Court Holds That Homeowners Could Not Assert Adverse Possession Claim to

Homeowners Association Property Absent Payment of Property Taxes on Disputed Area

In Nellie Gail Ranch Owners Association v. McMullin, et al., the court found that a homeowner in a homeowners association could not maintain an adverse possession claim absent payment of property taxes or evidence showing that no taxes were assessed against the disputed land.  Nellie Gail Ranch is a planned development in Laguna Hills, California.  Nellie Gail Ranch Owners Association (“Nellie Gail”) is the homeowners association that owned the common areas and administered the community’s CC&R’s.  The CC&R’s required all homeowners to obtain written approval from Nellie Gail’s Architectural Review Committee (“Review Committee”) before constructing or making significant alterations to any improvements on their property.  In 2000, Nellie Gail residents Donald G. McMullin and Cynthia Jensen-McMullin (“the McMullins”) applied to the Review Committee to make several alterations to their property, including the addition of a retaining wall.  Though their written application was denied, the McMullins claimed that a Nellie Gail representative later informed them verbally that they had permission to build the retaining wall.  After the McMullins completed construction of the wall, Nellie Gail determined that it was located on Nellie Gail property (“Disputed Area”). 

Nellie Gail filed suit against the McMullins to quiet title to the Disputed Area.  The McMullins cross-complained against Nellie Gail on the grounds that the McMullins acquired title through adverse possession.  In a bench trial, the trial court sided with Nellie Gail and authorized Nellie Gail to remove the retaining wall (as well as other encroaching improvements).  The McMullins appealed.

In affirming the trial court’s ruling, the appellate court noted that the adverse possession claim required the McMullins to prove that they continually possessed and occupied the Disputed Area for five (5) years, and that they paid all property taxes levied and assessed on the Disputed Area for that period.  The McMullins claimed that they were excused from the property tax requirement because the lot owned by Nellie Gail on which the Disputed Area was located (“Encroached Lot”) had no value, and therefore, no taxes were levied or assessed against it.  The McMullins relied on a recorded quitclaim deed transferring the Encroached Lot to Nellie Gail in 1984, which stated that no documentary transfer tax was required for the transfer.  The McMullins also argued that tax statements did not indicate that the county levied or assessed any specific property taxes against the Encroached Lot and did not identify any specific value for the parcel.   

The appellate court disagreed.  It noted that nowhere on the quitclaim deed did it state that the Encroached Lot had no value, and that the McMullins failed to provide authority for their assumption that the absence of any documentary transfer tax in the quitclaim deed established that the Disputed Area had no value.  To the extent property tax documents showed that Nellie Gail was not billed for any property taxes on the Encroached Lot, the court noted that the documents stated “common area values separately assessed,” and that homeowners in homeowners associations like Nellie Gail are assessed property taxes based not only on the value of their separate lots, but also on the value of their proportionate, undivided share of all common areas owned by the association.  (Rev. & Tax. Code, § 2188.5(a)(1).)  The McMullins had stipulated at trial that the Encroached Lot was a “common area,” which explained the lack of property taxes assessed against Nellie Gail.  Accordingly, the appellate court ruled that the McMullins did not prove that they were entitled to quiet title to the Disputed Area because they did not prove that they paid property taxes on the Disputed Area or that they were excused from paying said taxes. 

Nick D. Fine, Associate, ndf@sbj-law.com