85. The Developer who Developed the Wrong Lot

In this episode, Bonnie Galam discusses a real estate horror story where a developer built a house on the wrong lot.  

In this episode you'll learn: 

1.  The absurd reason why the wrong property got a new house on it
2.  The two types of legal mistakes
3.  How to avoid making an expensive mistake like this when dealing with contractors

DISCLAIMER: Although Bonnie is an attorney she doesn’t give legal advice without a dually signed engagement agreement. All episodes of House of Horrors are educational and informational only. The information discussed here isn’t legal advice and isn’t intended to be. The information you listen to here isn’t a substitute for seeking legal advice from your own attorney

© 2021-2025 Bonnie Galam LLC | All rights reserved | Any use of this intellectual property owned by Bonnie Galam LLC may not be used in connection with the sale or distribution of any content (free of paid, written or verbal), produce, and/or service by you without prior written consent from Bonnie Galam LLC

Transcript

Bonnie Galam (00:01.39)
Hey there, fellow real estate investors. Welcome back to another episode of the House of Horrors podcast. That's right, guys, we are back and at it after a really lovely maternity leave and kind of slowly getting back into the groove of things with my firm, with the courses like Landlord Law School, with public speaking. Like, it's a lot. I've got three kids now. It's no easy thing. I'm not gonna sugarcoat it. I'm outnumbered. But I'm really excited to be back in front

of the mic talking about some real estate investing horror stories. We're gonna talk about the dark and twisty and messed up world that sometimes real estate investing can be. And I never want to be negative Nancy. And so of course we're always gonna break down how to avoid these situations, some important legal lessons for you to take away from these horror stories. And if you're new here, hi, thanks. I'm super excited to have you here. I'm Bonnie Gallum. I'm a real estate attorney licensed in New Jersey and Pennsylvania.

Pennsylvania, I've got a law firm that specializes in off -market transactions, multifamily transactions, all that good stuff. And I also have legal courses which are currently under construction and I hope to have...

up and running and available for you guys to access sometime this summer. It's a full gut rehab, if you will, of my signature program, Landlord Law School, which, if you can believe it, is four years old already, man. I launched this bad boy in the spring of 2020 after I had my second daughter. And it was out of necessity. There was lockdown, there was eviction moratoriums, and I was like, there's only one of me, and there's a lot of you guys. And so how do I, you know, kind of rethink what being a

real estate attorney means and here we are four years later 85 episodes deep and I'm excited because I have been like squirreling away like a little chipmunk waiting for winter all these horror stories and if you guys have some feel free shoot them my way don't send me something that's like inactive litigation I don't want to like mess anything up for you guys but if if it's something that's done it's wrapped up you're like Bonnie I can't believe this happened I would love to have you on we can have a conversation about it

Bonnie Galam (02:16.123)
We can dissect what happened, the woulda, coulda, shoulda, the whole thing. Or if you just hear something in your town. If you know of something funky with a real estate investor, if you know of something on haywire with a developer, I wanna know about it. I wanna talk about it. Let's spill the tea, don't keep it to yourself. Shoot me an email, bonnie .gallum. Nope, not that. Bonnie at bonniegallum .com. I'll include that in the show notes. If you got something on your mind, I wanna hear about it. Send it my way.

But...

And so on deck today, I've got a story that is frankly as bizarre as it is infuriating. And I'm curious whose side you take on this. For me, it...

It's very one -sided, but there's cross claims. The parties are supposed to sue in each other. So it is not as cut and dry. If things were cut and dry, us lawyers wouldn't be in business, right? There's always some gray area. No one has what we call clean hands, meaning that they're perfectly innocent. That very, very rarely happens.

Even if you may feel innocent, there's probably things you could have done better on the due diligence side, whatever the case may be here. But this one, I think, is pretty one -sided. It's about a developer who developed the wrong lot. But before we dive into this week's nightmare...

Bonnie Galam (03:41.865)
Let me just remind you about my weekly newsletter. It's free. It's where I share updates about the podcast, courses, legal things, and probably my favorite part, just because I'm a news nerd, is just some of the important news that I think you guys should be aware about. Let's talk about the economy. Let's talk about what's going on with different laws across the country. And so that's a quick little space. Probably would take you two minutes to read from start to finish, but if you are not already a subscriber to my weekly memo,

you can join at BonnieGallum .com forward slash memo. Now, let's get into the horror story of the week.

Picture this, guys. Picture this, because this is what heaven should sound like, right? You buy a beautiful acre of land in Hawaii with the dreams of building a serene retreat, right? Like it doesn't get any more idyllic than that. Well, I could probably, I don't know.

Bonnie Galam (04:57.065)
It just sounds perfect, right? I mean, what gets better than building a retreat center out in Hawaii? Well, for this poor woman, Anne Reynolds, it turned out to be a house of horrors. Let's get into it. In 2018, Anne bought this idyllic plot of land on Hawaii's Big Island, and she was quite literally guided by the stars. She chose it based off of her zodiac sign, and it was the perfect coordinates based off of that, but...

Anne's dream quickly turned into a nightmare when she found that someone had actually built a house on top of her land. Yep, you heard that right. A whole freaking house just sitting there uninvited. Anne had grand plans to turn this place into a healing retreat for women on the Hawaiian island, but thanks to this colossal screw up, there's now a three -bedroom house that was mistakenly built on her property.

The developers was this company PJ Construction, which was hired by...

Bonnie Galam (06:07.177)
I actually got that backwards. The property was built.

by PJ Construction, who was hired by a development company whose name is frankly something in Hawaiian and I'm really going to butcher it so I'm not going to do it, but we'll just call them the developer. And they were supposed to build next door on this parcel that was lot 115, but somehow they ended up on Anne's lot, which was lot 114.

Now you may be scratching your head and thinking to yourself, how in God's name is this even something like this even happen? And so apparently and perhaps unsurprisingly, the builders did not hire a surveyor. And what they were actually doing was counting the number of telephone poles to figure out where the lot was located. And apparently, and they admit this, they miscounted the number of telephone poles. I mean, at this point right now, I was thinking to myself when I'm reading this.

The greatest law school textbook writer could not have come up with a hypothetical like this. The greatest law school professor could not have come up with an exam question like this. It is just like so bizarre where you're like, okay, I guess reality is a better story maker than the human imagination. Because to call this a rookie mistake is, I feel like giving rookies a bad name. Because I think most rookies would know

to get a survey done. But I think honestly what happened here, and it wasn't explicitly stated, is they both probably thought the other one was doing some sort of due diligence and supervising what the other one. The contractor probably thought, if there's an issue, the developer will tell me something. And the developer probably thought the contractor will be doing this on their own. And so it just didn't happen.

Bonnie Galam (07:57.897)
And so what happens? They build an entire house on the wrong lot. But the best part was, was that this house was sold before anyone realized the mistake. It wasn't until the title company was trying to close escrow that they discovered the house was on the wrong property. And then the sell fell through faster than you could probably imagine. So I guess it didn't officially sell. It was under contract.

And at some point that was when the lot owner, Anne, found out. She got contacted by a real estate agent and was like, ugh, we're selling your property. And she's like, what do you mean you're selling my property? There's nothing there to be sold. And so that had to be really...

unpleasant day for our friend Anne. He said, we sold a house that happens to be on your land. You need to resolve this. And she was stunned. I mean, her first reaction was get that house off my property. But things really only got worse because squatters moved in because it's the year of our Lord 2024. And that just seems to be what happens right now. If there's a vacant house, especially in an expensive area of the country, people are going to move into it. And so they have squatters. They've been leaving a mess.

to say it has apparently involved lots of unflushed toilets. Things get worse for Anne because her property taxes have now doubled from the increase in value from this unwanted house. And so Anne, unsurprisingly, hires an attorney expecting an offer from the developer and instead she gets sued. Yes, you heard me right. The developer ultimately sued Anne, claiming that she was unjustly enriched by having this house on her land and she should pay them back

for this improvement that she now has on her land. She got a free house, they want her to pay her. They want Ann to pay the developer to make them whole because she got this unjust benefit. And good lord, I mean, I'm just like, what attorney took this case? But that's definitely adding some insult to injury, throwing some salt in the wound of our girl Ann here. And...

Bonnie Galam (10:18.089)
The developer had offered to swap lots, say, hey, you can have our lot and we'll take her lot.

And I think they own multiple lots in this particular development. It was just cleared land and she obviously got a parcel. They bought several parcels and they said, take any other parcel. But again, Anne bought this lot due to the fact that it lined up with her zodiac. And so she's like, no other lot will do. I want this lot and I want it vacant. And so this actually is still an ongoing litigation. There hasn't been any sort of resolution to it yet. And although Anne's logic of not wanting

wanting what the developer thinks is an identical parcel next door that's undeveloped because of her attachment to the property due to zodiac that may or may not resonate with you. But it does highlight this really important characteristic of land, which is different from other things that can be sold. And the presumption with land is that it's unique.

because there's only a finite amount of it, right? Like that's why we're all investing in real estate because they're not making more of it. There's not more land on the earth with the exception of perhaps some of those like private islands that they sprout up in like the Arabian Sea or something. But generally speaking, we're dealing with a finite resource. And so unlike a widget, as you would say in law school or really anything that you can...

buy something like a car or something from Target or software, anything else, land is really considered to be unique. And so saying, hey, I'm gonna swap one for the other is not really a true swap. I mean, we're not talking like 1031 exchange swaps here. We're talking...

Bonnie Galam (12:04.713)
wanting a particular piece of property for a particular reason. And that developer may be like thinking she's a wackadoo lady for wanting to have a property that lines up with her zodiac, but that's her reasoning. And her legal argument is that that's just as legal of a reasoning as depending on...

what any other buyer would want in a different situation where it's like, hey, I really wanted a particular layout or I don't like the landscaping or I don't like that it's the corner house so it has more traffic. There's a million different reasons why land is valued differently. And I mean, anyone who's sold or purchased property can kind of understand that even within something that can feel identical, like an apartment building or townhouses where it is a copy and paste version

and even some single family developments are literally copy and pasted versions of a particular property, there are differences, right? There are differences. How many floors of, how many flights of stairs do you have to go up?

Where does it get the morning sun? Does it get the afternoon sun? Do you have five neighbors looking in your backyard? Do you like being on the first floor? Do you prefer being on the top floor? There's a million different reasons why real estate is considered unique. And so I would be shocked to find at the end of this situation.

that the developer resolves this for some sort of a swap. Because it sounds like our girl Leanne here, she really just wants this property returned back to the undeveloped condition that she was owning it in. Now, what lessons are there for you? What legal lessons can we extract from this mess?

Bonnie Galam (13:55.569)
So the first thing I want to talk about is this concept of mistakes, specifically what's called unilateral and bilateral mistakes. So imagine this situation. Here's a hypothetical that has nothing to do with houses. You and your friend agree to buy a car. You think it's going to be a red car. And your friend thinks it's blue. That's a bilateral mistake. Both parties are wrong. The car is black.

And so the fact that you wanted a red car and your friend was selling a blue car and thought you'd be fine with that, both parties are wrong. Whereas here, in real estate,

This might happen if both the buyer and seller are mistaken about the boundaries of the property, but here in Anne's case, it's what's called a unilateral mistake, meaning only one party, here the developer, made this colossal error. They built the house on the wrong lot without verifying it. And so legally, unilateral mistakes can be tricky. If the mistake is significant and the other party, here Anne, is unaware, the mistaken party, the developer, may not get much sympathy from the court.

there's a fact that Franklin and Sharon told right now that got highlighted, which was that this didn't happen overnight. And so Ann wasn't really supervising her property. It takes several months to put up a house and there's permitting and there's this and that. And so Ann is on the mainland, in the mainland. She lives, I think, in California. And this property is in Hawaii. She's not there all the time. And so she kind of just set it in and forget it. Now, does that excuse their behavior? No.

But imagine the other situation where day one or day two, she's like, hey, what are all these trucks doing on my land? What are you guys doing here? This is my property. This would have been shut down a lot faster. And so that responsibility is not necessarily Anne's, but when we talk about unclean hands, if there's a little bit of responsibility for Anne, there is some sort of expectation that you are aware of what's going on with your property. And so how do we avoid a horror story like this?

Bonnie Galam (16:05.214)
Here are some tips. One, and unsurprisingly, always, always, always, always, always, always, always, always use a surveyor. Before you build, make sure you know exactly where your property boundaries are. But that's not just building ground up construction. Before you put a shed, before you put a fence, before you make an addition, surveys, put in a pool. Like there's a million different things. I, as an attorney, always recommend my clients get surveys done if it's not basically a condominium, if it's not something where it's attached.

Sometimes the townhouses will do an exception as well, but sometimes not. Some attached properties have fences, they have driveways, they have shared driveways, they have space to put sheds in. So it's not a...

a guarantee. Short of it being like an apartment type of condominium where you really have no exterior land, I always recommend getting a survey. And I make my clients sign a waiver if they don't want the survey. So keep that in mind. It may cost a bit upfront, but it really saves a fortune in legal fees and headaches later.

It's something that's like a few hundred bucks and I realize that buying real estate is not a cheap endeavor to begin with, but you never want to be penny wise and pound cheap and end up in a situation where you're...

And it's such a legal headache. I mean, I'm thinking for this guy out here in Hawaii, I mean, the survey, I'm just taking New Jersey prices, say it was like 700 bucks to get a survey done. I'm like, the initial retainer, the initial consult with their attorney who now has to defend them on this mistake was probably that much. And so, asset protection is not just...

Bonnie Galam (17:59.048)
cleaning up legal mistakes, it's preventing them. And surveys should be an important part of due diligence whenever you're buying non -condominium real estate. The next thing is double check everything. Mistakes happen, but double checking can prevent most of them. Verify lot numbers, verify addresses, property lines before any construction begins. And also,

Clarifying your scope of work when you're hiring a contractor to make sure they understand what they're supposed to be doing and exactly where. If you're thinking, my God, I would never have someone build on the wrong lot, I always get surveys, that would never happen. I can tell you I hear from investors all the time where contractors get crossed wires with investors and they renovate the wrong bathroom or they tear down the wrong wall or they demo something that they weren't supposed to demo or they paint something

the wrong place and the wrong thing and you're redoing work. And so scope of work, who's responsible for what, who should have gotten the survey here? Was that the developer's responsibility? Was that the contractor's responsibility? Here it was like not even a thought in anybody's head and so no contract even can be pointed to to say, hey.

This was someone's fault, the developer could say, for example, the contractor was supposed to get the survey, that was in our agreement, he didn't, this is his mistake, he should eat the cost, not me as the developer.

And you can kind of come up with some sort of situation that I'm sure you can imagine where things have gone wrong. And that's been my greatest learning lesson as a real estate investor has just been learning from these mistakes because we have even in the house I'm living in right now, they accidentally demoed a linen closet that I wanted. And I worked with another investor and they who does some carpentry work and they built like an open shelf type of closet situation. It looks cute and it's

Bonnie Galam (19:52.42)
but like for a year, I was just like, are you freaking kidding me? That I, we demoed. Who demos a linen closet? We did. And that was one of those things where we said we wanted the whole bathroom demoed. And we didn't think that went as far as the framing of this add -on closet and the...

The contractors differed. Thankfully it was something small and something we could remedy when we got around to it. But it happens. And so get specific, get specific. Don't be afraid to put it in writing.

Other tip is always, you know, right along those lines, clear communication. You want to make sure everybody involved, builders, developers, landowners, surveyors, realtors, title companies, everyone has to be on the same page. And that's why there's so much writing involved with.

real estate, but...

This is, you know, some of these mistakes could even happen post purchase, right? Like the developer did purchase land properly with a realtor, with title company. And then the issue post came up with development. And so you eliminate a lot of these miscommunications by putting things in place, having a solid legal contract in place, and also, you know, having some indemnities. If the contractor makes a mistake, do they promise to repair that mistake on their cost?

Bonnie Galam (21:21.041)
that's something you're gonna have to eat as the developer or as the investor. And so that, my friends, is the wild, wild tale of the developer who developed the wrong piece of land and this misplaced Hawaiian McMansion. It's a story that should remind us all to dot our I's, cross our T's, and for heaven's sake, get the dang survey.

Next week, we will be diving into another story that is equally wild, if you will, with what to do if your tenant has an emotional support alligator. Yep, not joking, emotional support alligator. And if you're thinking, it's never gonna happen, I don't live in Florida, think again. There's an emotional support alligator roaming the streets up here in Pennsylvania, outside of Philadelphia. You try to bring him to a Phillies game last year. What's, not, again.

Reality is even wilder than our imaginations. And so you don't wanna miss that. Make sure you are subscribed. Hit the subscribe button on your podcast player, Spotify, Apple, Amazon, wherever you're listening to your podcast. Make sure you stay updated so you don't miss this because even if it's not an alligator, what if they got emotional support?

turtle or something and you're like, what do I do with this? And so that's where we're gonna dive into next week. And also don't forget to subscribe to the weekly newsletter, the weekly memo at bonniegallum .com forward slash memo for continued insights, updates, commentary, all that good stuff. Until next time, keep your real estate nightmares on the podcast and not in reality. I'll see you here same time, same place next week.