For Neal Graham's Real Estate Class (LEGL 3485) at the University of Memphis. Copyright Cengage Learning.

1. Chapter 4
Public Regulation and
Private Encumbrances

2. Objectives
• After reading this chapter, you should be able
to
– Understand public restrictions on the use of real
property, such as zoning, building codes, eminent
domain, subdivision restrictions.
– Identify the various types of private
encumbrances.

3. Public Regulation
• Zoning
– Regulations that restrict private land use
– Main purpose
• Improve living and working conditions in congested
areas by preventing liberties of one property owner
from interfering with rights of another

4. Public Regulation
• Zoning consists of:
– Dividing a city or county into districts
– Prescribing within each district types of structures
and architectural designs for buildings to be
located there
– Prescribing uses for buildings within each district

5. Public Regulation
• Zoning
– Governmental/political process
• Requires notice and hearing for zoning property
– Property can be rezoned from one use to another
• If so, previous use called nonconforming or preexisting
use
– Enforced through injunctions by public authorities
or by refusing to issue building permits

6. Public Regulation
• Zoning
– Case
• Shackford & Gooch, Inc. et al. v. The Town of
Kennebunk et al., 486 A.2d 102 (Me. 1984)
– Addition of a roof deck was a nonconforming structure in
violation of local zoning laws

7. Public Regulation
• Building codes and subdivision regulations
– Protect health and welfare of city or county’s
citizens
– Building codes
• Regulate methods and materials to be used in
construction of improvements
– Subdivision regulations

8. Public Regulation
• Environmental protection laws/CERCLA
– Wide body of both federal and state law designed
to protect the quality of earth, water, and air
– Clean Water Act
• Wetlands
• Army Corps of Engineers
– Clean Air Act
• Excessive noise also regarded as a form of air pollution

9. Public Regulation
• Environmental protection laws/CERCLA
– EPA regulates hazardous wastes under the
Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA)
• Also known as Superfund

10. Public Regulation
• Environmental protection laws/CERCLA
– Under CERCLA, full liability extends to
• Present owners and operators of facilities that
generate or create hazardous substances
• Past owners and operators
• Parties that arrange for the treatment, transport, or
disposal of hazardous waste
• Parties that accept hazardous materials for treatment,
transport, or disposal

11. Public Regulation
• Environmental protection laws/CERCLA
– To claim “innocent purchaser” defense, entity
(buyer or lender) must
• Have no actual knowledge of contamination
• Make appropriate inquiry into previous ownership and
uses

12. Public Regulation
• Environmental protection laws/CERCLA
– Environmental engineer performs Phase I Review
and Assessment according to American Society for
Testing and Materials (ASTM) standards
• If necessary, Phase II is performed

13. Public Regulation
• Environmental protection laws/CERCLA
– Environmental site protection insurance policy
• Protects insured against third-party liability
– Remediation cost cap policy
• Eliminates financial uncertainty
– Secured creditor insurance policy
• Insures real estate mortgage lenders against loss
caused by environmental contamination

14. Public Regulation
• Environmental protection laws/CERCLA
– Underground storage tanks
– Radon and lead-based paint

15. Public Regulation
• Power of eminent domain
– Based on the Fifth Amendment to the U.S.
Constitution
– Government can “take” private land for public use
with just compensation to the landowner
– Landowner must be given due process
• Notice and hearing

16. Public Regulation
• Power of eminent domain
– Government’s power of eminent domain may
include the taking of land for economic
development
• E.g., Kelo v. City of New London case
– Stated “public use” was to create jobs and generate higher
tax revenues

17. Public Regulation
• Taxation
– Real estate taxes are also called ad valorem taxes
– Real estate valuations are determined by
assessment method
• Based on full fair market value
• Property owner has the right to challenge assessments
and have an independent appraisal

18. Public Regulation
• Taxation
– Government can assess additional assessments
for improvements
• E.g., roads
– Taxes become lien on property, with superpriority
over mortgages

19. Public Regulation
• Federal and state income tax liens
– Lien
• Money debt attached to real property
• Can be attached by federal, state, or local governments
• Released when the debt is paid

20. Private Encumbrances
• Voluntarily created by private parties that
deal with real property
• Judgment liens
– Created when the court enters judgment against a
property owner who has been sued for a sum of
money
– Must be recorded in proper form
• Judgments attach at time of recordation

21. Private Encumbrances
• Mechanics’ and materialmen’s liens
– Secure payment for work performed or materials
furnished for construction, repair, or alteration of
improvements on real property

22. Private Encumbrances
• Special mechanics’ and materialmen’s lien
situations
– Landlord and tenant
– Contract seller and purchaser
– Husband and wife
– Joint tenants

23. Private Encumbrances
• Other mechanics’ and materialmen’s lien
considerations
– Right to mechanics’ lien does not vest until work is
fully performed or material furnished
– Lien right must be perfected by filing notice in
public records where real property is located
– Notice must be recorded within a reasonable
period after completion of work

24. Private Encumbrances
• Mortgages and trust deeds
• Easements
• Restrictive covenants
– Usually found in deeds and title policies
– Usually serve same purpose as public zoning
regulations

25. Ethics: Abandonment of Work
• Professional ethics require that legal work be
performed competently and have a timely
completion
• Failure of paralegal to obtain zoning ordinance
may subject attorney to malpractice claim
• Paralegal shows unprofessional and perhaps
unethical behavior regarding client’s interests

26. Summary
• Public regulations of real property
– Zoning, building, subdivision, and environmental
laws
– Eminent domain
• All property ultimately subject to government’s power
of eminent domain

27. Summary
• Private encumbrances on real property
– Mortgages, easements, and restrictive covenants