Adverse Possession and How Good Fences May Not Make Good Neighbors

For some reason lately, I've had several questions come up that basically come down to I/my neighbor has built a fence across/used property belong to the adjacent property for years, the arrangement is now causing some sort of problem, and now someone wants to know if they can claim this land/if they can throw the interlopers off the land being "borrowed".

So I'd already decided to post on this topic when lo and behold the Ohio Supremes issue an opinion on precisely this question in Evanich v. Bridge, 2008-Ohio-3820.  (As always, the Ohio Supreme Court's Office of Public Information has issued an excellent summary of the decision.)  This case answers the question: does it matter if the use/occupation of the other person's land was unintentional, i.e. do you have to intend to take something you know is not yours?  In finding that the intent of one person to possess the land of another person is determined by an objective rather than subjective standard, the Ohio Supremes may have thrown a new wrinkle into the analysis. 

Adverse Possession Defined.  This sort of situation raises what lawyers call "adverse possession" - which is one of the few concepts from law school not directly part of my practice that I seem to remember all these years later.  The short answer is that it takes a a REALLY LONG TIME for "adverse possession" to kick in to alter the ownership rights to real property.

The longer answer is that the fence or other use of someone else's real property must be "open and notorious" for a number of continuous years that varies somewhat from state to state.  In Ohio, the magic number is 21 years.  Ohio courts require that the use/occupation of the land be such as to put the true owner on notice that someone is asserting an adverse/hostile claim to the property.  Thus if the use/occupation of the land was done with the express or implied permission of the true owner, "adverse possesssion" cannot be established. 

An Example.  A few years ago I represented a client interested in selling a portion of some commercial acreage he owned to another party who intended to construct a manufacturing facility on the real property.  Because the portion of the property being conveyed did not directly abut a public street, access was understandably a critical issue in the transaction for the buyer. 

Some years before a private drive had been constructed along the edge of the property being retained which could be extended to the portion destined for the new owner.  So the easy answer would seem to be simply to grant an easement to the buyer to provide access.  Unfortunately, when it came time to prepare the proper legal description for the easement and the survey showing the roadway had been examined, it turned out that a portion of the private drive had been constructed on the other side of the property line separating my client's property from his adjacent neighboring landowners' property.  Half the road had been constructed on the neighbor's vacant land.        

Aside from the obvious lesson that this is why it really is important to have a survey done before undertaking construction or purchasing real property, this illustrates how adverse possession can come about.  You can't get more "open and notorious" than running slabs of concrete across someone else's land, right?  On the other hand, why complain if someone else wants to build something potentially useful to you on your land, but doesn't bother to charge you for doing it?  In addition, the encroachment of the drive onto the adjacent property probably was inadvertent.   

In this particular case, the requisite time period had not yet expired.  However, it had been some time since the roadway had been constructed without objection and but for the desire to sell the property at that particular point, I think it quite likely that nothing would have disturbed the situation.

Evanich Case.  The recent Evanich case is interesting because it involves a set of facts that has probably been played out many many times.  After the Evanichs bought certain real property, they built a house on it and then in 1967 began doing some rather elaborate landscaping.  Based on where they thought the property line was, the Evanichs installed a split rail fence, decrative rail ties, and various plantings along what they thought was the edge of their lot.  When the neighboring property was sold ten years later, the landscaping was in place.

For some reason, the Evanich's neighbors decided to get a survey in 2002.  When that survey was done, it was discovered that the landscaping encroached on the neighbor's property by approximately 97/10,000 of an acre.  The neighbors then asked the Evanichs to remove the landscaping and they refused.  The lawsuit ensued.

The trial court saw it Evanich's way, as did a majority of the Court of Appeals, and held that the Evanichs could keep the landscaping because they had successfully satisfied the elements of adverse possession.  The dissenting Court of Appeals judge felt that the Evanichs had failed to demonstrate the requisite intent required to claim adverse possession since they never really intended to take their neighbor's land.   

The Ohio Supreme Court also sided with the Evanichs, saying

In a claim for adverse possession, intent is objective rather than subjective in determining whether the adversity element of adverse possession has been established, and the legal requirement that possession be adverse is satisfied by clear and convincing evidence that for 21 years the claimant possessed property and treated it as the claimant’s own. This has been the law in Ohio for over 140 years, and we are unwilling to alter a rule that has successfully directed the application of the doctrine of adverse possession for so long.

The court of appeals concluded that the Evaniches had acted in a way consistent with true ownership by installing landscaping that included railroad ties, stone blocks, fencing, bushes, flowers, and at least one tree. It held that the Evaniches possessed the necessary intent based on their exclusive control over the property for 35 years. (emphasis supplied)

Analysis.  Without giving it a heckuva lot of thought, I probably have assumed up to now that you had to have some sort of actual intent to take what's not yours to establish adverse possession - how else could it really be "adverse"?  However, sticking with only the outward consequence of actions leading to adverse possession certainly does make it easier to apply a bright line test.  

Ultimate Lesson.  The ultimate lesson here is that if your neighbor puts up a fence along your mutual property line or starts driving over your property, it's probably worth your time to either (1)determine for sure where that property line is so you don't lose that land; or (2) make it extremely obvious that if there is an encroachment, you're letting it stay there permissively. 

UPDATE:  for further analysis of the Supreme Court's decision in Evanich, visit this post entitled "Ohio Supreme Court Rules that Possession of Another's Property by Mistake, Still 'Adverse' Possession"  by Stephen D. Richman of the Ohio Real Estate Blog. 

The Trouble with "Get Rich Quick" Real Estate Schemes

Unless I’ve somehow agreed to get up at the crack of dawn to play golf, Sunday morning is a lazy relaxing time for me - definitely a law free zone.  I gradually become aware that I’m awake.  The cats and I have a little “quality” time while I lie in bed watching the CBS Sunday Morning television news magazine.  Eventually I rouse myself to get showered and go downstairs to read the newspaper while watching one of the Sunday morning news talk shows. 

THE HOOK.  After the politicians have had their debates, an infomercial typically comes on next which I sometimes leave on whilst I'm preparing lunch.  This week, it’s “JOHN BECK'S FREE & CLEAR REAL ESTATE SYSYTEM" which promises me that I can profitably invest in all manner of real estate by spending only a few hundred dollars at government “tax sales”.  I’ve seen part of this infomercial on other Sunday mornings, but this time I became intrigued and went on a mission, in part because a client had recently been asking me some questions about real estate investments.

For only $39.95, the infomercial promised to send me a kit explaining how I too could make wads of money  -- just like the folks giving testimonials  -- by taking advantage of government tax foreclosure sales most people don't even know exist.  According to the infomercial, by using the special "Free & Clear Real Estate System",  I will be able to buy tax foreclosure properties for "pennies on the dollar" and own them "free and clear" with no monthly payments.  The infomercial also tells me that all I have to do to get these properties is pay the back taxes owed on them and assures me there are many properties in my area I could get.  Numerous examples were shown of houses bought for only a few hundred dollars, but  worth far more.  And of course there's a money-back guarantee!!! 

TAKING A CLOSER LOOK.  Having long been an adherent of the “if it sounds too good to be true, it probably is” school of thought, I found it difficult to believe this “system” actually worked, but was nevertheless curious.  As an attorney with substantial experience in real estate and foreclosure law, it also just didn’t square with what I thought I knew about Ohio law in this area.  But I’m always willing to learn new things….

So I decided to investigate.  Google and the internet are a wonderful tool!!  It wasn’t long before I found a website called Infomercialscams.com with page after page of complaints about this very program.  Among the least of the issues with the “Free & Clear Real Estate System” was that the $39.95 apparently wasn’t a one-time fee as the program certainly implied, but instead was a recurring monthly charge.  There was also heart-wrenching story after story of people induced to part with thousands of dollars to "upgrade" to more intensive training and/or who vainly tried to cancel the entire transaction.  Well, if I had been inclined to shell out some money just to check it out, I certainly wasn’t going to do it anymore.  

But I was still confused about how this would work even in theory.  The idea is that because county governments need the tax money to provide necessary services to citizens, they have the power to sell property on which taxes have not been paid.  OK, so far so good – that’s all true and some Ohio counties do indeed have annual tax lien sales.  That, however, is where reality stops.    

A quick look at the Ohio Revised Code (See ORC 5721.30 through 5721.43) and a little more internet research.  I soon determined that while I suppose it’s possible (though I think unlikely) this “buy at tax sales” plan might work in other states, it CERTAINLY DOESN’T WORK IN OHIO!!!

OFFER NOT VALID IN OHIO. Here’s why:

1.  No Such Sales.  Perhaps the most important reason it won’t work here is that Ohio simply doesn’t do a retail “over-the-counter” business in tax lien sales.  Since 1997, only counties with more than 200,000 in population are even permitted to have tax lien sales AND all of them sell tax liens once annually solely to an institutional investor as a single lot costing more than a million dollars.

2.  The Long Wait.  Even if you could participate in a tax lien sale in Ohio, it isn’t the carefree and direct road to quick profits portrayed on the infomercial.  While it is true that if property taxes remain unpaid, the county will eventually offer a tax lien certificate for sale with respect to a particular parcel, that is only the beginning of a rather long journey towards making any money. 

The tax lien certificate does in fact carry an 18% interest rate plus penalties that are dangled before the uninitiated as the safe, secure, and amazingly large return on investment.  What is not disclosed is that having once purchased the tax lien certificate, probably at a discount (i.e. with an interest rate less than 18%), you CANNOT do anything with it for TWELVE MONTHS. 

What you hope happens is that the delinquent taxpayer somehow has an upturn in his financial fortunes and suddenly becomes able to pay off the taxes, plus interest and penalties – in the unlikely event this happens, then yes, you will make money.  However, you are not permitted to contact the delinquent taxpayer during this period and must just wait and see.  In at least some counties, payment plans are offered to those delinquent taxpayers wishing to redeeem their property, thus further delaying your ability to profit on the investment.   In addition, during this period, you may also find yourself dealing with zoning and nuisance issues associated with the property. 

3.  Working Through Foreclosure of the Lien.  If the property is not “redeemed” during this year following your purchase of the tax lien certificate, then you have the “opportunity” to foreclose on your tax lien certificate and finally get possession of the property.  However, you must do so within three years.  In addition,  Ohio is a “judicial” foreclosure state which means that you can’t just schedule a sale of the property and be done with it.  No, a foreclosure action requiring a court filing fee of probably at least $200, has to be filed in the local Court of Common Pleas and wind its way through the courts.  For a fee, generally around $3,500, you can use the services of the County Prosecutor to get this done; it’s also possible for you to engage the services of a lawyer in private practice although I rather doubt there would be any savings with this approach.  By this time you should be adding up the time and expense and wondering why anyone would want to do this.  But there's more......

4.  Minimum Bids Required.  So, assume that you finally get through the foreclosure litigation in a timely manner, perhaps in only a few months. Now what?  Can you still get real estate at a fraction of its true fair market value?  Nope.  Under Ohio law, property sold at foreclosure sale must be appraised (more court costs) and offered for a MINIMUM BID of TWO-THIRDS of its VALUE.  If no one is willing to pay the minimum bid, then the property will be reappraised and offered at a somewhat lower price, but probably not enough less to make it worthwhile.

5.  Dealing with Lenders "Bidding It In".  Maybe you think buying property at two-thirds of its value still sounds like a good deal, especially if you can immediately “flip” it.  Unfortunately, the likelihood of getting the property for that little is not particularly good in practice.  Usually, there will be at least one mortgage on the property as well as possibly some judgment liens.  The bank or financial institution holding the mortgage will not infrequently “bid it in”, meaning that until it bids more than is owed on the mortgage, the lender is essentially playing with “house” money and will not have to come out of pocket to take title to the property.  If the property IS worth having, chances are the lender will have figured that out and bid accordingly.

6.  If You Don't Believe Me...  For the "official" version of what I've just explained, visit the explanations of tax lien sales provided by the Franklin County Treasurer, Hamilton County Treasurer, Cuyahoga County Treasurer, and Lucas County Treasurer.

Look Before You Leap.  Every state is different so the strategy might be more viable elsewhere, but there are bound to be some important procedures you should be sure you’re aware of that must be followed before you can realize any profits.  Some of those may be similar to what I've pointed out above.  In particular, at a minimum, I would suggest determining if the state is a “judicial” foreclosure state like Ohio.  If it is, then it will probably take longer and cost more to get to the point where you can sell or take possession of the property.  Make sure you really understand ALL the steps that need to be taken for you to get from putting money out to supposedly getting more money back.        

My point in going into some detail here is that it’s important to understand fully the process by which you are supposed to get rich before investing even a little hard-earned cash into the deal.  Whether it's this "system" or some other way to invest in real estate, or some other "plan" to make lost of money quickly with almost no risk and little effort, it really is BUYER BEWARE out there.  If there really was a foolproof method of turning real estate into cash, many more people would be financially independent.

Soo.. now you know how I spent part of my Sunday… Scary, huh?

My Favorite Ohio-Based Law Blogs

Now that I've been doing this law blog thing for about eight months, I've had a chance to get acquainted with my neighbors in the blogosphere.  There are of course my subject matter compatriots all across the country that I've enjoyed coming to know through their blogs (Chris Moander of the relatively new Wisconsin Business Law and Litigation blog and Rush Nigut of Rush on Business from Iowa (the home in my youth) especially come to mind).  But today I wanted to focus on my geographically proximate neighbors practicing law in Ohio while writing their blogs.  

Like anyone else I have my favorites.  I don't claim to be any arbiter of quality or worth so the following is really nothing more than what I've found I've liked the most so far. 

Perhaps my own personal favorite Ohio-based blog is The Briefcase which has been published by solo practitioner Russ Bensing for quite a while.   It promises to provide "commentary and analysis of Ohio law" and it certainly delivers.  Russ gives brief summaries and case updates of Ohio civil and criminal cases decided by the various Court of Appeals and the Ohio Supreme Court with a bit more criminal than civil cases.  While this is of course useful, his regular "Friday Roundup" feature focusing on the more entertaining legal cases out there is a must-read for me every week.  In addition, even the case updates and summaries are given with a definite bit of "attitude" that makes them much more interesting than the usual dry case summary.  And his "About" section is particularly well done.  Russ's stuff is not often the sort of thing I tend to link to (which may say more about me than him), but I certainly appreciate his contributions.

My other "substantive" favorite  Ohio-based blog is the Ohio Employer's Law Blog published by Jon Hyman of Kohrman, Jackson & Krantz  for more than a year.  Its tagline is  "Practical employment law information for businesses in Ohio and beyond."  What I like about this blog is Jon's well written, informative, and useful (even "practical") posts about important issues in the labor and employment law areas.  I also think Jon's analysis of the legal issues he covers is clear and seems right on point.  In addition, I like his regular "What I'm Rreading" series which features several quick links to other interesting posts around the blogosphere.  I don't practice in this area so I appreciate having such excellent resource available to keep me up to date about pertinent legal developments. 

Ohio Employer's Law Blog is one of two Ohio-based blogs focusing on employment and labor issues.  The other is Porter, Wright, Morris & Arthur's Employer Law Report which says it will be "Reporting on recent legal developments and trends affecting employers".  It has been published sporadically over the last couple of years, but now seems to be adding new worthwhile posts more frequently. 

The D&O Diary published by Kevin M. LaCroix of Oakbridge Insurance Services, an insurance intermediary focused exclusively on management liability issues, focuses on perhaps the most complex issues of any Ohio-based law blog.  It is intended to be "A Periodic Journal Containing Items of Interest from the World of Directors and Officers Liability, with Occasional Commentary".  I haven't had much chance to become fully acquainted with this blog yet, but hope to so in the near future.

When it comes to coverage of both substantive and professional developments of interest to Ohio lawyers, I like the Cleveland Law Library Weblog the best.  It explains that "our goal is to inform local attorneys of major legal developments important to their practice".    I often find ideas for posts by reading this blog and appreciate the links usually provided.  The Cincinnati Law Library Blog  and the Moritz Legal Information Blog which provides "Legal Information and Research Resources Brought to You by The Michael E. Moritz Law Library at The Ohio State University" also provide these sort of services.

One of the newest Ohio-based law blogs is the Ohio Real Estate Blog published by the attorneys of the Real Estate Practice Group of Kohrman, Jackson & Krantz which started up only a couple of months ago in April.  In same real estate practice area is the Build on This! blog published by the attorneys of the Real Estate and Construction Practice Group of Buckingham, Doolittle & Burroughs, LLP which offers "Current news, information, and events affecting the real estate, construction and land use industry and its professionals".

Another recent addition to the blogosphere is the Reasonable Doubts blog published by Jeffrey Davis.  It started in March 2008 and, as its name would suggest, focuses on crminal law.  In addition, the Ohio Family Law Blog, published by Robert Mues of Holzfaster, Cecil, McKnight & Mues, LPA, began in December 2007 and tries to provide "Family Law and Divorce Information for Ohio Families Seeking Solutions".

Interestingly, there are TWO Ohio based law blogs called Sixth Circuit Blog.  One seems to focus on criminal law and offers "Case summaries and commentaries by federal defenders of the Sixth Circuit".  The other, published more sporadically by Eric Zagrans, focuses primarily on civil law and is "Devoted to Appellate Law and Practice Within the Sixth Circuit and Its Constituent States"

Rounding out the roster of Ohio-based law blogs (at least those I'm aware of) are the following with which I am less familar, in part because they relate to areas of law with which I have less experience in my day to day practice:

While there are several newer Ohio based law blogs, there are also many that have been published for two or three years or even longer.  There are also some earlier Ohio-based blogs that are no longer publishing.  In addition, there are several "business" blogs based in Ohio that touch on legal issues from time to time, but that's a subject for another day.

I hope I haven't forgotten anyone, but if I have, just add a comment with your URL and then we'll know about you too. 

Ohio Mechanics' Liens Lessons

Whether you're a lender making a loan secured by a mortgage on real estate, a prospective buyer, or an unpaid tradesman making improvements to real estate, understanding Ohio mechanics' lien law is very important.  Guernsey Bank v. Milano Sports Enterprises, LLC, 2008-Ohio 2420 (May 20, 2008), a decision recently handed down by the Franklin County Tenth Appellate District Ohio Court of Appeals, while not really that interesting as far as making new law, underscores this importance and should be seen as a warning of what could happen if proper procedures are not followed.  Francisco Luttecke of Bricker & Eckler LLP provides a useful and complete summary of the facts and holding of this case in an e-alert to whose mailing list I seem to have been added (not that I'm complaining).

Facts of Guernsey Bank Case.  At the most basic level, the Guernsey Bank case illustrates some of the problems that can arise in more complicated transactions.  The defendant Milano Sports Enterprises, LLC ("Milano Sports") had entered into a purchase contract to buy an indoor tennis facility that it intended to convert into an ice rink.  Because Milano Sports wanted to get started on renovations immediately rather than waiting to close on the purchase, it entered into a lease agreement with the seller.  About two months later, the purchase was consumated and financed by a loan from Guernsey Bank secured by a mortgage on the subject real estate. 

Meanwhile, in the intervening two months, an electrical contractor and other tradesmen performed some of the work necessary for the conversion, but were not paid.  After the purchase transaction went through and the Guernsey Bank mortgage had been recorded, the electrical contractor and other unpaid contractors filed mechanic's lien affidavits.  It should also not come as too much of a surprise that a few months after this, Guernsey Bank started foreclosure proceedings regarding the real estate. 

Eventually the property was sold at foreclosure sale for $525,000, leaving Guernsey Bank with a deficiency of approximately $75,000.  A priority fight broke out over who was entitled to the foreclosure sale proceeds with Guernsey Bank challenging the priority and validity of the mechanics' liens.  Ultimately, Guernsey Bank received only about $137,000 of the foreclosure sale proceeds because the Court found the mechanics' lien holders had priority.  Thus Guernsey Bank wound up with a deficiency of more than $475,000 instead of only $75,000. 

What to Know About Mechanics' Liens.  Which brings us to the lessons to be learned from this rather ordinary case:

  1. Mechanics' liens CAN trump and have priority over previously recorded mortgages in certain circumstances.  If no notice of commencement is filed, the relative priority of a mortgage and a mechanics' lien depends upon when the first of the labor or material was performed or furnished.  If the mortgage is recorded prior to any labor, work or furnishing, then the mortgage lien will have priority.  Ohio Rev. Code §§1311.13(A); 5301.23.  If, however, the labor, work or furnishing begin before the mortgage is filed for record, then the mechanics' lien will have priority over the entire mortgage for the entire amount of the mechanics' lienholder's claim even if (A) some of the goods or services were provided after the mortgage was recorded or (B) the lien affidavit perfecting the mechanics' lien is filed after the mortgage is recorded.  Ohio Rev. Code §§1311.13(A); 5301.23.
  2. Determining when the first of the labor or materials were performed or furnished means establishing the date the "first visible" work or material being performed or furnished.  Ohio Rev. Code §1311.13(A)(1).  This test was set forth in the case of Huntington National Bank v. Treasurer of Franklin County, 13 Ohio App.3d 408, 469 N.E.2d 535 (10th App. Dist. 1983) as

     whether the work performed had produced visible results which were sufficient to make it reasonably apparent to a person examining the site that the construction, excavation, or improvement had actually commenced.... In order for the work to be deemed the commencement of construction, it must form a part of the work necessary for the construction and be of a nature that can afterward be considered a component part of the structure.

    See also Schalmo Builders, Inc. v. Malz, 90 Ohio App.3d 321, 629 N.E.2d 52 (1993).
  3. Make sure you get a title insurance policy and don't just rely on a title insurance commitment.  One of the things Guernsey Bank did right was buy a title insurance policy pursuant to which the title company promised to indemnify Guernsey Bank against any loss or damage incurred because of the "[l]ack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material [ ] arising from an improvement or work related to the land which is contracted for or commenced prior to the Date of Policy * * *."  As a result, at least Guernsey Bank didn't have to pay the mechanics' lienholders out of its own pocket.
  4. If you are the lender and/or purchaser in a real estate transaction, make sure you get an affidavit from the seller about off-record matters such as whether any labor or materials have been supplied to the property, just in case the title policy is not as generous as the one here.   
  5. If you're going to rely on the construction mortgage exception (set forth in Ohio Rev. Code 1311.14) to the special priority given mechanics' liens, make sure you have more evidentiary support than a settlement statement (which the Court ruled was inadmissible in Guernsey Bank).
  6. When preparing and filing a mechanics' lien, take care to follow the form of affidavit set forth by statute.  Ohio Rev. Code 1311.06.  Guernsey Bank challenged the validity of one mechanics' lien because it incorrectly stated the amount due.  While in this case, the Court upheld the validity of the mechanics' lien,  the law in this area is often very strictly interpreted.  Crock Constr. Co. v. Stanley Miller Constr. Co., 66 Ohio St. 3d 588, 613 N.E.2d 1027 (1993).  Pursuant to Ohio Rev. Code §1311.06 - which helpfully contains an acceptable form -- the lien affidavit must contain the following information: 
    • Amount due over and above all legal set offs
    • Description of the property sufficient to identify the premises with reasonable certainty, i.e as though for purposes of conveyance or by inclusion of the legal description contained in the deed conveying title to the owner (Ohio Rev. Code §§1311.06(D); 1311.04(B)
    • Name and address of the person to or for whom labor or work was performed or material furnished
    • Name of the owner, part owner, or lessee
    • Name and address of lien claimant
    • First and last days that the lien claimant performed any labor or work or furnished any material to the improvement giving rise to the lien
  7. Another thing to remember is that an Affidavit of Lien must be filed with the county recorder for the county in which the property is located within seventy-five (75) days of the last day work was performed or furnished.  Ohio Rev. Code §1311.06(B)(3).  In addition, to perfect a mechanics' lien, it is also necessary to serve the lien affidavit in accordance with the provisions of Ohio Rev. Code §§1311.07 and 1311.19 upon the owner of the subject property within thirty (30) days after it has been recorded by the appropriate county recorder; if service cannot be accomplished, then the lien affidavit must be conspicuously posted at the subject property within ten (10) days after the thirty (30) day service period.  Even if the contracting party has actual knowledge of the lien, it must still be served (or posted) to be valid.  Brown v. Pearson, 1995 Ohio App. LEXIS 2788 (2nd App. Dist).