Articles Posted in real estate law

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While tax consequences may be the last thing on the mind of homeowners facing a real estate foreclosure, they play a role in the bigger picture and should be part of the decision process.  What follows is a simple discussion of three aspects of personal income tax factors that should be considered.

1. Cancellation of Debt Income: when a debt is wiped out and you are no longer liable for it, it can be considered income, which is reported by the lender on form 1099-C.  It is taxable unless either:

A.  You are subject to the Mortgage Debt Forgiveness Act, which applies if the debt was forgiven in years 2007 through 2012.  This requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence.  This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified;

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I have noted in two prior blogs that Arbitrators have nearly unlimited discretion to make mistakes and not follow the law, and their mistakes are protected by the courts.  In a recent California case, buyers bought a house and learned that the pool and fence encroached on neighboring property.  Claiming that the seller knew of the encroachment but failed to disclose, buyers pursued arbitration.

After the sale but before the arbitration the title insurance company paid the neighbor in exchange for a lot line adjustment, giving the buyer clear title.  The buyers convinced the arbitrator to exclude evidence of the lot line adjustment, claiming that their damages were fixed on close of escrow.

The arbitrator excluded the evidence, and found that the buyers were damaged in the amount of $552,750, even though the problem was fixed before the arbitration.

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What happens to unpaid property tax when a mortgage lender forecloses?

The payment of ad valorem real property taxes is secured by a lien on the assessed property.  The tax lien is senior to other state tax liens and federal tax liens that take their priority from the date of recording, and it is senior to all other liens on the property regardless of the time of their creation- this includes the mortgage deed of trust.

Thus, because the property tax lien is superior to the mortgage lien, on the foreclosure of a deed of trust, the buyer takes title subject to all property tax liens assessed against the property, whether the assessment was levied before or after the deed of trust was recorded. The buyer at the trustee’s sale must pay the delinquent taxes together with all penalties in order to clear title. Whether or not the penalties have the same priority as the tax lien is not relevant. The only way of redeeming and preventing a foreclosure sale of the tax lien is by payment of the penalties

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California law provides a convenient way for parties in a lawsuit who reach a settlement to allow the court to enforce the settlement agreement, even if the settlement will take years to perform.  Code of Civil Procedure section 664.6 provides that if parties to pending litigation agree in a signed writing to settle the case, the court may, on the motion of a party, enter judgment pursuant to the settlement, and retain jurisdiction to enforce it.

A losing defendant recently found out that the the key words in this code section  are “pending litigation.”  He had a large money judgment against him, and two years later the winning plaintiff was levying his bank account.  The parties entered negotiations for payment of the debt for less then the full amount of the judgment.  Ultimately the creditor continued to go after the money, and the defendant brought a motion under 664.6, claiming they had reached a settlement.

The court denied it, pointing out that the case already had ended in a judgment that was final.   There was no pending lawsuit. The law only allows one final judgment, and the only thing 664.6 allows is entering a judgment.  The court contrasted this situation with post-divorce child support matters- there, the judgment usually provides for “continuing jurisdiction,” meaning that this is not the final judgment.

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California anti-deficiency laws provide that on foreclosure the lender only gets the home- they can not get the balance of the loan from the homeowner.  The purpose is to place the risk of inadequate security on the lender, whether due to overvaluation or market decline.  It is intended to discourage speculative land sales and the overvaluation of properties.

When faced with foreclosure, the homeowner needs to consider several issues that may impact whether they will have personal liability.  What follows are five steps to follow in determining how the  anti-deficiency laws apply in your case.  They are the five most common issues that arise.  For our purposes, reference to “foreclosure” includes exercise of the power of sale in the deed of trust.

Disclaimer: The content of this comment contains general information based on California law and is provided for informational purposes only, and should not be construed as legal advice on any subject matter.  You will require specific legal advice and should not rely on general information provided here.  You should consult with an attorney to discuss the matter and for any specific legal advice.

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California law provides a scheme for pre-lawsuit resolution of construction defect claims from new home buyers (Civil Code section 895+).  It requires the builder to provide documentation of the law, and also give the buyer a name and address upon whom to make claims.  If the builder follows these rules, the procedure requires the buyer to make a written claim as to construction defects, and provide the builder an opportunity to repair.  If the Builder does not provide this information as required, the buyer can go directly to court.

In a recent case the buyer went directly to court, simply claiming in their lawsuit that the builder had not complied, but did not explain in what manner, at what time, or with respect to which of those duties the builder failed to comply.  The builder had the suit stayed (stopped) until the buyer gave notice and opportunity to repair.  The buyer appealed.

The court of appeals first noted that this was a mandatory procedure for builders and buyers.   The provision that allows the buyer to go directly to court if the builder did not comply was an exception.  The party seeking to rely on an exception to a general rule (here, the buyer) has the burden of proving the exception.  Thus, the buyer must do more then generally state that the builder did not comply.  They must go back to the trial court and  present evidence to show that the builder did not comply.

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It is common for people to hold their investment properties in their revocable family trust. In a Southern California decision, two trustees, Tepper & Presta, entered several partnership agreements to invest in real estate. The partnership agreement provided “upon the death of a Partner, the Partnership shall purchase the interest of the deceased Partner.”

Mr. Tepper died, and Presta wanted to buy out his interest, but his widow refused, claiming that the Trust itself was the partner, and the trust was still alive.

The court looked at the language of the agreement, which states that it is entered by Presta as Trustee of trust P and Tepper as trustee of trust T. It found that the mistake in the widow’s argument was to treat the trust as an entity, like a corporation. But, it is established under California law that a trust of this type is merely a relationship by which one person holds property for the benefit of some other person. An ordinary trust is not an entity separate from its trustees. A trust can neither sue nor be sued in its own name; it is always the trustee who is the party. Thus, in this case, the individual men were the partners, and the widow had to sell her interest.

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In a recent California decision, the trustee was holding a sale of a Sacramento property. The auctioneer read from a script which had all the correct information, including the legal description of the property, but gave an Arcola Avenue street address, which was not the same property. The Arcola sale should have had an opening bid of over $300,000, but the bid here started at $50,000. A buyer seeking the Arcola property won the auction, thinking it got a great deal on the property; the Court said no.

Under California law, trustee’s sales are required to strictly follow statutory procedure. Inadequacy of price alone will not justify setting aside the sale. However, gross inadequacy, plus even slight unfairness or irregularity is sufficient to set aside the sale.

Here, the auctioneer announced the legal description and starting bid for one property, while announcing the street address of a different property, which the court found created a fatal ambiguity in determining which property was for sale. Thus, it should be set aside.
(Millennium v. TD Service Co. (2009) Cal 3DCA C059875)

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Under California law, the Uniform Fraudulent Transfer Act allows defrauded creditors to reach property in the hands of a third party, if a debtor transfers an asset with the intent to prevent a creditor from reaching that interest to satisfy its claim.”

In a recent California decision, Gordon owed his ex-wife over $70,000 in spousal support. She obtained a judgement and recorded it so it would be a lien against any real estate that he owned. Gordon and his girlfriend refinanced their house which was in both their names, at which time the debt should have been paid, but the title insurance company missed it, so they had to pay the ex-wife, and then recorded a new lien against Gordon. Gordon then fraudulently conveyed his half interest in the property to his girlfriend so the title company couldn’t get to it.

The court looked at how much money could be raised for the creditor if the house was auctioned. Gordon’s half of the equity in the property was only about $9,400. But, as it was his residence, he was also entitled to an automatic (undeclared) homestead exemption of $50,000. This exemption protects the debtor when the creditor seeks a court-ordered sale of the house. If the judge finds that the sale price will not be greater than all liens, plus the homestead exemption, there will be no sale. That was the case here, and the title company could not get the house sold.

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Robbins was licensed both as a real estate broker and as an attorney. On January 23, 2001, he pled nolo contendere (no contest) and was convicted of three misdemeanor building code violations.

The DRE filed an action to revoke his license, based on this conviction plus a history of conviction for 50 prior violations. He also had been disciplined by the state bar. The broker argued that there was not showing of intent, and that the crimes did not involve moral turpitude.

Unfortunately for the broker, In 2008 the Legislature amended the statute to allow for revocation of a license without the need to prove moral turpitude. The court here pointed out that the law does not require a failure of honesty or truthfulness for the crime to be related to the broker’s fitness as a licensee. It also noted that the legislature found that a no-contest conviction is strong enough indicator of guilt to warrant discipline. His intent? It was to make money, and that was intent enough. His license was revoked.

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