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Homeowners in Discovery Bay, California, sought in 2007 to refinance their mortgage through GMAC. They provided the loan officer will accurate income information. It turned out, however, that the loan application prepared for them had a fabricated, inflated income. They were not given the application to review. They could not afford payments on the new loan, and lost the house through foreclosure. The homeowners sued GMAC and other defendants.

In the published opinion, the court dealt only with their claim of fraudulent misrepresentation. The homeowners’ attorney creatively argued that, in giving them the loan, GMAC falsely misrepresented that the homeowners could afford the loan based on their true income-the income information they provided to the loan officer. The homeowners claimed this told them that GMAC thought they could afford the loan.

The court said no; GMAC’s position that they qualified for the loan is not a representation that they could afford the loan. The lender’s efforts to determine the ability of the borrower to repay a loan is for the lender’s protection, not the borrower.

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In a recent case a husband and wife sold property to plaintiffs, who sued for misrepresentation. (There was no indication in the court’s opinion whether they had used a C.A.R. contract and initialed the arbitration provision.) Both parties attorneys and the judge signed a stipulation and order for arbitration and appointment of a private arbitrator. No clients signed the stipulation.

Plaintiffs won, and brought the standard petition in court for confirmation of the arbitration award. Meanwhile, the defendant husband “Valere” fired his attorney and was representing himself; the wife was still represented by the attorney. Valere opposed the petition, claiming that he had never agreed to arbitrate the matter.

The trial court confirmed the award, and Valere appealed. The court of appeal reversed the judgment.

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A developer-buyer entered an agreement with a landowner to buy 10 acres after buyer pursued county approval for subdivision. The contract contained a contingency that the buyer was not obligated to do anything and could cancel the contract at any time.

The buyer pursued the subdivision, spending money for engineering and permits, and obtained a tentative map. The seller changed his mind and refused to close, and argued that the agreement was an option and, since it was not supported by consideration, it was revocable. The California Supreme Court disagreed, finding it was both an option and supported by consideration.

The court found classic features of an option: 1st, the seller held open an offer to sell for three years; 2nd, the buyer was able to accept the offer by waiving contingencies, but was not obligated to do anything, even if all contingencies were satisfied. The court rebuked an argument that real estate contracts often have contingencies, such as loan or inspection, that allow one party to withdraw, noting that withdrawal is allowed only if the contingency fails. Here the buyer could withdraw anytime.

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Usury is the charging of interest for a loan in excess of the legal maximum. In California, the amount is set out in the state Constitution. Exemptions to the law are also described in the Constitution, as well as court decisions.

One the of court-established exceptions is for a joint venture. Where the relationship between the parties is a joint venture or partnership, the advance by the joint venturers is an investment and not a loan, and the profit or return earned by the investor is not subject to the statutory maximum limitations of the Usury Law.

In a recent decision, an experienced real estate investor and broker named Don found a commercial property in San Carlos that he wanted to buy. He contacted a hard money lender named Gary- one who specializes in providing money quickly and at high interest rates. He had worked with this lender many times before. They worked out a deal where they jointly took out a standard bank loan for $1.8 million, and the Gary contributed an additional $856,000 hard money, for which Don signed a promissory note at 12%, plus paying $14,000 in ‘points’. Don became a 90% owner of the property; Gary had 10%.

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Chang guaranteed three construction loans, totaling 4 million dollars, for another party. In the guarantees Chang waived the right to require the Bank to proceed first against the borrower, or foreclose against the borrower’s property. The other party defaulted, and the bank went after Chang first, filing a lawsuit and seeking a writ of attachment against HER personal property, that was not security for the loans.

The trial judge said no to the writ, claiming that C.C.P. Section 483.010 does not allow attachment on a claim secured by real property. The court of appeals said no, the writ can attach to Chang’s property.

The appellate judges pointed out that the guarantee is a separate and independent obligation from the principal debt (the underlying construction loans) Though the construction loans were secured by real property, the guaranties were not. Thus, the 483.010 prohibition does not apply, so long as the guarantor waives their right to require the bank to go first after the security for the original loans.

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California Escrow Co. in trouble -When escrow has closed and the seller then changes instructions for distribution of the money, escrow cannot always carry them out.

A million dollar property in Northridge was under contract for sale. The buyer’s side was handled by Peregrino, the buyer’s “attorney in fact.” The title company prepared the estimated HUD-1, showing disbursement of the funds.

The lender disbursed the loan proceeds to the title company, the liens were paid off, and the balance was to be distributed. The settlement agent certified that there were no payoffs not disclosed in the estimated HUD-1.

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A lender was foreclosing on a house in Southern California, and the owner was arranging financing to avoid foreclosure. They were down to the wire, and the owner’s broker was in contact with the foreclosure officer. The foreclosure sale had been postponed to August 30, but they needed more time. The foreclosure officer said the property ” won’t go to sale because I have the final say-so and as long as I know that you could close it the first week of August [sic], I’ll extend it.”

Of course, he didn’t extend it. The owner closed on the new loan, incurring the costs and debt of a new loan. But, unknown to them, the lender foreclosed, and a lawsuit ensued.

The court found that the lender’s statement did not establish a contract, because the owner suffered no detriment, and provided no consideration. All the owner did was agree to pay the debt, which the owner was obligated to do anyway. The court contrasted this with a case in which an owner, by agreement with the lender, found a new buyer for the property who paid off their loan. The court found that locating a new buyer was not something they were obligated to do, and thus this was sufficient consideration to support a contract. But merely paying off the loan one agreed to pay is not consideration.

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Someone bought a property in Berkeley, then discovered that there was an easement across it that no one told her about. She sued her broker and the seller’s broker for failing to disclose the easement.

The buyer’s broker brought a cross-complaint against the seller’s broker for “equitable indemnity.” Under California law, where there are two tortfeasors (wrongdoers) who are both liable for the plaintiff’s injuries, they are entitled to have the liability split between them based on comparable fault. This can be accomplished through the cross-complaint for equitable indemnity.

However, the trail court judge threw out the cross-complaint, claiming that, since both brokers were already in the lawsuit, their comparable fault would be apportioned anyway in the trial.

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California anti-deficiency laws provide in some cases that on foreclosure the buyer/borrower has no personal liability; only the property is at risk. The law primarily protects residential properties; but in some cases buyers of commercial property can be protected. What follows are five steps to determine how the anti-deficiency laws apply to your commercial or investment property. These are the most common issues that arise. For our purposes, reference to “foreclosure” includes exercise of the power of sale in the deed of trust.

Disclaimer: The content of this comment contains general information based on California law and is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You will require specific legal advice and should not rely on general information provided here. You should consult with an attorney to discuss the matter and for any specific legal advice.

1. Determine if the anti-deficiency laws apply in your case.

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In a recent case in San Francisco, the landlord served a three-day notice, but never filed an unlawful detainer. The parties entered a settlement agreement, and the Landlord was sued by the Tenant for fraud and other claims relating to the pre-settlement conduct. Seems that the landlord was attempting to transform the property into condominiums, and there were other complicating facts.

The Landlord then filed a motion to have the claims of the Tenant stricken under the Anti-SLAPP (“strategic lawsuit against public participation”) statute. This statute was enacted to prevent parties from filing a lawsuit to discourage others from exercising their free speech rights.

An anti-SLAPP motion requires showing that the challenged claims are based on “protected activity;” that is, for our purposes, activity in furtherance of the right of free speech before a judcial proceeding, or in connection with an issue under consideration by a judicial body. (Protected activity is broader than this, but this article concerns only court-related activity.)

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