American Cllege f Mrtgage Attrneys 2011 Annual Meeting The Grand Del Mar San Dieg, CA Rights f a Lender t Exercise Develper/Declarant Rights and Privileges by Freclsure Deed r Deed in lieu f Freclsure f a Subdivisin Prepared by Sam J. McAllester, III Bne McAllester Nrtn, PLLC 511 Unin Street, Suite 1600 Nashville, Tennessee 37219
Rights f a Lender t Exercise Develper/Declarant Rights and Privileges by Freclsure Deed r Deed in lieu f Freclsure f a Subdivisin 1. Declarant's Rights ("Special Declarant Rights") Declarant Cntrl: Right t cntrl peratin f assciatin Right t appint members f bard f directrs Right t establish budgets, execute cntracts, retain vendrs etc. Reserved Declarant Rights Right t add additinal prperty Right t amend the declaratin Right t maintain sales ffice Right t market the develpment, etc. 2. Prir t Lending-Review Develper/Declarant's Rights Master deed Declaratin f cvenants, cnditins and restrictins Bylaws Make changes beneficial t lender in the event f default, freclsure and/r deed in lieu Assignment f declarant's rights Reserving Declarant Cntrl fr lender and subsequent transferees f lender in event f freclsure r deed in lieu Vesting Reserved Declarant Rights in lender at freclsure r deed in lieu r in subsequent transferees {00640894.1 } 2
3. Lending Dcuments Include in descriptin f prperty secured by deed f trust/mrtgage assignment f declarant's rights: All rights, privileges and exemptins f declarant under that certain [Declaratin f Cvenants, Cnditins and Restrictins/Master Deed filed f recrd 20 as Instrument N., Register's Office fr Cunty, ]. Assignment f declarant's rights by separate dcument cllaterally assigning, transferring, cnveying and setting ver t lender all declarant's rights including all privileges, exemptins and rights f declarant under that certain [Declaratin f Cvenants, Cnditins and Restrictins/Master Deed filed f recrd, 20 as Instrument N. Register's Office fr Cunty, ]. 4. WrkutlRestructure/Renewal-Opprtunitv as part f the negtiatins fr the extensin. renewal. amendment r mdificatin f the lan r wrkut f the lan Obtain assignment f declarant rights Require amendments t declaratin Obtain the executin f separate assignment r Amend deed f trust/mrtgage t include declarant's rights in prperty descriptin 5. Under Applicable Case Law. Des Lender by Freclsure Deed r by Deed in lieu f Freclsure Acquire Rights. Privileges and Exemptins f Declarant (and pssibly the duties and bligatins f Declarant}? Tennessee 2011, Tennessee Curt f Appeals, Hughes v. New Life Develpment Crpratin, WL 1661605 (Tenn. Ct. App. April 29, 2011) hlding that the new wner has authrity t act as the develper. I n interpreting a deed, the Curt stated the Curt's primary purpse is t determine the grantr's intent. Under Tennessee law, a deed cnveys all f grantr's estate r interest in prperty unless it clearly expresses an intent t limit the estate r interest cnveyed (Tenn. Cde Ann. 66-5-101). The deed's brad habendum clause read: ''T have and t hld said tract f land, with the appurtances, estate, title and interest theret belnging t said Grantee, its successrs and assigns, frever." (00640894.1 ) 3
Illinis, Bard f Managers f the Medinah n the Lake Hmewner's Assciatin v. Bank f Ravenswd, Appellate Curt f Illinis, 295 III. App. 3d 131, 692 N.E. 2d 402, 229 (III. App. Ct. 1998). The Appellate Curt held that the purchaser f real prperty thrugh freclsure sale was "Assignee" f declarant and develper f the plan unit develpment and purchaser had a right t develp the prperty as successr f the develper. Suth Carlina - Peples Federal Savings & Lan Assciatin f Suth Carlina v. Resurces Planning Crpratin, 358 S.C. 460, 596 S.E. 2d 51 (2009). Supreme Curt held, bank which purchased undevelped prperty at freclsure sale, shuld be deemed as successr/c-develper. Curt held that the bank acquired the psitin f c-develper thrugh its purchase at the freclsure prceeding. Ohi - McKnight v. Bard f directrs, 32 Ohi St. 3d 6, 512 N.E. 2d 16 (1987). Supreme Curt held that a mrtgagee which acquires title t the cndminium prperty by accepting deed in lieu f freclsure assumed the rle f "Develper" and was prhibited frm appinting mre than five (5) members t the cndminium assciatin's bard f directrs. Lender, by acquiring title t the prperty, either thrugh freclsure r by accepting a deed in lieu f freclsure des nt necessarily assume the rle f develper as defined by R.C. 5311.01 (t). Upn default, lender must be given the right t salvage its interest by selling the prperty; hwever, in and f itself, such des nt cmpel a lender t assume the bligatin f develper impsed by R.C. Chapter 5311 r the articles and bylaws f the cndminium assciatin. 6. Applicable State Statutry Law - Des Lender by Freclsure r Deed in lieu acguire privileges. exemptin and rights f Declarant? Mst f the statutry law in this area relates t cndminiums, nt subdivisins r develpments Mst statutry law fr cndminiums prvide that upn freclsure, declarant ceases t have any Special Declarant Rights and upn freclsure the transferee succeeds t Special Declarant Rights related t the units r additinal real estate Or. Rev. Stat. Am. Sec. 94.623 - Mrtgagee r beneficiary f a trustee acquires all Special Declarant Rights f the transferr upn transfer by the declarant r prir successr t declarant f all such transfers interest in a lt r lts unless the cnveyance evidences an intent t transfer any Special Declarant Rights and an instrument evidencing intent nt t transfer such Special Declarant Rights is recrded. Transferee may acquire less than all Special Declarant Rights if the cnveyance evidences an intent t transfer less than all Special Declarant Rights and states specific rights being transferred Wash. Rev. Cde Ann. 64.34.316 Special Declarant Rights - Transfer. N Special Declarant Right created r reserved may be transferred except by an instrument evidencing the transfer executed by the declarant r the declarant's successr. In case (00640894.1 ) 4
f freclsure, a persn acquiring title t all f the real prperty being freclsed r sld succeeds t all Special Declarant Rights related t that real prperty held by the declarant and t any rights reserved in the declaratin. Upn freclsure, declarant ceases t have any Special Declarant Rights Several states have statutes dealing with cmmn interest cmmunity and/r planned cmmunity. These statutes wuld seem t apply t bth planned subdivisins as well as cndminiums. Pennsylvania, 68 Pa. C.S.A. 5103 and 5304; Cnnecticut, C.G.S.A. 47-202 and 47-246; Vermnt, 27A V.S.A. 1-103 and 3-104. Generally, these statutes prvide a freclsure f a mrtgage perates t vest all Special Declarant Rights related t the real estate held by the declarant t the persn r entity acquiring title and the declarant ceases t have any Special Declarant Rights. Sme f the sectins als limit the liabilities and bligatins f the persn r entity that succeeds t the Special Declarant Rights and generally limit the successr declarant liability r bligatin t the liability fr the successr declarant's acts and missins. 7. What Liabilities/Obligatins Apply t Successr Declarant? Can successr liability be limited? Limit declarant's rights t ability t transfer t successr Washingtn - One Pacific Twers Hmewners' Assciatin v. Hal Real Estate Investments, Inc., 148 Wash. 2d 319, 61 P. 3d 1094 (2002) - Supreme Curt referencing the prtectins fr cndminium cnsumers under Washingtn's Cndminium Act fund the entity that makes use f the rights f declarant cannt subsequently deny that it pssessed thse rights r t evade its crrespnding bligatins. The entities were fund t be declarant's because they exercised Special Declarant Rights despite the lack f a frmal transfer f the rights. The Curt held that the Act des nt impse liability n successr declarant which relate t successr's exercise n nn-exercise f Special Declarant's Rights Ohi - McKnight v. Bard f directrs, 32 Ohi SI. 3d 6, 512 N.E. 2d 16 (1987). When lender perfrms such acts as t becme s intertwined with the prmtin and develpment f the prperty that lender is engaged in the business f develper, it cannt insulate itself frm the duties, strengths and bligatins f the develper. {00640894.1 } 5