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On Wednesday, the Missouri Supreme Court issued an Opinion altering the established law regarding the procedure for amending subdivision indentures. The case, styled as: The Trustees of Clayton Terrace v. 6 Clayton Terrace, LLC and Jeannette R. Huey, involved a dispute in which the Plaintiff/Trustees sought to prevent a Lot Owner from subdividing a two acre Lot into two separate one acre Lots consistent with the local zoning requirements. The Trustees claimed that the Lot could not be subdivided because the Subdivision’s Indentures only permitted the construction of “one house per Lot.” The Lot Owner, however, argued that the Lot could in fact be subdivided because, among other things, the alleged restriction was unenforceable. The Lot Owner reasoned that because the alleged “one house per Lot” restriction was only adopted by 2/3 majority vote, rather than by the unanimous consent of all homeowners as required under the 1938 Missouri Supreme Court case of Van Deusen v. Ruth, 125 S.W.2d 1 (Mo. 1938), it could not be used to prevent the subdivision of the Lot and the construction of a new home thereon.
Importantly, the Lot Owner’s argument and rationale were in fact correct when made because in Van Deusen, the Missouri Supreme Court expressly held that the right to “amend” a subdivision’s Indentures did not include, and was not synonymous with, the right to add a new restrictions by majority vote unless the language of the Indenture expressly authorized it, which the Indentures at issue did not. Van Deusen at 3-4. That standard was then repeatedly echoed and applied by the Missouri Supreme Court and each of the appellate divisions for eighty years thereafter and was cited and relied-on by the State Supreme Courts of Arkansas, Iowa, Minnesota, Nebraska, Texas and Washington. See Windsong Enters. v. Upton, 233 S.W.3d 145 (Ark. 2006); In re Marriage of Carlson, 338 N.W.2d 136 (Iowa Sup.1983); In re Independent Consol. School Dist., 63 N.W.2d 543 (Minn. 1954); Boyles v. Hausmann, 517 N.W.2d 610 (Neb. 1994); Webb v. Finger Contract Supply Co., 447 S.W.2d 906 (Tex. 1969); Rodruck v. Sand Point Maintenance Com., 295 P.2d 714 (Wash. 1956).
Thus, the established law at the time of trial was that restrictive covenants could be changed at any time with the unanimous consent of all lot owners. Pearce v. Scarcello, 920 S.W.2d 643, 645 n.3 (Mo. App. W.D. 1996); Kauffman v. Roling, 851 S.W.2d 789, 792 (Mo. App. 1993). However, when amendments were adopted by fewer than one hundred percent of the owners, as happened in this case, the reviewing court was required to determine if the newly added restriction imposed a new or additional burden upon the affected property that did not exist prior to its adoption. Bumm v. Olde Ivy Dev., L.L.C., 142 S.W.3d 895 (Mo. App. S.D. 2004); Hazelbaker v. County of St. Charles, 235 S.W.3d 598 (Mo. App. E.D. 2007). If it did impose a new burden, Missouri law dictated that it must be adopted by the unanimous consent of all of the lot owners (Id.; Van Deusen v. Ruth, 125 S.W.2d 1 at 2-3 (Mo. 1938); Steve Vogli & Co. v. Lane, 405 S.W.2d 885 (Mo. banc 1966) and the failure to secure that unanimous consent rendered the new restriction invalid and unenforceable. Hazelbaker v. County of St. Charles, 235 S.W.3d 598 (Mo. App. E.D. 2007).
By the instant Opinion, however, that is no longer the law in Missouri. Instead, the use of the word “amend” in subdivision indentures and restrictive covenants must now be read to encompass and include the right to add additional restrictions on a homeowner’s use of their property so long as the newly imposed restriction is passed and adopted by the requisite number of affirmative votes set out in the indentures. In so holding, the Court did not expressly overrule Van Deusen, but instead chose to greatly curtail, if not eliminate, any further reliance thereon by characterizing its reasoning as “suspect” and “unaccountably narrow” in its definition of the term, “amend.” The Court further noted that the numerous appellate cases relying thereon, such as Jones v. Ladriere, 108 S.W.3d 736 (Mo. App. E.D. 2003); Webb v. Mullikin, 142 S.W.3d 822 (Mo. App. E.D. 2004) and Bumm v. Olde Ivy Dev., L.L.C., 142 S.W.3d 895 (Mo. App. S.D. 2004) (which contains a concise summary of the law as existed at the time), were no longer good law because they were “decided in error based on a misinterpretation and misapplication of Van Deusen.”
In so deciding, the Court has opened the door to what will undoubtedly be numerous subdivisions and home owners’ associations imposing new and additional prohibitions on an owner’s use of property—including using property as short term rentals in the form of Air-B-N-B, VRBO and other like internet based services.
The case can be found and accessed via this link: Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, et al.
Please feel free to contact us if you have any questions concerning the Opinion or the underlying case and arguments.
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A common question that arises during the closing of a loan where only one spouse is obligated under the promissory note is: Who needs to sign which documents? There are a variety of reasons this question comes up. For example, the property may be owned by only one of the married spouses or one of the spouses may not qualify for a loan. In these instances, one should always remember the case of Ethridge v. TierOne Bank, 226 S.W.3d 127 (Mo. 2007) in which Supreme Court of Missouri issued an opinion highlighting the importance of obtaining the correct signatures on loan documents.
In Ethridge, David and Mary Ethridge, husband and wife, purchased a home with a loan from Countrywide. Two years later, David Ethridge applied to refinance the loan with a different lender. He borrowed $100,000.00 that was used to pay off the balance remaining with Countrywide, which both he and Mary were obligated under, and took approximately $15,000.00 which was used to remodel the home. David was the only party to sign the refinance promissory note. Both David and Mary Ethridge signed the Deed of Trust. However, “Grantor” was identified solely as David Ethridge in the Deed of Trust. Additionally, the Deed of Trust stated, albeit incorrectly, that title to the property was vested solely in David Ethridge. Two years after refinancing, David Ethridge died in an automobile accident. Later, the bank holding the Deed of Trust sought to foreclose against the property. Mary Ethridge filed a petition asking the Court to declare that the Deed of Trust was void as to her because she was not named as a Grantor and therefore her vested interest in the property was not conveyed. The Court rendered summary judgment in favor of Mary Ethridge on the basis that the Deed of Trust was unambiguous, and that Mary Ethridge had not pledged her interest in the property.
The Supreme Court of Missouri affirmed the award of summary judgment. The Court’s opinion acknowledged that Mary Ethridge was enriched as a result of the loan but cancelled the Deed of trust on the following basis: 1) the defined term of “Grantor” was unambiguous and thus not open to additional interpretation; 2) the bank was not able to reform the Deed of Trust because there was no evidence that Mary Ethridge had an agreement with the bank to pledge her interest in the property, even though she had signed the Deed of Trust; and 3) the equitable remedies of estoppel, equitable lien and equitable subrogation were not available to the bank because there was no evidence that Mary Ethridge had any obligation under the promissory note nor did she commit any act of fraud.
This case is important because the Supreme Court acknowledged that Mary Ethridge was receiving a windfall, but nonetheless ruled in her favor. The take away from this Supreme Court decision is to always make sure that in the case of married borrowers, the Deed of Trust properly identifies and defines the “Grantor”, “Borrower”, or “Mortgagor” as both spouses where marital property is involved, and that even if only one spouse is obligated under the promissory note, there should be no such limitation within the Deed of Trust such as having the phrases “non-borrowing spouse”, “pro forma” or “waiver of marital interest”. Where only one spouse is in title, both parties should be identified as “Grantors” and still sign the Deed of Trust as a matter of best practice, but a waiver could be appropriate for the non-titled spouse.
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Effective January 1, 2018, Sauerwein Hein P.C. is changing its name to Hein Schneider & Bond P.C. With more than 100 years of combined experience, the firm’s team of accomplished attorneys continues to provide exceptional service, representation, and results to insurance companies, small to midsize businesses, lenders, and individuals throughout Missouri and Illinois.
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An article written by Attorney Trent Bond on the benefits of using correction deeds to amend the public record when a deed is recorded with an error was recently featured in Alliant National Title Insurance Company’s eNewsletter. A link to the article is here: The Practical an Useful Benefits of Using Correction Deeds
Our latest newsletter discussing recent Missouri and Illinois cases is now available.
In this edition, we let you know about decisions involving beneficiary deeds, easements, foreclosures, mechanic’s liens, and more!
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