Articles Posted in real estate law

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In an action for “specific performance” a party to a contract seeks the court order the other party to perform as required by the contract. One requirement for such an order is that the remedy at law is inadequate – that is, the plaintiff cannot be adequately compensated by the payment of money. In the case of contracts for the sale of real property it is presumed that property is unique and breach cannot be adequately compensated for with money. (Civil Code section 3387.) The problem Sacramento real estate attorneys usually see is a dispute as to the buyer’s performance – did the buyer perform every trivial step such that the seller was forced to convey the property. In a recent decision a buyer of a commercial property spent over $600,000 on the purchase and seeking entitlements, but did not take the last required step of paying $3 million dollars within 30 days of getting permits, and he lost the property.

Sacramento-specific-performance-attorneyIn Tierney v Javaid, Tierney wanted to buy a gas station property at 376 Castro Street in San Francisco, and build condominiums. The parties entered a contract in 2004. The entitlement process was complicated and ended up taking Tierney eight years—until 2012—to secure the conditional use permit authorizing him to demolish the gas station and construct the residential units. At that point, however, the owner refused to sell, and the lawsuit followed.

The Purchase and Sale Agreement (PSA)

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When someone uses real property which they do not own, they are a trespasser, but if enough time passes that trespass can become an enforceable right. There are several flavors of rights- equitable easement, prescriptive easement, and adverse possession that are considered by the courts and real estate attorneys in analyzing these cases. In a recent decision the negligent trespasser struck out on all three.

sacramento-equitable-easement-lawyerIn Eric Hansen v Sandridge Partners, LP, the Hansens were farmers. They planted their own property plus a disputed area of ten acres. They learned that the neighbors were in talks to sell their property, and Hansen remembered that there was a discrepancy in the line they had been farming, and there was “a lot line adjustment issue.” He spoke with the neighbor about it and they discussed the issue, but there was no conclusion. The Hansens went ahead and put in irrigation on the disputed property, and then planted pistachio trees. The sale closed and the parties still could not resolve anything, so Hansen sued to quiet title to a prescriptive easement. The trial court denied this claim, but did find that the Hansens had established a right to an equitable easement. The court of appeals said no, the Hansens get nothing, no easement, no adverse possession. But I’ll bet that they would have gotten a prescriptive easement if their complaint was drafted correctly.

Equitable Easement

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The award of attorney fees in California lawsuits is governed by the “American Rule,” in which ordinarily each party pays their own fees. However, parties may enter a contract that has an attorney fee provision which allocates attorney fees, usually to the prevailing party in a lawsuit. A recent Northern California decision involved such provisions in a complicated real estate transaction. The Seller & Buyer of property (Sundower Towers in Reno) also entered a “repurchase agreement,” which required the Seller to later buy the property back. Later, they entered a third agreement – an option, in which the Buyer granted the Seller the right to buy the property back. A lawsuit followed based on the Repurchase Agreement, but the court found this agreement unenforceable because it created an illegal subdivision. However, the defendant raised the Option agreement as an affirmative defense and sought attorney fees under the Option. In a lengthy opinion, the Supreme Court found that raising the affirmative defense did not trigger the option attorney fees provision, but it still found a way to award attorney fees.

Sacramento-option-attorney-2In Mountain Aire Enterprises, LLC v. Sundowner Towers, LLC, the option agreement contained the following attorney fees provision:

“Litigation Costs. If any legal action or any other proceeding, including arbitration or an action for declaratory relief[,] is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees, expert fees and other costs incurred in that action or proceeding, in addition to any other relief to which the prevailing party may be entitled.” (Italics added.)

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California title insurance policies essentially indemnify the insured party against loss due to (a) Liens or encumbrances on, or defects in the title to said property; (b) Invalidity or unenforceability of any liens or encumbrances thereon; or (c) Incorrectness of searches relating to the title to real or personal property. The usual scenario Sacramento real estate attorneys see is where the insurance company has liability is if it misses a lien or title defect which later creates a problem. The insured property owner or lender then makes a claim and efforts are made to resolve the problem. But what happens when the title is transferred before the problem is discovered? the holder of insurance may get sued, and then they make a claim against their insurance. In a recent case in Fresno County buyer at a foreclosure was disappointed to learn that the foreclosing lender’s insurance would not help. Due to the policy language and the nature of a trustee’s sale, the insurance was out of reach, and the new owner had to pay off the lien.

Sacramento-title-insurance-attorneyIn Hovannisian v First American Title Insurance Company, Wells Fargo held a loan secured by a “first” deed of trust. First American provided a lender’s title insurance policy. The borrower defaulted and Wells Fargo foreclosed. The Hovanissians, plaintiffs here, bought the property at the trustee’s sale. They subsequently discovered that there had been a deed of trust recorded prior to Wells Fargo’s which was still a lien against the property. Apparently, this had not been discovered by the title company. Wells Fargo was thus unaware of it.

The plaintiffs made a demand on the title company which was denied – they were never an insured under the policy. Wells Fargo then made a demand on the title company, likewise denied, because Wells Fargo no longer owned the property. Wells Fargo assigned its claims against the title company to the plaintiffs. Plaintiffs then filed this action against First American.

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Lease Options are commonly seen in California. The agreement gives the tenant an irrevocable right to buy the property under certain conditions, and usually have restrictions based on tenant defaults. Sacramento real estate attorneys most often see issues arise regarding how the option is exercised, tender of the option price, and what the purchase price will be. Easiest is when the option specifies the purchase price or provides an easy formula to determine it. More contentious is setting the price at ‘fair market value,’ because buyers and sellers seldom agree, and an expensive process of multiple appraisals may be required, along with court intervention. Such was the situation in a recent decision concerning a commercial property.

Sacramento-lease-option-attorneyIn Petrolink, Inc. v Lantel Enterprises, The parties had entered a lease concerning a gas station at Cajon Junction in San Bernardino County. The original lease was with Tosco, so it probably involved the 76 station now visible on Google maps. The Lease gave the tenant the right (or option) to buy the property at “fair market value.” The provision stated:

“21. RIGHT TO PURCHASE. As long as the Tenant is not in default of this Agreement, Tenant will have an option to purchase the property at any time after the first Ten (10) years of the lease term at a price equal to the fair market value of the property based on an appraisal.”

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It is common in a real estate transaction to have more than one loan providing the purchase money. In the residential situation, it usually involves the first mortgage and a second home equity line of credit (HELOC) for a lesser amount. The HELOC is a usually required if the buyer cannot provide a large enough down payment. The 1st mortgage deed of trust is usually recorded first in order and indexed that way. The lender wants this loan to have priority over the 2nd deed of trust. Multiple deeds of trust are also involved in some commercial transactions. If the first forecloses, the second will be wiped out, losing its security. Real estate attorneys sometimes see the holder of the second rushing to foreclose first so that it is not a “sold out junior.” In a recent decision in Contra Costa County, the deeds of trust were recorded in the opposite order – the HELOC first – and the HELOC foreclosed. The first lender believed it was entitled to the surplus from the trustee’s sale, but the court disagreed.

Sacramento-deed-of-trust-attorney-2In MTC Financial, Inc. v. Nationstar Mortgage, borrower Sparrow obtained a mortgage loan plus a $15,000 HELOC (home equity line of credit) 2nd on his property in Hercules. Both loans were from the same lender. Both deeds of trust were recorded at the same time, but the HELOC was indexed first in the recorder’s records. The mortgage was indexed as the very next document. Sparrow defaulted on the smaller HELOC, and the 2nd was foreclosed, with a surplus remaining of over $73,000. The trial court decided that the senior lienholder was not entitled to any surplus – as it was senior, the foreclosure sale buyer obtained the property subject to the senior loan. The lender appealed, arguing that, because the senior deed of trust was recorded 2nd, it was wiped out in the trustee’s sale.

The court determined that Nationstar, as a senior lienholder, was not entitled to any of the surplus proceeds of the trustee sale.

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People buy real estate in California through nominal or “straw” buyers for many reasons. Sometimes to hide assets, or to launder money. Maybe it’s for legitimate reasons. Nonetheless, California real estate attorneys usually encounter these situations where the agreement between the parties is oral, and there is no documentation. But a recent decision out of Malibu concerned a written agreement between the parties. That was not enough, and the plaintiff sought to rescind the contract. In a rescission of a real estate contract the party who was harmed is required to offer to return everything of value they received under the agreement. A party seeking rescission wants to undo the transaction in its entirety, restoring both parties to the status quo ante. If successful they are entitled to restitution, i.e., to recovery of the consideration that he or she gave and any other compensation necessary to make him or her whole. A claim for damages is not inconsistent with rescission – the aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction and any consequential damages to which he is entitled. In this decision, the plaintiff was not entitled to rescission, but still received damages.

sacramento-real-estate-rescission-attorneyIn Li Guan v. Yongmei Hu, Hu was aromatically involved with Chen. Chen got his buddy, plaintiff Guan, to loan $2.55 million to Hu so that she could buy a house in Malibu. Hu was entitled to receive a percentage of the property’s fair market value. Specifically, Hu would “get 20%” if the house was “sold from January 1, 2012,” and her percentage would increase by 20 percent each year the house was not sold until January 1, 2016. Thereafter, Hu would receive “100%” of the house “as a gift from Mr. Guan.”

In July 2012, Chen emailed Hu telling her that “ ‘it is over! Don’t you re[a]lize it with normal sense?! S[ell] the house as instructed by [Guan] so that you could stil[l] be benefited from the deal.’ ”

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When a loan is secured by real property in California, a deed of trust is recorded, acting as a lien on the property. This reduces the equity in the property. If the owner defaults on the loan, the beneficiary (lender) may then conduct a trustee’s sale. But what if the beneficiary does not exist? A scam to hide equity from creditors would be to record a fictitious deed of trust so that a judgment would not attach to the property. If the creditor discovers the scam, they could take legal action to have the deed of trust determined to be void. However, in a recent decision, the owner of the property recorded a false deed of trust shortly after acquiring the property. The creditors did not discover the fraud until years later, after the statute of limitations for Fraudulent Transfer had expired. The scam worked.

Sacramento-fraudulent-transfer-lawyerIn PGA West Residential Association Inc. v. Hulven International Inc., defendant Mork bought a condo in La Quinta for cash. It was valued between $5 & $6 hundred thousand dollars. He then recorded a deed of trust against the property naming Hulven Inc. as the beneficiary. There was no such corporation. The deed of trust purported to secure a Note for $450,000, but Mork never made any payments.

Nine months after it was named as the beneficiary on the deed of trust, Hulven was incorporated in Montana. Just over two years later, Hulven was involuntarily dissolved. At all times, Mork was Hulven’s sole officer, director, and shareholder.

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A settlement agreement resulting in entry of a judgment results in a ‘stipulated’ or ‘consent’ judgment, which is not appealable. However, settlement agreements often include provisions for future enforcement – such as penalties, fines, and injunctive relief. But once a judgment is entered the trial court loses jurisdiction to consider the matter further. One recent decision involved a settlement that misfired on all procedural cylinders – the trial court had no jurisdiction, and the consent judgment (and the trial court’s order after it) could not be appealed because consent judgments are not appealable. I discuss the details of what went wrong, and suggest some possible solutions.

Sacramento-settlement-attorneyIn Joseph Howeth v. Tina Coffelt, the parties were neighbors in adjoining beachfront houses in Oceanside. They shared a common driveway on their property line which provided the only vehicle access to their two properties. They had reciprocal easements providing equal rights. Nonetheless, they could not get along, and argued over parking and access. Eventually this suit was filed by one to enjoin the other from parking. At the mandatory settlement conference they entered a settlement agreement (full language at the end of this post) agreeing to a specified parking regime. They also provided an enforcement procedure. For violation of the agreement there was a $500 fine, enforceable in contempt proceeding. Lastly, the settlement provided that it would be entered as a stipulated judgment.

Of course the problems did not end, and 6 months later one party filed a motion for “entry of interim money judgment.” The trial court denied the motion because it did not have jurisdiction – there had been a final judgment. The party was required to file a new breach of contract action to enforce the terms of the settlement agreement. The appellate court then said the trial court ruling was not appealable.

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In California real estate sales, a typical claim by disgruntled buyers is that the seller failed to disclose some problem with the property that the seller was aware of. The buyer’s cry is that, if the facts had been disclosed, they would have not bought the property, or would have paid less for it. Claims for fraud, intentional or negligent representation, and breach of contract arise. Sometimes it is clear that the seller knew about the problems. Often, however, there is no direct evidence of such knowledge, and Sacramento real estate attorneys are faced with the challenge of creating an inference that the seller must have known, or should have known about the issue. Complications arise when the defects are such that they are only obvious to an engineer – the buyer hopes to impute the specialist knowledge to the owner. In a recent decision from a sale in Healdsburg, the buyers were disappointed when the court ruled that the seller’s experts did not act as agents of the seller and thus their knowledge was not imputed to the seller, and besides, that they should have discovered the problem was not enough.

failure-to-disclose-lawyerIn RSB Vinyards LLC v. Orsi, the defendants hired an architect to design a remodel of a home and applied for a commercial use permit, which was issued for use as a winery and tasting room. Once the use permit issued, the defendants submitted the architect’s plans to the County of Sonoma, which approved the plans. Defendants, none of whom is a construction professional or possesses such skills, relied on their architect and county officials to ensure the plans conformed to applicable building codes, and they had no reason to believe the plans were non-conforming. The construction work was performed by a licensed contractor, in consultation with a structural engineering firm.

failure-to-disclose-attorneyThe defendants decided they did not want to be in the winery business and listed the property. The marketing materials stated that the property had a “vineyard-vested winery permit” and an “active tasting room” and attached a table describing the various permits issued for the property.