Tuesday, November 27, 2012

Controversy Over County's Refusal To Allow Montana Couple To Sell Home Due To Interpretation Of Montana's Mortgage Parcel Exemption Law Reaches State High Court

In Missoula County, Montana, the Missoulian reports:

  • Say “mortgage exemption” and most eyes turn glassy. But the interpretation and application of the state statute are bubbling topics in Missoula County right now.

    So much so, in fact, that the county has taken a couple of its residents to the Montana Supreme Court in an attempt to overturn a ruling that District Judge Ed McLean issued late last year.

    Final briefs were filed and the case went to the high court on Nov. 2. There’s no sure way to predict, but a decision could be rendered by year’s end. Meanwhile, the Missoula Organization of Realtors held their first “tele-town hall” last week on the topic. More than 2,000 landowners were invited to dial in to learn if and how the case could affect them.

    “We actually had so many in the feed we couldn’t take them all,” MOR spokesman Austin James said.

    At issue is an interpretation of the transfer of mortgage exemptions – pieces of land broken off from larger properties for financing purposes.

    They’re perfectly legal, but they aren’t parcels that can be sold unless the bank or other lending institution forecloses on them.

    Because of some hazy language in the state statute, for years Missoula County and others in Montana recorded mortgage exemptions as legal parcels. Many still do, though an act by the 2003 Legislature removed all doubt of the intent.

    “It’s very, very clear under the law that a mortgage exemption does not create a parcel unless or until there’s foreclosure on it,” Missoula County deputy civil attorney James McCubbin said. “So the question is whether that was the case prior to 2003 when the statute was changed to make it abundantly clear.”

    The county says yes, that the legislative action nearly 10 years ago simply clarified the language of the existing statute.

    Rob Braach says no. The Missoula certified public accountant maintains the law was rewritten and that he and his wife Dawn should be allowed to sell the house they built on a mortgage parcel they bought in 2002, one that was approved by the county.

    When the Braachs attempted to sell their house off Reserve Street last year, the title company balked and sought advice from the county attorney’s office. McCubbin and his superior, chief civil attorney Marnie McClain, advised Clerk and Recorder Vickie Zeier not to record the deed since it wasn’t a legal parcel.

    “What that means,” said Ruth Link, chief executive officer of the Missoula Organization of Realtors, “is if somebody wanted to sell their property, despite the fact that they’ve owned it for years, the property technically never existed, even though it was created completely legally back before 2003.”

    James, MOR’s public affairs director, said he’s combed through the Certificate of Surveys and found some 390 properties in Missoula County that were created before 2003 through mortgage parcel exemptions. He said that only a handful of owners have tried to sell such parcels.

    “The first one to pop up and make a scene was Mr. Braach,” he said.

    When Zeier refused to record their deed, the Braachs enlisted Colleen Dowdall, a Missoula land-use attorney who was a deputy civil attorney for Missoula County from 1993-2006, to file suit.

    Because of this unusual retroactive interpretation, I suddenly was unable to sell my house, even though I had followed the law that was in effect at that time,” Braach told county commissioners in June. “We were forced, at considerable expense, to bring suit against the Missoula County Clerk and Recorder.”

    They were validated in district court by McLean, who ordered Zeier to record their parcel and also awarded the Braachs attorney fees of more than $27,000. The county was granted a stay of both actions pending the outcome of its appeal.

    McCubbin said there’s an easier way to do these things. “What we generally do is just agree with people to do a court-ordered split to recognize the equity of the situation for the purchaser,” he said. "I suggested to the title company we just go to court and get it done in a couple of weeks and be done with it.”

    The deputy county attorney said he doesn’t know why the Braachs and Dowdall didn’t choose that option, but it’s one his office will continue to offer for others who find themselves in the same situation.

    But according to James, a court-ordered subdivision doesn’t cut it for Missoula real estate agents or their clients. “The fact is, from the minute you sit down with the county attorney regarding your largest investment, you’ll need private counsel,” he said. “And the minute you speak to private counsel, you’ll have paid more than you ever should have been expected to in order to purchase that land.”

    The county’s decision to appeal to the Supreme Court was based on a couple of factors. “We didn’t feel that the judge’s order gave us a clear direction for future transfers,” Zeier said. Judge Jeffrey Langton ruled the other way in a similar case in Ravalli County a few years ago, McCubbin said.

    “Our feeling is that Judge Langton gave a very thorough legal analysis and was correct, and that Judge McLean did not give a correct legal analysis. It’s confusing and it’s unclear how it would implicate other properties. We felt we needed to appeal to make sure we had a clear understanding of the law.”

    By filing for a writ of mandamus in district court, the Braachs in essence claimed Missoula County was violating a clear legal duty. “That pretty much gives us no choice but to defend it,” McCubbin said. "We can’t very well say: Oh yeah, we violated a clear legal duty.”

    Link said that by appealing the Braach case to the state court level, the county is opening a can of worms – much as it did last year by pressing for Attorney General Steve Bullock’s take on Subdivision for Lease or Rent laws. Bullock’s sweeping opinion disappointed developers and Realtors.

    “We’re talking about one lawsuit, but when you think of Missoula County you’re talking hundreds of parcels,” Link said. “I can’t even imagine statewide how many parcels that could affect, and there’s just no reason for it. What is accomplished by this interpretation? That’s our question.”

    James said the county’s actions change the way landowners, investors and potential investors look at land in Missoula County. “When a buyer purchases a piece of property,” he said, “they do not buy it with the intent that their rights as citizens will change by a simple interpretation by whoever’s at the county attorney’s office.”

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