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The average length of unemployment is now nine months, according to the Treasury Department, but Federal foreclosure help for the unemployed only lasts for three months. The Treasury Department was given $46 billion to spend on keeping homeowners in their houses; to date, the agency. Big Deal.

Meanwhile, the Keep Your Home California program, using $2 Billion in Federal Money, has enlisted lenders servicing about 80% of California Residential Mortgages. The California program requires the participation of lenders, and for the unemployed, will provide mortgage payments of up to $3,000 per month for up to six months. If you are looking to participate in the program, go HERE.

The program is run by the California Housing Finance Agency, created as the state’s affordable housing bank to make low interest loans for low and moderate income Californians.

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The California legislature last year passed senate bill 931, which became Code of Civil Procedure section 580e, effective January 2011. It provides that when a residential lender in the first position (i.e., the deed of trust recorded first in time) approves in writing a short sale, the lender cannot later seek payment for the unpaid loan balance. A short sale is one in which the lender agrees to accept less then the balance due to release the property from the deed of trust by recording a reconveyance of the deed of trust.

The purpose of this was to solve the problem of ambiguous short sale agreements in which the unsuspecting former homeowner could find themselves subject to the lenders efforts to collect the balance. Presumably the new law has not had much impact on the pace of short sales, as the savvy lender, and homeowner advised by an experienced real estate attorney, know that if the owner walks away from the property and the lender holds a trustee’s sale (foreclosure by the power of sale), the lender could not get a deficiency judgment, so in agreeing to the short sale the lender avoids the time and expense of foreclosure.

1150487_property_for_sale_3.jpgNew proposed legislation, SB 458, proposes to do the same thing for ALL loans secured by a deed of trust against the property- first, second, and whatever. Thus, the home equity lender will only approve a short sale if it is willing to write it all off, except the $3-4,000 that the first lender may allow it to receive. Especially galling is the following language, added in the May 16, 2011 amendment:

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The California Civil Code has an extensive pre-lawsuit set of procedures for a homeowner to follow to have their homebuilder make repairs. The builder can opt-out and provide his own pre-suit procedures; a recent court decision shows how risky that can be.

First the procedures- starting at Civil Code section 910, they provide that the owner must make a written claim of violation of construction standards on the builder, who has 30 days to respond. The builder can inspect the property, and offer in writing to repair. The owner can accept or not accept the offer to repair, and demand a mediation. If this process is not successful, or if the builder does not respond within the time limits in the code, the homeowner may file a lawsuit. The goal is to provide a non adversarial framework to resolve the problems before people get too emotionally entrenched in the dispute, so it can only be resolved by a judge.

1338556_construction_4.jpgIn Anders v Meritage Homes, the Stanislaus County plaintiffs sued the builder for construction defects. In the sales contract the builder had taken advantage of a provision in the civil code section 914 that allows them to opt-out of the statutory procedure, and use their own selected procedure. At the time of sale, this election is binding on the builder. However, the court found that the builder’s own procedures were unenforceable- they could not require the owners to follow them. So, the builder said, we must then use the statutory procedure. Looks like the builder wanted to avoid court. It was not clear from the opinion why the builder’s procedures were unenforceable, but to this real estate attorney it looks like the builder created a procedure to fit its customer service program, rather that allow their program to fit into the statutory procedure.

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When a lessee or tenant fails to pay rent, California Code of Civil Procedure section 1161 requires that the landlord must provide the tenant with a three-day notice to pay rent or quit before bring an unlawful detainer. Commercial leases sometime provide for a different number of days, but the “pay rent or quit” notice is routinely served. If the tenant does not pay by the end of the final day, the landlord may immediately file an unlawful detainer.

The three day notice does not have to served by a registered process server. These process servers are registered with the county clerk / recorder under Business & Professions section 22350. As of 2005, on registration process servers are required to be fingerprinted so that the county can run a background check.

A recent California unlawful detainer decision concerned a lease in Beverly Hills. The notice was served by a registered process server. The lessees, in their verified answer, denied they were served with the notice. At trial, the process server did not appear. The Lessor attempted to introduce into evidence the proof of service, but the trial court refused to allow it, ruling that it was hearsay. Apparently the lessees did not testify that they did not receive the notice; they relied on the lack of proof that it had been served at all.

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An illusory contract, or illusory promise, is one where the person making the promise has a free pass not to perform. For example, if the duty of a party to performed is subject to his own approval, without conditions, then there is no legal detriment, and no contract at all. If you promise to sell me your apples at 20 cents each, and I promise to buy as many as I decide to order, we do not have a contract. If my promised is conditioned on the apples not having worms, we have a deal.

In a recent California commercial lease decision, the tenant argued that the rental agreement was illusory. Thrifty-Payless Inc. leased space in an undeveloped shopping center to operate a drug store. The Landlord was to spend lots of money up-front to develop the site and obtain numerous government approvals first, and then Tenant’s obligations would began. The lease contained 2 relevant provisions- 1, that the Landlord could terminate if, acting with due diligence (a requirement- not illusory) it could not obtain the permits. And 2, Either the Landlord or Tenant could terminate if the property was not ready by a specified date.

1342027_cranes.jpgDuring the process the Landlord proposed what it refers to as a “lease amendment” and what Rite Aid refers to as a “campaign of deception and threats” to increase the rent. The Landlord said that construction costs had increased, and referred to a “2-way termination right” if the lease did not begin by the deadline. The tenant was not interested. From the tenant’s perspective the Landlord misrepresented that it could not currently complete construction by the deadline, including “alter[ing]” construction schedules. Meanwhile the landlord continued to represent to other potential tenants that the property would be open by the deadline. The Landlord terminated under provision 2. The lawsuit commenced.

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A spite fence is any fence or barrier intended to annoy the neighbor, and serves no purpose to the builder. In California they are governed by Civil Code Section 841.4. The most famous spite fence on California real estate was Charles Crocker’s 40 footer on Nob Hill in 1879.

The statute includes any “fence or structure…;” does that include trees or vegetation? In the California case of Wilson v. Handley the court looked at the purpose of the law ,which was to prevent what would otherwise be a lawful practice of building or maintaining an unnecessarily high barrier on their property line. It concluded that a row of trees planted on or near the boundary line between adjoining parcels of land can be a “fence or other structure in the nature of a fence.” Other decisions have found sheds or other building to fit the requirements.

In the recent California decision of Vanderpol v. Starr the jury intended to rule for the plaintiffs, but there was a problem with the special verdict forms. The Carlsbad, California defendants had tall trees that blocked the neighbors’ view of the ocean. The jury found that:

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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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A recent California decision miraculously vacated an arbitration award in a commercial lease dispute. The Columbus Club Inc. owned a banquet room, and leased to a commercial caterer, who did over $300,000 in tenant improvements. The Lessee intended to hold weddings at the location. At their first event, the police showed up and told the Tenant the could not hold functions beyond 12:30 at night due a local ordinance. The tenant also learned that they could not use the Landlord’s liquor license. Apparently they did not consult with an experienced real estate and leasing attorney in negotiating this lease.

The Lessee claimed that, during the negotiations, the Lessor knew about the restrictive laws but did not disclose them, and in fact made contrary representations about the operating hours. They sued the Club, and the individual (Rodela) who signed the lease on behalf of the club. After a trial date had been set they agreed to submit the case to binding arbitration.

The arbitrator, retired judge Hubbell, refused to allow the Club to select who would represent the corporation, allowing only Rodela to do so. The arbitrator also allowed the Lessee to present an expert who submitted a report that the Lessee’s lost profits were over $1 million, though the Lessee failed to provide that report o the Club as part of the pre-arbitration exhibit exchange. I guess the fact that the Club was surprised by this million dollar claim, and without disclosure was unprepared to counter it, did not bother this arbitrator. He ruled for the Lessee, with a total of $1.2 million in damages. The Court of Appeals vacated the decision, on the grounds that the arbitrator exceeded his powers, in Hoso Foods, Inc. V. Columbus Club, Inc.

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A recent California bankruptcy court decision ( In re: Eleazar Salazar) found a foreclosure invalid because of failure to record an assignment of the Deed of Trust. In the original Deed of trust (DOT) Accredited was the lender, Chicago Title was the trustee, and MERS was the nominal beneficiary. The DOT stated that MERS only held legal title to the interests granted by the borrower.

After the borrower defaulted, MERS signed a substitution of trustee and had no apparent role in the trustee’s sale. The sale was apparently run by Litton Loan Servicing and Quality Loan Service Corp. The Trustee’s Deed Upon Sale identified US bank as the “foreclosing beneficiary”, not MERS. The recital in the trustee’s deed is presumed to be true. While MERS was the beneficiary at the inception of the loan, it was not at time of foreclosure. In addition, no assignment of Accredited’s interest to US Bank was recorded. Facts like these make experienced real estate attorneys sit up and take notice.

The court noted that under California Civil Code section 2932.5, the assignment to US Bank had to be recorded prior to sale. First, US Bank had to be entitled to payment of the secured debt to foreclose, and secondly, the public record must show US Bank’s status as foreclosing beneficiary before the sale occurs.

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The California Board of Equalization (“BOE”) is responsible for collection of sales and use taxes. When you buy a product in California and are charged sales tax, the seller is required to file a return, and pay the tax, to the BOE. Sales taxes are imposed by the state, as well as local government, on personal property purchased in California. Use taxes are imposed on personal property bought out-of state, and then brought into California for use.

In most instances, the BOE considers a construction contractor to be a consumer of “materials” which they furnish and install in their construction projects. Such items as lumber, nails, and concrete become part of the construction project itself. They lose their identity and become an integral part of the completed structure. The contractor, as consumer, pays sales tax on these items.

However, the contractor is considered a retailer of “fixtures” which they supply to the job and install. Fixtures is defined by the BOE as items which are accessory to a building or other structure and do not lose their identity as accessories when installed. Such items as lighting and plumbing fixtures, and custom fabricated seating. As retailer, the contractor must charge his customer a tax measured by the retail selling price which, in the case of a lump sum contract, is the cost price of the fixture to the contractor. A fixture has a specific meaning in real property law; however, the meaning of the term for sales tax purposes is separate and governed by state regulation.

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