In a recent case (Cooper v. Jordan, No. 14-0157) the Appeals Court of Iowa addressed a negligence claim by one heir against a sibling trustee who was also an heir. What I like about this case and why it is being added to the Iowa Real Estate Lawyer blog is to demonstrate another situation where doing due diligence would have revealed problems existing on the property which would likely have resulted in this heir’s property valuation being lowered with money being attributed to the deferred maintenance by or from the other heirs. In other words had the due diligence been performed it would have shown the problems in this farm house resulting in a lower value. When the other farms were transferred to the other three heirs, the equalization payments would have offset the repair costs of the home farm house.
Like in many cases where due diligence has not been properly performed the costs fall on the person who is buying the property. So keep this in mind as you read this case summary.
Attorney Lombardi says, This is an interesting case because it demonstrated the need to conduct a thorough due diligence prior to agreeing on the equalization of valuations between the four farms. It is far better to be arguing about valuations than it is to be trying to prove the trustee was negligent.
COOPER v. JORDAN - Suit by trust beneficiaries
COOPER v. JORDAN No. 14-0157
Appeal from the Iowa District Court for Jones County, Robert Sosalla, Judge. Heard by Vogel, P.J., McDonald, J., and Scott, S.J. Opinion by McDonald, J. (12 pages)
Linda Cooper sued her sibling Lynnette (Sue) Jordan, successor trustee of their mother's trust, asserting claims for negligence and breach of trust. Following a bench trial, the district court entered judgment in favor of Sue and dismissed Linda's petition. The district court denied Linda's request for costs and expenses and granted Sue's request for the same. OPINION HOLDS: Linda did not prove Sue was negligent or that the alleged negligence caused damage. The court did not abuse its discretion in awarding Sue costs and expenses, except for the costs and expenses relating to depositions not used at trial. AFFIRMED IN PART AND REVERSED IN PART.
Facts as recited by the Court
"Linda Cooper sued her sibling Lynnette (Sue) Jordan, successor trustee of their mother’s trust, asserting claims for negligence and breach of trust. Linda alleged Sue failed to keep in good and habitable condition two houses on the farmstead Linda received from the trust. Linda also alleged Sue engaged in self-dealing by using trust funds to enhance the value of the property Sue received from the trust. Following a bench trial, the district court entered judgment in favor of Sue and dismissed Linda’s petition. The district court denied Linda’s request for costs and expenses but granted Sue’s request for the same. Linda timely filed this appeal. At the time of her death on August 26, 2009, Dorothy DeMean was trustee of the Dorothy L. DeMean Revocable Trust. Dorothy’s daughter Sue was designated as the successor trustee. The trust instrument provided the trust property was to be distributed in equal one-quarter shares per stirpes to Dorothy’s four surviving children—Sue, Gene, Linda, and Leann. The trust corpus included four separate farms in Jones and Linn Counties, which the family referred to as the Home Farm, the Wyoming Farm, the Martelle Farm, and the Castle Grove Farm. The siblings agreed each was to receive one of the family farms with the understanding that equalization payments were to be made between and among them to reconcile the difference in value among the farms.
The four farms were transferred out of the trust to the four beneficiaries as tenants in common on February 18, 2011, eighteen months after Dorothy’s death. The exact cause or causes and the person or persons responsible for the delay between the time of Dorothy’s death and the time of transfer are disputed, but the delay generally arose out of conflict between Linda and the rest of the family with respect to the farm properties and the terms and conditions under which her son could farm one or more of the properties. Regardless of the exact nature of the dispute, on April 8, 2011, following a family agreement to partition the farms, the farms were deeded to the four siblings individually. Linda was deeded the Home Farm.
The Home Farm comprised one main house, where Dorothy lived until her death, and a smaller house. Linda’s family entered the main house on the Home Farm on April 9. They claimed the house was in a state of disrepair. Linda testified there was moisture and water in the basement. She testified the basement ceiling tiles had fallen down. She testified there was mold in the house. She testified raccoons had come into the house through the roof or a vent cover on the roof. Although no raccoons were found in the home, there were raccoon feces in the home. The water to the home had been shut off during the preceding winter. When Linda turned the water on, she discovered some of the water lines were broken. Linda claimed the smaller home on the Home Farm was in a similar state of disrepair. Linda then filed this suit for damages against the trustee."
Attorney Lombardi's Comment: If you don't understand due diligence you are not investing in property you are gambling about its value.