Articles Posted in real estate law

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Senate Bill 306, signed into law this September, changes some of the rules for California real estate short sales . Much of the excitement around this legislation is a revision to Civil Code section 2943 that provides, when an owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

This excitement overlooks what is required by the statute to trigger the lender’s duty to respond quickly. The statute describes a short sale request as a written request that includes;

A. A copy of an existing contract to purchase the property for an amount certain;
B. A copy of the short-pay agreement in the possession of the entitled person.
C. Information related to the release of any other liens on the property, if any.

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A recent California decision looked at a case where a seller of real property did not disclose recorded deed restrictions, but the buyer received a Preliminary Report from a title company which referred to the recorded restrictions, but did not describe them. The buyers claimed that they never read the preliminary report. When the buyers discovered the restrictions five years later, they sued the seller for failure to disclose.

The purpose of the recording law is to provide “constructive notice” of recorded documents regarding real property interests to resolve disputes regarding priority of interests. For example, a recorded deed of trust provides notice to a buyer that the property is subject to a lien, which if not paid before the title is transferred, remains attached to the property in the hands of the new owner. If the buyer did not check the recorder’s office, too bad for him, as he has constructive notice.

However, in this case the court of appeals noted that a seller has a statutory duty to disclose deed restrictions -it is on the Transfer Disclosure Statement- how could the seller miss it? The court found that the preliminary report did not satisfy the seller’s duty to disclose. It concluded that the existence of recorded documents does not prohibit the seller from suing for non-disclosure. However, the court did say that the seller may argue that the buyers could not justifiably rely on the seller’s nondisclosure, because they did have a preliminary report which disclosed the existence of the deed restrictions. A reasonably prudent buyer is obligated to read the preliminary report.

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Typically, not much attention is given to the language of arbitration provisions in contracts, especially California real estate purchase and sale contracts or leases, and never by consumers. A recent group of California decisions point out that rather than just initially the paragraph, contracting parties should consider what the provision provides for.

In 2008, the California Supreme Court reviewed an arbitration agreement that was governed by the California Arbitration Act. The agreement provided that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” The losing party appealed on the grounds that the arbitrator made a mistake of law. Earlier that year, the U.S. Supreme Court held that no such review was available under the Federal Arbitration Act. However, the California court ruled that, given the language used, under the California act an arbitration agreement can provide for review of errors of law by arbitrators. (Cable Connection 44 Cal.4th 13334.)

Subsequently, a court of appeal considered a case involving a California residential purchase contract that required binding arbitration would be governed by the Federal Arbitration Act (“FAA”). The FAA is commonly required on California Association of Realtor (C.A.R.) Purchase forms. In this case, the property was on an island and had two docks. After the buyers moved in, a neighbor tore out one dock and relocated to his own property-apparently he had this right. The buyer sued because the right to move the dock was not disclosed- apparently the Broker did know about it.

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Despite the best intentions, sometimes deeds get altered by someone other than the person granting the property, before they are recorded. What is the effect of the deed, once it is recorded?

A recent California appellate decision addressed the issue in a case with unusual facts, this time dealing with a transaction between family members. George was facing a lawsuit and decided he should have his name taken off a Deed to California property by granting the property to his niece, F.S., the consideration being described as “gift.” (This conveyance was possibly fraudulent as to George’s creditors, who might have been able to have it invalidated, but that is another story) George and his niece lived in South Carolina, so he sent the deed to California to be recorded. (The record does not indicate whether he sent it to another relative in California, but given the family feud this decision describes, it sounds likely.)

Before it was recorded, the deed was altered by some unknown third person to add two grantees, in addition to F.S., to the deed. In the lawsuit, other family members who claimed they should be on title sought to have the deed voided, as it had been altered.

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A commercial lease in California stated that the premises contained approximately x square feet. It also stated that the parties agreed that it was a reasonable approximation and payments based on the size are not subject to revision if the actual size is found to be different.

The tenant paid rent based on the square footage, and common area maintenance (CAM) charges based on their percentage of the total shopping center square footage. Two years into the term, the tenant obtained a copy of the lessor’s application for earthquake insurance, which disclosed that the tenant’s premises had a smaller square footage than indicated in the lease, and that the shopping center was larger than the lease indicated, which would reduce the percentage of CAM charges the tenant was liable for. The total overcharge for the term of the lease would be $90,000.

The tenant filed suit for misrepresentation and fraud, claiming that prior to entering the lease, the lessor repeatedly affirmed the accuracy of the square footage and actively discouraged confirming measurements; they acted offended at the suggestion! The tenant’s position was that the lessor knew the actual square footage at the time they entered the lease. The trial court ruled for the lessor, finding that the terms of the lease (that the footage was agreed to be reasonable approximation and the rent would not be revised), barred the tenant’s claims.

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Prescriptive easement law evolved from the problems locating property lines in rural areas. Traditional real estate law provided the concept was that, if you used your neighbors land, by running livestock across it, building a road on the neighbors side of the property line, or so other use, the victimized neighbor has five years to do something about it or the trespassing neighbor has established a legal right to continue that use.

Something different happens when the trespasser uses the land in exclusive way, such as by building a structure on it, or fencing it in. Courts are less likely to find establishment of an “exclusive” easement, in which the original owner no longer has rights in the land. By putting a fence five feet over the actual line, the trespasser could establish an exclusive right to use that five feet, even though he does not own the underling land.

The issue is a big problem in residential neighborhoods. It problem starts when a homeowner, for whatever reason, has their property surveyed and discovers that one of their fences is not on the line, but instead is set inside their side, reducing the size of the backyard. Has the trespassing neighbor established a right to keep the fence in its location, enlarging his yard? California courts say no -the concept of an exclusive prescriptive easement “has no application to a simple backyard dispute.” Based on this, the trespasser can be forced to move the fence back across the line.

However, it is common for both neighbors to move in with the fence already in place, and both live in peace ignorant of the problem. Improvements such as drainage, structures, perennial plants or trees may have been installed.
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California Courts have been refusing to enforce arbitration provisions that appear in homebuilder’s contracts.  These provisions often appear in the purchase agreement, home buyer’s warranty application, and even the project’s Declaration of CC&R’s recorded before any houses are sold.  The Courts are finding the provisions to be “unconscionable.”

An unconscionable contract provision has two elements.  First is the element of surprise.  The provision is not negotiated for, but is presented to the buyer as a take-it-or-leave-it decision.  The second element is whether it is one-sided, allocating all the risk to the buyer.  Courts find these arbitration provisions to be one sided because the builder never has cause to sue the buyer after close of escrow, but every claim the home buyer has against the builder will not be discovered until after closing.  Builders who want to avoid a similar fate must ensure their agreements are not unconscionable.

www.JFalconeLaw.com

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When is Saturday a holiday? How to calculate when to exercise an option, give notice, and other deadlines.
California Code of Civil Procedure 10 defines holidays as only Sunday and other days specified elsewhere in the Code.    This must be read in conjunction with Code of Civil Procedure 12a, which states that if the last day for performance of any act  provided by law to be performed within a specified period of time is to be done is a holiday, and then the period of time is extended to the next day that is not a holiday….for purposes of this section, “holiday” means all day on Saturdays…”

A recent California court decision clarified that, because 12a addresses acts “provided by law,”, it does not apply to acts governed by contract provisions.  A contract deadline can fall on a Saturday, but a legal deadline cannot.  A legal deadline is one established by statute or local ordinance.

www.JFalconeLaw.com

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A buyer contracted to buy 10 acres of land subject to a study to determine whether the property could be subdivided.  The contract provided that, during the study period, the buyer, “at its absolute and sole discretion,” could cancel the contract.  The seller cancelled the escrow, and Buyer sued.  The Court found that there was no contract between the parties, only an unenforceable option.  As the buyer had absolute discretion to cancel, it was an option.  But for an option to be enforceable, there must be some consideration- the buyer must have paid something for it.  Here, there was no consideration, so the option was unenforceable.

To avoid this problem, parties must make a choice.  Either the agreement cannot be cancelled on the sole discretion of a party, or there must be some consideration, such as a non-refundable deposit.  If the seller ties up his property for a period of time, he should be paid something for it.

www.JFalconeLaw.com