What you can't see can hurt you: Do latent violations of a restrictive land use ordinance, existing upon conveyance, constitute a breach of the covenant against encumbrances?

• Author: Forman, Adam

1. INTRODUCTION: "IMAGINE FOR A MOMENT...."

   If you are a homeowner, you know the difficulties and stress associated with purchasing a home. However, you probably also know the satisfaction involved, when the purchase is complete. You know the joy you experienced the first day spent in your home after closing the sale. And, you know how it feels to walk through your front door, after a long day of work, completely confident there is no place in the universe you would rather be. Unfortunately, case law suggests there are problems that can befall a homeowner, making the walk through the front door seem less like a walk and more like a stumble.(1)

   Imagine, for a moment, a happily married couple. They bought their house in 1998,(2) and have been living there for a little more than two years. Their house is twenty-five years old, but one could never tell by looking at it. There have been no problems since the purchase, other than a crack in the driveway and an occasional problem with a recently installed fuse box. The home and property have been better than they imagined.

   The value of their property has even increased over the past two years as the surrounding community has improved. In fact, the couple's next-door neighbor, the DoMuch Middle School, of the Davey DoMuch School District, is rumored to be adding a new wing to the school, thus improving the district. The new wing would extend the school towards the married couple's property, but would still be hundreds of feet away. The only hurdle for the school to overcome before adding the new wing is approval from the administration. Upon completion of this extension, the homeowners' property value would certainly increase.

   The administration unanimously approves the new wing. The next day, the builder and architect examine the building site with the school property deed in their hands. The builder and architect discover that the couple's house is in violation of a zoning ordinance. When the couple's house was originally built twenty-five years earlier, a zoning ordinance was in place that stated there can be "no private building or residence built within ten feet of public school property." The house was built ten feet from the school's wire fence in the belief that the school property ended at the fence. Unfortunately, and unbeknownst to the house builders, the wire fence had been placed all around the school property, but not on the school property line. Rather, the fence was placed five feet inside the school property boundary. The end result is that the house was built on the owners' property, but within ten feet of the school property and in violation of the zoning ordinance.

   The builder and architect immediately report this to school officials and contact the couple. With trepidation, the couple reviews the evidence and finds that, indeed, their home violates the ordinance. They review their general warranty deed and sale contract, confident their grantor had warranted against such a situation. Unfortunately, their belief is not supported by law.(3) "[T]he concept of encumbrances cannot be expanded to include latent conditions on property that are in violation of statutes or government regulations."(4) The sum of all this is that the couple is now faced with violations for which they are completely liable.(5)

   How could the purchasers have avoided such a circumstance? The common law rule of "caveat emptor"(6) hardly seems the appropriate standard to apply in a situation such as this.(7) Are there options for buyers to avoid this scenario? As we will see, these homeowners could have protected themselves through language in the deed and/or the contract,(8) but how is it that these unsuspecting buyers can be held liable?(9)

   This comment will focus on the policy behind zoning regulations,(10) what is considered an encumbrance under the covenant against encumbrances provided in general warranty deeds,(11) and what situations will implicate this deed covenant.(12) Additionally, the duty of disclosure, as provided by statute, and the marketability of title will be explored and analyzed.(13)

2. EXPLORING ZONING ORDINANCES AND LAWS

   There is an obvious need for zoning ordinances and laws restricting land use.(14) Such legislation can be for the protection of neighborhood quality (i.e. nuisance laws) or to maintain the integrity of the neighborhood environment.(15) Essentially, the purpose of zoning laws is to prevent individuals from using their property in a way that would make the neighborhood less enjoyable or make a potential buyer of neighborhood property less willing to purchase.(16) It is noteworthy that zoning ordinances "only affect use."(17)

   Given that one purpose of zoning is to ensure that buyers will want to purchase, why are some courts willing to place serious potential liability on unsuspecting buyers for latent violations of zoning laws and ordinances?(18) Who shall be held liable for violations of zoning restrictions is a serious consideration.(19) The person held liable should be the one who caused the violation. In the interest of equity, a subsequent purchaser should only take on the burden of a violation if she has so agreed.(20) However, the law currently holds an unsuspecting buyer potentially liable even if a general warranty deed was obtained and exhaustive investigative measures were taken.(21)

3. ZONING VIOLATIONS RESULTING IN INJUNCTIONS, CRIMINAL SANCTIONS AND FINES

   Civil and criminal penalties are imposed for non-compliance with zoning regulations and ordinances.22 Municipalities are authorized "(1) to provide by ordinance or local law, for the enforcement of their zoning regulations, (2) to seek injunctions, and (3) to call upon the courts to apply criminal sanctions against violations."(23) As stated in Town of Solon v. Clark,

   The law is by now well settled that an injunction is an appropriate remedy to prevent continuing violations of zoning laws.... Equally long established, the fact that criminal sanctions for the same violations were also available under both the statute ... and the town's zoning ordinance ... does not prevent the town from employing a civil action in equity as the means of enforcement of its police power to regulate land use for the general health, safety and welfare of its citizens.(24) Fines can be levied to enforce zoning regulations as well.(25) Sanctions can be brought by the municipality, through board meetings, or by court action.(26) As can be seen, a zoning violation is not to be taken lightly.

   [A] court may impose a penalty of imprisonment on a defendant found guilty of violating a zoning ordinance if the violation was proven to have occurred on the date charged in the accusatory instrument. Conviction may not be imposed for a continuing violation that has not been specifically charged. In one case, the county court held that a trial court did not abuse its discretion by imposing on a defendant three fifteen-day terms of imprisonment for violating a city ordinance limiting the occupancy of a single family dwelling. The violations had been recorded by the complainant building inspector on three separate dates.(27) In the above hypothetical, the married couple may suffer severe (possibly monetary) penalties and even imprisonment until the violation is remedied.

4. CONTRACT COVENANTS: MARKETABILITY OF TITLE

   What would have happened if, during the contract stage, the title searcher, appraiser or property examiner had discovered the zoning ordinance violation? Marketability of title is referred to as:

   title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, one which such persons, guided by competent legal advice, would be willing to take and for which they would be willing to pay fair value.(28) A person should not be required to take title to property that may be susceptible to litigation.(29) To avoid this result, marketable title is presumed in all land sale contracts, even if it is not specifically stated,(30) "[M]arketability of title is concerned with impairments on title to a property...."(31) A purchaser of property that "is restricted by zoning ordinances will be deemed to have entered into the contract subject to those ordinances."(32) Therefore, "a zoning ordinance, existing at the time of the contract, which regulates only the use of the property, generally is not an encumbrance making the title unmarketable."(33) If the zoning ordinance has actually been violated, then title may be unmarketable,(34) The rationale is that there is a reasonable chance the title will be subject to litigation, which is what marketability seeks to avoid.(35) Therefore, if the zoning ordinance, in the present case, had been discovered at the contract stage, the couple would not have had to complete performance on the contract because the house was already in violation, making title unmarketable.(36) As we will see, the result changes once the contract stage, is completed.(37)

   Considering marketability of title in the context of zoning violations gives further insight into the problem that zoning restrictions can implicate. For example, where the purchaser has contractually agreed to purchase property subject to all zoning ordinances enacted by the municipality, even if a zoning ordinance were enacted by a municipality just prior to the signing of the contract, the purchaser may not then have the option to refuse title to the property.(38) Rather, courts will compel specific performance by the purchaser, in favor of the seller.(39)

   In a slightly different situation, if a purchaser refuses to complete performance of a contract where a zoning ordinance has been enacted after entering into a contract not providing for future zoning ordinances, a court may still compel performance.(40) "[T]he issue of whether to order the purchaser to specifically perform the contract is often decided by a balancing of the...