Articles Posted in real estate law

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In my last post I discussed how a designed officer / broker, who places their real estate license with a corporation, is not liable to third parties for failing to supervise the corporations employees as required under the Business and Professions Code. Another argument used by experienced Sacramento and Yolo real estate litigation attorneys is to claim that the broker is liable under traditional agency law. In this case, however, something more is needed.

principal agent agency.jpgIn Sandler v Sanchez the plaintiff was trying to make the corporation’s designated officer – broker liable for misrepresentations of a salesman. The plaintiff also argued that the designated officer/broker could be held vicariously liable, under principal -agent law, for failure to supervise the salesman. Generally, a corporate employee acts on behalf of the corporation, and not its owner or officer. But here the plaintiff argued that, though the salesman was not the broker’s employee, he was his agent, and on that basis there could be liability. The plaintiff directed the court to federal court decisions (which the state court does not need to follow), saying that a right to directly control the salesman allows liability to third parties. However, the U.S. Supreme Court has held that aright to control, by itself, does not create a principal – agent relationship that would make the principal (here, the designated officer) vicariously liable for the salesman’s conduct. There need to be additional factors to create this liability.

The federal court case involved a designated officer/broker and the offending salesman. There was evidence in that decision that decision that the broker intended to turn the real estate business over to the salesman so the broker could pursue another career, and “it was agreed” that the broker would remain the designated officer/broker until the salesman got his own broker’s license. Although the broker understood that he remained personally responsible to supervise the real estate salespeople, he agreed to delegate that duty to the salesman so that the salesman could continue to run the corporation as a real estate brokerage. Also, the evidence established that the salesperson agreed to this arrangement. This is much more that the broker’s simply abandoning the statutory duty to supervise.

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A corporation can be a licensed California real estate broker. All that is required is that an individual who is a licensed broker “place their license” with the corporation, by being the corporation’s designated officer/broker. State law assigns a duty to the designated officer to supervise the corporation’s salespeople. Experienced Sacramento and El Dorado real estate attorneys frequently see the designated officer named as an additional defendant in lawsuits against the corporation. A recent decision concluded that the designated officer does not owe a duty to the third party claimant under state law, nor through vicarious liability.

broker corporation principal officer.jpgIn Sandler v Sanchez, Sandler was a lender who claimed that misrepresentations were made by the real estate sales licensee as to the value of the property the loan was secured by. Sandler wanted also to assess liability on the designated broker. The plaintiff pointed to Business and Professions code section 10159.2, which makes the designated officer/broker responsible for the supervision and control of the activities of the corporation’s salespeople. They claim that, because the designated officer did not supervise the salesperson who made the misrepresentations, the designated officer was liable for those misrepresentations.

The court first looked at the statute, which does not say anything about liability to third parties such as this plaintiff. It noted that, prior to the enactment of this statute, courts had decided that the duty to supervise was only to the corporation, and not anyone else. So, while the corporation could sue the designated officer, third parties could not. It the reviewed the history of the statute, and concluded that it was intended to clarify that the duty was owed to the corporation, not third parties. This plaintiff had no claim against the designated officer under the statute.

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I have written before about binding, erroneous arbitration awards and how arbitration awards are unappealable. I’ve also written about whether the trustee or the trustee is the party, the issue that disappointed a recent plaintiff. This plaintiff, Portico Management Group, entered a real estate purchase contract to buy an apartment building in Carmichael, CA owned by the trustees of the HC Trust and a partnership. One of the selling parties refused to sign the deed and closing documents, and the buyer sued, correctly naming the trustees of the trust as defendants.

trustee of trust.jpgThe purchase contract required arbitration, so the court ordered the case to arbitration. The arbitration resulted in an arbitration award of more than $1.6 million to the plaintiff. The arbitration award, however, was not against the trustees, but against the trust itself, and the partnership. The arbitrator found that the trustees “are not personally liable for their acts as trustees.” Anyone in such a situation should consult an experienced Sacramento and Carmichael real estate litigation attorney, because this is where the problem arose.

The plaintiff went back to court and got a judgment confirming the arbitration award and tried to collect against the trust. They got nowhere because a trust is not an entity and therefore could not hold title to any property; the judgment was unenforceable. The buyer then went back to court to amend the judgment, but failed. The court ruled that, though the arbitrator made a mistake, the arbitrator’s decision was not subject to review.

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Real estate brokers in California usually know the importance of a written agreement with their clients. First off, the statute of frauds requires there be a written agreement promising to pay a commission in order for them to be entitled to get paid. The agreement has to be signed by the client, unless it is ratified by the client. But there are other details to be included in an agreement between a broker and their principal, and to avoid ambiguity they should consult with an experienced Sacramento and El Dorado real estate lawyer. One such ambiguity recently landed a broker in court.

real estate broker agreement.jpgIn Duncan v McCaffrey Group, the defendants were licensed California real estate brokers as well as developers. The developer-brokers marketed a project as a custom home development, in which only large custom homes would be build. The plaintiffs were a number of people and trusts who had bought lots in the development. They claim that they paid a premium price because it was to be an exclusive custom home development. However, they also claim that the broker at all times intended to build small tract homes in the subdivision (the developer actually amended the CC&Rs after they bought the lots to allow for smaller houses). As a result of building the tract homes, the values of the plaintiffs’ lots plummeted.

Critical Language

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commercial foreclosure.jpg Title companies often prepare complicated documents, such as deeds of trust, grant deeds, an promissory notes to accommodate closing escrows, which results in their fees. There can be mistakes that vary in seriousness, and sometimes the only solution is to have the Court order a document re-formed. A recent decision points out the problems that can arise when a property was sold for $7.2 million dollars, and the seller did not have an experienced Sacramento and Placer real estate attorney review their documents.

In Park v American Title, park sold a Fresno property for $7.2 million. Park took back a second deed of trust securing a purchase money note in the amount of $2.45 million. First American Title (FAT) was the escrow holder for the transaction. The buyer defaulted, and in September 2006 Park told FAT to prepare a notice of default. Three months later, when the Notice of Sale should have been recorded, the Title Company told Park that they had made a mistake preparing the deed of trust. The deed of trust named the individual buyers as trustors, while the grant deed conveyed the property to the buyer’s corporation. But FAT thought they could still conduct the foreclosure sale, set for February 23, 2006.

Fifteen days before the sale, FAT declared that it could not conduct the sale, and the deed of trust would have to be reformed. This is a process by which a party files a lawsuit to obtain a court order reforming, or revising and correcting, the problem document. The title company had to get the corporation named os trustors in the deed of trust. This took time, after which the owners filed bankruptcy, resulting in a delay of one and ½ years for the foreclosure sale in April 2008. There were no bidders by then (did the real estate market change between 2006 & 2008?) And park got the property back. Park sued FAT.

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Quiet title actions can resolve conflicting claims to the title of real property. Experienced Sacramento and Placer real estate attorneys know that, once a quiet title judgment is rendered & final, it is good against all the world as of the time of the judgment, and there is no going back. I recently wrote about a surprised party in a quiet title action. As another surprised plaintiff recently learned, the legislature and courts take seriously the requirements to reach a quiet title judgment; even in the case of a defaulting defendant, a final hearing is required where the defaulting defendant, the bad guy, may appear and give testimony.

quiet title escrow officer.jpg It was in Nickell v Matlock that Nickell was selling only half of a parcel to defendant Matlock. When they went to close escrow, Nickell noticed that the deed described the entire property, not just half. He brought it to the attention of the escrow agent, who told him that the escrow company would correct the title after closing. Let that sink in- it was 2006, properties were selling at a manic pace, so just “close and we will fix it later.” Of course it was not fixed and the escrow company, if it is still in business,, will probably end up footing the bill for this lawsuit.

The Matlocks refused to cooperate, wanting the bonus of keeping the entire parcel. This lawsuit was filed, and the Matlocks filed an answer. However, they failed to show up for depositions, even after a court ordered them to do so. The result was a “terminating sanction,” the court ordered their default be entered.

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Ownership of California real estate is like owning a bundle of sticks, or a bundle of rights. These rights, or sticks, include the right to use, possess, and dispose of the property. Experienced Sacramento real estate lawyers know that some disputes depend on whether you own a stick in the bundle, or something else. A central California party recently learned, too late, that an option to buy was not one of the sticks in the bundle.

California statute of limitation.jpg The question arose because of a statute of limitations – the deadline a party has to file a lawsuit before their rights are timed out. In Cyr v McGovran, the loser obtained options to buy some parcels of property. The owner later gave options to a lender on the same property that were to be effective only if the loser did not exercise his options in time. The loser’s deadline was December. However, someone screwed up, maybe the broker, because the later options to the lender said the deadline was in September- if the lender acted according to its option, it would exercise it too soon.

The lender recorded a memorandum of option in September, clouding the title. The loser closed escrow on the property in November, and the lender filed suit, recording a lis pendens, which tied up the property for a year before it was dismissed. Then the losers sued the sellers and their brokers for screwing up the dates on the options, claiming damages in hiring attorneys to defend the lender’s lawsuit, and for costs relating to holding on to the property while it was tied up in litigation.

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Quiet title is a lawsuit used in California to establish title to real estate against adverse claims. Quiet title attorneys know that If there is a dispute as to title, and claims against a property, the court order decides it once and for all- or almost all. California statutes allow naming even unknown defendants, and publishing notice of the suit. However, on homeowner who was victim of a scam found out the her quiet title judgment did not affect a deed of trust.

quiet title foreclosure.jpgIn Deutsche Bank v McGurk, McGurk owned a home until she was convinced by scamsters to convey the property to them, and take back a lease- option. The scamsters then got a new loan against the property from lender New Century, and took off with the cash. She filed a quiet title action against the scamsters and New Century, and recorded a lis pendens. New Century filed Bankruptcy. It then assigned the subject deed of trust to Deutsche Bank, which neither recorded the assignment nor notified McGurk. McGurk dismissed New Century from the quiet title to chase them in bankruptcy court, and proceeded against the others in the quiet title lawsuit.

The Quiet Title Judgment

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Property buyers in California purchase a title insurance policy as a matter of course. Many do not understand what exactly such insurance does for them, and should consult with an experienced Sacramento real estate attorney. Title insurance does not guaranty the state of title. Instead, it is an agreement to indemnify the buyer / insured for losses incurred as a result of defects in, or encumbrances on, title. One buyer bought seven adjacent parcels in Santa Clara County, with a plan to sell parcel number 7. When the buyer backed out because of the title situation, he sued the title company, but lost.

title insurance claim.jpgIn Deanza Assoc. v. Chicago Title Insurance, the problem was that the city had recorded a “Notice of Merger” of the seven parcels prior the purchase by the plaintiff. Deanza then went into contract to sell number 7, but the buyer backed out when they discovered the notice of merger.

Deanza filed a claim against their title insurance policy. Chicago Title first denied, claiming that the CLTA policy excluded claims regarding governmental regulation whether or not shown in public records. The title company said oops, you paid for an ALTA policy, we issued a CLTA, so your claim is covered. Then they said oops, the claim is not covered. The Notice of Merger impacts only the value and use of the property, not the validity of your title. Deanza filed suit.

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Generally with California commercial properties, when a tenant defaults there is an unlawful detainer, and the landlord is awarded as damages the rent due until the judgment. If the lease contract would have gone for a longer term, the landlord may later sue for the balance of the rent due for the remainder of the terminated lease. In a confusing decision from Southern California, the landlord collected more from the later tenants than the evicted tenant could ever owe.

california commercial lease.jpgKumar v Yu involved a shopping center lease that was not to end until July 2006. In November 2003 the first tenant was evicted, and the landlord got a default judgment for rent then due. (This default was set aside, but there is not further explanation in the decision). The landlord rented to a second tenant, who was evicted. The unlawful detailed included a judgment for over $21,000, which was paid. The landlord rented to a third tenant, who agreed to a much higher monthly rent. In 2007 the landlord sued the first tenant for the balance of the rent due under the original lease.

Generally, to recover damages from a tenant for the remainder of the term after a commercial lease has been terminated, the lease must provide that the…

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