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Tute reports on recent Supreme Court Opinion
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Supreme Court Rules Easement Renders Title Unmarketable

   A recently released opinion by the Virginia Supreme Court highlights the duty of title examiners to be particularly aware of the contents of deeds for other properties sold by the owner of the property being in examined. In Haisfield v. Lape (Record No. 012881)(Opinion issued November 1, 2002)(Webmaster note: revised November 13, 2002)1, the Court found a "line of sight" or "view" easement conveyed for the benefit of adjoining property rendered the property under contract unmarketable.

    Kenneth R. Lape, Trustee of the Kenneth R. Lape living trust, and Barbara Gsand Lape, Trustee of the Barbara Gsand Lape living trust (collectively, the "Lapes") entered into an agreement with Audrey Lea Haisfield and Laurel Ridge, LLC (collectively, "Haisfield") in February 2000. Haisfield wanted to purchase a 99-acre parcel in Albemarle County known as the Laurel Ridge Farm. Laurel Ridge was once part of the Oakmont Farm, which contained approximately 148 acres. In 1994, the Lapes sold 48 acres to Moses.

    Closing was scheduled for June 30, 2000. On June 29, Haisfield notified Lape of an objection to title. Tute refuses to speculate on when Haisfield received the title commitment, and did not inquire. Haisfield objected to the following language contained in the Moses deed:

[F]or a period of thirty (30) years from the date of this deed [May 3, 1994], no building shall be built on the current Albemarle County Tax Map Parcel 111-5A [Laurel Ridge] . . . which may be visible from the main residence (Oakmont) located on the property conveyed by this deed.

    The Lapes disagreed that the line-of-sight easement rendered title to Laurel Ridge unmarketable, and efforts between the parties to reach a settlement in the matter were unsuccessful. The earnest money deposit was $50,000.00. If the buyers breached the contract, retaining the deposit was seller's sole remedy. The Purchase Agreement provided that "[s]hould Purchaser default and/or breach this [Purchase Agreement], the Seller shall be entitled to retain the earnest money deposit of $50,000.00 as liquidated damages in lieu of all other remedies provided at law or in equity against the Purchaser." Another section of the contract read:

At settlement Seller shall convey the Property to the Purchaser by a general warranty deed containing English covenants of title, free of all encumbrances, tenancies, and liens (for taxes and otherwise), but subject to such restrictive covenants and utility easements of record which do not materially and adversely affect the use of the Property for residential purposes or render the title unmarketable. . . . If the examination reveals a title defect of a character that can be remedied by legal action or otherwise within a reasonable time, Seller, at its expense, shall promptly take such action as is necessary to cure such defect. If the defect is not cured within 60 days after Seller receives notice of the defect, then Purchaser shall have the right to (1) terminate this Contract, in which event the Deposit shall be returned to Purchaser, and Purchaser and Seller shall have no further obligations hereunder[.] . . .

    A trial was held without a jury on May 24, 2001. Both parties submitted evidence, and the court conducted a view of the property. In a letter opinion dated June 14, 2001, the trial court held that the line-of-sight easement did not materially or adversely affect the use of the Laurel Ridge property for residential purposes nor did it render title unmarketable under the terms of the Purchase Agreement. The trial court granted judgment in favor of the Lapes against Haisfield in the amount of $50,000 with interest, but refused any award of attorneys' fees to the Lapes. From this judgment, Haisfield appealed the trial court's holding that she was in breach of the contract and the judgment entered. The Lapes appealed the denial of attorneys' fees.

    In Madbeth, Inc. v. Weade, 204 Va. 199, 202, 129 S.E.2d 667, 669-70 (1963), the Supreme Court defined a marketable title:

A marketable title is one which is free from liens or encumbrances; one which discloses no serious defects and is dependent for its validity upon no doubtful questions of law or fact; one which will not expose the purchaser to the hazard of litigation or embarrass him in the peaceable enjoyment of the land; one which a reasonably well-informed and prudent person, acting upon business principles and with full knowledge of the facts and their legal significance, would be willing to accept, with the assurance that he, in turn, could sell or mortgage the property at its fair value.

    However, not all liens and encumbrances render a title unmarketable. In Sachs v. Owings, 121 Va. 162, 170, 92 S.E. 997, 1000 (1917) (internal citations omitted), the court held that:

A vendee cannot elect to rescind and treat the contract as rescinded on the ground that the title is not a marketable title because there are encumbrances on the land purchased, if they are of such character and amount that he can apply the unpaid purchase money to the removal of the encumbrances. This can be done where the amount of the encumbrance is definite, does not exceed the unpaid purchase money due, is presently payable (as was the case with the delinquent tax lien in the instant case), and its existence is not a matter of doubt or dispute, or the situation is not such with respect thereto as to expose the vendee to litigation on the subject.

    See also Davis v. Beury, 134 Va. 322, 338, 114 S.E. 773, 777 (1922).
In this case, the amount of the encumbrance was not definite, such as a tax lien or judgment lien. The line-of-sight easement acted as a building restriction upon the property much like the building restrictions found to render title unmarketable in Scott v. Albemarle Horse Show Association, 128 Va. 517, 104 S.E. 842 (1920). In Scott, the court agreed with the purchaser's assertion that the building restrictions in the tendered deed were not in compliance with the terms of the contract and rendered title unmarketable. Id. at 529-30, 114 S.E. at 846. Finally, the line-of-sight easement in this case was not an "open, visible, physical [e]ncumbrance of the property [that] must have been taken into consideration in fixing the price of the property . . . ." Riner v. Lester, 121 Va. 563, 572, 93 S.E. 594, 597 (1917). In Riner, the court stated that:

    Where the circumstances and the conduct of the parties show that the existence of an open, visible, physical [e]ncumbrance of the property must have been taken into consideration in fixing the price of the property, the purchaser can neither refuse to complete the purchase nor require an abatement of the [purchase] price. Id.

    The Supreme Court held the line-of-sight easement in this case was clearly an encumbrance upon the property restricting its use in such a manner as to render the title unmarketable. The existence of the easement was not an open, visible, physical encumbrance of the property that might have been considered in the establishment of a purchase price. The contract did not permit a restrictive covenant that rendered title to the property unmarketable. The Court reversed the judgment of the trial court and entered final judgment in favor of Haisfield.

    There are two primary lessons to be learned from this case. Title examiners must read and report matters that may affect the title to the property under examination. Settlement agents must receive title commitments early enough in the process to disclose to sellers any possible defects in title. Both parties have a duty to disclose unusual matters to the purchaser, even if they do not appear to rise to the level of a title defect. See, for example, LaFrance v. Secured Title and Abstract Inc. (Frederick County Circuit Court, At Law No. 93-27) (On April 6, 1994, the court refused the petition for appeal (Virginia Supreme Court Record No. 931747).

    As part of the settlement process in LaFrance, the title examiner reviewed a 1985 deed that contained a reference to flooding on the property made when the Farmers Home Administration foreclosed on and later sold the property. The statement, which the buyers alleged was typed completely in capitalized letters, released the U.S. government from liability for the flooding problem. Although the defendants admitted they saw the reference to flooding, they did not tell the plaintiffs. 

    At trial, the buyers alleged the settlement agent had a fiduciary duty to disclose the deed reference to flooding. The settlement agent argued that the reference was not a title defect, and there was no duty to disclose the information. The trial court struck the defendant's evidence, finding that the examiner had "a clear obligation" to tell the buyers of the property's history of flooding and that the defendant was liable as a matter of law. The LaFrance jury awarded $38,599 in damages. 

  1 The opinion may be viewed on the web at: http://www.courts.state.va.us/opinion/1012881.doc

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