Commentary on Washington State law and how it Relates to real Estate

Robert P. Dickson

Robert P. Dickson

Robert P. Dickson is an partner at Dickson Law Group, PS and a member of its real estate and environmental law practice groups. Though most of his work is carried out through commercial litigation, he focuses on real estate, corporate, and environmental law. Much of his practice consists of representing clients in advancing their real property rights against public as well as private entities. Mr. Dickson also teaches a real estate litigation course at the Seattle University School of Law. His experience includes: Easements Adverse possession and trespass Boundary line adjustments Unlawful detainer Land use/zoning Foreclosures Landlord/tenant Real estate transactions (e.g. Deeds of Trust, Promissory Notes, Real Estate Contracts, etc.) Model Toxic Controls Act (including CERCLA), and other environmental regulations Corporation and limited liability company formation and representation Administrative appeals Professional Associations Tacoma/Pierce County Bar Association Washington State Bar Association Young Lawyers Association J. Ruben Clark Society Master Builders Association Associated General Contractors Education Juris Doctorate, The George Washington University Law School, 2007 Bachelor of Arts, Brigham Young University, 2003 Bar Admissions Washington State Bar Association Western Federal District Court of the State of Washington Publications Zoning and Land Use Petition Act, Land Use and Environmental Law Chapter XXIII, Washington Lawyers Practice Manual Real Property Practice Chapter XIV, Section 9, Foreclosure and Realization, Washington Lawyers Practice Manual

Unequivocal waiver of a contract term: what does it look like?

In a recent summary judgment motion, the main topic at issue was whether the famed Mike M. Johnson case applied (Mike M. Johnson v. County of Spokane, 150 Wn.2d 375, 78 P.3d 161 (2003)).  As many will recall, Mike M. Johnson (“MMJ”) states that contract provisions are enforceable unless waived by the provision’s benefit ting party.  This waiver can be implied through conduct or actions, however, if it is so implied, the conduct/action must be unequivocal for waiver to be valid.  MMJ dealt specifically with a contract provision regarding the procedure by which a contractor could receive compensation for changes in the contract (or “change orders”).

Construction_lawThe contract owner in MMJ at almost every turn notified (often in writing) the contractor that if it wanted additional consideration for changes in the contract, it must satisfy the requirements for change orders and turn in specific documentation and information to the owner.  MMJ failed to do so.  The court held that even though the contract owner had actual knowledge of the changed circumstances, this wasn’t enough.  It would have to do more to waive other than simply having actual notice of the changes.

So, the big question remains: if MMJ wasn’t waiver, what does waiver look like?  I believe that MMJ and another case called American Safety Cas. Ins. Co. v. City of Olympia, 133 Wn.App. 649, 137 P.3d 865 (2006) give us a hint:

In MMJ, the court analyzed an assertion by the plaintiff which said that because the county had actual knowledge of the changed circumstances, that it therefore couldn’t deny compensation for mere failure to follow the details of the contract.  The court disagreed:

Construction_Workers“MMJ argued to the Court of Appeals, and maintains before this court, that when an owner has actual notice of a contractor’s protest or claim, that notice, in and of itself, excuses the contractor from complying with mandatory contractual protest and claim procedures.  MMJ contends that the decision of Bignold v. King County, 65 Wn.2d 817, 822, 399 P.2d 611 (1965) establishes the ‘actual notice’ exception . . . [c]ontrary to MMJ’s contention, the Court of Appeals in Bignold did not hold that the owner’s actual notice of the changed condition in and of itself excused the contractor from complying with the contractual notice provisions.  Rather it was the owner’s knowledge of the changed conditions coupled with the subsequent direction to proceed with the extra work that evidenced its intent to waive enforcement of the written notice requirements under the contract.”  Id. at 388-89

From that analysis, the court has clued us into what may look like an unequivocal waiver: actual notice, coupled with directions to proceed.  This resembles an estoppel argument in a lot of ways.  A contract owner may not be protected if he/she knows about change orders, then directs the contractor to do the changed work.  The court seemed to want to avoid the idea of using the contract as a payment shield after an owner draws the contractor into doing change orders.

This idea is echoed in the American Safety case.  There, the court further clarified what unequivocal waiver may look like: “[w]e stress that the discussions between the City and American Safety took place after the work was completed, and thus the situation was not one where the City was directing American Safety to perform its obligations under the contract while the parties negotiated the contractual dispute.  Had the City directed American Safety to focus on performing work rather than worrying about assembling documentation to comply with contractual provisions, then such situation could arguably be construed as implied waiver. . .”  Id. at 772.

Unequivocal waiver of a contract provision would appear to be an instance where a benefited party knows of changed circumstances and directs the other party to more forward, OR, the party is aware of the changed circumstances, then waives the contract procedures by insisting that the work be done and that the contractual formalities be put off or ignored.

Important things to keep in mind when facing foreclosure

BSpencerhomeIn a recent case, the issue arose as to what options a party has when their home has already been foreclosed upon, and sold in a trustee’s sale.  Washington’s Deed of Trust Act provides direction for this issue in RCW 61.24.130.

As interpreted in In re Marriage of Kaseburg,126 Wash.App. 546, 108 P.3d 1278 (2005), a party waives the right to post-foreclosure-sale remedies under the Deed of Trust Act where the party:

  1. received notice of the right to enjoin the sale;
  2. had actual or constructive knowledge of a defense to foreclosure prior to the sale; AND
  3. failed to bring an action to obtain a court order enjoining the sale

This Act provides a the only manner in which ANY party may prevent or restrain a trustee’s sale on any proper ground, once the foreclosure has begun with a “receipt of the notice of sale and foreclosure.”  Id. at 236.

It would seem that the safeguards required before a trustee’s sale can go through, influenced what that legislature allows in post-foreclosure-sale remedies.  In other words, even if there is a valid reason to undue a trustee’s sale, you must take those steps prior to the sale.  IF, of course, you did not receive proper notice and were not aware of the sale, you are NOT barred from bringing an action to stop the sale.

To be safe, if one is facing a foreclosure and his/her home has a scheduled trustee’s sale date, the best thing is to hire an attorney to initiate the legal process.  At a minimum, therefore, the home owner is not guilty of waiving his or her rights to post-foreclosure-sale remedies and can forestall the process before it is too late.

Loan modification options for property investors (non owner-occupied properties)

The Obama legislation, which passed in March, aimed specifically to assist those in danger of losing their primary residence to foreclosure.  It was thought that individuals purchasing property for investment (namely those acquiring property then leasing it out) would not be eligible under the new law.
While that has not changed, our office has seen some interesting movement by banks and loan servicers regarding investment properties.  Under many circumstances, even the investor may gain some relief through loan modification.

Seattle_-_Belmont_Pl_E_01Banks/servicers largely follow the same pattern as the owner-occupied loan modifications.  First, they require a signed forbearance agreement, then they require an extensive disclosure of the investor’s financial status in the form of a “Hardship Packet”.  When they have those two things in hand, the servicer/bank will decide whether to modify the loan.  The following is what is most often required:

1.  Letter describing hardship

2.  Last two pay stubs

3.  Length of time at current employer

4.  One month’s complete bank statement

5.  Most recent tax return

6.  Statement of your complete income (including family members residing with you)

7.  Proof of paid property taxes, homeowners insurance, and HOA fees

8.  (If self-employed): (a)  Profit/loss statements; (b)  three pay stubs; (c)  last two years tax returns; and (d)  business and personal bank statements.

Economic Loss Rule blocks “negligent representation and fraudulent representation” causes of action when a contract controls

In Cox v. O’Brien, No. 37194–4–II the Court of Appeals Div. II reinforced the economic loss rule:

Rumson, New Jersey“Citing Alejandre v. Bull, 159 Wn.2d 674, 682, 153 P.3d 864 (2007), both parties appear to concede that the economic loss rule applies and that the loss at issue here is the structural damage within the walls of the home, undiscovered until after the home sale closed and the Coxes moved in.  In Alejandre, our Supreme Court discussed the economic loss rule as maintaining the fundamental boundaries of tort and contract law.   Alejandre, 159 Wn.2d at 682 (citing Berschauer/Phillips Constr. Co v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826, 881 P.2d 986 (1994)). 

       Where economic losses occur, recovery is confined to contract to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract.  Alejandre, 159 Wn.2d at 683.  A seller sets a price in consideration of potential contractual liability.  Id. The economic loss rule prevents a party to a contract from obtaining through a tort claim benefits that were not part of the contractual bargain.  Id.

In short, the purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists between the parties and the losses are economic in nature.  If the economic loss rule applies, a party will be held to the contractual remedies, regardless of how the plaintiff characterizes the claims.  Id. at 684.” Cox at 8–9. 

For those readers who are not attorneys and don’t understand some of the intricacies of the economic loss rule, if there is a contractual relationship between the parties, the court will look to the contract and NOT tort law to govern how damages are determined.  Consequently, negligence in representing the condition of the home are controlled by the selling contract, and not general tort law. 

Great Construction Law Resource

John Parnass of Davis Wright Tremaine, LLP maintains an informative and well-researched blog called the Washington Construction Law blog.

Given that construction and real estate are often joined at the hip on legal matters, it would be a great idea for people interested in real estate to monitor the latest construction law developments on John’sblog.

Loan modifications – Seven things you need to know

Wells_Fargo_Bank_Plaza,_Houston,_from_baseThe US News and World Report online provides a dynamic breakdown of the basic components of the federally-backed loan modification program. 

According to the article, here are “Seven things you need to know” about a loan modification:

1. The plan focuses on payments made to lenders rather than the price of the loan.  Experts believe that even if the value of the home possesses little or no equity, if the modified loan payment is affordable, the homeowner will continue making payments.

2.  The plan would seek to reduce the mortgage payment to 31 percent of the borrower’s gross monthly income.  “To that end, the administration’s plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower’s gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower’s monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that’s not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that’s still not enough, the servicer would forebear loan principal at no interest.” 

3.  The plan would then encourage loan servicer participation by providing cash incentives:  “To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.”

4.  The plan would only apply to those under financial hardship.  Only owner-occupied residences with an outstanding balance of $729,750 or lower would be eligible.  (Sorry, no speculators.)

5.  The plan will require the loan modification to meet the net present value test.  What this means is that the lenders would compare the expected cash flow of the proposed modified loan with the expected cash flow of the loan unmodified.  If the modified loan would create more cash flow, then the loan will be modified and or restructured. 

6.  The plan will offer loan servicers with incentives to extinguish second lienslike home equity lines of credit. 

7.  The plan may or may not work.  (Not the most satisfying conclusion, I know).  

2008_05_07_-_Baltimore_-_Bank_of_America_1Please refer to the full US News and World Report  article by Luke Mullins here. 

Court clarifies when property damage occurs

The Washington Construction Law blog submitted a recent post about a decision in Division III Court of Appeals.  In Walla Walla College v. Ohio Cas Ins. Co., No. 26647–8–III, the court had to decide when damage occurred to property from leaking of underground storage tanks.

Walla Walla College obtained an insurance policy with Ohio Cas Ins. Co. covering the installation of gas tanks on its property in the early 1990s.  Though the tanks failed in 2001 (leaking gas resulting in property damage) Walla Walla College claimed that the policy from the early 1990s should cover the cleanup costs because the tank failure was caused to faulty installation by an construction company.

Washington Construction Law blog sums it up as follows:

“Division III held that mere stress to the tank was not enough to constitute “property damage” and therefore denied coverage for the loss under the 1990-1992 policies.  First, the Court noted that the “your product” exclusion” negated any coverage for loss in value to the tank itself.  Next, the Court distinguished continuous trigger cases such asGroul Construction Co., Inc. v. Ins. Co. of North America, 11 Wn.App 632 (1974) by noting that while “a process began” in 1991, the “property damage did not occur until the tank failed in September 2001, long after the policies had expired.”

Tacoma considering change in code to attract business

TacomatwilightTacoma’s City Council wants to modify the current zoning law to attract new business to many of Tacoma’s neighborhoods.  The Council hopes to make Tacoma more attractive by easing height and building limitations.

In a recent article by Peter Callaghan, one of the central issues to the new re-zoning plan is balancing the goal of having attractive, well-built development vs. the ability for developers to have projects that “pencil” (meaning that a project can be projected to be profitable).

What the article does not discuss, curiously, are the impacts on development by state  environmental agencies.  Often times, it is the extra cost involved with preparing environmental studies and altering business practices to meet regulatory standards which impacts whether a project is ultimately profitable.

The non-owner’s impact to adverse possession’s timing requirement

For someone to adversely possess someone else’s property, the law requires the possession to have lasted continuously for a minimum of 10 years (or 7 years under color of title — usually meaning that the individual was paying taxes on the adversely possessed property).  That is logical when the property is readily identifiable between two neighboring property owners.  But does that apply when the property owner is not actually occupying the property?  Can a non-owner, like a relative, renter, or friend occupy the property and preserve the 10-year requirement?

Apartment_Building_with_4_Entrances_USAWendy Koch, a fellow associate at Dickson Steinacker, provided the following authority regarding just that issue:

“Defendants cite no authority in support of their contention that Plaintiff must personally testify in an adverse possession case, especially where he adversely possesses through his wife and children which inures to his benefit.    Instead, it is well settled law that an adverse possessor may possess through his tenant (O’Brien v. Schultz, 45 Wn.2d 769, 278 P.2d 322 (1954);Foote v. Kearney, 157 Wash. 681, 290 P. 226 (1930); Flint v. Long, 12 Wash. 342, 41 P. 49 (1895)), and may possess through his contract purchaser (McAuliff v. Parker, 10 Wash. 141, 38 P. 744 (1894)).  By analogy then, he may possess through his family members

Washington Environmental Practices Impact Gravel Pits

Chambers Bay #6TAccording to The News Tribune, Puget Sound area municipalities are having to balance the needs of their growing populations with the impact to their ecosystems.  At the heart of the debate is whether sand and gravel mines are going to be allowed in Western Washington, with many opponents asserting that the Puget Sound is simply too complex an environment to support these installations.  Proponents of gravel mines argue that they are a necessary element of development.

This article outlines the growing tension between powerful environmental lobbies and the business community.  At present, organizations such as People for Puget Sound are pushing for ever more limitations and environmental regulations for gravel pits.

Companies like Glacier Northwest argue that they are doing all in their power to lessen the impact to the environment that their activities produce, however, they argue that their service is necessary.  In the end, they hope that their activities will yield a net positive effect (like the Chambers Bay Golf Course).