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Real Estate Purchase Contracts encountered in California are often detailed and explicit as to the terms of the deal – parties, price, escrow, when closing is to occur, time for inspections, etc. While some terms are subject to varied interpretation, rarely do Sacramento real estate attorneys encounter contracts with glaring omissions. But when they do, the question arises, is the contract enforceable? In a 2008 Supreme Court decision, the court clarified that the only elements necessary for enforceability are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred. Everything else can be provided by the court based on what is usual and customary.

sacramento real estate contract attorneyIn Sunil Patel v. Morris Liebermensch, Patel was a tenant in a building owned by Liebermensch. Patel held a lease option – he had the right to buy the property under specified terms. The option purchase terms were as follows:

“Through the end of the year 2003, the selling price is $290,000. The selling price increases by 3% through the end of the year 2004 and cancels with expiration of your occupancy. Should this option to buy be exercised, $1,200.00 shall be refunded to you.”

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When a lender holds multiple deeds of trust on the same California Real Estate, they may be forced to make a decision. If the borrower defaults on one of the notes, the lender has all the remedies as to that loan – he can conduct a judicial foreclosure, or hold a nonjudicial trustee’s sale and foreclosed under the power of sale. What concerns the lender and their real estate attorney is, once they foreclose, what happens to the other loan? What can they do to enforce it? If they had foreclosed the first, the second was wiped out. Are they a foreclosed junior lienholder, who can then sue for the debt? In one decision the senior and junior creditors were the same, and the court found that once they foreclosed on the first, they were out of luck on the second.

Sacramento antideficiency attorneyIn Simon v. Superior Court, the bank loaned $1.5 million in exchange for two notes, each secured by separate deeds of trust on the same property in Santa Clara County. The bank foreclosed by trustee’s sale on the senior deed of trust, then sued the borrower on the 2nd note and deed of trust.

the court concluded that, where a creditor makes two successive loans secured by separate deeds of trust on the same real property and forecloses under its senior deed of trust’s power of sale, thereby eliminating the security for its junior deed of trust, section 580d of the Code of Civil Procedure bars recovery of any “deficiency” balance due on the obligation the junior deed of trust secured.

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A title defect in California real estate transactions usually results in unsalable property – i.e., the property is unmarketable. But not all property with problems of marketability have a cloud on title. There just might not be a market for it – hazardous waste dump, steep unstable slopes, zoning restrictions, etc. Sacramento real estate attorneys and property owners are occasionally faced with the question – is the problem with the marketability of the title, or of the property? The reason this is important is thst it determines whether title insurance will provide coverage. In a decision from Santa Clara County, the buyer was disappointed that it was his property, and not his title, that was unmarketable.

Sacramento title insurance lawyerIn Dollinger DeAnza Associates v. Chicago Title Ins. Co., Dollinger bought 7 parcels of adjoining property, with a plan to sell parcel number 7. He discovered that the City had recorded a Notice of Merger which merged the properties together, prohibiting the sale of number 7 without going through the Subdivision Map process. He sued his title company, claiming that this was a defect of title making the property unmarketable. (It turns out that the City’s recorded Notice was improperly indexed, but that is not what the decision focused on.)

Title insurance (relevant code provision is set out at end of article), unlike other types of insurance, does not insure against future events. It insures against losses resulting from differences between the actual title and the record title as of the date title is insured. The policy does not guarantee the state of the title, but rather indemnifies the insured for losses incurred as a result of defects in or encumbrances on the title.

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A Quiet Title action is a lawsuit which a person files to establish their title against adverse claims. The plaintiff’s interest in the land can be the title to the property, an easement, a license, a lease, or title by adverse possession. Sacramento real estate attorneys often see quiet title used in situations where there is a dispute as to title and ownership in real estate. However, there is a general rule is that the holder of equitable title cannot maintain a quiet title action against the holder of legal title. This begs the question – what is the difference between legal title and equitable title?

Sacramento legal title attorneyLegal Title

A shorthand way to consider it is that legal title means that you are on the deed. The term ‘legal title’ has been defined as ‘one cognizable or enforceable in a court of law, or one which is complete and perfect so far as regards the apparent right of ownership and possession, but which carries no beneficial interest in the property, another person being equitably entitled thereto; in either case, the antithesis of “equitable title.” ’ ” (Solomon v. Walton, 109 Cal.App.2d 381)

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The plan to build tunnels to ship water from the Sacramento-San Joaquin delta is underway. The Department of Water Resources needed to conduct environmental and geological tests by boring test holes on over 150 privately owned properties. Normally, the government is not allowed to take actions on privately owned real estate without a standard condemnation proceeding, but the California Eminent Domain law provides a procedure for precondemnation entry and testing. Owners faced with such a situation may want to consult a real estate attorney to ensure that they are protected. In a recent test of the law, the Court of Appeal ruled that the state could not conduct geologic studies – boring deep test holes – without conducting a classic condemnation action. The Supreme Court disagreed.

Sacramento condemnation attorneyNO NEED FOR A CLASSIC CONDEMNATION ACTION

The court of appeal ruled against the state in finding that this procedure was not good enough and that a classic condemnation was required.

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A lis pendens, or Notice of Pending Action, is a document which may be recorded which provides notice of a lawsuit that has to do with title to real property. It cannot properly be recorded until after the lawsuit has been filed. The owner of the property can file a motion to clear their title by having the lis pendens expunged, i.e. declared invalid by the court, if the lawsuit does not concern title to real property. Sacramento Real Estate attorneys often hear from parties who are anxious to record a lis pendens, but really do not have a property title claim. This is so important that if the party is not represented by an attorney but are representing themselves, they must get court approval to record a lis pendens. If a lis pendens is expunged, the property owner may also receive an award of their attorney fees and costs. But what about the harm to the owner while the property was tied up with the lis pendens? Slander of title is a false statement about real estate which harms the property’s value or salability, causing a direct pecuniary loss. As the court of appeal points out, a wrongful lis pendens may still not be found to be a slander of title.

Sacramento slander of title attorneyIn Alpha and Omega Development, LP v. Whillock Contracting, Inc., Whillock was a builder who brought an unsuccessful action to foreclose a mechanics lien. Part of that action included a lis pendens. Alpha had the lis pendens expunged. Alpha defaulted on the loan, and the property was foreclosed. Alpha then brought a slander of title action against the defendant, claiming that defendant without justification and without privilege caused to be recorded a Lis Pendens against the real property; that the recording of the lis pendens “directly impaired the vendibility and value of the [subject real property] on the open market while the real estate market in San Diego was rapidly declining”; and that as a result of the lis pendens, Alpha was damaged.

The elements of a cause of action for slander of title are

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California real estate purchase and sale contracts often incur in conjunction with a written lease, such as in the case of a lease- option or both a lease and a contract entered together that reference each other. The lease-option includes a purchase contract that with instructions in the option as to how to exercise the option and make the purchase contract binding. The combo lease-contract will (at least should) be clear as to what payments are exclusively applied to the rental, and what rights the owner has to evict the tenant-purchaser. Sacramento area real estate attorneys frequently prepare these types of agreements usually in cases where the buyer-tenant cannot immediately obtain financing to buy the property outright. In a recent case with perhaps a too-complicated purchase contract, the defaulting buyer was disappointed to find out that it was really a tenant. Maybe it was complicated in order to disguise the fact from the buyer, but the court provided a guide to create such a deal while ensuring the seller can evict the buyer.

Sacramento commercial lease attorneyIn Jon Taylor v. Nu Digital Marketing Inc., Taylor was the owner and seller, Bu was the buyer. They entered a document entitled “Contract of Sale Residential Property.” It required the buyer to consummate the sale within 60 months by payment of $1.25 million. It also required (full details set out at the end of this article) that the buyer make “Probationary Installment” payments of $2,300 per month for 60 months, which covered the seller’s adjustable rate mortgage, and would increase if the mortgage adjusted. None of the probationary installment was applied to the purchase price. It also required a down payment (“additional Probationary Installment” of $500 per month. Lastly, it gave buyer immediate possession of the property and provided that if the buyer defaulted on probationary payments, the seller could serve a five-day notice.

Auburn commercial lease attorneyThe buyer defaulted, and the seller brought an unlawful detainer. The buyer claimed that it could not be evicted, because this was a contract, not a lease. The court of appeal disagreed.

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In California, equitable indemnity applies when there are two wrongdoers (‘tortfeasors’) who are both jointly and severally liable for harm to someone. They are entitled to have their liability split between them based on their comparable fault. Joint and several liability can apply to acts that are concurrent or successive or are joint or several, as long as they create a detriment caused by several actors. Equitable indemnity often arises when a person who has been harmed sues one, or both, of the tortfeasors. The tortfeasors then file a cross-complaint for equitable indemnity. Or, if only one tortfeasor is named in the lawsuit, that person brings in the second. In a prior post I discussed a case in which a real estate Buyer learned of an undisclosed easement, and sued both the seller & buyer brokers. The brokers cross-complained against each other for equitable indemnity. Ordinarily their joint liability would be apportioned at trial, but if one party settled out with the plaintiff there would be no apportionment without the cross-complaint. In a more recent decision, a defendant cross-complained for equitable indemnity in a breach of contract case. They were disappointed that the court would not stretch the doctrine that far.

Sacramento equitable indemnity attorney State Ready Mix, Inc. v. Moffatt & Nickol involved construction of marine pier. Bellingham hired Major as general contractor, and Moffatt to prepare plans. Major hired State Ready Mix to plan the concrete. Major asked Moffett to review the State concrete plan, which was not part of Moffett’s job, but Moffett agreed and did so. On the day of the concrete pour, State had equipment failure and had to add a chemical into the mix manually in a non-precise way (can you picture the laborer dumping stuff into the truck, say about 2 and a half bags of this and a third of a sack of that?). The concrete was bad, and had to be torn out and the job started over. State was sued for the cost of the concrete, and State cross-complained against Moffett for equitable indemnity.

The problem for State was that it could not allege that Moffett committed a tort. No facts were alleged that Moffett owed State a duty of care. Nor can State say that Moffett negligently performed its contract with Bellingham – review of the concrete mix was not within the scope of that contract.

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Indemnity provisions usually refer to third-party claims. This means a claim by a person other than the two parties to the indemnity. If I sell you a box of widgets and indemnify you for all claims resulting from the use of the widgets, the idea is that if a third person is injured by the widget and sues you, I am on the hook. But these provisions are commonly more expansive, and include first-party claims. Thus, if you get injured using the widget, I am on the hook. Environmental indemnity agreements are typically the most expansive types of provisions you can find and seem to have included all the word someone could think of. One concerned about what an environmental indemnity provision covers should consult with a real estate attorney. In a recent decision, I suspect that the defendant knew that the provision covered first-party claims, but still make the argument and was shown to be wrong. There was a lot of money at stake. A second case discussed below does not include first party claims.

Sacramento indemnity attorneyIn HOT RODS, LLC v. NORTHROP GRUMMAN SYSTEMS CORPORATION, Hot Rods bought contaminated property from Northrop. The purchase contract had an indemnity provision to protect Hot Rods from environmental actions and remediation. Over time Hot Rods incurred remediation expenses, and Northrop reimbursed them. Eventually, Northrop called it quits and stopped reimbursing Hot Rods. Hot Rods sued, claiming that a tenant had delayed entering a lease because of remediation issues, Hot Rods claimed lost rent; Northrop denied being liable for this, claiming that the indemnity provision only covers third-party claims. Here, where Hot Rod was making its own claim for damages, this was a first party claim.

Covers First-Party Claims

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The City of Sacramento recently passed ordinances that allow and regulate “short-term rentals”, which are of the type advertised non-Airbnb, VRBO, and similar sites. This is welcome news, as this type of rental has been in a state of limbo under the law of most communities. Usually, it fits in with motels or bed and breakfasts and is governed by rules for those types of operations. Now, in Sacramento, as in San Francisco and other communities throughout California, they have their own classification and regulations. Owners who are interested in renting their properties on this basis should consult with a Sacramento real estate attorney to be sure they understand the ordinances and have an appropriate short-term rental agreement.

sacramento short term rental attorneyShort-Term Rental

Under the new ordinance, A short-term rental@ means a bed and breakfast inn that is limited as follows:

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