LLC Faces Losses Secondary To Property Deed Restriction


Land Use ExpertThis case stems from a previous case surrounding a deed restriction. An LLC purchased golf course property and submitted housing redevelopment plans to the city council. Prior to submission, the LLC purchased title insurance and the insurance company performed an evaluation of the deed in question. They found a restriction in the deed but notified the LLC that any costs incurred surrounding that restriction would be covered under the insurance purchased. Once the redevelopment plans we submitted to the city council, the LLC received push back from local citizens and the restriction in the deed was called in question. A year later, the LLC wanted to file a quiet title action to determine whether the deed restriction was enforceable. The insurance company initially granted permission, but then rescinded permission 6 months later stating that a quiet title action would waive coverage. The council failed to act on LLC’s proposed plans for over a year, so the LLC filed a lawsuit against the city seeking approval. The insurance company provided the LLC an attorney to represent them for the deed restriction portion of the litigation. 3 years later, LLC and the city reached a settlement agreement in which the city would allow redevelopment but the LLC was required to grant a conservation restriction on a portion of the property to keep it a golf course. The settlement agreement could not take effect until the enforceability of the deed restriction was resolved. The restriction was resolved several years later when the courts modified the deed restriction to conform to the new restriction the LLC offered through the settlement agreement. Thus, the deed restriction continued to exist in a modified form. When the LLC filed a claim on the title insurance for losses suffered, the insurer said they could not indemnify the LLC for the losses as a result of the deed restriction. According to the insurer, the LLC triggered an exclusion under the policy by agreeing to the new restriction in the settlement agreement even though they knew about the settlement and advising LLC before it was entered but never told the LLC it could waive coverage.

Question(s) For Expert Witness

  • 1. Please briefly describe your familiarity with contract zoning.
  • 2. When a title defect has been identified, who is responsible for taking steps to rectify for approval?

Expert Witness Response E-263111

I have been in the real estate business for over 30 years and I specialize in special purpose properties, including golf courses, as well as residential subdivisions. I have appraised numerous golf courses, both with and without deed restrictions. I have also appraised numerous residential subdivisions over the years. Based on the background provided, contract zoning is referring to the issue of deed restrictions. This type of deed restriction is common for golf courses and was a popular requirement in the past. The question as to who is responsible for taking steps to rectify for approval is not readily answerable. I have completed numerous appraisals related to title claims but each one is different. The title company must honor its requirement under the terms of the title policy. If it can be established that they are responsible for the impact on value related to the deed restriction, we would most likely need to complete an appraisal on a “before and after” basis (one value premise based on the value of the property for the residential subdivision and a second value premise based on the value “as is”). The difference in value between those two premises would define the number and amount of damages. At that point, there may be a discussion about whether they would attempt to have their attorneys get the deed restriction removed or to simply play the claim.

Expert Witness Response E-095102

I specialize in land use and zoning consulting for planning boards, municipalities, and developer plaintiffs. I have been in this space for the past 40 years and I also consult with planning boards on a near-daily basis. I have been involved in a number of disputes revolving around title issues. I am certainly familiar with contract zoning. For lack of a better description, municipalities are not blatant. Contract zoning is invalid and illegal in some states and is vulnerable to a challenge. Most of my work is in regards to spot zoning, which is much more common. Spot zoning happens in situations where a particular property is favored with zoning that gives them a benefit that contiguous properties don’t receive. There can also be reverse spot zoning where inferior zoning is given to a property while its surrounding properties have superior zoning. I would be interested to know more about the redevelopment issues in this case. In some states, there is a redevelopment housing statute wherein a redevelopment plan can supersede zoning.

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