In Spite of the Law

In Spite of the Law

The law, to borrow a quote from Winston Churchill, “is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key.” That “key” is often found in the Wisconsin Statutes which is affectionally referred to as the book of surprises.  Hence, when faced with the proverbial question of whether “fences make good neighbors” it made sense to scour the Wisconsin Statutes for an answer. Behold!  Such a timely question has an answer and it is: not necessarily. Wisconsin law prohibits the construction of spite fences. In the words of the legislature:

“Any fence, hedge or other structure in the nature of a fence unnecessarily exceeding 6 feet in height, maliciously erected or maintained for the purpose of annoying the owners or occupants of adjoining property, shall be deemed a private nuisance. However, nothing herein contained shall limit the right of a municipality to forbid the erection of a fence less than 6 feet in height.”

Spite fences were not always held in such low esteem in this great State. Circa 1900, from the quaint village of Glenbeulah, Wisconsin comes the case of Metzger v. Hochrein. The Court described Metzger’s property as “surrounded by made lawns and yards, making an attractive and valuable home.” Standing accused of erecting a spite fence, Hochrein set “rough” tamarack posts, from eight to sixteen feet high along the border between the properties. Making things worse, the Court described that between these posts was a “tight board fence of rough, old, unsightly, and partly decayed lumber from an old ice house.” Ignoring the adage to love thy neighbor, the Wisconsin Supreme Court dismissed the case. In language that seems whimsical today, the Court endorsed the right to annoy one’s neighbor:

“This is one of the many cases that may arise where the doctrine of personal liberty and personal dominion of one over his own property enables him to do things to the annoyance of others, not causing actual, material physical discomfort to them, for which there is no punishment, except loss of that respect which every right-thinking man desires from his neighbors, and the possession of which is a source of daily enjoyment. If one is so constituted as not to be susceptible to those feelings which a reasonably well-balanced man is supposed to possess, and is so constituted as to obtain more pleasure out of needlessly annoying others than by securing and retaining their respect as a manly member of society, his sovereign right in his own property, to use it as he may so far as that use does not physically extend outside his boundaries to the detriment of others, may be so exercised as to violate the moral obligations which every member of society owes to his neighbors, without any penalty being visited upon him for his misconduct, of which he can be made conscious.”

However, the unbridled ability to irritate neighbors did not last long. In 1903, an early version of the spite fence statute was passed in reaction to the Supreme Court’s decision in Metzger v. Hochrein. Now, some modern examples help us understand the mash-up of words contained in the spite fence statute. For an example from Utah, would a “Redneck Stonehenge” consisting of three old cars upright in the ground, erected after a neighborly dispute constitute a spite fence? The answer in a word – yes!  Closer to home, a Wisconsin appeals court in the case of Apple Hills Farms v. Price found that an “exposed thirty-two feet long, twelve feet high bare concrete wall” near a property was a spite fence. The facts of the Apple Hills Farms’ case provide a textbook definition of spite. Price, the erector of the wall, told the contractor building the wall that he wanted the wall “ugly” to devalue his neighbor’s property. Surely, it did not help his case that he sprayed grass killer on his neighbor’s lawn to spell “A-hole.” Price’s spite bit him back in the end when the court ordered that he pay his neighbor $150,000.

Upon reflection, the law may not be able to answer the question of whether fences make good neighbors, but it shows that at times, fences certainly make spiteful neighbors. To close, Robert Frost’s poem “Mending Wall” fittingly contains the following contemplative prose: “Before I built a wall I’d ask to know what I was walling in or walling out, and to whom I was like to give offense.”

 

What Makes Land Agricultural for Taxes in Wisconsin?

What Makes Land Agricultural for Taxes in Wisconsin?

Ever wonder what it takes for land to be considered and taxed as “agricultural land”? In State ex rel. Peter Odgen Family Trust of 2008 v. Bd. of Review, 2019 WI 23, the Wisconsin Supreme Court recently held that a “business purpose is not required in order for land to be classified as ‘agricultural land’ for property tax purposes.” This is an important clarification as the Town of Delafield Assessor had revised an assessment of land owned by the Peter Odgen Family Trust of 2008 (“Odgen Trust”) from “agricultural land” and “agricultural forest land” to “residential” resulting in a difference in assessed value of over $850,000. Needless to say, the Odgen Trust faced a highly increased property tax burden which led to the Odgen Trust filing a lawsuit in an effort to reverse the classification.

The Wisconsin Supreme Court carefully reviewed the Wisconsin laws that define “agricultural land” and “agricultural use.” When courts review statutes, if the statutory language is clear, then no further interpretation is necessary. The Court determined that the statutes were clear. Under Wis. Stat. § 70.32(2)(c)1g. “agricultural land” means “land, exclusive of buildings and improvements and the land necessary for their location and convenience, that is devoted primarily to agricultural use.” The Court reviewed several statutes and tax code regulations regarding the definition of “agricultural use.” In short, “agricultural use” plainly includes the growing of Christmas trees,[1] apples,[2] and hay,[3] all of which the Odgen Trust was growing on its property.[4]

What none of the statutes or tax code regulations require is the marketing, selling, or profiting from growing crops.[5] All that is required under the statutes and tax code regulations is the growing of the relevant crops.[6] “A business purpose is not required in order for land to be classified as ‘agricultural land’ for property tax purposes.”[7] To require a business purpose, the court would have to “impermissibly insert such a limitation into a clear and unambiguous set of statutory provisions and administrative rules.”[8]

Presently, if you are a hobby farmer and your land is zoned as “agricultural land” or as “agricultural forest land,” you are likely meeting the definition of “agricultural use.” Moreover, the local assessor cannot require that you sell crops in order to keep such assessment classification. In the simplest terms, whether or not you are producing crops for sale, growing crops or woody products will qualify for an agricultural classification. However, what we should be keeping an eye out for is any legislative changes. If the Wisconsin Legislature is unhappy with this result, the Legislature could choose to amend the statutes to require a business purpose. Municipalities could view this loss of tax revenue significant and could request the Legislature to amend the statutes. While we cannot predict the future, the Legislature’s role is to make and amend laws. The results of this case could be something that the Legislature feels is important to address to keep tax revenues as high as possible since the municipalities rely on tax revenues for their budgets. Understanding what qualifies as “agricultural land” or “agricultural forest land” can be important when an alternative classification can create a significantly higher property tax burden.

[1] Wis. Admin. Code DOR § Tax 18.05(1)(c).
[2] Wis. Admin. Code DOR § Tax 18.05(1)(a); Office of Mgmt. & Budget, Exec. Office of the President, North American Industry Classification System (NAICS), United States, 1997, at 86, 90, https://www.census.gov/eos/www/naics/2017NAICS/2017_NAICS_Manual.pdf
[3] Id.
[4] State ex rel. Peter Odgen Family Trust of 2008, 2019 WI at ¶¶ 10-11.
[5] Id. at ¶ 31.
[6] Id.
[7] Id. at ¶ 32.
[8] Id.

 

Private Roads, Joint Driveways, and Easements

Private Roads, Joint Driveways, and Easements

Many properties in Wisconsin have some form of shared access. It can be as simple as a portion of the driveway crossing the neighbor’s property to more complicated scenarios where an access road crosses multiple properties and provides access to numerous lots. Sometimes a “private road” may have been created when the land was subdivided.

As statutory and zoning requirements have become more sophisticated (and developers more aware), it is now more common to see properly-drafted legal documents describing road access rights and obligations at the time new lots are created. However, this is certainly not always the case. In addition, there are many joint driveways, access roads, and private roads that were created when the statutory and zoning requirements were not as stringent.

Where neighbors are friendly and know each other well, informal arrangements regarding shared access often work for years without problems. Of course, if an owner dies or moves away, the dynamics may change. However, even where the parties continue to get along, the lack of a formal arrangement may become an issue if an owner desires to obtain a mortgage on their land. Most banks that offer long term, fixed-rate financing sell their mortgages in the secondary market. This is true even if the bank continues to service the mortgage. For the bank to be able to sell mortgages, they must comply with certain requirements. Those requirements can differ depending on whether the bank uses organizations created by Congress to buy mortgages such as Fannie Mae and Freddie Mac, or some other source to access the secondary mortgage market.

Why does all this financial mumbo-jumbo matter for shared access? Fannie Mae requires a legally enforceable agreement or covenant for the maintenance of any privately owned and maintained street that addresses: (i) responsibility for payment, (ii) default remedies if someone does not comply with his or her obligations, and (iii) an effective term of the agreement, which often is perpetual and binding on future owners. Without a recorded agreement, the bank will not provide financing. This type of trouble is difficult enough if a current owner is trying to refinance but can be even more challenging for a property owner trying to sell a property. In most cases, the parties to a transaction will not find out the potential buyer is unable to secure financing until well into the buying process.

Beyond financing, having a well-drafted agreement in place can also provide owners with peace of mind that their property can be transferred or sold as part of their estate without undue complications. If you own a property with shared access or are thinking about buying a property with shared access, call one of our real estate attorneys to find out what you can do to protect yourself and your investment.

 

Vacation Rentals and Restrictive Covenants

Vacation Rentals and Restrictive Covenants

The vacation rental market has exploded in recent years due to the popularity of online sites such as Airbnb, VRBO, and HomeAway.  While these sites have created a booming marketplace for homeowners and renters alike, they have also created a myriad of legal and governmental quagmires.  One of these complex issues is restrictive covenants and land use.

A restrictive covenant is a type of agreement that limits permissible use of land.  Generally, a restrictive covenant agreement is recorded so that potential purchasers of real estate are aware that there are restrictions on what they, as landowners, can or cannot do with the real estate.

In a recent Wisconsin Supreme Court decision, Forshee v. Neuschwander, 2018 WI 62, restrictive covenants that prohibited “commercial activity” were held to be ambiguous and unenforceable.

In the Forshee case, the issue was that the landowners were renting their property to vacationers. The question that the Wisconsin Supreme Court analyzed here was whether the prohibition against “commercial activity” included short-term and long-term rentals. Wisconsin law requires that restrictive covenants must be expressed in clear, unambiguous, and peremptory terms in order to be enforceable. The Court held that the phrase “commercial activity” was susceptible to more than one reasonable interpretation and, therefore, ambiguous.  The Court ultimately decided that prohibition against commercial activity did not preclude either short-term or long-term rentals and the landowners could continue engaging in such activities.

The Forshee case could be setting a larger stage for landowners to have the ability to void any restrictive covenant that is ambiguous. If you own land that has restrictive covenants, you might want to closely examine those covenants as not all of them may be enforceable against you.

For developers, it is in your best interest to review those restrictive covenants again and make sure they are clear and convey exactly what you intend. At minimum, you should review those restrictive covenants that are most important to the development.  Having restrictive covenants drafted right the first time is crucial because subsequent landowners will be bound to the covenants as originally drafted. If the language in the covenants does not clearly convey what the restriction is, that restriction will likely be determined by a court to be unenforceable.

 

“As Is” Clause in Real Estate Agreement

“As Is” Clause in Real Estate Agreement

When using an “as is” clause, the seller and the realtor are still obligated to make disclosures about the property, unless the buyers executed a valid waiver to receive the real estate condition report.

Under Wis. Stat. § 709.01, the law requires that sellers of real estate complete a real estate condition report. There is no exception for property sold “as is.” The only exceptions from the requirement of providing the real estate condition report are for (a) Personal Representatives; (b) Trustees; (c) Conservators; and (d) Fiduciaries who are appointed by, or subject to the supervision of a court. Wis. Stat. § 709.01(2).

Sellers of real property also have a duty to exercise ordinary care — the legal obligation to refrain from any act which would cause foreseeable harm to another or create an unreasonable risk to another. Sellers may be liable if they intentionally conceal defects or prevent buyers from investigating the property to discover the defects. Sellers may also be liable to buyers if they make false affirmative statements about the property. Sellers may further be liable if they do not disclose material conditions which buyers are in a poor position to discover (e.g., fire damage that has been repaired or prior mold or pest issues).

Similarly, pursuant to Wis. Admin. Code REEB 24.07, real estate agents are required to inspect the property to familiarize themselves with the property’s condition and disclose adverse conditions to potential buyers. Wis. Admin. Code REEB 24.07(1)(b) further requires real estate agents to “make inquiries of the seller on the condition of the structure, mechanical systems, and other relevant aspects of the property as applicable.” Simply because the real estate is being sold “as is” does not mean that a real estate agent no longer must comply with such prescribed duties.

In conclusion, if you are selling your property and you want the sale to be an “as is” sale, you may still be required to make disclosures about the condition of the property. To limit your risks, talk to your attorney about proper disclosures when selling real estate.

Imperfect Title:  A Survey Exception Primer

Imperfect Title: A Survey Exception Primer

There is little risk in presuming that the majority of homeowners rate their property as their most important asset. Paradoxically, homeowners likely know more about their car insurance than the insurance purchased for the purpose of protecting legal title to their property. Just like no one would want to purchase a car subject to someone else’s car loan, neither do people want to purchase property subject to the former owner’s mortgage or other liens. A homeowner may avoid such problems by obtaining a title insurance policy.

Familiarity with title insurance is usually nothing more than a nuisance charge on a closing statement. Yet, the essential function of a title insurance policy is to provide coverage ensuring the homeowner has good title to the property. If a covered title defect is found, the policy pays the homeowner for actual loss under the terms of the policy, and no more.

As with any insurance policy, it is paramount to understand what is covered. Basically, title insurance is a two-step transaction: the title commitment and title policy. The commitment consists of three parts: Schedule A, Schedule B, and the Conditions.1 Schedule A lists the name(s) of insured(s), the amount of coverage, a description of the insured property, and the effective date. Schedule B-I provides preliminary requirements to a policy being issued. Schedule B-II lists exceptions to coverage. The commitment also has Conditions found on the commitment cover. Following closing, the policy is issued based upon the commitment if the requirements have been met.

A typical title insurance policy contains certain exceptions concerning title risks that cannot be discovered or evaluated relying solely on public real estate records. The survey exception removes coverage for boundary line disputes. The purpose of the survey exception is to make it clear that the policy does not protect against matters outside a review of real estate records. In other words, matters that would be discovered by a surveyor are not covered by a title insurance policy unless a survey is obtained prior to closing.2 Typical language for this exclusion, found on Schedule B of the policy, states:

This policy does not insure against loss or damage (and the Company will not pay costs, attorneys’ fees or expenses) which arise by reason of: Encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey or inspection of the premises.

Essentially, the title company puts the risk of not surveying the property on the insured. The property owner can limit this risk by either obtaining a survey or arranging for the removal of the survey exception.

Removing the survey exception – which can be accomplished by performing a survey per the policy conditions or paying an additional premium – exponentially expands the protection provided by a title insurance policy. For example, when the survey exception is removed, coverage is expanded to include3:

1.  A survey’s failure to show an encroachment of a policyholder’s fence on a neighbor’s property.

2.  The incorrect placement of lot line which causes a policyholder’s cellar door to open on a neighbor’s property.

3.  The incorrect placement of a power line easement 50 feet from the house as opposed to the true of measurement of 5 feet from the house.

4.  An incorrect statement of the amount of acreage.

5.  The encroachment of an insurance holder’s barn onto the neighbor’s property.

Whether you are working with a realtor or purchasing a for sale by owner property, it is important to understand your title insurance policy and the exceptions to coverage. Review your title insurance terms and exceptions to ensure your property is protected. If you have questions about your title insurance policy and what it covers, make sure you call your attorney.

1.  This form is available at the ALTA website: http://www.alta.org/forms/ (last visited June 5, 2017).

2.  Joyce Palomar, Title Insurance Law, § 7.02.

3.  Title and Escrow Claims Guide, 2nd Ed., § 12.3.16 (2013).

 

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