that the sale was “a short sale.” The owner did not understand what this meant and signed the papers offered to her, again relying on her agent and not understanding the terminology of the contract.

She was next told to come down to sign the papers for closing and that there would be no money for her. When she objected, the agent gave her verbal promises that she would receive three thousand dollars after closing but declined to put it in writing.

It turns out that she would have received over ten thousand dollars except that the addenda to the contract provided that she would pay all the buyers’ costs of the loan and settlement charges. It also provided that almost $6000 would go to the Nehemiah Down Payment Assistance Program, which according to the closing agent is a program to refund the buyer’s down payment.

This lady had no understanding that, while she got the price she wanted, over ten thousand dollars of the money was going directly for the buyer’s benefit.

In this way the buyer gets the home for absolutely no money out of pocket and the owner gets nothing. The real estate agent gets the commission. The buyer though is left in the same position as if there had been a foreclosure, except that her credit report will contain reference to a “short sale” rather than foreclosure. What the seller has lost is time that might have been spent trying to make a sale that would give the buyer some money to at least move.


Traps for Unwary Real Estate Buyers

July 7, 2008

I was asked to briefly summarize some of the legal considerations that a buyer might keep in mind while venturing into the real estate market in Washington. I think something like this might prove to be helpful so long as you keep in mind that this is not a comprehensive list of all possible difficulties. Here is a short list of legalities that might be helpful to buyers of real estate to keep in mind.

New Construction. Washington has an extremely harsh “statute of repose.” Six years after the final permit is issued all recourse against anyone working on the project is barred, exect as to damage that has already arisen.

If for example you buyer a building, or bridge that collapses six and one half years after the last permit, you have no recourse against anyone in the construction industry.

The Washington statute of creates false expectations in the minds of consumers.

If you buy a building with a useful life of forty years you expect it to last that long. In Washington you can only count on six, assuming that you are buying a new building. If you are buying a used building, it is very likely that the six years have passed and you have no recourse whatsoever against anyone involved with the construction of it.

People who spend money to retrofit buildings , to make them earth-quake proof, must remember that they have no recourse against the engineers or builders if the work is faulty, assuming that the earth-quake occurs more than six years later.

This puts a premium on investigation and study before buying. It also puts a premium on the purchase agreement and the ability to look to the seller if there are latent defects. With respect to construction, owners should consider taking these things into account in negotiating contracts.

Building Codes. Many residential buyers put stock in representations that the building complies with code or they just rely on the fact that the building had to be inspected and approved by local government before it could be occupied. This does reduce the chances of defective construction but it is a long way from assuring the purchaser that the construction is not defective and there is no assurance that the building in fact complies with code. There is no recourse in the usual case against the city or county if the building was approved in spite of noncompliance — and this happens.

Form 17. The Seller’s Disclosure Statement required in residential sales has recently been interpreted (see my last entry) as unenforceable by one of our three courts of appeals. This can be cured by modifying the standard forms, but it certainly opens the door to using the form as a tool of deception.

Bad Materials and Workmanship. There are a number of cases in Washington in which purchasers have been held to be without recourse when the property they purchased was defective. The “economic loss rule” is invoked to hold the buyer without recourse. This result can be avoided contractually.

Verbal agreements. The form purchase and sale agreement in common use says that there are no other enforceable agreements. That means that agreements — even written agreements — outside the purchase and sale agreement are at least of questionable enforceability.

“Merger into the Deed.” When the transaction closes many of the terms and conditions of the agreement are terminated. Discovery after closing of a false representation may be too late if the representation or assurance is deemed to have been merged into the deed. This can be avoided by care in writing the contract.

There are of course other issues that arise but this at least gives you a sense of the care that must be taken in protecting an important investment such as buying real estate.

Please note that in the last legislative session a very modest bill was introduced to confer limited rights on home buyers. The bill was killed by the Democrats, particularly Frank Chopp.


Don’t Buy Foreclosed Property From Dirty Lenders

June 4, 2008

There is a hidden risk in buying foreclosed property that nobody seems to be talking about.  Many of the houses being foreclosed upon were subjected to liens securing sub-prime loans.  Many of these loans were made by disreputable lenders, sometimes by now indicted loan officers.

In Washington, like many other states, the purchaser at a foreclosure sale takes the title that existed at the time that the loan was made and the deed of trust recorded.  If the lender had nothing to do with any deceit on the owner and was not on notice of any irregularity, then the lender is deemed a “bona fide purchaser for value.”  This is a legal term meaning that title cannot be recovered by the owner, even if there was fraud.  When the lender was involved in the fraud or had reason to know of it, then the owner can clear title of the deed of trust and the ownership interest of the purchaser at the foreclosure sale.

Thus, a truly prudent buyer at a foreclosure sale or purchaser from a bank after foreclosure should check to see which lender made the loan originally.  Only after finding out about that lender can the purchaser have comfort that title cannot be reclaimed by a defrauded or deceived owner.


Contracts for Custom or Restoration Auto Shops

February 27, 2008

Generally speaking restoration and custom auto shops have a contract form that is taken off the shelf and used for each customer. This practice can turn out poorly for both the customer and the shop. Sometimes shops have contracts that are so one sided that that a court won’t enforce them and the customer is actually benefited. Furthermore, because the shop owner is responsible for the writing of the contract all ambiguities in it are resolved in favor of the customer. On the other hand the customer can find himself to have waived his rights and to have bound himself to something far from what was understood at the time of discussions. It benefits both sides to have the contract actually fit the parties’ understandings.

Here are some things that should be considered in each contract: There should be an estimate or ceiling on the cost. This can be left a little loose, like saying “plus or minus ten percent” but every contract involving a substantial amount of work should have a total cost reference point. This ceiling is not worth much without a precise description of the parts and services that will be performed. A good restoration shop will sometimes ask for a fee to provide this estimate as a reliable one takes a lot of time, but a reasonable fee is money very well invested by the customer.

With parts, the contract should state the markup if any. Remember most parts are delivered to the shop, so you should not pay for deliveries or trips to pick up parts without prior approval.

The contract should identify what services will be billed. Some shops bill for time phoning in parts orders and for time correcting errors made by mechanics. If this is not agreeable, the contract should say this.

The contract should say what information will be provided with the bill. Information useful to the customer is the name of the person whose work is being billed and a reasonably precise description of what the person did. Avoid generic entries like “worked on body” or “worked on quarter panel.” All of this should be worked out in advance. It is useful to have the bill indicate the estimate for the work and the percentage of completion. It is important that concerns about the bills be worked out at this stage.

The customer should not waive his rights under the Automobile Repair Act.

There should be a process for change orders and for work that exceeds the budget. It should involve something in writing and it should be agreeable to both sides.

It is a good idea with larger shops to see that the contract contains some assurance about the experience level of the people working on the car.

If the salesperson made representations to the customer, the customer should be sure that those are in the contract.

There should be some date by which the shop can give assurance that the work will be done.

The contract should be clear, objectively verifiable, about the standard to which the work will conform.

A wise customer will have an expert make periodic inspections of the work to report on progress. The contract should provide for this and assure the shop’s cooperation with such inspections.


Affordable Housing; EHB 3142

February 26, 2008

The state house passed HB 3142 last week (94-1) and sent to the senate HB 3142, which amends RCW Chapter 185A., involving the affordable housing land acquisition revolving loan fund. The bill notes that the time taken to process these loans made prospective fund borrowers less competitive than their for-profit developer counterparts. The Act provides for a 30 day turnaround on loans from zero to three percent for the purpose of providing affordable housing. This fund is a great resource, creating a practical means of providing affordable housing. I’m surprised that greater use is not made of it. Perhaps if this bill passes the senate (the session ends March 13) and is signed by the governor, the fund will receive greater use. The bill’s sponsors in the house are representatives Liias, Chase, Walsh, Ericks, Loomis, Miloscia, Rolfes, Linville, Dickerson, Green, Morrell, Kelley, Wood, Nelson, Santos, Ormsby


Incapacity; Undoing the Transactions of the Elderly

February 25, 2008

Endicott v. Saul, just decided by Div. I of the Court of Appeals, involves a concern of many children with elderly parents: When do you intervene to insist on a guardian and what can you do to unwind ill-advised transactions? The facts in this case arose just a couple of years after the death of an 80 year old woman’s husband and involved property in aptly named community called Mutiny Bay on Whidbey Island. This case in some respects represents the worst case scenario for those considering intervening. The parent and two couples who were close friends were on one side in the lawsuit and two children were on the other side, asking for a guardian and seeking to have the court set aside a real estate sale. The elderly parent did not want a guardian and joined with her friends in saying that the questioned transaction was legitimate and should not be set aside.

The transaction at issue was the sale of property worth $324,000 to a friend for $150,000, plus expenses of short plat. The purchase and sale agreement acknowledged that the price was below market and stated that the transaction was subject to the approval of the seller’s attorney, which was obtained after a very short meeting with the parent. The court’s recitation of the surrounding facts reads like a daytime television serial.

The court first looked at the matter of a guardianship. In order for the court to appoint a guardian of a person it must determine that “the individual has a significant risk of personal harm based upon a demonstrated inability to adequately provide for nutrition, health, housing, or physical safety.” A guardian of financial affairs is called a “guardian of the estate” and that requires proof of the person’s inability “to adequately manage property or financial affairs.” The court held that there was sufficient evidence to warrant guardianship despite expert evidence to the contrary, saying that incapacity was a legal question, not a medical one.

Looking at the elderly person’s reliance on others for financial assistance and instances of erratic or confused behavior, the court also sustained a protective order under the Abuse of Vulnerable Adults Act.

The court labored over the question of the real estate transaction. It ruled that the elderly person had a confidential relationship with the people involved with the transaction and because of that they had a fiduciary duty to her. This shifted the burden of proof to the buyer to prove that there was no undue influence, a standard they did not meet.

This case illustrates a few things of which people should be aware in dealing with elderly or easily influenced people. First, in dealing with them you purchase something at a price below market value at your peril, particularly if you or anyone acting on your behalf is close to the person. The transaction is not immunized form attack by provisions in the contract or by a brief visit to a lawyer. There must be substantive assurance that the transaction is not corrupted by incapacity or undue influence. If you are watching out for such a person, act quickly if you discern exploitation of their condition. It is best to do something before there is a problem but possible to unravel things that were done inappropriately.


Conveyance of Real Estate

February 22, 2008

The statute of frauds is an example of the path of good intentions often leading into the thicket of dispair. Washington’s statute of frauds for real estate conveyances (RCW 64.04.10) requires that any agreement to convey land be in writing and that there be a sufficient legal description of it. This was intended to prevent people from falsely claiming that they had an agreement to purchase land or that land had been given to them by oral agreement. Rigid adherence to this rule though has often achieved the opposite result. An insufficient description of the property on an earnest money agreement has allowed people, both buyers and sellers, to escape their written agreements.

In 1949 the Washington Supremem Court decided to take a hard line on this matter and follow the monority of states by declairing that any agreement to conveyland must contain a full legal description, thereby allowing people who used a street address or shorthand description to escape from their contracts.

Because legal descriptions are usually not available when contracts are signed this meant that many, if not most, contracts to buy land were avoidable by either party. Trying to avoid the obvious unfairness of this result courts with increasing frequency started applying exceptions to the statute of frauds, trying to prevent it from becoming an instrument of fraud.

The result has been confusion about whether any given contract of sale is enforceable. Real estate agents started using tax lot numbers, as these were usually more accessible than legal descriptions (which more often than not were meaningless to the parties anyway), thinking that this satisfied the statute of frauds. Recent case law however makes this practice unreliable.

Rodney Tom, a representative from Bellevue, sponsored a bill intended to alleviate the plight of real estate agents and their clients. Senate bill 6514, as amended, recently passed the senate and was sent to the state house. This bill provides that henceeforth the use of tax lot numbers, instead of the full legal description, satisfies the statute offrauds with respect to contracts to convey land.

This is an easy solution, or partial solution, to an ill-advised 59 year old decision.