Articles Posted in real estate law

Published on:

by

There are many different types of interest is real property; outright ownership, easements, life estates, co-ownership, prescriptive rights, etc. Often there is a dispute between parties with conflicting claims as to property rights. Usually it is the case of someone with title and possession denying the rights of someone else who claims a right in the property. A quiet title action is brought to establish, or “quiet”, title or an interest in real estate between adverse parties. Quiet title actions have very specific statutory requirements regarding allegations, service, publication of notice, and procedure. Anyone contemplating such an action should contact an experienced Sacramento and Placer real estate attorney.

quiet title action.jpgAnyone can establish their legal or equitable right, title, estate, lien, or interest in property or cloud upon title against adverse parties. (CCP §760.010) An adverse party is anyone who claims an ownership interest, interferes with the plaintiff’s enjoyment of the property, decreases the value of the property, or renders the title uninsurable. A quiet title can be brought in addition to, and cumulative with other remedies, such as damages or for ejectment. The plaintiff has to hold a legal interest, as opposed to an equitable interest, but there are exceptions. The plaintiff’s interest in the land can be the title to the property, an easement, a license, a lease, or title by adverse possession.

Quiet title actions must be filed in the superior court where the real property, or any part of it, is located. The judgment binds all persons, known and unknown, claiming an interest in the property. (CCP §764.030) It binds non-parties to the lawsuit who have adverse claims in the property that was not of record at the time the suit was filed and lis pendens recorded. The plaintiff must search the county recorder’s records before filing to make sure that everyone is included, because it is not binding on non-parties whose claim is of record prior to the lawsuit.

Continue reading
Published on:

by

It is a given under California law that a seller financing a purchase money loan in the sale of real estate may not get a deficiency judgment against the borrower, but is only entitled to foreclose the property. CCP section 580b provides that, when the buyer purchases property, if buyer gives the seller a note for all or some of the price, “no deficiency judgment shall lie.”

anti deficiency 580b.jpgIn Weinstein v. Rocha, the plaintiffs bought a multi-unit property in L.A. They obtained primary financing of $820,000 from a lender, who held a first deed of trust, and the defendant / seller financed the balance with a loan secured by a second deed of trust. The buyer discovered that there were multiple housing code violations that were not disclosed. They sued the seller for failure to disclose.

The parties reached settlement, and entered a settlement agreement that reduced the balance of the debt buyer owed seller, but provided that if the buyer defaulted, the seller could accelerate the loan and demand payment of the original amount in full. If buyer did not immediately pay the balance, the seller could foreclose their second deed of trust.

Continue reading
Published on:

by

California has a number of statutory provisions that provide borrowers with protection from deficiency judgments- personal liability for the loan balance remaining after a foreclosure sale. There is protection if the seller takes back the note, or, in the case of a standard third party loan, if it is a residence, there is protection for the loan used to buy the property. Recent legislation provides for protection in a short sale. Also, if the lender who made the original purchase money loan refinanced the loan, there is protection. With enactment of SB 1069, beginning January 1, 2013, any lender who provides a refinance of the purchase money loan will also be prevented from obtaining a deficiency judgment against the borrower. Each borrower’s situation is different, and anyone in a default situation should consult an experienced Sacramento and Yolo real estate lawyer to determine their risk of personal liability.

california antideficiency and refinance loan.jpgThe change makes sense in light of the historic purpose of Civil Procedure section 580b. In the event of a depression of land values, it is to prevent aggravating the downturn that would result if defaulting purchasers lost the land PLUS had personal liability. It is based on the premise that the lender is in the best position to determine the true value of the security for its loan, which is the property. If the lender overvalues the property, the lender should bear the risk of not obtaining the balance of the loan value in a foreclosure sale.

But why should this be different in the case of a refinance of the original loan? This has been a problem for borrowers the past few years, as many people refinanced with different lenders. The new refinance lender should be in as good a position as the original to determine the value of the property. In fact, it has been lenders’ willingness to overvalue property that had contributed to price inflation.

Continue reading
Published on:

by

I wrote last about a Sacramento developer who demolished the building on a property to build a mixed-use development. But, the market crashed, the developer defaulted, and the property was foreclosed by trustee’s sale. The lender than sued; in the last post I discussed the claim for bad faith waste.

impairment of security.jpg In Fait v. New Faze Development, Inc., the lender also raised a claim for “intentional impairment of security”, meaning that the borrower intentionally reduced the value of the property which was security for the loan. The defendants again argued that there was no evidence that they acted with intent to harm the value of the real estate. However, the court noted that, in prior decisions, even though the defendants likely knew that their conduct would reduce the value of the property, the courts never required an “intent to harm.” This dies not need to be proven for intentional impairment of security.

Also, this lawsuit was against the corporate borrower plus individual employee defendants. The defendants claimed that the individuals could not be liable for impairment of security as innocent agents of New Faze. Again, the court ruled against them. A prior decision established that third parties could be liable for impairment of security. Civil Code section 1714 provides that everyone is liable for the result of his willful acts, and also for the want of ordinary care or skill in the management of his property or person. As third parties can generally be liable for negligent impairment of security, the defendants had to show that the individuals acted with ordinary care or skill with respect to the security interest in the property.

Continue reading
Published on:

by

It is a general rule of California real estate law that the possessor of property, whether as owner (with a loan against the property), or tenant, not to commit waste. Waste is any act, omission, or neglect that materially reduces the market value of the property. When you take out a loan to buy property, the deed of trust requires that you do not commit waste, and provides that waste can be a default under the terms of the loan. An experienced Sacramento and El Dorado real estate attorney will advise that the reason is that the property secures the debt. Theoretically, the lender gave you an amount equal to or less than what the property is worth, and if you cause the property to become worth less than the loan, the lender is at risk. You seldom see this issue come up in real estate loans, but it did in a surprising way in a recent Sacramento decision.

real estate waste.jpg In Fait v. New Faze Development, Inc., a Sacramento developer purchased two lots containing a church and other small building in 2005. The plan was to redevelop it into a mixed use property. They evicted the tenants and demolished the property in 2006. The economy tanked and the developer defaulted, resulting in a foreclosure sale of the bare land. The lender then sued for bad faith waste and intentional impairment of security- demolishing the building reduced the value of the property, and thus what the lender got on the foreclosure sale.

The trial court threw out the bad faith waste claim, finding that there was no evidence of recklessness and intent to despoil the property. But the court of appeals reversed – evidence of recklessness and intent to despoil is not required, based on the 1975 California Supreme Court decision in Cornelison.

Continue reading
Published on:

by

California law provides that a contractor or supplier of materials who furnishes labor or materials for construction on real property may record a notice of lien (known as a mechanic’s lien) against the property. (Civil Code 3115) If the contractor is not paid, they then have 90 days from recording to file a lawsuit to foreclose the lien. This gives the contractor a much stronger position than having a mere breach of contract claim, because the lien clouds title, and the owner could actually lose the property. Mechanic’s liens are commonly recorded when there is a problem with payment, as the contractor’s rights can be cut off by passing time. In a recent decision an owner who thought bankruptcy would protect him from enforcement of the lien got a surprise, as the court reviewed the mechanics of mechanics liens in bankruptcy.

mechanic's lien.jpg In Pioneer Construction, Inc. v. Global Investment Corp. (Probably not affiliated with Massive Dynamic Corp.) Pioneer did work on 19 lots owned by Global and recorded a mechanic’s lien for $2.4 million. Global filed bankruptcy, and Pioneer recorded a 2nd lien for $2.6 million. Pioneer then filed a “Notice of Perfection of Security Interest” in the bankruptcy.

The lender on the subject real estate got relief from stay (permission from the bankruptcy court to proceed) and foreclosed on the property, which was sold at a trustee’s sale. Once sold, the property was no longer part of the bankruptcy estate, so Pioneer was not prevented by the automatic stay (11USC 362) from filing suit to foreclose its lien, which it did. The buyers at the foreclosure sale fought back.

Continue reading
Published on:

by

It is common knowledge in California that real estate brokers have a duty to perform a reasonably diligent inspection and to disclose material findings with the prospective purchases. This applies to both seller and buyers agents. The Transfer Disclosure Statement (Civil § 1102.6) requires both the Seller & Buyer agents conduct a “reasonably competent and diligent inspection” and to disclose their finding. Section 2079 of the civil code specifies a broker’s duty to inspect. However, A two year statute of limitations applies to 2079, after which lawsuits cannot be pursued against the broker. However, in a recent decision in the Third District (Sacramento), a dual agent was surprised to learn the two year period applies only to the seller’s broker.

broker duty to inspect.jpg In William L. Lyon v. Sup. Ct., The Lyon brokerage was a dual agent, representing both the sellers and the buyers on sale of a residence in Rocklin, CA. The buyers signed a buyer-broker agreement which affirmed that, as a dual agent, the broker is obligated to disclose known facts affecting the value of the property. The buyers soon discovered construction defects and filed suit, alleging that the sellers know of water related problems and painted the house dark brown to cover them up. While the house was listed, rain caused the covered problems to reappear, so they painted over them again. The buyers sued, naming the seller and the brokers.

The broker argued that all their claims were barred by the two-year statute of limitations in 2079.4, applicable to the duty expressed in 2079. Importantly, the buyers sued Lyon as broker for the buyer; one half of the dual agency equation. The court pointed out that 2079 established a duty only for brokers representing the seller. That statute states that it applies-

Continue reading
Published on:

by

I wrote in March about the loan guaranties and how the guarantor can waive antideficiency protections. A recent decision out of Sacramento concerned a commercial loan where, because of the drop in property value, the lender did not bother to foreclose but went directly to the guarantor, and was successful.

Loan Guaranty.jpgIn Gray1 LLC v. Kolokotronis, in 2006 Kolokotronis was the Guarantor of a $17.7 million dollar loan to Sheldon Terrace LLC, a real estate project the Guarantor had set up. By 2008 the value of the real estate had crashed. The loan had a provision providing that if the value of the security was far less than the balance of the loan, it was a default and the lender could call the loan due. That happened here, and neither the borrower or the Guarantor cured the default or paid off the loan. So, the lender sued the Guarantor.

First, the guarantor argued that language in the guaranty describing debt “due or not due” suggests that the instrument was a demand note, not a guaranty. The court said no; in this context the phrase meant nothing more than part of the broad definition of the borrower’s obligations that the guarantor is guaranteeing. A guaranty relates to a future liability of the principal. Civil Code section 2814.

Continue reading
Published on:

by

The economic crisis and the subsequent foreclosures resulted in the California legislature enacting a number of laws to assist homeowners and tenants of houses in trouble. One such law, Civil Code section 2923.5, requires that the foreclosing party must first contact the borrower, assess their financial condition, and explore options for the borrower to avoid foreclosure. A California court recently ruled that borrower can allege failure to follow the requirement gives the borrower the right to make a claim in court.

foreclosure Civil 2923.5.jpgThe borrower in Skov v. U.S. Bank National Association borrowed $1.5 million in 2003, secured by her residential property in Saratoga. She stopped making payments, and a Notice of default was recorded in June 2009. (This is not the usual case, housing price inflation was not rampant in 2003) Skov filed suit; it is not clear from the opinion, but looks like suit was filed before the foreclosure sale (good move) and Skov probably got a preliminary injunction.

One of the plaintiff’s claims was that U.S. Bank did not follow the requirements of Civil Code section 2923.5. It was claimed that U. S. Bank never contacted Skov before recording the notice of default. She hired attorneys who telephoned and sent letters to U.S. Bank which were unanswered. U.S. Bank failed to evaluate her finances or explore options to avoid foreclosure. U.S. Bank did not contact her until a month after it recorded the Notice of default.

Continue reading
Published on:

by

California real estate purchase contracts often include mediation provisions. Such a provision provides that, in the event of a dispute, the parties either may, or must, attempt a mediated solution before extended litigation. If the provision requires that they must, there is a penalty for refusing to mediate. In a new decision from Calaveras County a party who thought they were able decline mediation under the provision turned out to be wrong.

mediation provision.jpgIn Cullen v. Corwin, the parties agreement , a standard form purchase agreement, provides for the prevailing party in any dispute to recover legal fees. However, this right is subject to a condition precedent that reads,

“If, for any dispute . . . to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after [the making of] a request . . ., then that party shall not be entitled to recover attorney[] fees . . . .”

Continue reading