Property owners fight deed limitations in court

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A deed restriction could end up costing Milwaukee gas station owner Ramkrishna Subedi much more than he bargained for when he bought a foreclosed property.

Subedi bought a gas station on West Morgan Avenue for $356,001 at a 2010 sheriff’s sale through Mt. Everest Real Estate Holding Co. LLC, which he established in 2008.

The property’s deed included a restriction against selling petroleum products from any company other than Findlay, Ohio-based Marathon Petroleum Co. LLC. According to court documents, Subedi agreed to that restriction but requested to buy petroleum from Marathon directly, not the third-party sellers he was instructed to use.

When Marathon allegedly ignored his request, Subedi opted to sell non-Marathon products.

Marathon now is suing him and Mt. Everest Real Estate.

Subedi declined to comment beyond saying Mt. Everest is trying to work with Marathon. A Marathon spokeswoman said the company does not comment on pending litigation.

A deed restriction is imposed by the owner of a property before sale and limits how a buyer can use that property.

Beth Jaworski, a real estate agent with Shorewest Realtors Inc., Brookfield, said deed restrictions can be particularly troublesome in a sheriff’s sale, when foreclosed properties are put up for auction and sold without a buyer’s agent.

Part of her job, she said, is giving a potential buyer a property’s title policy. The policy is like a background check, Jaworski said, and reveals whether deed restrictions or liens, for example, are attached to a property.

But when a property goes through a sheriff sale, Jaworski said, there’s no real estate agent involved, and an individual buyer might not know to request a title policy before bidding.

“It’s totally buyer beware,” she said.

Craig Haskins, executive vice president at the Milwaukee office of Knight-Barry Title Inc., Racine, said buyers who don’t get a title policy before purchase usually make that mistake only once.

“There’s nothing more risky than purchasing a property at a sheriff sale with blinders on,” he said. “The ones who have been burned before will never do it again.”

It is not clear when Subedi learned of the deed restriction on the Milwaukee gas station, but according to a Feb. 1 letter attributed to Subedi and addressed to Marathon’s senior counsel, he agreed to abide by the restriction.

“Yes, we are aware of the deed restriction,” according to the letter. “We will co-operate … and we will brand as Marathon.”

Marathon cites this in its complaint, alleging it proves Subedi willingly disregarded the deed restriction.

Although Jeremy Levinson, who represents Mt. Everest, and Robert Steuer, who represents Subedi, acknowledge the letter’s authenticity in their joint response to Marathon’s complaint, they say Subedi wanted to buy petroleum products directly from Marathon.

They claim that request, reiterated in an Aug. 14 email attributed to a lawyer ultimately not retained in the suit, was ignored. That, they allege, caused Subedi to sell non-Marathon products.

In court documents, Marathon maintains Subedi was instructed to buy from a certified third-party.

In their response, Levinson and Steuer allege that was an attempt to force Subedi to pay higher prices. They claim the deed restriction is unenforceable because it was nullified when Marathon refused to sell directly to Subedi.

Joe Tierney, shareholder at Davis and Kuelthau SC, said he only has been involved in a few cases in the past year in which a deed restriction caused a legal problem. Most buyers don’t try to remove a deed restriction, Tierney said, and those who do generally are not successful.

Deed restrictions become aspects of the property, and the person or group that imposes one must either consent to removing it or be ordered to do so after a lawsuit.

But at least one Milwaukee property owner was successful in removing a deed. Tierney pointed to the 2001 example of Jay Hollis, the owner of Rosebud Cinema Drafthouse in Wauwatosa who was sued by the Marcus Corp., Milwaukee, over a deed restriction against showing first-run films.

Michael Cohen, a shareholder at Meissner Tierney Fisher and Nichols SC, Milwaukee, who represented Hollis, said the property owner knew about the deed restriction but did not think it applied to him, having never had a contract with Marcus Corp. Hollis bought the theater after it went into receivership under its previous owner.

Cohen said a settlement was reached, and though most details of that settlement are confidential, the theater gained the right to show first-run films.

There wasn’t a lot of precedent to guide him in that suit, Cohen said, and if the trial had proceeded, he probably would have argued the deed restriction was too broad to be enforceable.

Attorney Charles Barr, who has a private practice in Milwaukee, represented Marcus Corp. He said there’s no general rubric to gauge enforceability, and because a deed restriction can be whatever a property owner wants, enforceability can come down to a judge’s ruling.

Had the lawsuit proceeded, Marcus Corp. would have had to prove it was irreparably harmed, Cohen said.

In general, Barr said, imposers of deed restrictions provide courts with economic analyses to show how defendants affect bottom lines. Monetary losses, decreased goodwill for a brand and product confusion could be wrapped up in an analysis, Barr said.

Cohen said he thought making that argument would have been difficult because Rosebud, which has since been sold to a new owner, only has one screen. According to Marcus Corp.’s website, it has 695 screens in seven states.

In the gas station case, Marathon claims it has been irreparably harmed by Subedi and Mt. Everest. Angela Graves, a Marathon spokeswoman, said there are approximately 5,000 Marathon-branded gas stations in the nation.

Marathon is seeking damages, court costs and an injunction requiring Subedi abide by the deed restriction. Subedi and Mt. Everest are seeking dismissal and court costs.

Sometimes, Tierney said, deed restrictions end up costing too much through limitations and reduced property value. He said if he were a potential buyer, a deed restriction could be the deciding factor in whether to buy a property.

“It might be worth less to me,” he said of a restricted property. “It might be worthless to me.”

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