Articles Posted in real estate law

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The California legislature last year passed senate bill 931, which became Code of Civil Procedure section 580e, effective January 2011. It provides that when a residential lender in the first position (i.e., the deed of trust recorded first in time) approves in writing a short sale, the lender cannot later seek payment for the unpaid loan balance. A short sale is one in which the lender agrees to accept less then the balance due to release the property from the deed of trust by recording a reconveyance of the deed of trust.

The purpose of this was to solve the problem of ambiguous short sale agreements in which the unsuspecting former homeowner could find themselves subject to the lenders efforts to collect the balance. Presumably the new law has not had much impact on the pace of short sales, as the savvy lender, and homeowner advised by an experienced real estate attorney, know that if the owner walks away from the property and the lender holds a trustee’s sale (foreclosure by the power of sale), the lender could not get a deficiency judgment, so in agreeing to the short sale the lender avoids the time and expense of foreclosure.

1150487_property_for_sale_3.jpgNew proposed legislation, SB 458, proposes to do the same thing for ALL loans secured by a deed of trust against the property- first, second, and whatever. Thus, the home equity lender will only approve a short sale if it is willing to write it all off, except the $3-4,000 that the first lender may allow it to receive. Especially galling is the following language, added in the May 16, 2011 amendment:

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A spite fence is any fence or barrier intended to annoy the neighbor, and serves no purpose to the builder. In California they are governed by Civil Code Section 841.4. The most famous spite fence on California real estate was Charles Crocker’s 40 footer on Nob Hill in 1879.

The statute includes any “fence or structure…;” does that include trees or vegetation? In the California case of Wilson v. Handley the court looked at the purpose of the law ,which was to prevent what would otherwise be a lawful practice of building or maintaining an unnecessarily high barrier on their property line. It concluded that a row of trees planted on or near the boundary line between adjoining parcels of land can be a “fence or other structure in the nature of a fence.” Other decisions have found sheds or other building to fit the requirements.

In the recent California decision of Vanderpol v. Starr the jury intended to rule for the plaintiffs, but there was a problem with the special verdict forms. The Carlsbad, California defendants had tall trees that blocked the neighbors’ view of the ocean. The jury found that:

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A recent California bankruptcy court decision ( In re: Eleazar Salazar) found a foreclosure invalid because of failure to record an assignment of the Deed of Trust. In the original Deed of trust (DOT) Accredited was the lender, Chicago Title was the trustee, and MERS was the nominal beneficiary. The DOT stated that MERS only held legal title to the interests granted by the borrower.

After the borrower defaulted, MERS signed a substitution of trustee and had no apparent role in the trustee’s sale. The sale was apparently run by Litton Loan Servicing and Quality Loan Service Corp. The Trustee’s Deed Upon Sale identified US bank as the “foreclosing beneficiary”, not MERS. The recital in the trustee’s deed is presumed to be true. While MERS was the beneficiary at the inception of the loan, it was not at time of foreclosure. In addition, no assignment of Accredited’s interest to US Bank was recorded. Facts like these make experienced real estate attorneys sit up and take notice.

The court noted that under California Civil Code section 2932.5, the assignment to US Bank had to be recorded prior to sale. First, US Bank had to be entitled to payment of the secured debt to foreclose, and secondly, the public record must show US Bank’s status as foreclosing beneficiary before the sale occurs.

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A Preliminary Title Report (“Prelim”), issued by a title company before issuing title insurance, has long been held by the courts as only an offer to provide insurance. The Prelim is not a contract itself, nor is it something which can be relied on.

The Buyers were purchasing property in Solano County. The Prelim identified it by two tax assessor parcel numbers, as well as a legal description. However, the final title insurance policy identified the property by the legal description, but did not reference the parcel numbers. A map was attached to the final policy which depicted the two parcels.

The grant deed which was recorded described only one of the parcels. After the sale, the County tax Assessor assessed the new owners for both parcels. Years later, a neighbor built on one of the parcels, and the Buyers brought an action for trespass. They ultimately figured out that the Buyer did not own the 2nd parcel, so the Buyer made a claim on his title policy, which was denied. The Title Company pointed to the final Policy, which was for only one parcel.

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In a recent California case, a homeowner sued their community Homeowner’s Association (“HOA”) for failing to enforce the Conditions, Covenants, and Restrictions (CC&Rs). They also sued other homeowners, who supposedly violated the restrictions.

Apparently the parties had tentatively reached a settlement outside court just before the day of trial, so on the day of trial, the parties appeared in court to put the settlement on the record by reciting it orally in court (As allowed by Code of Civil Procedure §664.6). However, the HOA representative did not appear- their attorney was there to represent them. Later, the homeowners decided they did not like the terms of the settlement, and would not agree to it, so the HOA sued to enforce it.

Section 664.4 states “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.” The question was what the legislature meant when it used the term ‘parties.’ The court noted that in other contexts the term party includes the litigant’s attorney, but settlement is such a serious step that ends the lawsuit, and requires the client’s express consent. It thus restricted the meaning of party to be the actual litigant themselves. As there was no authorized representative of the HOA in court, the settlement was unenforceable.

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Fannie & Freddy were given a blank check by the US Treasury at the end of the financial crisis. As reported here, they are using that money to buy mortgages from Wall Street. These are bad loans sheets, probably at inflated prices. This is what “Tarp” was supposed to do, but now it is out of the public eye. The taxpayers are funding this program , out of the public eye.

Meanwhile, Treasury is set to announce a plan to deal with Fannie & Freddie, possibly reducing their role in the housing finance system. The purpose of these organizations was to make money available for homeowners, not holding loans for their own account; but that’s what made money for the management. Now that the government owns them, they are money launderers. Their current role is very cozy for Treasury.

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A California woman got behind on her mortgage, and the Lender recorded a Notice of Default, so the borrower filed a ch 7 bankruptcy. She intended to convert to a Ch. 13 to pay the arrears and save her house. U.S. Bank, trustee for the lender, told her that, once she was out of bankruptcy, the bank would work with her on a mortgage reinstatement and loan modification. In reliance on that promise, she did not convert the case, nor oppose the lender’s motion to lift the automatic stay. She submitted documents to the bank for review.

The bank scheduled the foreclosure sale for January 9, 2009. There was no negotiation, but on the day before the foreclosure sale, the bank’s attorney made an oral offer to modify the loan, but refused to put the terms in writing. The borrower lost the home, received a three-day notice, and served with an eviction action.

The court ruled for the borrower, finding that she materially changed her position based on the bank’s promise- the doctrine of “promissory estoppel.”

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A condominium developer in Southern California got sued by the Association for construction defects. The developer filed a motion to compel arbitration under the provisions of the CC&Rs. The court said no!

Recorded CC&Rs are made binding in disputes between owners, or owners and the association, because of their shared interest in the common interest development. CC&Rs are equitable servitudes which bind the owners and association. CC&Rs are not a contract between the developer and the owners association. There was no opportunity for “actual notice and meaningful reflection.” The association springs into existence on the sale of the first lot of the project. Maybe there is an argument that there is a meeting of the minds between the developer & the first buyer; but the rest of the buyer have no choice but to accept the CC&Rs.

So rarely do we see courts refuse to enforce unbargained for arbitration provisions (such as here) that it is an event worth celebrating.

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An a foreclosure sale investor had an oral arrangement with an agent at a California title company. He would ask the agent if the loan being foreclosed was the senior loan; he only wanted a yes or no answer. He asked about an Encino property, was told ‘yes’, and so bid and bought the property for one million dollars. Turned out the answer was no, and the investor ended up losing a million.

He sued the title company for “abstractor” liability. An abstract of title describes all documents in the chain of title. The investor only wanted to know about one lien, but he thought it was in the nature of an abstract.

The court disagreed. Under California law, An abstract of title is a written representation as to documents affecting title. This investor never paid for an abstract; he just sought quick one-word answers.

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Lenders on California properties are averaging 367 days from the first late payment and a foreclosure referral, as reported by The Big Picture. This is the time before the notice of default is recorded.

The standard used to be three months of late payments before the lender referred the loan to the foreclosure department. Is this solely due to the volume of properties in default, and under staffing by servicers & lenders? I suspect the volume of real estate owned by lenders to be a factor for another reason. Given the flood of foreclosed properties for sale, to pick up the pace would only place more properties on the market and drive properties down. Meanwhile, efforts at loan modification while the loan is in default generates some cash to the lender.

JFalconeLaw.com