Articles Posted in real estate law

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It is not often that residential real estate cases make it to the Supreme Court, but in this instance Coldwell Banker tangled with a very wealthy buyer of a very expensive ($12.25 million) house. Presented was the common scenario in which the two agents in the deal both were licensed under the same large corporate broker. This house was marketed as 15,000 square feet, and the buyer discovered it was actually 3-5,000 sq. ft. smaller. The salesman who listed the property made the inaccurate representation. The Buyer claimed that, as the broker was a dual agent, so was this listing salesman (“associate licensee”) – owning the buyer the same duties that he had owed the seller. The Supreme Court addressed whether the associate licensee owed to the buyer a duty to learn and disclose all information materially affecting the value or desirability of the property, including the discrepancy between the square footage of the residence’s living area as advertised and as reflected in publicly recorded documents. This is an issue frequently presented to Sacramento real estate attorneys – whether the listing agent owes any duty to the buyer. It was undisputed that Coldwell Banker owed such a duty to the buyer. Now, the Supreme Court has ruled that the associate licensee, who functioned on Coldwell Banker’s behalf in the real property transaction, owed to the buyer an “equivalent” duty of disclosure under Civil Code section 2079.13, subdivision (b).

Sacramento dual agent attorneyIn the case of Horiike v. Coldwell Banker Residential Brokerage Company, the buyer had been working with a Coldwell Banker agent in looking for a house. She connected him with this listing agent, who had listed this Malibu property for sale. According to an interview with the NY Times, this agent told the buyer that the property had 15,000 square feet of living area and was the largest property available in Malibu. “He said that there was new regulation that prohibited developers from building over 11,000 square feet, and that made the property unique and also a very good investment prospect.” This same agent had previously told a different potential buyer multiple times that they did not warrant the square footage, and that they should hire a specialist to verify it. However, he did not tell this to Mr. Horiike. After the sale closed, the buyer wanted to add a sunroom and learned about the discrepancy in size. This lawsuit followed. The NY Times article linked to above indicates that this particular salesman, with a Hollywood client list, has a record of overstating the size of homes which he has listed.

Sacramento real estate broker dual agent attorneyThe defendant argued that the disclosure statutes only imputed the duties of the salesperson to the broker, and not the other way around – thus, the dual agency concern was not imputed to the salesmen. The court disagreed. Referencing Civil Code § 2079.13, it found that by describing an associate licensee’s duty in a real property transaction as “equivalent to” the duty of the “broker for whom the associate licensee functions,” the provision specifies that when an associate licensee represents a brokerage in a real property transaction, his or her duties are the same as those of the brokerage.

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Leases often have terms allowing extension or renewal for additional time (the difference between extension and renew discussed below). Sacramento real estate attorneys may be called on to interpret the terms of the renewal option when they are not clearly drafted; sometimes it takes a court ruling to reach a result. A well-composed lease will provide a way to determine the new rent, but otherwise the same lease terms generally will apply. However, what happens when the number of optional new terms is not clear?

Sacramento commercial lease option attorneyThat was the case in Ginsberg v. Gamson, where the parties entered a lease for a commercial property for sale of textiles and clothing on South Le Brea Avenue in Los Angeles. The parties got in a dispute, and the right to renew the lease was an issue. Of course, the landlord said the lease provided for only one renewal, the tenant that there were unlimited renewals. The “Option to Extend Renewal” which was under review is set out at the end of this blog.

California Courts apply two rules that apply to interpreting lease provisions that look like they allow perpetual renewals:

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A partition action is a lawsuit in which a co-owner of property can force the sale of a property and have the court determine how the proceeds are divided. In some cases, instead of a sale, the court will order the property be physically divided and distributed to the co-owners. It is used when co-owners disagree. A common question asked of real estate attorneys regards whether the plaintiff can recover their attorney fees for bringing the action. The answer is, maybe, a partial yes. The reason is that the statute gives the court discretion. CCP 874.010 describes “reasonable attorney’s fees incurred or paid by a party for the common benefit. “ When the services of attorneys for both parties are for the common benefit, the court may award fees to both parties. In the event the property is divided rather than sold, the costs awarded become a lien on the parties’ interest in the property. The person who is owed the money can even ask the court to sell the liened portion in order to get paid.

But the question remains- what is “for the common benefit”? Filing the action and getting it before the court is. In my experience contested litigation regarding the relative interests of the parties is likely not. After the sale of the property, the costs are reimbursed before any distribution to the parties. Generally, the court apportions the costs of partition among the co-owners in proportion to their interest in the property, or as it otherwise deems equitable. In an interesting decision, the court chose equity, and only awarded the defendants’ attorney fees – the plaintiff had been so manipulative in trying to take the property from her siblings that the court refused to award her fees.

Sacramento partition attorney fee attorneyIn Hong-Chuan Lin v. Ing-Jieh Jeng, the parties’ parents came to the United States and wanted to buy a house. As they did not have credit, plaintiff “Jane”, who was a real estate agent, obtained the loan. On the parents’ insistence, Jane’s brother Jack was on the loan with her and the two took title as joint tenants. Jack made all the payments on this house. They sold this house and bought another for their parents. The mother and several siblings contributed towards the down payment, and Jane and Jack again were on the loan. However, this time the deed listed Jane as 85% owner, and Jack holding only 15%. Jane then had her parents and her sister sign a written lease, requiring them to pay rent to Jane, though she never told her brothers that she was collecting rent. Jane took all the tax deductions for the mortgage.

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Real Estate Purchase Contracts encountered in California are often detailed and explicit as to the terms of the deal – parties, price, escrow, when closing is to occur, time for inspections, etc. While some terms are subject to varied interpretation, rarely do Sacramento real estate attorneys encounter contracts with glaring omissions. But when they do, the question arises, is the contract enforceable? In a 2008 Supreme Court decision, the court clarified that the only elements necessary for enforceability are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred. Everything else can be provided by the court based on what is usual and customary.

sacramento real estate contract attorneyIn Sunil Patel v. Morris Liebermensch, Patel was a tenant in a building owned by Liebermensch. Patel held a lease option – he had the right to buy the property under specified terms. The option purchase terms were as follows:

“Through the end of the year 2003, the selling price is $290,000. The selling price increases by 3% through the end of the year 2004 and cancels with expiration of your occupancy. Should this option to buy be exercised, $1,200.00 shall be refunded to you.”

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When a lender holds multiple deeds of trust on the same California Real Estate, they may be forced to make a decision. If the borrower defaults on one of the notes, the lender has all the remedies as to that loan – he can conduct a judicial foreclosure, or hold a nonjudicial trustee’s sale and foreclosed under the power of sale. What concerns the lender and their real estate attorney is, once they foreclose, what happens to the other loan? What can they do to enforce it? If they had foreclosed the first, the second was wiped out. Are they a foreclosed junior lienholder, who can then sue for the debt? In one decision the senior and junior creditors were the same, and the court found that once they foreclosed on the first, they were out of luck on the second.

Sacramento antideficiency attorneyIn Simon v. Superior Court, the bank loaned $1.5 million in exchange for two notes, each secured by separate deeds of trust on the same property in Santa Clara County. The bank foreclosed by trustee’s sale on the senior deed of trust, then sued the borrower on the 2nd note and deed of trust.

the court concluded that, where a creditor makes two successive loans secured by separate deeds of trust on the same real property and forecloses under its senior deed of trust’s power of sale, thereby eliminating the security for its junior deed of trust, section 580d of the Code of Civil Procedure bars recovery of any “deficiency” balance due on the obligation the junior deed of trust secured.

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A title defect in California real estate transactions usually results in unsalable property – i.e., the property is unmarketable. But not all property with problems of marketability have a cloud on title. There just might not be a market for it – hazardous waste dump, steep unstable slopes, zoning restrictions, etc. Sacramento real estate attorneys and property owners are occasionally faced with the question – is the problem with the marketability of the title, or of the property? The reason this is important is thst it determines whether title insurance will provide coverage. In a decision from Santa Clara County, the buyer was disappointed that it was his property, and not his title, that was unmarketable.

Sacramento title insurance lawyerIn Dollinger DeAnza Associates v. Chicago Title Ins. Co., Dollinger bought 7 parcels of adjoining property, with a plan to sell parcel number 7. He discovered that the City had recorded a Notice of Merger which merged the properties together, prohibiting the sale of number 7 without going through the Subdivision Map process. He sued his title company, claiming that this was a defect of title making the property unmarketable. (It turns out that the City’s recorded Notice was improperly indexed, but that is not what the decision focused on.)

Title insurance (relevant code provision is set out at end of article), unlike other types of insurance, does not insure against future events. It insures against losses resulting from differences between the actual title and the record title as of the date title is insured. The policy does not guarantee the state of the title, but rather indemnifies the insured for losses incurred as a result of defects in or encumbrances on the title.

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A lis pendens, or Notice of Pending Action, is a document which may be recorded which provides notice of a lawsuit that has to do with title to real property. It cannot properly be recorded until after the lawsuit has been filed. The owner of the property can file a motion to clear their title by having the lis pendens expunged, i.e. declared invalid by the court, if the lawsuit does not concern title to real property. Sacramento Real Estate attorneys often hear from parties who are anxious to record a lis pendens, but really do not have a property title claim. This is so important that if the party is not represented by an attorney but are representing themselves, they must get court approval to record a lis pendens. If a lis pendens is expunged, the property owner may also receive an award of their attorney fees and costs. But what about the harm to the owner while the property was tied up with the lis pendens? Slander of title is a false statement about real estate which harms the property’s value or salability, causing a direct pecuniary loss. As the court of appeal points out, a wrongful lis pendens may still not be found to be a slander of title.

Sacramento slander of title attorneyIn Alpha and Omega Development, LP v. Whillock Contracting, Inc., Whillock was a builder who brought an unsuccessful action to foreclose a mechanics lien. Part of that action included a lis pendens. Alpha had the lis pendens expunged. Alpha defaulted on the loan, and the property was foreclosed. Alpha then brought a slander of title action against the defendant, claiming that defendant without justification and without privilege caused to be recorded a Lis Pendens against the real property; that the recording of the lis pendens “directly impaired the vendibility and value of the [subject real property] on the open market while the real estate market in San Diego was rapidly declining”; and that as a result of the lis pendens, Alpha was damaged.

The elements of a cause of action for slander of title are

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California real estate purchase and sale contracts often incur in conjunction with a written lease, such as in the case of a lease- option or both a lease and a contract entered together that reference each other. The lease-option includes a purchase contract that with instructions in the option as to how to exercise the option and make the purchase contract binding. The combo lease-contract will (at least should) be clear as to what payments are exclusively applied to the rental, and what rights the owner has to evict the tenant-purchaser. Sacramento area real estate attorneys frequently prepare these types of agreements usually in cases where the buyer-tenant cannot immediately obtain financing to buy the property outright. In a recent case with perhaps a too-complicated purchase contract, the defaulting buyer was disappointed to find out that it was really a tenant. Maybe it was complicated in order to disguise the fact from the buyer, but the court provided a guide to create such a deal while ensuring the seller can evict the buyer.

Sacramento commercial lease attorneyIn Jon Taylor v. Nu Digital Marketing Inc., Taylor was the owner and seller, Bu was the buyer. They entered a document entitled “Contract of Sale Residential Property.” It required the buyer to consummate the sale within 60 months by payment of $1.25 million. It also required (full details set out at the end of this article) that the buyer make “Probationary Installment” payments of $2,300 per month for 60 months, which covered the seller’s adjustable rate mortgage, and would increase if the mortgage adjusted. None of the probationary installment was applied to the purchase price. It also required a down payment (“additional Probationary Installment” of $500 per month. Lastly, it gave buyer immediate possession of the property and provided that if the buyer defaulted on probationary payments, the seller could serve a five-day notice.

Auburn commercial lease attorneyThe buyer defaulted, and the seller brought an unlawful detainer. The buyer claimed that it could not be evicted, because this was a contract, not a lease. The court of appeal disagreed.

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Indemnity provisions usually refer to third-party claims. This means a claim by a person other than the two parties to the indemnity. If I sell you a box of widgets and indemnify you for all claims resulting from the use of the widgets, the idea is that if a third person is injured by the widget and sues you, I am on the hook. But these provisions are commonly more expansive, and include first-party claims. Thus, if you get injured using the widget, I am on the hook. Environmental indemnity agreements are typically the most expansive types of provisions you can find and seem to have included all the word someone could think of. One concerned about what an environmental indemnity provision covers should consult with a real estate attorney. In a recent decision, I suspect that the defendant knew that the provision covered first-party claims, but still make the argument and was shown to be wrong. There was a lot of money at stake. A second case discussed below does not include first party claims.

Sacramento indemnity attorneyIn HOT RODS, LLC v. NORTHROP GRUMMAN SYSTEMS CORPORATION, Hot Rods bought contaminated property from Northrop. The purchase contract had an indemnity provision to protect Hot Rods from environmental actions and remediation. Over time Hot Rods incurred remediation expenses, and Northrop reimbursed them. Eventually, Northrop called it quits and stopped reimbursing Hot Rods. Hot Rods sued, claiming that a tenant had delayed entering a lease because of remediation issues, Hot Rods claimed lost rent; Northrop denied being liable for this, claiming that the indemnity provision only covers third-party claims. Here, where Hot Rod was making its own claim for damages, this was a first party claim.

Covers First-Party Claims

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The City of Sacramento recently passed ordinances that allow and regulate “short-term rentals”, which are of the type advertised non-Airbnb, VRBO, and similar sites. This is welcome news, as this type of rental has been in a state of limbo under the law of most communities. Usually, it fits in with motels or bed and breakfasts and is governed by rules for those types of operations. Now, in Sacramento, as in San Francisco and other communities throughout California, they have their own classification and regulations. Owners who are interested in renting their properties on this basis should consult with a Sacramento real estate attorney to be sure they understand the ordinances and have an appropriate short-term rental agreement.

sacramento short term rental attorneyShort-Term Rental

Under the new ordinance, A short-term rental@ means a bed and breakfast inn that is limited as follows:

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