The High Cost of Not Doing Your Due Diligence

In a recent case (Cooper v. Jordan, No. 14-0157) the Appeals Court of Iowa addressed a negligence claim by one heir against a sibling trustee who was also an heir. What I like about this case and why it is being added to the Iowa Real Estate Lawyer blog is to demonstrate another situation where doing due diligence would have revealed problems existing on the property which would likely have resulted in this heir’s property valuation being lowered with money being attributed to the deferred maintenance by or from the other heirs. In other words had the due diligence been performed it would have shown the problems in this farm house resulting in a lower value. When the other farms were transferred to the other three heirs, the equalization payments would have offset the repair costs of the home farm house.

Like many cases where due diligence has not been properly performed the costs to repair fall on the person who is buying the property. So keep this in mind as you read this case summary.

Attorney Lombardi says, This is an interesting case because it demonstrates the need to conduct thorough due diligence prior to agreeing on the equalization of valuations between the four farms. It is far better to be arguing about valuations than it is to be trying to prove the trustee was negligent. Due diligence applies not just to cases like this inherited property case, but also with any real estate transaction including home purchases. The buyer needs to fix the problems or be credited against the purchase price before closing! Not after.

COOPER v. JORDAN - Suit by trust beneficiaries

COOPER v. JORDAN No. 14-0157
            Appeal from the Iowa District Court for Jones County, Robert Sosalla, Judge.  Heard by Vogel, P.J., McDonald, J., and Scott, S.J.  Opinion by McDonald, J.  (12 pages)              Linda Cooper sued her sibling Lynnette (Sue) Jordan, successor trustee of their mother's trust, asserting claims for negligence and breach of trust.  Following a bench trial, the district court entered judgment in favor of Sue and dismissed Linda's petition.  The district court denied Linda's request for costs and expenses and granted Sue's request for the same.  OPINION HOLDS: Linda did not prove Sue was negligent or that the alleged negligence caused damage.  The court did not abuse its discretion in awarding Sue costs and expenses, except for the costs and expenses relating to depositions not used at trial. AFFIRMED IN PART AND REVERSED IN PART. 

Facts as recited by the Court

"Linda Cooper sued her sibling Lynnette (Sue) Jordan, successor trustee of their mother’s trust, asserting claims for negligence and breach of trust. Linda alleged Sue failed to keep in good and habitable condition two houses on the farmstead Linda received from the trust. Linda also alleged Sue engaged in self-dealing by using trust funds to enhance the value of the property Sue received from the trust. Following a bench trial, the district court entered judgment in favor of Sue and dismissed Linda’s petition. The district court denied Linda’s request for costs and expenses but granted Sue’s request for the same. Linda timely filed this appeal. 

At the time of her death on August 26, 2009, Dorothy DeMean was trustee of the Dorothy L. DeMean Revocable Trust. Dorothy’s daughter Sue was designated as the successor trustee. The trust instrument provided the trust property was to be distributed in equal one-quarter shares per stirpes to Dorothy’s four surviving children—Sue, Gene, Linda, and Leann. The trust corpus included four separate farms in Jones and Linn Counties, which the family referred to as the Home Farm, the Wyoming Farm, the Martelle Farm, and the Castle Grove Farm. The siblings agreed each was to receive one of the family farms with the understanding that equalization payments were to be made between and among them to reconcile the difference in value among the farms.

The four farms were transferred out of the trust to the four beneficiaries as tenants in common on February 18, 2011, eighteen months after Dorothy’s death. The exact cause or causes and the person or persons responsible for the delay between the time of Dorothy’s death and the time of transfer are disputed, but the delay generally arose out of conflict between Linda and the rest of the family with respect to the farm properties and the terms and conditions under which her son could farm one or more of the properties. Regardless of the exact nature of the dispute, on April 8, 2011, following a family agreement to partition the farms, the farms were deeded to the four siblings individually. Linda was deeded the Home Farm.

The Home Farm comprised one main house, where Dorothy lived until her death, and a smaller house. Linda’s family entered the main house on the Home Farm on April 9. They claimed the house was in a state of disrepair. Linda testified there was moisture and water in the basement. She testified the basement ceiling tiles had fallen down. She testified there was mold in the house. She testified raccoons had come into the house through the roof or a vent cover on the roof. Although no raccoons were found in the home, there were raccoon feces in the home. The water to the home had been shut off during the preceding winter. When Linda turned the water on, she discovered some of the water lines were broken. Linda claimed the smaller home on the Home Farm was in a similar state of disrepair. Linda then filed this suit for damages against the trustee."

Attorney Lombardi's Comment: This is an interesting case because it demonstrates the need to conduct thorough due diligence prior to agreeing on the equalization of valuations between the four farms. It is far better to be arguing about valuations than it is to be trying to prove the trustee was negligent. And this applies equally to home buyers. Evaluate the properties condition to identify deferred maintenance. Then negotiate a lower price before the purchase. And if you aren't able to get a lower price, then walk away from the deal.

Why you should pay for a lot line survey.

What is a lot line survey? A lot line survey is a service that exactly measures the location of the lot-lines for a piece of land. The lot lines are the boundaries where you land ends and your neighbor’s begins. Knowing where your lot ends and theirs begins is just a part of being a good neighbor.

In the city or suburbs a surveyor can cost somewhere between $400 and $1,000; but like everything in life the cost is negotiable, so shop around. For that price they will stake out the lot lines and corners of your property with wood stakes and metal survey pins. Always ask for the surveyor to place the survey pins in each corner and then add cement around the top of each pin. You can buy the cement at any hardware store and mix it on a small piece of plywood.

You might wonder, why spend the money?

Because it can save you a lot of money knowing where your ownership begins and ends. 

What can possibly go wrong?

I will give you three examples of how not having a survey can get your embroiled with the legal system and lawyers. And remember where there are lawyers there are legal fees and an uncertain outcome. 

Example 1: I bought a cabin in Northern Minnesota. My neighbors and I all got along wonderfully. We fished and barbecued fish and steaks together. We still today have a great relationship, but when I went to sell my cabin the buyers conditioned the sale on a lot line survey. The survey showed my neighbor’s garage was over the lot line. The buyers wanted it removed and the neighbor balked, but I had another idea, which the offending neighbor wasn't too happy about, but accepted to avoid having to tear down a four stall garage and boat house. We moved the lot line at the shoreline by ten feet and then wiggled the lot line around his offending garage. That way my buyer got ten feet more of shoreline and the neighbor got to keep his garage. 

RESULT: The offending garage owner had to pay for the legal work to make it all legal and he had to give up some land.

Example 2: My home is in a nice neighborhood. My second wife wanted to build a swimming pool. I ordered a survey and discovered the neighbor to our south had his swimming pool fence, landscaping and drainage slurry over the lot line and into my yard. The litigation has been ongoing for over ten years. There is no end in sight. The offending owner sold his home to a new owner and they understand less than the previous owners did. 

RESULT: No resolution.

Example 3: This story is an example of even with a survey, mistakes can be made, but at least you have someone to sue when it does. My son who attends Creighton School of Law sent me this story out of Florida. These folks in Missouri wanted to build their dream home in Florida. They hired a builder who built the 5,300 square foot beach house, but on the wrong lot. Ouch! You surveyors best get out your checkbooks. 

RESULT: No resolution at the time the story was reported in 2014.

My advice before buying or building, get the survey and then read it.

Who is Steve Lombardi? Steve Lombardi is a lawyer and a real estate broker in Iowa. He represents a limited number of buyers for the sheer pleasure of helping people find just the right home for a good price. His business is not about quantity, but quality. His clients stay involved in the search using the Internet to scout out just the right home and at a fair price. He is a lawyer and a real estate broker and so you get the full package for half what it would otherwise cost you. If you would like his help in finding the right home and want to do some of your own research, then contact him. If he isn't helping someone already then you are in luck. 

A recent case involving rescission of the sale of a 200-year-old house based on a claim by buyers of fraudulent inducement by the seller. 

 Justia Opinion Summary

In 2005, Donald Devine and his wife Nancy Devine acquired ownership of Rock Hall, a 200-year-old house. In 2007, Charles Buki and Kimberly Marsho signed a contract agreeing to purchase Rock Hall. Later that year, Buki and Marsho (together, Plaintiffs) brought suit against Donald and Nancy (together Defendants), alleging that Defendants fraudulently induced them to enter into the real estate contract and to close on Rock Hall by misrepresenting and concealing the true condition of the house. The trial court concluded that Nancy had committed no wrong but nonetheless granted rescission of the real estate contract against both Donald and Nancy, concluding that Nancy should be “responsible jointly and severally with her husband for the payment of the purchase price” of Rock Hall. The Supreme Court reversed, holding that because there was no evidence of any wrongdoing on the part of Nancy, the trial court had no basis for awarding any remedy, including rescission, against Nancy.

The evidence failed to show the wife took part in any of the fraudulent acts as alleged. The trial court seemed bothered by what was described in the opinion as "reaped the benefit" of the sale of Rock Hall and allowed rescission. But the higher court overturned that ruling finding no basis for awarding any remedy against the innocent wife. 

Reversed and remanded for further proceedings consistent with the opinion. 

Devine v Buki, Record No. 140305, Justice Powell for the Circuit Court of Northumberland County, Virginia. 

An interesting legal claim was asserted under the Virginia Consumer Protection Act ("VCPA"), Code Section 59.1-196, et seq. 

 Justia Opinion Summary

In 2005, Donald Devine and his wife Nancy Devine acquired ownership of Rock Hall, a 200-year-old house. In 2007, Charles Buki and Kimberly Marsho signed a contract agreeing to purchase Rock Hall. Later that year, Buki and Marsho (together, Plaintiffs) brought suit against Donald and Nancy (together Defendants), alleging that Defendants fraudulently induced them to enter into the real estate contract and to close on Rock Hall by misrepresenting and concealing the true condition of the house. The trial court concluded that Plaintiffs were entitled to rescission of the contract where David, but not Nancy, committed fraud. The court awarded consequential damages and attorney’s fees. The Supreme Court affirmed in part and reversed in part, holding that the trial court (1) did not err in granting rescission of the real estate contract based on Donald’s fraudulent concealment of the true state of the house and did not err in awarding attorney’s fees; (2) did not abuse its discretion in refusing to award punitive damages; and (3) erred in awarding consequential damages and prejudgment interest.

These are companion cases with the likely citation of, Devine, Jr. v Buki, et al., __ Va. __ S.E.2d __ (2015)