A look at recent court cases affecting real estate.

Tax sale of county property is void

The state of California obtained several lots from the owner. The legal description to one lot was erroneously omitted in the grant deed conveying title to the state. The state then sold all the lots to a county. Again, the legal description to the one lot was not included in the grant deed conveyance to the county. After obtaining the lots, the county failed to file notice of the purchase of the lot by a tax-exempt government agency with the county assessor. The county assessor continued to send tax bills for the omitted lot to the original owner. These tax bills for the lot were never paid, and the lot was sold at a tax sale to a private buyer. After learning the county claimed ownership to the lot, the buyer sought to quiet title to the lot, claiming the tax sale was valid since the county waived the lot’s tax-exempt status when the county failed to notify the county assessor of the purchase. The county claimed the tax sale was void since, because it owned the property and government-owned property is tax exempt, no taxes were owed, regardless of whether the county assessor had been notified of government ownership. A California appeals court held the tax sale was void since ownership of property by a government entity is tax exempt, and a foreclosable tax lien cannot be attached. [L&B Real Estate v. Housing Authority of the County of Los Angeles (April 16, 2007) 149 CA4th 950]

Failure to exercise option does not eliminate lien junior to option

A master tenant of real estate held a recorded option to purchase fee title to the property in the event the owner failed to remove liens from the property within 30 days of levy.Notice of intent to exercise would serve to exercise the option and title to the remainder was to be conveyed by grant deed clear of any liens. A construction contractor recorded a mechanic’s lien against the property. Afterwards, the master tenant placed a lien on the option as security for a loan. In an action to foreclose on the mechanic’s lien, judgment was entered ordering the property to be sold to satisfy the mechanic’s lien. Within 30 days of the judgment, the lender notified the owner of the property of its intent to exercise the purchase option which would clear fee title of the mechanic’s lien. The owner rejected the lender’s notice of intent to purchase the property by exercise of the option. Later, the owner quitclaimed title to the lender to resolve the dispute. The lender then sued to clear title, claiming the property was clear of the mechanic’s lien since the acquisition of title related back to the original date of the recorded option agreement. The contractor claimed the mechanic’s lien was not extinguished by the relation-back rule since there was no evidence title was acquired by the terms set forth in the option agreement. A California appeals court held the lien was not eliminated since the relation-back rule did not apply when there was insufficient evidence to show the conveyance had been made according to the terms of the option agreement.[Wachovia Bank v. Lifetime Industries, Inc. (December 15, 2006) 145 CA4th 1039]

Inconsistent project description invalidates EIR 

The owner of a surface mine applied to the county for issuance of a conditional use permit (CUP) for a mine expansion project that would significantly increase the lateral production area, daily excavation tonnage, and depth of the mine. An environmental impact report (EIR) was prepared under the California Environmental Quality Act (CEQA) portraying the requested project as having no substantial increase of daily or annual production from the increase in production area. However, the project description in the EIR contained several references to a maximum tonnage production requested in the CUP at twice the current allowable production rate. The county approved the project and an environmental group sought to have the project approval revoked, claiming the project description in the EIR was inadequate and misleading since it gave two contradictory maximum production values: one used in analysis of the environmental impact and the other under the requested CUP. The county claimed the project description in the EIR was valid for analysis since the maximum production would not be met every year. A California appeals court set the project approval aside, holding that the EIR, and by extension the project, was invalid since the purpose of an EIR is to inform the public and agencies involved so decisions can be made, and thus must be based on an accurate and consistent project description in order to provide an analysis of traffic congestion, ground water pumping consumption, and roadway deterioration due to significant increases in tonnage production as required under the CEQA. [San Joaquin Raptor Rescue Center v. County of Merced (2007) 149 CA4th 645]

Baseline for EIR must be based on actual conditions

A developer petitioned a city for approval on a project.  The city analyzed the environmental impacts of the project and issued an environmental impact report (EIR) as required by the California Environmental Quality Act (CEQA).  In the EIR, the city compared the project’s projected major impacts on traffic and air quality to the projected impacts of a hypothetical business park that could potentially be built on the land under the existing zoning and general plan designations. The city adopted the EIR and approved the project. A homeowners’ association (HOA) claimed the EIR was misleading and violated the CEQA in using the hypothetical business park as a baseline for comparison with the proposed project since it only provided partial analysis of the major impact of the project on the land. The city claimed using the hypothetical business park as the baseline in the EIR was not misleading since existing zoning and general plan designations had already taken into consideration the environmental impact of the hypothetical business park. A California appeals set the project approval aside, holding the EIR was misleading and violated the CEQA since, regardless of the existing zoning and general plan, the EIR failed to provide a clear and complete description of the project in using a hypothetical business park instead of the actual vacant lot as a baseline.  [Woodward Park Homeowners Association, Inc. v. City of Fresno (2007) 15 CA4th 683]