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December 10, 2014Client Alert

Important Easement Issue: Recent Case May Negatively Affect Easements in Your Mortgages

A recent case from the Wisconsin Court of Appeals presents a risk to your mortgages where the mortgaged property depends on an easement for access. 

Many properties are located immediately adjacent to a road and have access to that roadway for ingress and egress for cars, pedestrians and utilities. However, easements are often used to provide access rights, including for many cottages “up north,” lakefront homes, and even large commercial properties. For instance, commercial and industrial properties may have secondary access through an easement, especially if the primary access is inconvenient for customers or does not have enough turning radius for truck traffic. Adjoining mixed-use properties that are part of an overall project—whether a hotel/resort development, shopping center, or industrial park—often rely on easements so the individual pads can be privately owned and mortgaged, but the access rights are shared, as are their costs.

It has long been the law in Wisconsin that a buyer of an interest in real property, including a lender as the “buyer” of a mortgage interest in a property, takes title subject to: i) any interest that buyer actually knows of, ii) any interest which is recorded in the County Register of Deed’s Office, and iii) any interest the buyer would see if they looked at the property. We structure our real estate deals to rely on the title commitment to tell us what is in the Register of Deed’s Office, and a survey and Owner’s Affidavit to tell us what is on the property, including driveways which obviously serve other parcels of land. It has also been longstanding law in Wisconsin that an easement, which has not been recorded in the Register of Deed’s Office for 40 years, may become unenforceable. This allows the title companies to only search back 40 years of title when issuing a title commitment.

However, we have always interpreted the intersection of these two laws to mean that in order for an easement to be extinguished or unenforceable, it had to be: i) not mentioned in the Register of Deed’s Office for 40 years; ii) not actually known to the buyer; and iii) not obviously in use or evidenced by improvements like a driveway, which would be noted on a survey or put a buyer on notice of the existence of an easement right.

A recent Court of Appeals Case, TJ Auto LLC v Mr. Twist Holdings LLC, essentially holds that, unless a recorded easement is re-recorded with specificity (possibly by requiring a listing of each document number), against each parcel affected by it within 40 years, it is extinguished, even if there is clear, obvious evidence and use of the easement. The case also held that a survey of the property on file with the County surveyor’s office, which notes the recorded easement, was insufficient to extend the easement. The case contained evidence in the record that the buyer had actual knowledge of the easement and negotiated a lower purchase price due to the existence of the easement, but the court still found those facts insufficient to extend the easement. The case is currently on remand to determine if there is a prescriptive easement.

Since 40 years is a short time in the life of real estate rights, this interpretation could result in the loss of easement rights that were part of the legal description of the mortgaged property.  Some title companies are already refusing to insure access rights on the basis of this case. One can imagine that since the case is still working its way through the Wisconsin court system, title companies will also refuse to remove easements from their policies that are older than 40 years. The case relies on the same statute section which identifies that covenants and restrictions not of record within 40 years may be terminated.  Although this case did not address other recorded documents, the same logic, if applied to covenants and restrictions, could terminate industrial park restrictions, deed restrictions against use and covenants created as recently as 1974.

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