Ann T. Marshall | JAMS
Just as there are a myriad of real property interests, there can be disputes involving any of those interests. Controversies regarding rights and interests in property include circular priority among lienholders, [1] boundary disputes, unrecorded instruments, probate matters, lien validity, forgeries, mistaken legal descriptions, insurance coverage, the Uniform Commercial Code, and claims between buyers and sellers—just to name a few. These cases run the gamut from complex legal issues to high emotions about parties’ homes. Here are a few things to keep in mind when resolving these types of disputes in mediation and negotiating a settlement.
Parties. Everyone with an interest in the property should be a party to that lawsuit or settlement. In boundary disputes, for instance, beneficiaries of deeds of trust should be named, even if the property in dispute may have no impact on the value of the lender’s security interest. If the beneficiaries of deeds of trust are not named, and the fee title owners reach an agreement to adjust the boundary between them, that agreement could essentially be undone if the lender later forecloses its deed of trust, which still encumbers the entirety of the property as originally described. Typically, a title insurance product such as a litigation guarantee should be purchased so that there is assurance that all interested parties are named. [2] Many lenders have a process to approve boundary line adjustments either before litigation or otherwise outside of it. Either way, parties with encumbrances on title should be parties to the litigation or settlement for the same to be wholly effective.
Risk Analysis. Settlement of litigated cases in general is based on risk management. To analyze a given settlement offer, parties typically compare that offer to the best, worst, and most likely results at trial. Predicting the result of litigated cases in general is difficult, even when the issues are limited to liability and damages. In real property cases, the court can decide a myriad of property rights and has broad discretion to do so. For instance, in an access dispute, a court may decide whether a recorded easement is valid, the intent of the drafters, historical use, whether a certain use is implied, the width of the easement, the number of lots benefited by the easement, and the nature of use. Accordingly, the sheer number of possible outcomes, along with the court’s broad discretion, makes predicting outcomes in these cases extremely difficult, if not impossible. As a result, the best- and worst-case scenarios usually inform the risk analysis in real property disputes more so than in other case types.
Solutions. In real property disputes, there are more options for resolution than a typical two-party liability/damages lawsuit. There are many ways to structure a settlement. The most common, early decision, is which party will obtain the property at issue and pay consideration to
the other in exchange for a release of title and interest in the property. I have often found there is agreement in this aspect at the outset, which is often a positive step in the negotiation. And, creativity here is helpful. For example, the parties may agree to an easement that may only be used if one party sells. This can be a solution where the easement is acceptable to one party, but not if used by the adverse, present owner. If use of the contemplated easement is not critical to that owner, this may resolve a concern about property value suffering without an easement. In negotiated settlements we can create solutions such as these that are not within the realm of possibility of an outcome at trial.
Title Insurance. Often, one or more parties in a real property dispute has coverage under an American Land Title Association (ALTA) policy. Title insurance is a policy of indemnity with a duty to defend. ALTA recently made a significant round of changes to the policy forms, effective July 1, 2021 (and later as adopted by each title insurer). [3] Given that real property disputes lend themselves to relatively aged transactions, there are many different historical policies that may apply in a dispute—although I will note that it’s been a while since I have come across a 1972 policy! When negotiating a settlement, there are several dynamics to be cognizant of when insurers are involved. Some of these include the following:
- Opposing parties insured by the same title insurer
- Reservations of rights, possibly with a concurrent declaratory judgment action regarding coverage
- Covered and uncovered claims with different counsel/law firms representing the same party on each
- Policy limits
Any of these can add complexity to a negotiation, and they can also provide options. For instance, when I was retained by a title insurance company to represent a client, I was careful to discuss whether my client was interested in receiving the payment the title company was contemplating offering the adverse party on the insured’s behalf. Under that structure, the client would have to live with the title defect at issue, as opposed to the title company paying the adverse party to cure it. As negotiations progress and the monetary component increases, it is worth re-visiting this option with the insured party.
Finality. Given the number of issues at play, real property disputes are not only prone to multiple appeals, remands, and trials, but they can also be subject to multiple lawsuits after one case is completed. During a mediation, be supportive of a joint session, even if only at the end after a settlement is reached. It’s a good way to get the settlement started on solid ground—it helps discourage future disputes if the parties will continue to have property near each other, especially if future interactions are necessary or likely.
Mediator. It can be very helpful to use a mediator with significant real property litigation experience. A mediator who has substantive experience can provide the parties not only efficiency in discussing risk analysis but can also partner with them to create solutions. This is a significant value added to the mediation process.
Settlement Agreement. It is a best practice to have a full settlement agreement ready for execution at mediation. In real property disputes, settlements typically have multiple, substantive components that go beyond payment and a release of claims. Much can remain to negotiate between a term sheet and a full settlement agreement. And a party may have second thoughts about the settlement and oppose any version of a final settlement agreement that is proposed. Some additional work cannot be avoided; for example, a legal description may need to be drafted by a surveyor for a final instrument after the parties agree on where a boundary may be by referring to physical monuments located on the land. But the more detail that is included in a settlement agreement signed at the mediation, the more likely it is that the agreement will be deemed complete and enforceable. Further, it may be a good idea to comply with the statute of frauds by including a legal description or reference to the same and having the agreement acknowledged by a notary given that these agreements release and/or convey interests in real property.
Real property cases are as unique as the property and parties involved. There is usually an interesting history worth exploring beyond the recorded documents. These disputes also have the potential to cause enormous disruptions to commercial interests as well as people’s day-to-day lives. And they provide us an opportunity to find solutions using legal analysis and practical solutions.
Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.
Ann T. Marshall joined JAMS in 2020 after litigating for over 25 years. She has a substantial amount of experience in real property disputes and was routinely retained by title insurance companies to represent their insureds. She also represented both policyholders and insurers in coverage disputes.
[1] Circular priority occurs where lienholder A has priority over B, B has priority over C, but C has priority over A, usually resulting from subordination agreements between some, but not all, lienholders. If you have a circular priority case, the most critical action is to take the headache pain reliever of your choice early and often.
[2] This is not necessarily a high cost because the amount of insurance on this product is discretionary and within the purchaser’s control.
[3] A good description of the ALTA policies can be found here: https://www.alta.org/policy-forms/