Landowner’s Economic Woes Lead to Major Legal Challenge for Land Trust
Ryan Boggs, executive director of the Legacy Land Trust in Colorado, never dreamt that mortgage subordination would lead to a $50,000 legal challenge lasting two years. Economic woes caused a landowner to default on a mortgage on conserved land. The lender foreclosed and tried to eliminate the conservation easement claiming that the bank employee who signed the subordination did so fraudulently and without authorization. The land trust board and staff were stunned at this blatant attempt to profit at the expense of the public investment in conservation.
By May 2009 the land trust was managing two other significant disputes: one where a neighbor sued for access over conserved land claiming a prescriptive right and another where a neighbor disputed the right of the landowner to operate trap shooting on an excluded parcel of land by a youth group and involved the land trust in the litigation.
“Even a big defense fund can go away really fast,” said Ryan. “We were surprised by the number of simultaneous disputes and by their source from third parties with bizarre claims. You never know what can happen or when.”
In all the land trust spent more than $56,000 in legal fees to litigation counsel and the land trust attorney and costs to manage these three simultaneous legal challenges. They also spent hundreds of hours of staff and volunteer time on them and an additional $46,000 to purchase the foreclosed lot and extinguish the mortgage. The land trust took this step in order to save the conservation investment and avoid a trial in the case of the challenged mortgage subordination. The land trust anticipates it will be able to recoup its costs upon resale of the conserved lot, subject to the conservation easement, once the economy turns around.
The land trust board struggled with its evaluation of what were the best avenues to take to preserve the conservation easement as well as its ability to sustain multiple challenges. They considered and rejected a complaint to banking regulators as well as publicity. While a trial may have resulted in a land trust win, with the possibility of fees and costs being awarded to the land trust, the cost for that route and the risk led the land trust to a negotiated settlement where they purchased the lot instead free of the mortgage.
“Despite the recorded subordination that was signed by a bank employee, the land trust was drawn into this expensive dispute”, said Allan. “When this happened the land trust took all necessary steps to defend the conservation easement. The economic impact to the land trust of doing its job in defending the conservation easement would have been more easily managed if the conservation defense program had been in place.”
The other two disputes were also dismissed after preliminary investigations and negotiation. Nonetheless, managing three simultaneous disputes stretched the staff and board capacity and caused fears of depleting all land trust reserves.
“The proposed conservation defense insurance program would be a strong safety net for Legacy Land Trust and any land trust that fulfills its obligations to uphold conservation permanence” said Ryan. “Our board committed to the program and wants to see it start. We know that legal challenges will continue to increase and will continue to be unpredictable. Insurance is perfect for this situation as a backstop for our defense reserves. It takes the threat of being bankrupted by a claim out of the dynamics when analyzing how to respond to a challenge.”
Ryan and Allan urge every land trust holding a conservation easement or owning land to join with the more than 256 others to the proposed collective defense effort. The Alliance board will not vote to proceed with the program until land trusts reach the minimum number needed for financial feasibility. So far land trusts have committed more than 10,600 of the 12,000 conservation easements and fee owned parcels necessary. For more information see www.lta.org/cdinsurance.