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A popular topic in Sacramento now is this possibility that the Kings may be bought by a Seattle ownership group, and moved to Seattle. The method this would be accomplished is by the Maloof family selling their majority interest in the Kings partnership to the new group- the minority partners would be stuck with a new majority partner. However, there are multiple investors in Northern California who are expressing an interest in presenting an offer that could result in the Kings remaining in Sacramento. Experienced Sacramento business attorneys know that the Kings limited partnership agreement may give them the opportunity to match the Seattle group’s offer, and possibly for less cash.

Sacramento business attorney 2.jpgPartnership agreements generally have a right of first refusal, which provides that if a partner wishes to sell their interest, and receive a bona- fide offer from a third party, the other partners have the opportunity to match the offer, in which case they would win out over the stranger. When the selling partner accepts an offer, the remaining partners have essentially an option; they can force the sale to them by matching the offer. The idea is partners want to have a say in who their partners will be, and would prefer not to have a stranger step in. They are required to match the offer, however, to be fair to the selling partner. We do not know what this partnership agreement states, but news reports have indicated it has a right of first refusal.

Generally speaking, the offer must be matched perfectly- the existing partners may not vary the terms at all. However, strict adherence to this rule gives the selling partners and third party accomplice the ability to structure an offer in a way that the others could never match. It could provide a security a parcel owned by the third party (the existing partners cannot provide as security a parcel they do not own), or they could name as consideration a valuable race horse which the existing parties could not own. In this case, strict enforcement of the perfect match rule would make the right of first refusal illusory. In such a case, the seller is bound by the standard of a reasonable person and must accept the third partner’s offer if it is the economic equivalent of the offer by the third party. In a recent decision on this subject, the Court concluded that the un-matching offer paid the seller the same net price, and that was good enough. And there’s the rub.

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The California parole evidence rule generally prohibits evidence of oral statements that contradict the terms of a written contract. In the past several years Sacramento and El Dorado real estate attorneys often heard borrowers claim that their mortgage broker made promises about their loan regarding the interest rate, whether it was adjustable, when the rate would go up, and a myriad of other terms, that turned out to be true. These promises are in direct conflict with the terms of the written agreement, so the parole evidence rule keeps these statements out, and can result in a lawsuit being thrown out of court. However, a new California Supreme Court decision changes everything- now, the false promises may be admitted as evidence.

real estate loan fraud.jpgIn Riverisland Cold Storage vs. Fresno-Madera Production, the borrowers owed the lender over $765 thousand, and were in default. They entered a work-out with the lender. The borrowers claim that two weeks before signing the workout they met with an officer for the lender. He told them that they would extend the loan for two years in exchange for additional collateral of two ranches. However, the agreement they signed (which the borrowers did not review closely) extended the loan for only three months, and, as additional collateral, added eight separate parcels.

The borrowers again defaulted and the lender took action before the three years the borrowers were counting on. The borrowers brought the loan current, and filed this lawsuit, claiming fraud and negligent misrepresentation. The lender raised the parole evidence rule, arguing that the borrower could not prove their claims because the rule barred any evidence of oral representations contradicting the actual terms of the written agreement.

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California Construction defect claims in common interest communities are subject to a number of California statutes. The California Supreme Court recently decided that a developer can bypass all these statutes by including in the CC&Rs a provision requiring arbitration under the rules of the Federal Arbitration Act. This benefits developers as they can avoid a jury by requiring that construction defect actions be decided by an arbitrator, and gives them settlement leverage. This decision will result in Sacramento and Yolo real estate attorneys advising developers to include FFA provisions in all their CC&Rs. The FAA makes arbitration provisions irrevocable, and drastically limits the court’s ability to fix errors of the arbitrator.

CC&Rs FAA construction defect.jpgIn Pinnacle Museum v. Pinnacle Market, The developer recorded a “Declaration of Restrictions” (the Project CC & R’s) to govern a residential and commercial common interest community. As usual for CC&R’s, these contain a number of easements, restrictions and covenants, which it describes as “enforceable equitable servitudes” and “binding on all parties having any right, title or interest” in the property, and their heirs, successors and assigns. Again, as usual, The CC & R’s also provided for the creation of a nonprofit mutual benefit corporation (the Association) to serve as the owners association responsible for managing and maintaining the Project property.

The Association sued the developer, on behalf of the owners, for construction defects. The CC&Rs provide:

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California home buyers often get both a first loan and a second, usually a home equity line of credit, or “HELOC.” Generally, when a second loan is made by a different party, not as a part of the purchase, when the first forecloses, the value of the junior’s security has been wiped out (the 2nd becomes a “sold out junior”). The one form of action rule then does not prevent a lawsuit for the debt on the second. However, when the same lender makes both the 1st and 2nd loans, it is more complicated, and owners in this situation should consult with a Sacramento & Yolo real estate lawyer. There are three typical scenarios that cover possible personal liability for the second, if the first is foreclosed.

2nd deed of trust.JPG1. Original lender holds both first & second, forecloses on first.

➔There is no liability for the second, as it was a purchase money loan.

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California real estate law, and often commercial rental agreements, provide the tenant with a right of quiet enjoyment. This means that the landlord promises that during the term of the tenancy no one will disturb the tenant in the tenant’s use and enjoyment of the premises.

If the covenant of quiet enjoyment is breached, the tenant has a choice- he can stand on his lease and sue for damages, or vacate the premises and claim constructive eviction. A 1994 Third District decision found that the a Lease provision prohibited the lessee’s claim for constructive eviction, restricting his rights to a claim for damages or injunctive relief. While this is bad for tenants, the law is clear, and Commercial landlords and tenants entering leases should consult with an experienced Sacramento real estate and leasing attorney to be fully advised as to the terms of their contracts.

constructive eviction.jpgIn Lee v. Placer Title Company Placer was the tenant in a shopping center. Their premises were next door to a dry cleaners. Placer claimed that cleaning fumes made the office unusable, stopped paying rent, and vacated the premises. Lee sued for the balance of the rent owed on the lease as damages. Placer raised, as a defense, constructive eviction.

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A California quiet title action can be brought to establish legal or equitable right, title, estate, lien, or interest in property or cloud upon title against adverse parties. Sacramento and Yolo real estate attorneys occasionally advise clients who, not being able to pursue an action, are interested in assigning their claims to another party. In a recent decision, a party who was assigned a claim for quiet title was not assigned an interest in the property. Surprising to everyone was how well that mistake worked out for the original owner.

In Chao Fu Inc. v. Chen, CFI corporation owned a 25% interest in real estate in Mountain View. CFI’s secretary, Mali, had been doing unrelated business with Chang and had borrowed money from him. Chang got nervous about getting paid, and wanted security for the debt. Mali, with approval of the other principals of CFI, gave Chan a deed of trust against the Mountain View property (owned by CFI) and Chang recorded it.

quiet title action Yolo attorney.jpgWhile the principals were overseas, Chang, the lender, successfully foreclosed the deed of trust and became owner of the 25% interest in the property. To further collect on the balance of the money owed by Mali, the Lender sued her. Mali had CFI assign to her “all of its right, title, interest, and standing to bring suit, to, in, and on, any and all claims and causes of action which it has against Chen…” Mali then filed a cross-complaint against the Lender for wrongful foreclosure & slander of title. However, Mali had to dismiss her claims just before trial, because CFI’s corporate status had been suspended, and thus had no power to pursue legal actions- as a result, the assignment of claims to Mali was void. Mali assigned the claims back to CFI.

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In California contracts sometimes a party is obligated to use “best efforts” to accomplish a goal of the contract. For example, a contract to buy real estate may be subject to a condition to obtain financing. In such a case, the implied covenant of good faith requires the buyer to exert their best efforts to satisfy the condition. Or, the actual requirement may be in the contract, such as for a holder of water rights to use “best efforts” to maintain the level of water in a reservoir. California courts have never defined best efforts, but look to the specific facts of each case to determine if best efforts were actually made. A party with such an issue is well advised to consult with a Sacramento or Placer real estate and business attorney to determine how far their efforts must extend. A property owner’s associations in Modoc County recently was disappointed that a best efforts provision did not make the other party a fiduciary.

sacramento real estate attorney best efforts.jpgIn California Pines Property Owners Association v. Pedotti, the association owned the land in where the reservoir was, and it had lake-side houses. Pedotti owned a 1700 acre cattle ranch. Both parties had rights to water that enters the reservoir. Pedotti used the water to irrigate his ranch, and the association wanted to keep enough water in the reservoir to maintain its aesthetic value. Pedotti’s water rights required him to use “best efforts” to maintain a full reservoir. The association did not appreciate the low water levels in 2006 through 2008, and sued. It claimed that best efforts means the efforts required of a fiduciary. The court disagreed.

Pedotti had the local Cooperative Extension farm advisor testify as an expert that his flood irrigation technique was typical for ranches in Modoc county, and to change to an enclosed pipe system would cost over a half million dollars. In 2006 through 2008 Pedotti took less water than he was entitled to, and supplemented it from another source.

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Boundary disputes are common in California real estate, in all cases- residential, commercial, and agricultural properties. Experienced Sacramento and Yolo real estate attorneys often see cases of adverse possession and prescriptive easement claims. Another theory that is occasionally used is the doctrine of boundary by agreement. In this scenario, when the parties are not sure of he location of the boundary, they agree on a location and live with it. Recently in San Luis Obispo County, the parties accepted a boundary location for over sixty years. But there never was an agreement to set it there, so the true boundary was the legal boundary set out in the deed.

agreed boundary.jpgIn Martin v. Van Bergen, The Martins owned a vineyard next door to Van Bergan’s almond orchard in Paso Robles. A fence ran between them, but it was on the Martin’s property, off the true boundary. Of course, Van Bergan’s orchard was planted up to the fence, so it encroached on Martin’s property. Martin brought a quiet title action. Defendant claimed the “boundary by agreement defense.”

Testimony at trial was that an old cattle fence was located where the current fence is, and the two neighbors cooperating in replacing it with a deer fence. The assumed that the fence was on the boundary. Subsequent surveys revealed the fence was not on the border, and that the orchard encroached on the neighboring property.

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A California slander of title suit is a claim that someone published a false statement about real estate which harms the properties value or salability. One of the requirements of the claim is that there be a direct pecuniary loss.

slander of title.jpgIn Sumner Hill v. Rio Mesa, A subdivision was built on bluffs overlooking the San Joaquin River in Madeira County. Owners in the subdivision has unrestricted private access to the river across other property using Killkelly Road. Killkelly Road was shown on the amended Subdivision Map as a dedicated public road. Property owners who believe the are victims of a slander of title should consult an experienced Sacramento and Yolo real estate attorney to see what their options are. In a recent decision, a defendant (the slanderer) was surprised that the plaintiff had no pecuniary loss other than the attorney fee involved in the lawsuit, and that was enough to make their case.

The other property, which Killkelly Road crossed, was sold, and the new owner planned a new subdivision. They were unaware of the neighbor’s right to use the road. One day the new owner saw someone in a truck on the road, who told him that all the owners in the subdivision had the right to use it. Panic ensued.

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It is a general rule of California real estate law that a forged deed is “void,” not merely voidable. Therefore it cannot convey title, even to a good faith purchaser. A good faith purchaser is one who has no knowledge or suspicion of a problem, and pays reasonable value for what they bought. This applies to a buyer at a foreclosure sale. In such a case the buyer, through no fault of their own, ends up with a legal problem and losing money, a good reason to consult an experienced Sacramento real estate attorney. In a recent decision out of Fresno, the buyer at a foreclosure sale not only lost out, but made their situation worse.

I2nd deed of trust foreclosure.JPGn La Jolla Group II v. Bruce (5th Dist. F061829; 211 CalApp 4th 461), the Baquiran’s owned their home for 16 years. In 2003 a notice of default & note of trustee’s sale were recorded for default on a second deed of trust secured by the residence. However, the Baquirans had no knowledge of a second deed of trust. The foreclosure sale occurred, and La Jolla Group bought the property at the trustee’s sale.

The Baquirans figured out that the second deed of trust was a forgery, and filed suit to quiet title to get the property back. They recorded a notice of action, or Lis Pendens, to provide notice of the suit so that any subsequent buyer of the property is subject to the results of the suit. It turns out that they refinanced in 1997 with broker Williams. Williams got them to sign some documents, which he later revised using whiteout and changing information provided on the document. He brokered some hard money loans, and revised the document so that it appeared to be a deed of trust to one of his hard money lenders. It was this lender who foreclosed.

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