By:
Stephen D. Richman, Esq. - Senior Counsel- Kohrman, Jackson & Krantz
(A Watch
Your Language Series Article)
As is commonly known, ignorance of the law is
no excuse to one who is charged with a crime.
In real
estate, however, while ignorance of the law will rarely result in a prison
term, it will almost always result in unintended consequences that could have
easily been avoided by hiring (at the outset) qualified, legal professionals
whose job is to know the law and know it well.
The
defendants in the recent case of Bragdon
v. Carter, 2017-Ohio-8257 (4th Appellate District) found this out the hard
way.
The facts
of the case are as follows:
Burl
Bragdon, an individual from Scioto County died testate in 1998, and owned a
tract of real estate at the time of his death. Bragdon’s will provided in
pertinent part: “ITEM IV: I give,
bequeath and devise my real estate equally to my children and friend, BELINDA
DILES, BRENDA BRAGDON, BURL BRAGDON II, and BETH A NIXON, per stirpes, provided
that said real estate not be sold until twenty-one (21) years after the death
of my granddaughter, MORGAN MCKENZIE DILES, born April 14, 1996. It is the
purpose of this bequest that my children and their heirs shall always have a
place to live.”
The
executrix, Belinda Diles Carter admitted the will to probate, and thereafter, a
certificate of transfer was issued, conveying a one-fourth interest in the real
estate to Burl Bragdon’s three children and his friend, as directed under the
will. The certificate of transfer noted the following: “Said real estate may not be sold until twenty-one (21) years after the
death of Morgan McKenzie Diles.”
While,
apparently, Burl Bragdon wanted the property to be a continual homestead for
his children and grandchild, the family had other plans. After a series of
transfers by the children named in the will, 100% of the interests in the
property were held by Corey and Heather Bragdon (who were not named in the
will, and whose relation is not explained in the decision) who wanted to then
transfer the property outside of the family, without being subject to the
restriction against transfer. Accordingly, Corey and Heather Bragdon (plaintiffs/appellants)
filed a complaint with the trial court for a declaration that the plaintiffs
hold valid title, without the restriction (which plaintiffs claimed was
invalid).
Basically,
the trial court in Bragdon v. Carter was
faced with deciding whether or not the property could be lawfully sold, in
light of the restriction in the will and certificate of transfer. On January
23, 2017, the trial court entered judgment in favor of the defendants. In its
judgment entry, the trial court found that the restriction on alienation was
valid and that the transfer of the property was a clear violation of Burl
Bragdon’s wishes, was contrary to Ohio law, and would unfairly and unjustly
divest Morgan McKenzie Diles of her future interest in the property. Heather and
Corey Bragdon then filed a notice of appeal.
The appellants in Bragdon v. Carter
claimed that the trial court erred (made a mistake) as a matter of law
in finding the transfer restriction valid. They claimed that Ohio has adopted,
from our English common-law heritage, what is known as the “rule
against unreasonable restraints on alienation.” This general rule provides that since
one of the main incidents of ownership of real property is the right to convey
it, the law will not allow the rights of ownership to be limited by imposing
restraints by those who seek to convey or dispose of their property, and at the
same time maintain control over its alienation or use. This rule stems from the abolishment of the feudal “fee tail” which
restricted the transfer of real property to a specific line of
male heirs. Our “modern law” frowns upon such restraints
since they stifle the free use and development of real property, and
consequently, are not in the best interest of society and commerce.
The appellee’s argument (and apparently,
the basis of the trial court’s decision) was that only a valid “life estate” was
transferred, not a transfer of fee simple absolute title, subject to a
restriction against lifetime transfers.
To get a better grasp of the issue faced
by the court of appeals in in Bragdon v. Carter, a brief “Real
Estate Law 101” lesson on estates (interests) in land is warranted. As a general rule, real property
ownership is more like the possession of a bundle of rights (vs. merely the
possession of dirt and improvements on the dirt). The basic rights included in such “bundle” are
the right to use, the right to sell, the right to mortgage, the right to lease,
the right to give away, and right to enter (or the right to refuse to exercise
any of these rights). The fullest possible title to real estate (the
biggest bundle of rights) is called "fee simple absolute". Examples of lesser
estates are leases (right to use, but no right to sell), easements and life
estates. Life estates are estates in land where parties measure ownership by
the life of the life estate holder. The life estate terminates on the death of
the life estate holder, and then the property passes to a future, named owner (known
generally as the “remainderman” or the “remainder holder”). While the owner of
a life estate can sell its interest, the buyer would be limited to enjoy/use
the property until the death of the life estate holder or “life tenant”, at
which time all of the rights of ownership would belong to/pass to the reminder
holder.
The court of appeals in in Bragdon
v. Carter agreed with the appellee’s general conclusion that if a valid
life estate (with a remainder interest to the granddaughter) was created, the
trial court’s approval of the transfers and declaration of ownership to
plaintiff-appellants would unfairly and unjustly divest Morgan McKenzie Diles
of her future interest in the property. In reversing the trial court’s finding
for defendant-appellees’ however, the court of appeals determined that there
was no clear indication that a life estate was intended. Citing precedent to
support its holding, the court stated that “[a]
devise or bequest of a life estate must be clearly expressed to be effective.
“ Analyzing the documents provided, the court found no mention of the term
“life estate”, no designation of the granddaughter as the remainder holder, and
no other indication of intent to have created a life estate. Moreover, the
court cited statutory authority directing the court to not establish a
lesser estate without a clear expression of the creation of the same. Pursuant
to Ohio Revised Code Section 2107.51, “every devise of an interest in real
property in a will shall convey all the estate of the devisor in the property,
unless it clearly appears by the will that the devisor intended to convey a
less estate.”
In sum, the court of appeals in Bragdon
v. Carter concluded that “the
real property at issue was transferred in fee simple absolute, and the portion
of the devise attempting to restrict the alienability of the property is void
and of no effect as being repugnant to the devise and the public policy of this
State. Thus, the trial court erred in determining that the restriction was
valid.” Based on the foregoing, the court reversed the judgment of the
trial court and remanded the cause to that court to enter judgment in favor of plaintiff-appellants
Corey and Heather Bragdon.
What is the
moral of this story?
Simply, to win at the “game of real estate
law”, you have to know the rules. It is against the rules to restrict fee
simple absolute transfers of real estate to certain people for certain periods
of time. It is absolutely fine, however, to transfer lesser estates such as
leases or life estates. Carrying our analogy further to a game of football, a
forward pass and a forward lateral both move the ball forward. However, a
forward lateral moves the ball forward in such a way that it is against the
rules. Lawyers are trained to know the rules, and should always be used in the game
of real estate. Penalties in terms of legal fees and unintended consequences
are much harder to swallow than the loss of a down, yardage or the outcome of a
football game.
Another moral of this story is the following,
common thread in many Ohio real estate decisions (and articles re: same in this
Blog): “Watch your
language, and say what you mean, precisely, or a judge will decide
what you meant.” I presume that the use of the following four words in Mr.
Bragdon’s will and certificate of transfer would have changed the outcome of
this decision and the “law of unintended consequences”: “life estate” and “remainder
interest.”
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