Articles Posted in real estate law

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It is widely understood that in California, when it comes to owner-occupied homes, if the seller carries back a loan, taking a deed of trust to secure the purchase price, if the buyer defaults on the loan the seller may not obtain a deficiency judgment. The seller is limited to foreclosing the deed of trust and getting the house back. In a recent situation the buyer obtained their primary loan from a commercial lender (Washington Mutual) and did not want the seller to also have a deed of trust against the property, so the seller recorded the deed of trust later. The seller could not then claim that they did not make a purchase money loan.

Sacramento mortgage foreclosure attorney.jpg In James Enloe v. Casey Lee Kelso, Enloe sold their house to Kelso for $1.9 million. The sellers got a purchase money loan from Washington Mutual for around $1.8 million and change, and the seller was going to carry back a loan for the balance of about 5% of the purchase price. But Washington Mutual did not want a another deed of trust recorded behind its own. The facts are not clear in the opinion, but it may be that Washington Mutual wanted the buyer to have cash in the deal- like a five percent down payment. If the Seller’s deed of trust was to record in escrow, the Washington Mutual loan would not close. So, the crafty buyer and seller came up with a scheme (to defraud the lender?) In which the deed of trust would record after the sale escrow closed.

Prior to close of escrow, the buyer signed a note secured by a deed of trust in favor of the seller for the 5%. The seller gave the buyer a personal check for that amount. Because escrow would not accept a personal check, the check was marked void. Escrow then closed. Again, the court decision does not indicate if the buyer came up with more cash (to the tune of over $90,000) to cover the five percent difference, but the money came from somewhere. On the same day escrow closed, the Seller gave the buyer a check for 5% amount. A few days later the Seller recorded their deed of trust.

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Federal law enacted in 2009 requires, after foreclosure of a federally related loan on residential property occupied by a tenant, that the acquirer serve a ninety (90) day notice to terminate the tenancy. Three day, 30 day, and 60 day notices are not enough. This is an important consideration to buyers of foreclosed properties at trustee’s sales. Sacramento real estate attorneys are often consulted as to the correct notice required to terminate a tenancy. Failure to follow the rules provides the tenant an affirmative defense in an unlawful detainer (if the judge allows them enough time to put in evidence). However, as a disappointed tenant recently learned in the 9th Circuit Court of Appeals, Federal Court, the law does not give tenants an affirmative right to bring a claim for violation of the statute.

sacramento landlord attorney.jpgIn Karen Logan v. U.S. Bank National Association, the lender filed an unlawful detainer after it foreclosed and served a three day notice. The tenant filed a demur in the unlawful detainer court, based on “The Protecting Tenants at Foreclosure Act of 2009.” (PTFA) The court denied the demur. The tenant filed suit in Federal District Court, seeking an injunction to stop the unlawful detainer property, plus damages, based on the federal statute.

The 9th Circuit Court of Appeals had to determine if it had “subject matter jurisdiction” over the tenant’s claim for damages under section 702(a) of the Protecting Tenants at Foreclosure Act of 2009. That is, whether or not the tenant had any rights under the statute that the court could rule on. Private rights of action under federal law must be created by Congress. The court must determine whether the PTFA shows such congressional intent, either explicitly or by implication.

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The Fair Debt Collection Practices Act (FDCPA) was enacted by Congress with the intent to police the coercive, unrestrained activities of third party debt collectors as distinct from debt servicers. It provides a number of claims and remedies for California debtors. I recently wrote about the decision in which a Bank forgot they agreed to a loan modification and proceeded to foreclose. The Court found that the bank could be in violation of the Equal Credit Opportunity Act requirements for adverse actions by lenders. In that same decision of the federal Court of Appeals, 9th Circuit, the court considered whether Wells Fargo was a debt collector for purposes of the FDCPA.

Debt collections attorney.jpgIn Schlegel v. Wells Fargo Bank NA, the borrowers took out a $157,000 loan in 2009 secured by their home. The loan and deed of trust were assigned to Wells Fargo. Trouble ensued, and the lawsuit was filed, also alleging violation of the Fair Debt Collection Practices Act. The issues for the court was whether or not the bank was a “debt collector.” Under the FDCPA, a “debt collector” is “[1] any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6)

The court found that this defendant is not a debt collector under the FDCPA, but a creditor. This distinction is important because the FDCPA applies to debt collectors, but not to creditors.

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California quiet title actions may arise from many different situations which will bear on whether they will be decided by a judge or a jury. The difference is whether it is an action ‘at law,’ or ‘in equity‘. Originally in English common law, the courts decided questions of law, while the King was able to dispense equity. Over time, these functions were combined into the court systems, but for purpose of a right to a jury trial, the distinction remains. Equitable actions, decided by a Judge, usually involve lawsuits and petitions requesting remedies other than damages, such as writs, injunctions, specific performance, cancellation of a deed, and constructive trusts. Actions at law include Recovery of real property (ejectment), Damages for breach of contract, and Damages for fraud and deceit. With actions at law, the plaintiff has a right to a jury, but may waive the jury.

quiet title attorney sacramento.jpgIn Milo Thompson v. Samuel and Retta Thompson, over 75 years ago the California Supreme Court analyzed the different scenarios that may apply in a quiet title action, and whether they would be tried before a judge or jury. Milo filed an action to quiet title; Sam was his brother, Retta his mother. Retta had conveyed 100% of the property to Milo, but Sam claimed an interest in it. He said he had an oral agreement with his mother to make monthly payments to her, and from that she agreed to give him 1/4 of the property. Sam said he lived on the property until over two years prior to the lawsuit, when Milo had him ousted. (important fact).

The Supreme Court detailed the history of the quiet title action, which is provided for by statute – now, Code of Civil Procedure, starting with section 760.010 etc. It summarized the history of the legal decisions as follows:

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Loan modifications for California homeowners has become less a rarity in recent times. A loan modification is an enforceable contract between the borrower and lender, and as long as the borrower performs, they will be able to keep the property. However, now as before, lenders lose track of the status of their relationships with their borrowers, and may not realize that a mortgage has been modified. Recently, the federal Court of Appeals, 9th Circuit, found that a lender who forgot they modified a loan, and began foreclosure proceedings, could be in violation of the Equal Credit Opportunity Act requirements for adverse actions by lenders.

sacramento real estate attorney ECOA.jpgIn Schlegel v. Wells Fargo Bank NA, the borrowers took out a $157,000 loan in 2009 secured by their home. The loan and deed of trust were assigned to Wells Fargo. There was trouble, they went into default, and filed bankruptcy. Wells Fargo proposed a loan modification which extended the maturity date for the loan, and retained the same interest rate. The bankruptcy court approved the modification, and a bankruptcy discharge was granted. Wells Fargo quickly sent the borrowers a default notice, saying that the loan was in default for failure to make payments – the letter did not take into account the loan modification. The borrowers contacted Wells Fargo, who told them not to worry. The borrowers continued to make payments as per the loan modification. Of course, Wells Fargo continued to claim they were in default and accelerated the loan, and then claimed that there was no modification. The borrowers filed this lawsuit.

One of the claims in the suit was a violation of the federal Equal Credit Opportunity Act. The ECOA which makes it illegal “for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction…” Applicable in this case, each applicant against whom adverse action is taken is entitled to a statement of reasons for such action from the creditor.”Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor.” § 15 USC 1691(d)(2). ECOA defines an “adverse action” as a:

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A real estate seller in California has both a common law (established by court decisions) and statutory (created by the Legislature) duty to disclose material facts that affect the value of the property. (Brokers also have a duty of disclosure) Under the common law, a claim of fraud based on mere nondisclosure can be made when 1) there is a confidential relationship, 2) the defendant has made a representation that is likely to mislead absent a disclosure, 3) there is active concealment of the undisclosed matter, or 4) when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party. However, the buyer’s reliance on the non-disclosure depends on whether they knew or should have known the truth; if so, they were not justified in relying on the nondisclosure. In a recent decision the seller relied on a recorded document as the disclosure, but was surprised that the Court required them to also make statutory disclosures.

sacramento real estate disclosure attorney.jpgIn Alfaro v. Community Housing Improvement System, a housing project near Castroville that was developed to be be affordable to very low, low and moderate income households. The parcels each had deed restrictions limiting the resale prices of homes in housing development. As part of the purchase price, the buyers contributed their time and labor towards construction of their own house, plus those of their neighbors. When they eventually discovered that they were limited in the price they could sell their house for, they sued, claiming that the deed restrictions on price were not disclosed to them.

In this case, the seller of the real property has two duties to disclose. First, a common law duty to disclose ‘where the seller knows of facts materially affecting the value or desirability of the property which are know or accessible only to him and also knows that such facts are not known to the buyer. Secondly, there is a statutory duty to disclose deed restrictions in the Real Estate Transfer Disclosure Statement (Civil Code section 1102.6). (If a seller asks an experienced Sacramento real estate lawyer if something should be disclosed, the reply is usually yes, even if it is not required on the disclosure statement. If it was important enough to ask the attorney about, than it is a material fact.) A breach of the duty to disclose allows a suit to rescind the contract or for damages.

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Promissory estoppel is a legal argument and cause of action raised when one party makes a promise for which they do not receive any compensation, which the other party relies on in changing their position, such as a promise to modify a mortgage loan. If the promissor had received some consideration, for example ten dollars, then there may be an enforceable contract. However, the promissor in our situation gets nothing in return, but the promise is still enforceable. Sacramento and Yolo business and real estate attorneys argue promissory estoppel as a consideration substitute used when it is required to prevent injustice.

The elements required to show promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person (which we refer to as detrimental reliance), and (4) injustice can be avoided only by enforcement of the promise. In a recent California state court decision, lender to a buyer promises involving a trial plan agreement resulted in the court allowing the promissory estoppel claim to proceed.

Sacramento real estate attorney mortgage.jpgIn West v. JPMorgan Chase Bank N.A., West was in default on her Washington Mutual loan. In 2009 Washington Mutual told her that she had approved for a trial plan agreement. The approval letter stated: The approval letter stated: “Since you have told us you’re committed to pursuing a stay-in-home option, you have been approved for a Trial Plan Agreement. If you comply with all the terms of this Agreement, we’ll consider a permanent workout solution for your loan once the Trial Plan has been completed.” West made the required trial payments and Chase (which by now had taken over WAMU) confirmed that it had received her request for a permanent loan modification. Chase then denied the loan modification. They said they would provide her with the net present value calculations; she requested them, and said asked for a recalculation using updated information. Chase never provided the calculations. In a conference Chase allegedly promised West that she could resubmit her updated financial data, and that there was no foreclosure sale scheduled. Suddenly the property was sold at a trustee sale.

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A cross-collateralized loan is one in which a cross-collateral deed of trust which secures more than one note. The deed of trust is recorded only against property A, but may also secure notes that are otherwise secured by other properties. If the note originally secured by property C goes into default, the property A deed of trust is in default. The lender can foreclose A, B, and C. Anyone faced with a cross collateralized loan should consult with a Sacramento and El Dorado real estate attorney. In a recent case the owner of property A seemed to not understand how cross-collateralized deeds of trust worked in relation to a subordination agreement, or at least tried to convince the court that they worked differently.

Sacramento real estate lawyer (2).jpgIn R. E. Loans, LLC v. Investors Warranty of America, Inc., a winery owned Jack’s Ranch, a property in San Luis Obispo County. The ranch secured a number of loans including a third deed of trust held by RE for $6.5 million dollars. The winery refinanced the loan, paying off the first and second. It paid the third $3.5 million on its loan in exchange for the RE agreeing to subordinate its loan to a new loan from Transamerica for over $4 million dollars. However, the new Transamerica Deed of Trust also secured that debt PLUS two other notes, totaling $21 million. The notes were “cross-defaulted,” (or “cross-collateralized”) meaning that a default under one note was a default under all three. The deed of trust referenced the loan agreement which said it secured the $4 million dollar debt plus other notes, and that they were cross-collateralized.

A Notice of Default was recorded, saying that the amount to cure the debt was over $26 million, and the obligation secured is a note for $4 million. (Huh?) The trustee held the sale, and the property was sold. The lender credit bid at the auction, and got title to the property. RE filed a lawsuit.

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California deeds of trust, which secure debt on real property, involves three parties. First, is the Trustor, who borrowed the money. Second is the Beneficiary, who lent the money. Third is the Trustee, whom sort of holds title to the property for the benefit of the beneficiary, and has the power of sale. If the debtor fails to pay the loan, the beneficiary/lender may instruct the trustee to begin the foreclosure process, resulting in a trustee’s sale, at which the lender may make a credit bid. The purpose of this arrangement is to give the lender a quick and easy way to deal with a defaulting borrower. Sometimes there are errors in the process, major and minor, and parties involved may want to consult a Sacramento real estate and foreclosure attorney to clarify their rights. As a disappointed buyer at a trustee sale learned recently, courts distinguish between the type and timing of errors made by the parties, in occasionally allowing the trustee to set aside a sale they made, and allow them to start over.

Yolo foreclosure attorney.jpg In David Biancalana v. T.D. Service Company, Biancalana was the successful buyer at a trustee sale for a property in Watsonville. The problem arose because the trustee made a mistake on the credit bid. Civil Code section 2924h requires that bidders at a trustee sale must bring cash, but that the beneficiary (lender) can make a “credit bid’; they can make a bid up to the total amount due, including the trustee’s fees and expenses, without bring any cash to the sale. Here, the beneficiary told the trustee that the total debt, or its credit bid, was $$219,105. However, T.D., the trustee, told its auctioneer that the total debt was only $21,894.17. The day before the sale Biancalana contacted the trustee and confirmed that the debt was only $21,894; at the sale, the auctioneer verified that this was the opening bid, so Biancalana won the auction with a bid of only $22,000- jackpot!

However, two days later, before delivering the sale deed, the trustee contacted the buyer and said sorry, we made a mistake. The buyer sued. The court first noted that, when a trustee’s sale deed is delivered, and it has the statutory recitals, then a conclusive presumption arises that the sale is good. However, here, there was no deed. If there is a defect is the process identified before the deed, the trustee may abort the sale and start over if there is “gross inadequacy of price coupled with even slight unfairness or irregularity…” Here, there was gross inadequacy of price. The mistaken opening bid was less that 10% of the actual debt.

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California usury laws restrict charging of interest greater than that allowed under the law. The legislature sees fit to determine what the maximum amount of interest that may be charged for a loan. There are a number of exceptions and considerations to the law. One important exception, provided in the California Constitution, is for “any loans made or arranged by any person licensed as a real estate broker by the State of California and secured in whole or in part by liens on real property.” Determining if a transaction may be usurious and parties may want to consult a Sacramento and El Dorado real estate attorney to be sure whether their deal fits. In decision last week by the Third District Court of Appeal, a disappointed borrower got the bad news that his lender could charge what he wanted. The lender was a corporation; its sole shareholder was a broker, who arranged the usurious loan. The broker did not get a commission, but expecting profits from the corporation was enough to find that he expected to receive compensation.

usury sacramento real estate attorney.jpgThe case is Gregory W. Bock v. California Capital Loans, Inc. Bock, trustee of a trust, needed a loan, and he was put in contact with California Capital. Leo was the sole owner of California Capital, and was also a licensed real estate broker. They made the deal, and Bock borrowed $1.2 million dollars at 15% interest, secured by a deed of trust on real property. Leo did not receive a commission on the loan. There was a default, and California Capital Loans Inc. foreclosed, taking back the property at a trustee’s sale in 2010. Bock sued, claiming, among other things, that the loan was usurious, and therefore the trustee’s sale was void.

The applicable provisions of the California Constitution are implemented by Civil Code section 1916.1. What the code provides in this case is that, for the exception to apply, two things must happen: first is that the broker acts for another or others, not for himself. Secondly, he must receive or expect to receive compensation.

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