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California real estate financing typically includes a note and deed of trust. In event of default the trustee named in the deed of trust is a third party who would conduct the non-judicial foreclosure process, and hold a trustee sale. This is not a true ‘trustee’ with fiduciary duties but an agent for the parties with statutory duties. When disputes arise regarding foreclosure, Sacramento real estate attorneys often see that the trustee is often named in the lawsuit by the borrower with the other defendants. Given that the trustee relies on instructions of the beneficiary and does not act on its own, the complaint does not allege any specific wrongful act committed by the trustee. As a result, Civil Code section 2924l provides that the trustee may file a “Declaration of Nonmonetary Interest” in the case. The declaration must state that the trustee’s “reasonable belief that it is named as a defendant … solely in its capacity as trustee and not due to its acts or omissions.” Unless another party objects, the trustee then avoids participation in the lawsuit and liability for damages and attorney fees.

woodland deed of trust attorneyIn Bae v. T.D. Service Company, Bae defaulted on a $5 million dollar property in Glen Ivy. The property was sold at a trustee sale, and the plaintiff sued everyone, including the Trustee. The trustee filed a Declaration of Nonmonetary Interest, and not an answer to the complaint. The Plaintiff’s attorney entered the trustee’s default and obtained a default judgment, all without providing notice to the trustee’s attorney. That’s right, the clerk entered the default, the judge granted the judgment, all without notifying the trustee’s attorney. Unbelievable, but it happened, and the trustee moved to set aside the default and won. More bizarre- the plaintiff appealed.

The court first looked at requirements for setting aside a default. Civil Procedure section 473.5 permits the court to set aside a default or default judgment if the defendant, through no inexcusable fault of his own, [received] no actual notice” of the action, provided that relief is requested not more two years after the entry of the default judgment. But here, the Trustee filed its motion more than two years later.

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Real Estate investors in California often work through a licensed Broker, who puts together investor’s cash with potential borrowers. Investors prefer these arrangements (hard-money loans) because they can obtain a higher interest rate for their money, fully secured by a deed of trust recorded against real property. These loans are made through a licensed Broker because broker arranged loans are not subject to usury laws. (More details at the end of this article.) Real Estate Attorneys may be tasked with the job of determining if the usury law applies, and if so, whether this particular loan is usurious. If the loan is usurious, the concern for the investor is to be treated as a holder in due course, free from the defense of usury. It was a bad day for some investors in the Bay Area when the court decided that they were not holders in due course, because the unlicensed Broker kept possession of the notes in order to service them.

In Creative Ventures, LLC v. Jim Ward & Associates, Jim Ward was a licensed real estate broker, and his license was placed with a corporation. He retired and the license expired. He came out of retirement, created a new corporation, JWA, and applied to the DRE to renew his license for the old corporation. Apparently he did not realize that he needed a new license for the new corporation.

A real estate developer borrowed $3 million from JWA. It was through four Promissory Notes, two at 8% interest and two at 10% interest. All the notes included a 6% Broker commission. (For usury purposes, the interest rate is added to the commission, so here they were 14% and 16%, over the 10% usury limit.) This would be ok if JWA was licensed, but it was not. A lawsuit followed.

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Expert opinions are occasionally relied on in California real estate disputes. Experts may be hired initially to determine if there are grounds for a lawsuit. In ongoing litigation, an expert may be hired to offer an opinion to establish damages, or to serve as a witness at trial as to the other party’s breach of a duty, or to counter an expert identified by the opposing party. Experts are usually hired by Sacramento real estate attorneys, rather than their clients, so that the expert’s report is protected by the attorney privilege.

Some examples of expert opinion in real estate cases –

Valuation of property – it must be based on matter perceived by the expert or made known to the witness before the hearing, that is of the type reasonably may be relied upon by an expert in determining the value of property. (Evidence Code section 814)

Construction defect – review and evaluation of the specifications and plans, materials that were used, and degree of care and skill used by the contractor are usually required and undertaken by experts.

Broker and Agent Negligence – expert testimony is admissible regarding the breach of the duty of care, including testimony as to custom and practice. However, such testimony is not admitted to establish whether there is a duty in the first place.

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Real estate title in more rural or agricultural areas of California are often reliant on ancient surveys, sometimes handwritten, relying on monuments that are gone or have changed, and less accurate survey instruments. When disputes arise, the parties must rely on their surveyors to convince a judge that they are correct. Real estate attorneys can find themselves in a battle of surveyors, disputing whether the other side’s approach is reliable or not. This problem arose in a recent decision near Healdsburg regarding a property line between a vineyard property and the new owners of an adjacent winery. The surveyor’s approach, as well as testimony of some old-timers who lived on the properties, made life difficult for the new winery owners.

Sacramento title attorney lg.jpgIn Belle Terre Ranch, Inc. v. Wilson, new owners bought the Soda Rock Winery in 2000. The Soda Rock winery building backed up to the vineyard of Belle Terre Ranch, with a pathway in between. A line of ancient oaks ran behind the building, within 2-4 feet of the building wall. The new Soda Rock owners began reconstructing the winery, and the owners used the pathway for deliveries to the back of the building, as well as for heavy equipment access. Ron, the 70 year old President of Belle Terre, had lived on the property all his life. He testified that he did not complaint about use of the pathway during the initial reconstruction because he wanted to be neighborly.

Soda Rock applied to the county for permits to complete the renovation, and Belle Terre complained to the county about a need for the survey, and that there had been some trespassing. The owners spoke with each other, agreeing that a survey should be done. Ron apparently agreed to accommodate access to the rear of the winery for reconstruction, so as to be a good neighbor.

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California adverse possession and prescriptive easement law has undergone some evolution in California since its rural beginnings. Now commonly claimed in urban areas, the courts had modified the available remedies.

Adverse possession is the process in which someone acquires ownership of another’s land. The claimant must prove:

(1) possession under claim of right or color of title;

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