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Sacramento-Merger-real-estate-attorneyThe Doctrine of Merger in California real property law provides that when a greater and lesser estate are vested in the same person, the lesser estate may merge into the greater estate and the lesser estate be terminated. A practical example is the case of an easement on one of the properties (the servient) for the benefit of the other property (the dominant). The easement is terminated when the same person acquires both the dominant and servient estates. But there are exceptions, as a troubled owner learned in a decision issued last November.

In Tariwala v Mack, Defendant Mack owned two adjacent properties at 2957 & 2949 Los Robles Road in Thousand Oaks. Lot 2957 (the Mack property) was in the front along the road, the other lot was in the back. A recorded easement over the Mack property provides the only access to 2949 (what later became the Plaintiff’s property)

Sacramento-real-estate-Merger-attorneyMack lost the rear property in foreclosure. Mack refused to move out of the house and remove garbage, inoperable vehicles, and other personal property, and the Bank had to evict him. The bank eventually sold it to the Plaintiffs. Mack denied an easement existed and refused Plaintiffs access over his property so they could begin clearing their lot and renovating the now-dilapidated house. They filed a lawsuit to confirm the easement, and for a preliminary injunction, which they received. Mac violated the injunction and was found in contempt twice. Mac lost at trial and appealed, claiming that the easement was extinguished when he owned both properties due to the doctrine of merger.

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A Notice of Action, also known as Lis Pendens (Latin for “a suit pending”), may be recorded in a lawsuit that involves title to real property. Because this will prevent sale or refinancing of the property it attracts the defendant’s attention, and they want to remove (“expunge”) it from the record. Anyone seeking money damages can throw in a real property claim, and the courts have weeded them out by looking at the overall lawsuit and determining whether or not it was really just about money damages. If it was damages, the courts concluded that it did not contain a real property claim and expunged the notice. Sacramento real estate attorneys are well aware of the risk of an expungement action, because the prevailing party is entitled to be awarded their attorney fees. In a recent decision from Alameda the court clarified that, in a lawsuit with 7 causes of action for damages and one for constructive trust, the constructive trust claim falls squarely within the plain language of the statute: it “would, if meritorious, affect … title” to specific real property. They were entitled to record the lis pendens.

Sacramento-real-estate-attorneyIn Shoker v. Superior Court, Ghuman lured the Shokers into investing $1.5 million in an unidentified technology company. He became familiar with the real properties they owned (and rented for income), and then promised the Shokers returns far exceeding those that they were receiving on their rental properties.

The SCAM

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Sacramento-prescriptive-easement-attorneyUnder California real estate law a prescriptive easement requires the trespasser showing that they have used the property “for the statutory period of five years, which use has been (1) open and notorious; (2) continuous and uninterrupted; (3) hostile to the true owner; and (4) under claim of right.” The way a property owner cuts off a possible prescriptive easement is by filing a suit for trespass or ejectment. But an action for trespass is designed to protect possessory –not necessarily ownership– interests in land from unlawful interference. As the landlord does not have a right to possession during the lease term, he may not bring an action for trespass. The prescriptive right does not arise against an owner that had no possessory interest in the land during the five-year period. What happens when the owner has leased the property? The tenant has the right to possession, not the owner. It appears that, in California, even if the owner has a moment of possession, such as between leases, a prescriptive easement may be created.

In King v Wu, a neighbor poured a concrete driveway partly encroaching on the neighboring property. The strip of driveway on the neighboring property (prescriptive strip) is approximately eight inches wide and 90 feet long. Many years later the property suffering the trespass was sold, and the new owners began constructing a metal guardrail over the prescriptive strip. Three days later the Kings filed a complaint seeking to quiet title over the prescriptive strip.

Sacramento-prescriptive-easement-lawyerThe owners raised one defense—that the property had been “continuously rented out,” and thus, as landlords, they had never been in possession over a period of five continuous years, and could not have filed an action for trespass or ejectment during that time. The owners had several successive leases with different tenants.

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A quiet title action is brought to establish, or “quiet”, an interest in real estate between adverse parties. One can establish any interest in property or cloud upon title. (CCP §760.010) A common goal is to establish title by adverse possession. Adverse possession is a way of acquiring title to real property through continuous possession or use for a specified period of time. One of the elements required to prove adverse possession is that the possession or use must be “hostile to the owner’s title.” What happens if the adverse possession occurs on property with a deed of trust recorded, and the lender forecloses? In a recent California decision, the adverse possessor lost because the adverse possession did not count against the Lender until the lender acquired the property at the trustee’s sale.

Sacramento-Quiet-title-attorneyIn Charles Scott Bailey v. Citibank N.A. owners of property in Kern County had a deed of trust. They went into default and a Notice of Default was recorded, so the owners filed a series of bankruptcies. Apparently, the lender never completed the foreclosure, the bankruptcies concluded, and the owners walked away from the property. Plaintiffs, seeing it empty in 2013, saw that as a green light to take possession and pay property taxes. Citibank became the successor to the original deed of trust in 2017, and recorded a new notice of default, foreclosed, and became the new owner in 2018.

A few months later Plaintiffs filed their quiet title suit. There was much hubbub in the courts, a default & judgment for quiet title by adverse possession, the default judgment set aside, and appeals. For our purposes, an issue on appeal was whether, as a matter of law, plaintiffs’ possession was adverse to Citibank for the required five-year period.

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The alter ego doctrine is a procedure that creditors use when their judgment is against a corporation or LLC which is owned by, or controlled by, a sole shareholder. Usually, the corporation has no assets to collect from, and the goal of the creditor is to go after the shareholder’s personal assets, claiming that the corporation is a sham. In effect, the corporation is the shareholder’s alter ego and the shareholder should not hide behind the corporation. Reverse veil piercing is a newer concept in which a creditor with a judgment against an individual goes after the assets of the corporation which the debtor controls. In a recent decision from Southern California, two LLC members got slammed for a huge judgment – as aptly described by the Court: “There are numerous ways in which an LLC or corporation is undercapitalized. Here, wealthy principals of an LLC withdraw or add money at will. This enviable position does not allow the LLC to become undercapitalized when its shareholders intend to avoid liability.”

Sacramento-alter-ego-attorneyIn Triyar Hospitality Management, LLC v. WSI (III) – HWP, LLC (an unpublished decision), Triyar was under contract to buy a hotel from WSI; the hotel was subject to a Hyatt operating agreement. The Hyatt agreement terminated while Triyar was doing its due diligence, but Triyar did not know about the termination. (What is due diligence anyway?) Triyar passed on the purchase but then learned about the termination of the Hyatt agreement. In a costly case of chutzpah, Triyar then claimed that the Hyatt agreement was so burdensome, the termination increased the hotel value by $11 million, and sued ESI for fraud – I guess not telling them the agreement had terminated.

The trial court said haha; it’s your own fault for not doing your due diligence. The court awarded WSI over $2 million dollars in attorney fees. WSI could not collect the judgment, so moved the court to amend the judgment to add the Yari brothers, principals of Triyar, to the judgment on an alter ego theory. The court agreed, and this appeal followed.

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A Quiet Title action is a lawsuit that a person files to establish their title against adverse claims. For example, what if a signature is missing on the deed of trust, and the deed of trust is foreclosed? Was it a necessary signature, for example, the wife of the owner, when the wife was not on the deed? In a recent decision from Grenada Hills, the Note Holder started the process for a trustee’s sale, and the owner filed a quiet title action. He claimed that it was community property, and there is a legal presumption that it is community property, so the deed of trust could be voided by the wife who did not sign it. He was right!

Sacramento-Deed-of-trust-attorneyIn Trenk v. Soheili, as a result of a Settlement Agreement in an unrelated matter, Trenk agreed to pay $100,000 and executed a promissory note and a trust deed on the Residence to secure the obligation.

Trenk stopped regular payments on the note after 2003, and by 2018 he still owed about $75,000. Soheili began nonjudicial foreclosure proceedings in January 2018. The Trenks then filed this lawsuit to clear title to their house, alleging that the trust deed was no longer enforceable.

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California law provides enhanced damages when someone harms a tree on another person’s property. The tree is owned by the owner of the real estate. There is a provision for doubling the damages incurred for harm caused to timber, trees, and underwood, and trebling it if the harm is intentional. (Civil Code section 3346.) A statue can double the damages for harm to a tree. (Civil Procedure section 733). However, both statutes specify enhanced damages for “trespass.” In a recent decision, a party decided to build a house, but roots from the neighbor’s tree was in the way of the foundation. So they cut the roots killing the tree. The tree owner was disappointed that this did not qualify for treble damages.

sacramento-neighbor-tree-attorneyIn Raymond Russell et al., v. Cornel Dorin Man et al., a ‘massive” Jeffrey Pine (85 feet tall, 40 inch d.b.h.) was located on the property line between the two parties in Big Bear Lake. The defendants built a house on their property, though according to the city’s development code they should not have been allowed to. Almost any house on the property, no matter how configured, would be too close to the tree’s “critical root zone.” Under the Big Bear Development Code, it was forbidden to dig in a tree’s “critical root zone.” This was defined as a circle around the tree with a radius of one foot for every inch of the tree’s diameter at standard height (four and a half feet above the ground, which used to be called “breast height”). Here, the tree’s diameter at standard height was 40 inches, so it’s critical root zone had a radius of 40 feet.

Defendants had hired a draftsman who prepared the building plans and then submitted them to the city. Those plans misrepresented the tree as being behind the proposed house, rather than to the side. Even according to the plans, however, the house was within the tree’s critical root zone. In fact, there was no way to build on the property without killing the tree. Nevertheless, the city inspected the site and issued a building permit.

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The general rule is that a bona fide purchaser of California real estate for value who acquires their interest in the property without knowledge or notice of another’s rights or interest in the property takes the property free of such unknown interests. The usual way a purchaser receives notice is through recorded documents – mostly learned about in California by receiving a Preliminary Title Report, which the buyer receives if they are going to obtain title insurance. The way to research recorded documents is through the index – the recorder indexes documents by the names of the parties. The buyer’s title insurer searches for the names listed in the owner’s deed But sometimes the recorded documents do not all have the exact same names but some variation thereof. In a recent decision, when it came to names, the court said close, but no banana (some might say cigar). The buyer obtained the property free and clear of plaintiff’s liens because then names were not close enough and they did not have notice.

Sacramento-real-estate-attorneyIn Vasquez v. LBS Financial Credit Union, LBS had recorded Abstracts of Judgment against “Wilbert G. Guerrero.” Years later The Vasquezes bought property from “Guillermo Guerrero,” who was the same individual subject to the judgment. In the Guerrero – Vasquez purchase & sale documents were numerous versions of Guerrero’s name, including one handwritten reference in the 10-page purchase agreement to the name Wilbert Guillermo Guerrero. Guerrero’s cursive signature on page 10 appears to be either “Guillermo Guerrero” or “Guillermo Guerrero W.” The name “Wilbert Guillermo Guerrero” is handwritten below Guerrero’s signature, where the form specifies to “[p]rint name. In the counteroffer Guerrero signed the acknowledgment and acceptance twice. One signature appears to be “Guillermo Guerrero W.,” and the second appears to have the same signature, except it is not discernable whether the name is followed by a “W.” “Guillermo Guerrero. The Title report stated the Guerreros’ interest in the property was vested in “Guillermo Wilbert Guerrero and Laura Olivia Guerrero, husband and wife as joint tenants.” The report identified a deed of trust in the amount of $198,000 to secure a note for borrowers “Guillermo Wilbert Guerrero and Laura Olivia Guerrero, husband and wife as joint tenants.” The report also identified three tax liens against “Guerrero[,] Guillermo” and a 2008 abstract of judgment for $16,312.38 against “Guerrero Construction and Development, Inc. and Guillermo Guerrero.” The preliminary title report did not identify the LBS abstracts. LBS wanted their money, and this lawsuit ensued.

The Court first noted that the bona fide purchaser without notice may seek a legal determination through a quiet title action that the title it obtained remains free and clear of any adverse interest in the property. Constructive notice of a lien or other interest in property arises from the proper recording of that interest.

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Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust.

Sacramento-Deed-of-Trust-LawyerWe start with the U.S. Supreme Court decision in Carpenter v. Longan (83 US 271.) In that great 1872 style of legal writing, it states:

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity. That the debt is the principal thing and the mortgage an accessory. Equity puts the principal and accessory upon a footing of equality, and gives to the assignee of the evidence of the debt the same rights in regard to both.”

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A corporate merger is when two corporations combine to become a single firm. There are several types of mergers, including those where both corporations still exist after the merger. One type is a Triangular Merger. In this, the acquired corporation continues in existence as a wholly-owned subsidiary of the acquirer without transferring any assets. In a triangular merger there usually are two agreements which typically might be called “Agreement of Merger” and “Agreement of Reorganization”, respectively. The Agreement of Merger is the statutory agreement drafted, executed and filed with the Secretary of State pursuant to California Corporations Code.

A corporation is considered a separate legal entity apart from its owners. The transfer of corporate stock is not deemed a transfer of the real property of a legal entity because the separate legal entity still owns the property. However, a traditional merger—one in which two or more corporations merge, one survives and the others disappear—results in the transfer of the assets of each disappearing corporation to the surviving corporation. In a recent decision, parties did not want a transfer of real estate because of contractual relations that made a transfer of the property costly

(and it would trigger a property tax reassessment). They used a reverse merger so that there was no transfer of real estate. The court said that was ok… it was not intended to cheat shareholders or creditors, so the court would respect the transaction.

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