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Ohio real estate law: Termination of Residential Purchase Contract — form over substance

Author By Christopher P. FinneyPosted on

Certain legal challenges seem to come in waves for me, and lately one of those waves involves difficulties encountered in the termination of the Cincinnati Area Board of Realtors Purchase Contract, either for failure of the inspection contingency or the financing contingency.

Three guideposts should guide real estate practitioners, buyers and sellers in the exercise of contingencies in a purchase contract:

  • Read the contract.

Just because a contract is contingent upon the satisfactory outcome of a a loan application or a house inspection does not mean that termination is automatic just because the buyer says it is so.

  • Follow the steps for termination set forth in the Contract.

The Contract many times lays out a specific procedure for contract termination.  That procedure should be followed.

  • Get it in writing.

As we address here, the statute of frauds requires the contract and every amendment and termination thereof to be in writing.  Stating it most simply, if it in’t in writing, it did not happen.

As an example, the Cincinnati Area Board or Realtors Purchase Contract provides a procedure for termination of a contract for the failure of an inspection contingency:

If Buyer is not satisfied with the condition of the Real Estate, as revealed by the inspection(s) and desires to terminate this Contract, Buyer shall provide written notification to Listing Firm or Seller that Buyer is exercising Buyer’s right to terminate this Contract within the Inspection Period, and this Contract shall be terminated.

That seems really simple, but the Cincinnati Area Board of Realtors also has a series of supplemental forms for use in residential real estate transactions.  Two of those are:

  • Release from Contract to Purchase.  This form is a supplemental agreement between a buyer and a seller to terminate a contract.
  • Notice of Termination of the Contract to Purchase.  This document is a unilateral (i.e., just a notice signed by one party to the other; it does not require a counter signature).
Seller refuses to acknowledge an “offer” to terminate.

I recently experienced a situation in which the buyer signed and tendered a Release from Contract to Purchase to the Seller for the Seller to sign within the inspection contingency period.   The seller claimed that that form did not constitute sufficient notice of the failure of the inspection contingency pursuant to the language set forth above and thus it was merely an “offer” from the buyer to the seller to terminate the contact.

The seller reasoned that because both (i) the buyer failed to notify the seller of the failure of the inspection contingency pursuant to the contract requirements and (ii) the seller refused the tendered “offer” to terminate, that the buyer was still bound to the contract. Further, since the inspection period had since lapsed, it was now too late to provide such notice, the seller claimed.

What we did in that circumstance was to supplement the submittal to the seller with a termination under the financing contingency, and eventually the seller conceded that the contract had been terminated and returned the buyer’s earnest money.

Seller refuses to schedule inspection.

In another recent dust-up between a buyer and a seller, the seller refused to schedule an inspection of the property pursuant to the inspection contingency.  In this instance, the buyer attempted to so schedule using the automated showing system, and the seller simply would not permit or acknowledge the request.

In that circumstance, the buyer sent a termination to the seller, and we await his response. But what is a buyer to do when the seller refuses to allow access for an inspection?  Clearly, the courts will permit the buyer to terminate either pursuant to the inspection contingency or because the seller has breached the contract by refusing to allow the inspection.

Conclusion.

So, even though it should seem to be a clear right of the buyer to terminate the contract, the form that that communication to the seller takes informing him of the termination could well impact the substance of whether the termination was effective.

Hamilton Journal News: Federal Judge warns West Chester Township likely will lose Rehab Center suit

Author By Christopher P. FinneyPosted on

This firm is pleased to represent Professional Psychiatric Associates and Dr. Mohamed Aziz in a suit against West Chester Township challenging the Township’s heavy-handed attempts to outlaw a psychiatric care facility on former nursing home property.

Federal Law clearly prohibits discriminating in zoning laws against those who treat mental health conditions versus physical healthcare, which is precisely what the Township was trying to do, starting with a moratorium issued in April quickly after Dr. Aziz acquired the facility.

The Judge in the suit is Timothy Black, and he spoke pretty clearly in a early order in the case:

“The court has held two initial telephone conferences involving counsel for plaintiffs and for defendant. During these conferences, the court reminded both parties of the consequences that could result if the court finds that the Americans with Disabilities Act and/or the Rehabilitation Act have been violated by defendant, or not.”

The statement is direct, elaborate and unusual, in that the Judge — while keeping an open mind — is forecasting his views on Plaintiffs claims and ever so gently nudging the Township in the direction of resolving the claims by means of settlement versus forcing him to make a ruling against the Township in the matter.

The Hamilton Journal-News and Denise Callahan have the story fully developed here.

The Sixth Circuit Renders a “Shocking” Decision on the “Shocks the Conscience” Standard

Author By Casey A. JonesPosted on

Earlier this year, the Finney Law Firm obtained a favorable settlement for five special needs children within the Kings Local School District who were severely mistreated by their teacher, and the firm continues to proudly represent its clients in other similar cases.  However, a decision by the Sixth Circuit Court of Appeals may have heightened the burden imposed on plaintiffs bringing substantive due process claims, which was one of several causes of action alleged in the Kings case.

Substantive due process, under the Fifth and Fourteenth Amendments, forbids government actors, including public school teachers, from intruding into the fundamental rights promised to individuals under the U.S. Constitution.  Relevant here are the “rights to be free from physical abuse at the hands of state actors, and to enjoy personal security and bodily integrity in an educational setting.” Webb v. McCullough, 828 F.2d 1151, 1158 (6th Cir. 1987).

In Domingo v. Kowalski, 810 F.3d 403 (6th Cir. 2016), the Court applied the “shocks the conscience” standard used in substantive due process cases in a way that may very well place an insurmountable obstacle in the way of students seeking to hold their teachers accountable for constitutional violations in the classroom.

The plaintiffs in Domingo, special needs students as young as six years old, brought a substantive due process suit against their teacher alleging that she:

abused her students during the 2003-2004 school year by, among other things, gagging one student with a bandana to stop him from spitting, strapping another to a toilet to keep her from falling from the toilet, and forcing yet another to sit with her pants down on a training toilet in full view of her classmates to assist her with toilet-training.

Despite finding that the teacher’s actions were improper, the Sixth Circuit refused to hold the teacher liable, reasoning that her conduct did not “shock the conscience.” In so finding, the Court borrowed the Third Circuit’s “shocks the conscience” test, which ultimately requires that the actor have malicious or sadistic intent, which the Domingo Court did not find.  Requiring such bad intent is an extremely high standard, making it challenging, at best, for many plaintiffs to meet even in cases as egregious as Domingo. In light of the conduct permitted in Domingo, it is difficult to imagine exactly what type of classroom conduct would shock the conscience.

Ohio Death Penalty Case Making National Headlines

Author By Casey A. JonesPosted on

Earlier this month, an Ohio inmate appealed a state Supreme Court decision holding that a second execution attempt would not violate the inmate’s constitutional rights.

Broom, a convicted murderer, was sentenced to death for his crimes.  In 2009, an attempt to execute him was unsuccessful after 18 stabs at finding a viable vein over a span of approximately two hours ultimately failed.  Broom argued all the way up to the Ohio Supreme Court that a second attempt to execute him would amount to cruel and unusual punishment and violate double jeopardy.  The Ohio Supreme Court rejected Broom’s arguments in a split decision.

Broom has appealed this ruling to the Supreme Court of the United States.  The last time the High Court addressed a death penalty case was in 2015 with its Glossip v. Gross decision.  In that case, the Court upheld a method of execution 5-4 over the challenge of several prisoners. The late Justice Scalia was in the majority.

We know from Glossip that at least four Justices have some concerns about the death penalty, with two of them calling for a re-examination of its constitutionality altogether.  As it takes the vote of only four Justices for the Court to hear a case, it is likely that certiorari will be granted on Broom’s appeal.  If the case is heard before Justice Scalia’s vacancy is filled, and the Justices vote as they did in Glossip, it will be 4-4, and the Ohio Supreme Court decision will stand.

However, filling the SCOTUS vacancy is proving to be a hot issue in this year’s presidential election.  This case may go either way, depending on the outcome and who is appointed by our next president to fill Justice Scalia’s seat.  Thus, it could, interestingly, be decided at the polls on November 8th – yet another reason to get out and vote!

First American warns of new Cyber Scam

Author By Christopher P. FinneyPosted on

We just got this alert from our underwriter, First American Title Insurance Co., this morning:

The agent receives an email from a “buyer” purporting to have property under contract and wants the agent to facilitate the closing – often a cash deal or large earnest money deposit from an “out of town” buyer. When the agent agrees, the fraudulent buyer sends funds in the form of a wire or check along with purchase and sale agreement.

The agent might even know or confirm that the property really is listed for sale – and it is.  The amount for the contract even looks right given the list price/value. After a few days, the buyer says the deal fell through and asks for the money back saying, “a wire would be best.”

The check or wire has either not cleared yet, or even if it has, it is still within the period for which payment can be stopped or reversed.  Either way, the agent ends up having paid out good funds, but has no good funds paid in.

 

Today’s USA Today highlights Finney law firm proceeding before Federal Elections Commission

Author By Christopher P. FinneyPosted on

Deidre Shesgreen of USA Today has a great story up on the long battle that this firm’s attorneys waged on behalf of our client David Krikorian before the Federal Elections Commission.

It took the FEC five long years to act on a simple Complaint on which the facts were largely not in dispute, and they barely slapped the wrist of our former Congressman Jean Schmidt for taking an illegal gift that actually exceeded $650,000.

Our firm carefully researched the facts and the law, and prepared a complaint that irrefutably established the violations of Federal Election Law.

The gist of the story is that the FEC is hopelessly ineffectual, taking interminable amounts of time to decide simple issues and deadlocking on partisan lines over the most obvious violations of law.

Read the story here.

Ohio real estate law: Condos-R-Us

Author By Christopher P. FinneyPosted on

With surging real estate demand, it is inevitable that the long-dormant Ohio condominium market would see a return.  Our firm recently has been engaged to draft Ohio condominium documents for the creation of new condominium regimes and the division of property into condominium units.

The proper preparation of condominium documents allows a owner/developer to “cut up” his building or buildings into separate condominium units and sell them to individual buyers.  These can be as simple as townhouse-style residential units that are made legally separate by condominium documents to fully-integrated high-rise buildings that are carefully separated (and operationally integrated) by a declaration and drawings.

Under Ohio law, this process is governed by O.R.C. Chapter 5311.  [For a discussion of the different between a condominium and a landominium under Ohio law, see this blog entry.] 

Much of Cincinnati’s recent condominium activity involves retail, office and residential spaces in downtown and Over-the-Rhine, where both new buildings and old structures are being built or renovated, and then sold in that the legal industry sometimes refers to as “Three Dimensional Property Regimes.”

For existing buildings that are being rented, this involves the further complication under Ohio law [O.R.C Section 5311.26(G]) of converting a rental unit into a salable condominium unit.

To speak with our condominium team, call Isaac Heinz at 513-943-6654 or Dylan Sizemore at 513-943-6659.

Ohio elections law: Commission asks Ohio Attorney General to pursue enforcement of Rob Richardson, Sr. subpoena

Author By Christopher P. FinneyPosted on
Richardson
Cincinnati NAACP President Rob Richardson, Sr.

As we reported here, in late July, the Ohio Elections Commission made findings against Jonathan White from Dayton and his misnamed Cincinnatians for Jobs Now (misnamed because Mr. White testified that the group included no “Cincinnatians”).

Today, our client in that case, Christopher Smitherman reports, here, that the Ohio Elections Commisison has written to Ohio Attorney General Mike DeWine asking that he pursue enforcement of the subpoena against Mr. RIchardson, including “potential criminal penalties.”

You may read that letter here.

Ohio real estate law: What does Land Installment Contract Statute mean for commercial properties?

Author By Finney Law FirmPosted on

1403296771Brian2What does Ohio’s Land Installment Contract Statute mean for commercial properties?

Not much, if you don’t incorporate it into your contract.

Ohio’s Land Installment Contract Statute, Chapter 5313 of the Ohio Revised Code, makes clear that the consumer protections apply only to the sale of residential property, and not to the sale of commercial property. Specifically, R.C. 5313.01(B) defines “Property” as “real property located in this state improved by virtue of a dwelling having been erected on the real property.” Thus, if the property to be sold has not had a “dwelling” erected upon it, Chapter 5313 applies only to the extent the parties incorporate it into their contract.

In a case out of Clermont County in Ohio’s 12th District Court of Appeals, a “run down mobile home” on farmland in which people lived “at least part of the time” satisfied the requirements of a “dwelling,” thus implicating R.C. 5313. Marcus v. Seidner, 2011-Ohio-5592, ¶ 31 (Ct. App.). Conversely, in Johnson v. Maxwell, 51 Ohio App. 3d 137, 140, 554 N.E.2d 1370, 1373 (1988), the 9th District Court of Appeals found that R.C. 5313 did not apply to property on which there was no dwelling.

Such rulings suggest that Ohio law would allow forfeiture of all payments under a commercial land installment contract in the event of breach, no matter the amount paid or for how long such payments had been made. However, as set forth in Maxwell, “forfeiture clauses contained in land installment contracts are enforceable in Ohio, so long as the resulting benefit to the vendor is not ‘extravagantly unreasonable or manifestly disproportionate to the actual damages sustained” by the vendor.’” Id., at 140 (quoting Norpac Realty Co. v. Schackne (1923), 107 Ohio St. 425, 140 N.E. 480, paragraph one of the syllabus. Thus, in commercial land installment contracts, if the parties don’t include remedies that are less “extravagantly unreasonable” than forfeiture where the vendee has paid a substantial portion of the purchase price, it will be up to the judge to determine the appropriate remedy. Courts will also consider whether an increase to the value of the property since the contract was entered into would result in a windfall to the seller. “Given the wide disparity in the value of the property now and at the time appellees sold it, we refuse to disturb the trial court’s attempt at achieving equity.” Fannin v. Reagan, 11th Dist. Portage No. 94-P-0091, 1995 Ohio App. LEXIS 5023, at *13 (Nov. 9, 1995)

So why does this matter?

While Chapter 5313 calls for foreclosure when the buyer has paid 20% or more of the purchase price or paid for more than five years, in a commercial transaction, the parties are not bound to this restriction. Presumably, the court would use the standards of 5313 as a guideline, but there could be a scenario where the judge finds that it would be inequitable to allow forfeiture in a commercial land installment contract even where the buyer paid less than 20% of the purchase price. A properly drafted contract can allow the parties to avoid an uncertain result in the event of a breach.

Preparing to enter into a land installment contract or have questions about an existing land installment contract? Finney Law Firm can help you understand your rights and obligations and draft a contract that will work for you.

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