If it's a better fence than the one you had -- why do anything about it so long as the neighbor is not asking for contribution? No one needs two fences 3" apart. If you have suffered damages as a result of your neighbor’s, can prove it, and they are more than nominal -- you can present a claim for damages. If he or his insurance company offers a settlement you can accept it or not. If not offered, or offered and not acceptable, your only remedy is to file suit on your claim.
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No, he shouldn't have done that. If your fence was, in fact, over the property line, he would legally have needed to go to court to have it declared that your fence was over the line and needed to be moved/removed/replaced. Because he destroyed your property, you have a tort action against him for "conversion" and should be able to have the court require him to pay for your costs to rebuild the fence. You don't actually have to rebuild it, just get the money.
Also, depending on how long the fence had been there and IF it was over the property line, you might have a valid claim for adverse possession, whereby that small strip of land you fenced in across the property line became YOURS by the operation of law. How long had the fence been there before he tore it down?
Kevin King, Principal- Essential Law Services. HTTP://ESSENTIALAW.COM, 415-562-6862. The information presented here is general in nature and is not intended and should not be construed as legal advice for a particular case. This post does not create any attorney-client relationship with the author of the question answered. For specific advice about your particular situation, consult with me or another qualified attorney off-site.
Fence disputes are fairly common, and usually unnecessary. The police will not get involved because this is a civil matter and not a criminal matter.
The general rule is that a boundary fence belongs to both neighbors and both neighbors are responsible for the maintenance and repair of boundary fences. If the fence needed repair, and you did not repair it, then the neighbor could repair it and ask you to pay 1/2 the cost.
If you really think that your rights have been violated, you can file a lawsuit asking for damages, asking for the fence to be taken down, asking for the moon.
I am sure that 2 or 3 inches is well worth the several thousands of dollars you will spend in trying to fight over it and which you may never recover.