Articles Posted in real estate law

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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.

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Adverse possession is a way of acquiring title to real property through continuous possession or use for a specified period of time. One of the elements required to prove adverse possession is that the possession or use must be “hostile to the owner’s title.” This does not mean that there must be a dispute between the parties, but that the claimant’s possession is without recognition of any rights of the true owner. It also requires the use be adverse, not with the owner’s possession. A key problem is whether the owner of the property knew or should have known of the use. In a recent decision which concerned a deeded easement the supposedly adverse use had not changed through the succession of owners, and had not interfered with the owner’s use of the property. The court found that the use was not legally “hostile” to allow the adverse claim. This case is unusual because the adverse possessor had fenced out the other party, which is nearly always sufficient to establish an element of the claim.

Adverse-possession-hostility-attorney In Vieira Enterprises, Inc. v. John McCoy, the parties were owners of adjacent commercial properties. Vieira operated a mobile home park. The common boundary between the parcels was the centerline of Rosedale Avenue, and each owner had a 20 foot easement over the neighbor’s half of the road. However, at some time a 140-foot-long section of Rosedale Avenue had been fenced in by wire fences to the west of the private road, as well as by a wire gate across the road at the mobile home park’s northern boundary. Thus McCoy would appear to have been fenced out of his 20’ width of road plus the 20’ easement on the remainder of the road.

The problem arose when McCoy notified his neighbors that he was ready to begin a construction projection that would involve removal of the apparent boundary fences and the gate and his regular use of his right of way on Vieira’s property. The City of Capitola issued McCoy a zoning permit that stated conditions for his new building, including that “Rosedale Avenue shall be open to vehicular access for the proposed project and Cabrillo Estates Mobile Home Park at all times.

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Co-owners of real estate do not always have the same goals, and when they cannot agree, they may need the court’s help. Such is the case in a Partition action; in its original form, it literally meant dividing the land up into parts, and assigning one part to each individual co-owner. Partitioning the land is still the preferred method under California law, but in most cases real estate attorneys argue that it is impractical, would not result in a fair split, and the property should be sold and the money split. When the property is primarily a building or house, it is usually sold. Either owner is allowed to buy the property, essentially making a credit bid of their own equity in the property, plus additional cash which buys out the other owners. There is a third way to partition- by appraisal, but in an odd recent decision the trial court incorrectly called for appraisal. The court of appeals said this was wrong, and explained the options in an action for Partition.

Sacramento-partition-appraisal-attorneyIn Gayle Cummings v. Jennifer Dessel, the parties agreed to buy a property together east of Arcata, CA. Cummings put $80,000 down, they obtained seller financing, and the others were to make monthly payments and rehab the dilapidated residence. The defendants hit hard times and stopped paying the mortgage and working on the property. Plaintiff filed this action. The trial court ordered partition of the property by appraisal – each owner could bid to buy the other owner’s interest, with the minimum bid set by appraisal.

The court of appeals focused on the statutory language, as partition is governed by the California Code of Civil Procedure. Once the judge determines that a partition is called for, it “shall make an interlocutory judgment that determines the interests of the parties in the property and orders the partition of the property and, unless it is to be later determined, the manner of partition.” (§ 872.720, subd. (a))