Articles Posted in real estate law

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In California, a third party who acts in reliance on a quiet title judgment retains its property rights even if the judgment is later invalidated as void, as long as the third party qualifies as a bona fide purchaser for value. The third party must do so without knowledge of any defects in the judgment. But “knowledge” is a slippery term. Does it mean actual knowledge, or include “constructive” knowledge? is a legal concept that, in real estate, generally applies when the document must be recorded as prescribed by law. The buyer may not have seen it, but the law treats them as if they had. In a recent decision out of Inglewood, CA, the court decided that they must have neither actual notice or constructive notice. This decision is interesting because the buyer would have had to do some digging (and actually did obtain title insurance) to realize there was a defect.

Quiet-title-judgment-attorneyIn Tsasu LLC v. U.S. Bank Trust, N.A the court had a complicated series of facts.

– Celestine borrowed money from CIT, who assigned the deed of trust to US Bank. It was then assigned to DLJ.

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California law provides enhanced damages when someone harms a tree on another person’s property. The tree is owned by the owner of the real estate. There is a provision for doubling the damages incurred for harm caused to timber, trees, and underwood, and trebling it if the harm is intentional. (Civil Code section 3346.) A statue can double the damages for harm to a tree. (Civil Procedure section 733). However, both statutes specify enhanced damages for “trespass.” In a recent decision, a party decided to build a house, but roots from the neighbor’s tree was in the way of the foundation. So they cut the roots killing the tree. The tree owner was disappointed that this did not qualify for treble damages.

sacramento-neighbor-tree-attorneyIn Raymond Russell et al., v. Cornel Dorin Man et al., a ‘massive” Jeffrey Pine (85 feet tall, 40 inch d.b.h.) was located on the property line between the two parties in Big Bear Lake. The defendants built a house on their property, though according to the city’s development code they should not have been allowed to. Almost any house on the property, no matter how configured, would be too close to the tree’s “critical root zone.” Under the Big Bear Development Code, it was forbidden to dig in a tree’s “critical root zone.” This was defined as a circle around the tree with a radius of one foot for every inch of the tree’s diameter at standard height (four and a half feet above the ground, which used to be called “breast height”). Here, the tree’s diameter at standard height was 40 inches, so it’s critical root zone had a radius of 40 feet.

Defendants had hired a draftsman who prepared the building plans and then submitted them to the city. Those plans misrepresented the tree as being behind the proposed house, rather than to the side. Even according to the plans, however, the house was within the tree’s critical root zone. In fact, there was no way to build on the property without killing the tree. Nevertheless, the city inspected the site and issued a building permit.

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Quiet title actions establish claims for and against title to California real property. Quiet title has its own rules regarding t when the statute of limitations begins to run – courts look to the underlying theory of relief to determine the applicable period of limitations. Once that is determined, whether a statute of limitations bars an action to quiet title may turn on “whether the plaintiff is in undisturbed possession of the land.” But what exactly disturbs possession of land? A recent decision out of Lafayette CA determined if the posting and recording of a Notice of Trustee’s Sale disturbed the owners’ possession. Wells Fargo was not pleased with the result.

Sacramento-quiet-title-attorney-1In Huang v Wells Fargo Bank, Wells Fargo held two letters of credit (home equity loans) that had been paid off in a refinance. Wells Fargo never issued or recorded any reconveyances of these two deeds of trust. The owner defaulted, and the refinance lender foreclosed. The Huangs purchased the Property from the successor to the foreclosing lender in February 2009. They were issued a policy of title insurance from Fidelity National Title Company (Fidelity). The following month, Wells Fargo recorded a notice of default and election to sell the Property under the power of sale in the First Wells DOT.

On August 24, 2009, Wells Fargo recorded its notice of trustee’s sale. The Huangs received the notice when it was posted on the door of the Property that month. The Huangs contacted their title insurer Fidelity, who informed them that it was going to conduct an investigation and contacted Wells Fargo to resolve the issue. The trustee’s sale did not proceed as scheduled. In the months following, Fidelity sent the Huangs periodic updates to identify new points of contact and to state the investigation was ongoing, but they never received any communication from Fidelity telling them there was a resolution of the dispute with Wells Fargo. Between July 2010 and May 2014, the Huangs heard nothing further and assumed the matter had been resolved. In May 2014, nearly five years after the Huangs gave Fidelity the notice of trustee’s sale, they were told that Wells Fargo claimed it had two deeds of trust secured by the Property and was again threatening to foreclose. The Huangs filed suit against Wells Fargo to quiet title to the Property.

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A junior lienor is a lender who is not in first place on the property – there is a senior lien in front of them. This often occurs when an owner has paid down the senior and takes out an equity loan, or may be the result of a purchase. If the senior forecloses, the junior can pay the senior lien, or buy the property at foreclosure. The junior then stands in the place of the senior. Alternatively, the junior can allow the foreclosure to take place, in which case it becomes a sold-out junior – it has no security for the debt. The junior must pursue the borrower personally to get paid. If the senior’s foreclosure results in a sale with excess proceeds, they may be paid by order of priority. But what happens if the junior lienor holds a lien on less than the entirety of the property? That was the case in a recent decision in which the junior was secured by only 75% of the property. The court found that the junior was only entitled to 75% of the proceeds. The owner of the 25% got the remainder.

Sacramento-junior-lien-AttorneyIn Zieve, Brodnax & Steele, LLP v Dhindsa, a father had 75% interest, and his son the remaining 25% in property in Turlock. The senior lender held a lien against 100% of the property, and the juniors lien was only against the father’s 75% – the son’s interest was not included. The senior foreclosed and got paid, leaving a surplus of $160,000 available. The dispute was whether the 25% owner got any.

The junior lender wanted all the proceeds, so it relied on Civ. Code, § 2924k, subd. (a)(1)–(4), set out in full at end of post.) This provides that First, the costs of foreclosure are paid. Second, the foreclosing creditor’s secured obligations are paid. Third, junior lienors are paid in their order of priority (this is what the trial court relied on). Lastly, any remaining funds are given to the vested owner of record at the time of the foreclosure sale. In this case the trial court awarded the entire surplus to the junior creditor, but it was reversed on appeal.

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In California real estate Partition actions, Courts are able to award reasonable attorney fees “incurred or paid by a party for the common benefit.” CCP §874.040. This applies even in contested partition suits. It is all in the court’s discretion – fees incurred by a defendant to a partition action could be for the common benefit, and therefore allocable in part to the plaintiff, despite the fact that the defendant had “resisted partition, with the claim that plaintiff had no interest in the subject property, that it belonged to defendant alone, and that plaintiff was a mere volunteer in paying the delinquent taxes. However, courts have found that fees incurred “advocat[ing] a position of limited merit” are not for the common benefit and should be borne by the party “pressing” such “spurious matters.” A court may achieve a similar result through an exercise of its equitable discretion under section 874.040 and require a party to bear its own fees. But what if there is a written agreement between the parties which contains an attorney fee provision? In a recent decision, the parties entered a settlement agreement regarding property that did not limit the right to partition. When one filed a partition action, claiming to be enforcing the settlement, the court disagreed that they could invoke the attorney fee provision.

Sacramento-partition-attorney-fee-attorneyIn Orien v. Lutz, three siblings were gifted two properties from their mother; they each obtained one-third undivided interest. Once mom died they fought over her probate estate, resulting in s a settlement agreement which included the 2 properties. The exact language is set out at the end of this post below; in summary, the Settlement said that if the parties agreed, they could sell the properties, but this did not prevent them from filing a partition action. Another provision provided for attorney fees to anyone who brought an action to enforce the agreement or prevent its breach.

Eventually the plaintiff filed this action seeking a partition. Partition was granted. The trial court awarded attorney fees to plaintiff pursuant to paragraph 21.1 of the settlement agreement and Civil Code section 1717, which governs awards of attorney fees for actions on contract. The trial court agreed that the action “concerned enforcement of one of the provisions of the settlement agreement—paragraph 11.1—that allowed for partition by sale of the properties at issue” and therefore fell within the attorney fees provision.

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Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust.

Sacramento-Deed-of-Trust-LawyerWe start with the U.S. Supreme Court decision in Carpenter v. Longan (83 US 271.) In that great 1872 style of legal writing, it states:

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity. That the debt is the principal thing and the mortgage an accessory. Equity puts the principal and accessory upon a footing of equality, and gives to the assignee of the evidence of the debt the same rights in regard to both.”

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An easement in California is a right to use someone’s property which right is something less than a full right of ownership. The right of use of an easement is restricted to that in the original grant of easement, and a common problem occurs when the easement user changes, which usually means expands, their use of the easement. The parties have to rely on the description in the grant of easement. But what if there is not much of a description? The courts recognize the “floating easement,” in which the grant does not describe the specific location. In a recent decision out of Ventura County the court described the floating easement and the rules for locating it on the ground.

Sacramento-floating-easement-attorneyIn Southern California Edison Company v. Severns, The plaintiff “SCE” had written grants of easement over some property. It was undisputed SCE may use the specified strips for utility purposes, but the parties disagreed as to whether SCE has the right to access that area by traversing other portions of the property. There were three grants:

The Three Easements:

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Parties often hold title to California real estate as joint tenants. On the death of one, the other succeeds to 100% of the title to the property. Thus joint tenancy is often used as a will substitute. When married couples holding property as joint tenants split up, they usually seek to sever the joint tenancy, so that if a party dies ex-spouse does not get their interest. In a recent Partition action the court addressed a conflict in the statutes: the Civil Code requires that a document severing a joint tenancy be recorded before the death of the severing tenant; while the Family Code requires, on dissolution, notice of the severance must be filed and served on the other owner before it is effective. The Partition court concluded that a party in dissolution must obey each statute, but they may be satisfied in any order, and the severance occurs when the last step is taken.

Partition-attorney-SacramentoIn Raney v Cerkueira, a married couple held the title as joint tenants. They split up, and the wife filed for dissolution. The summons in the action had the standard language prohibiting parties from transferring property provided by the Family Code. She then executed a transfer Deed severing the joint tenancy, transferring her interest to her trust with her son as trustee. Her son then, as trustee, filed a Partition action. The trial court found that the wife violated the Family Code provision in transferring 50% of the property to her trust. This appeal followed.

The two involved statutes (set out below in further detail) are:

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A “holdover tenant” is a tenant who remains on the premises after the end of the term of the lease. In most commercial real estate leases there is a holdover provision, which states that the leasehold continues on a month-to-month basis. The lease usually provides that the month to month occupancy is under the same terms as specified in the lease, though there is a provision for increased monthly rent. But what exactly are the “same terms”… is everything included? In a recent decision from Southern California, the original Lease contained a right of first refusal. The holdover commercial tenant sought to exercise it, but the court said, the right of first refusal was not an essential terms of the lease, so it did not carry over into the holdover tenancy.

right-of-first-refusal-attorney-sacramentoIn Smyth v. Berman, plaintiff Smyth operated Awesome Audio, an audio recording company. Since the mid-1990s, Smyth has leased 5725 Cahuenga Boulevard in North Hollywood for the business (Google Street View). The 2011 Lease provided: “If the Tenant remains in possession after this lease ends, the continuing tenancy will be from month to month.” The lease had expired but the plaintiff continued to possess the premises and pay rent. He sought to exercise the right of first refusal, but the landlord declined, and this lawsuit was the result.

right-of-first-refusal-lawyer-sacramentoThe court first looked at the relationship of the parties. When a lease expires but the tenant remains in possession, the relationship of the landlord and tenant changes. The “lessor-lessee relationship” based on “ ‘privity of contract’ ” ends, and a new “landlord”-“tenant” relationship based on “ ‘privity of estate’ ” springs into being by the operation of law. (Civ. Code, § 1945.) This new “hold-over” tenancy is presumed to continue under the same terms contained in the now-expired lease except as those terms may have been modified by the landlord and tenant. (Civ. Code, § 1945.) Thus the issue in this case – If the expired lease contained a right of first refusal, is that right one of the terms that presumptively carries forward into the holdover tenancy?

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Generally speaking, whenever California real property is transferred, the County Assessor may reassess the property to establish base value for property tax purposes. There are limits as to how much the value may increase every year due to changes in the market. However, when the property is sold, it may be reassessed at full market value. This makes a big difference if a property had the same owner for many years, and benefits from a low base valuation. Buyers want to avoid a big increase in taxes.

There is an exception that applies to a residence owned by any person over the age of 55 years, or any severely and permanently disabled person. The base-year value of that property may be transferred to any replacement dwelling of equal or lesser value that is located within the same county and is purchased or newly constructed by that person as his or her principal residence within two years of the sale by that person of the original property, provided that the base-year value of the original property may not be transferred to the replacement dwelling until the original property is sold. (R & T section 69.5)

In a recent decision, the county rejected the taxpayer’s claim of exemption. That taxpayer was required by the lender to form an LLC to obtain the construction loan for the new residence, and the county said that the LLC is not a person, so the exception does not apply. The county was overruled.

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