real estate law

Published on: October 23, 2012

Californians should wait to 2013 to refinance their purchase money loan- then SB 1069 – CCP 580b may protect them from personal liability

california anti deficiency 580b.jpg With rates at an all time low, many in California are rushing to refinance their real property mortgage loans. Often, borrowers are not aware that they may expose themselves to personal liability if they refinance the loan they originally used to buy their residence.

California has a number of statutes that protect borrowers from personal liability (deficiency judgments) for the loan balance remaining after a foreclosure trustee’s sale. If the property is the borrower’s home, there is protection for the loan used to buy the property. Recent legislation provides for protection in a short sale. Also, if the lender who made the original purchase money loan refinanced the loan, there is protection. With enactment of SB 1069, beginning January 1, 2013, ANY lender who provides a refinance of the purchase money loan will also be prevented from obtaining a deficiency judgment against the borrower. Each borrower’s situation is different, and anyone in a default situation should consult an experienced Sacramento real estate lawyer to determine their risk of personal liability.

California refinance loan liability.jpg The change makes sense in light of the historic purpose of Civil Procedure section 580b. In the event of a depression of land values, it is to prevent aggravating the downturn that would result if defaulting purchasers lost the land plus had personal liability. It is based on the premise that the lender is in the best position to determine the true value of the security for its loan, which is the property. If the lender overvalues the property, the lender should bear the risk of not obtaining the balance of the loan value in a foreclosure sale.

Published on: October 18, 2012

Close your short sale by December 31, 2012 or else – the Mortgage Debt Forgiveness Act is set to expire, and you will be liable to pay tax on forgiven debt.

by Law Office of James J. Falcone

For tax purposes, housing debt that is forgiven or written off is treated the same as income. The difference between the short sale price, or price at a trustee’s sale, and the loan balance may be forgiven debt. It can be considered income, which is reported by the lender on form 1099-C. The Mortgage Debt Forgiveness Act, which applies if the debt was forgiven in years 2007 through 2012. This requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence. This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified. Taxpayers concerned with whether their forgiven debt qualifies should consult with an experienced Sacramento and El Dorado real estate attorney.

california short sale.jpg The Mortgage Debt Forgiveness Act requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence. This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The amount of debt forgiven must be reported on your tax return. The act first extended such relief for three years, applying to debts discharged in calendar year 2007 through 2009; with the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.

short sale.jpg The forgiven debt may also be excluded from your income if:

Published on: October 16, 2012

California Judge would not force parties to arbitrate real estate concealment claim against seller Nick Cage, though Purchase Agreement had arbitration provision- buyer included Construction defect claim against builder

by Law Office of James J. Falcone

Update at Bottom

Most California residential real estate contracts (such as the C.A.R. form) have an arbitration provision providing for optional binding arbitration. If the parties all initial it, it becomes a requirement of contract. In arbitration the parties agree to have a supposedly unbiased third person decide the dispute. Arbitrator’s errors and mistakes cannot be reviewed by a court, so the parties are stuck with it. In a recent decision concerning beach front property in Venice, California, a judge refused to force the buyer to arbitrate their claim.

real estate arbitration.jpg In Lindemann v. Hume, Lee was building a $3 million dollar residence and a trust was the buyer. The trust’s beneficiary, actor Nicholas Cage, moved into the house, and immediately had problems with water intrusion and flooding. Cage told his agent to sell the place. The got an offer, and gave the buyer a disclosure stating that there was a problem with the drainage that the builder was addressing. Cage’s people hired an engineer, who reported that there was no quick fix , and any owner would need to accept the risk associated with the drainage. The buyers backed out.

Published on: October 9, 2012

Lender on California Property has security interest in the property, but apparently not in the money held back in escrow. How an unsecured creditor beat the secured creditor to the funds.

by Law Office of James J. Falcone

Often in an escrow for sale or financing of California real estate, money will be held back in escrow to take care of unresolved issues. This is done on agreement of the parties in the real estate purchase and sale contract, or the loan documents and escrow instructions. For example, there may be a lien or tax due with uncertain amount which cannot be determined until after the scheduled close of escrow. Parties with concerns regardin escrow hold backs shcould always consult an experienced Sacramento real estate lawyer. In a decision this summer Citibank was the secured creditor on commercial property who was denied the funds in the escrow hold back.

secured creditor.JPG In Oxford St. Properties v Rehabilitation Services, Citibank made a refinance loan to a partnership between Oxford & Rehab; Rehab was to buy out Oxford’s partnership interest with most of the money. The Citibank loan was secured by the partnership real property, plus some personal property. Construction loans were paid off, Oxford was partially paid, and over $200,000 was held back in escrow pending clarification of some insurance issues; this money was never paid to Oxford.

A dispute resulted, and Oxford sought arbitration. The first arbitration ruling was that Rehab had to convey the project to Oxford. A second arbitration was held because Rehab neither conveyed the property nor the $200,000, but let the Citibank loan go into default, resulting in a judicial foreclosure and a deficiency judgment. The arbitrator awarded Oxford damages of over $15 million, plus the $200,000 in escrow. Oxford obtained a writ of possession for the money.

Published on: October 4, 2012

Recording California deeds of trust & equitable subordination – when a lender can record last, but be considered first, to collect on foreclosure

by Law Office of James J. Falcone

When it comes to recording liens against California real estate, we follow the ‘first in time, first in right’ rule. (Civil § 2897) If your lien, or deed of trust, is recorded before mine, then yours is superior. If you foreclose, and I do not pay you off, my deed of trust is wiped out, and I am left with an unsecured debt. However, there are exceptions, one of them being equitable subordination, which applies where equity and fairness require a different result. Equitable subordination is a concept used to correct equitable wrongs in the strict priority of liens on real property. If fairness requires, a first lien can be subordinated, or reduced below, a second lien, swapping their positions. (Civ. Code, §§ 2876, 2903, 2904.) A recent decision saved a $3.2 million dollar mortgage from being subordinate because the title company did not pick up the prior recorded deed.

deed of trust recorded.jpg In JP Morgan Chase v. Banc of America Practice Solutions, the Siems applied to JP Morgan to refinance the 1st & 2nd loans against their Newport Beach house, for a loan of $3.2 million. Meanwhile Mr. Siems medical corporation got a $2 million dollar loan from Banc of America, primarily secured by the property of his medical practice. However, the Siems also personally guaranteed the business loan, and Banc recorded a deed of trust against the same house. Banc knew about the original 1st & 2nd, and expected its loan to be in third position.

Here’s the timing:

Published on: October 1, 2012

California Homeowners Association Gets Court Order To Modify CC&R Super-majority voting, and members only get 4 days notice.

by Law Office of James J. Falcone

Many older California homeowners associations are governed by CC&R’s (Conditions, covenants, and restrictions) and bylaws which require a supermajority vote to amend the documents. A supermajority is something greater than a majority, and in some documents it can be greater than two thirds. However, when the board wants to amend for the good of the community, it is difficult to get a supermajority. Voter apathy plays a roll- if a supermajority does not pay attention to the newsletters and ballots they receive, there can never be a supermajority vote.

The legislature came up with a remedy for this problem in Civil Code section 1356. This provides a procedure where a petition could be filed in Court asking the judge to allow amendment, subject to certain requirements, on the vote of at least 50% of the members. The statute was invoked in a recent decision concerning the Quail Lakes community in San Joaquin County, where the judge was not too concerned that the owners receive notice of the proceeding.

deadline - insufficient notice.JPG The Association filed a petition, and the court set a hearing date. The judge required homeowners are to be given notice by mail Friday August 13, 2010, and any written opposition from homeowners be filed by the following Tuesday, August 17, only four days later. Usually in legal proceedings, five days are added for mailing. If ,on January 1, I mail to you a motion, it is not deemed received by you until January 5. (Civil Code section 1013) But that was not considered in this case.

Published on: September 17, 2012

Lender tells California homeowner to skip a payment, and she would probably get loan modification because she was pre-approved – Court finds lender may have wrongfully induced the borrower to place her loan in default

by Law Office of James J. Falcone

I commonly hear from clients that they were told by their loan servicer that they would not be considered for a loan modification because they were current on payments. They were either told, or it was implied, that they needed to miss a payment in order to be considered for a loan modification. I never advise a client to skip a payment, as that is their own decision- once it happens, the foreclosure freight train starts downhill and does not stop. Anyone thinking of skipping should consult with an experienced Sacramento and Yolo real estate lawyer to be advised as the full range of options & risks. A recent decision out of Southern California involved a borrower who said she was told to skip a payment, which created a triable issue as to whether the lender induced her to miss a payment, wrongfully placing her loan in default. But that’s not all- there was evidence that her loan documents had forged signatures.

lender foreclosure.jpg In Ragland v. U.S. Bank, the homeowner refinanced through Downey Savings in 2002. (Downey was later taken over by the FDIC, who turned over the loans to US Bank.) She got an adjustable, but claims she thought she was getting a fixed rate. One month later she told the lender that her signature had been forged on the estimated closing statement, escrow instructions, and statement of assets and liabilities. The forgery was confirmed by a handwriting expert.

By 2008 the rate had adjusted up to 7%. She spoke with a lender rep who said they would work with her to modify the loan, and told her not to make the April payment because the worse that would happen is that she would have a late fee. On the last day to make the April payment, she called the lender again, and was told that if there was anything forged, she would not owe anything. They put the loan in “legal” and told her they could not collect while the investigation continued. Later she was told they could not do a modification during the investigation.

Published on: September 13, 2012

California business owner / property owner liable for dangerous condition caused by employee, & it does not matter if the owner knew about it.

by Law Office of James J. Falcone

Inevitably, a property or business owner has a problem when someone injures themself at their premises. The ordinary slip and fall involves a dangerous condition which causes someone to fall and hurt themselves. Usually, the property owner must have actual or constructive knowledge of the dangerous condition before they can be held liable for the injury. Sacramento business and real estate attorneys advise their clients that “Constructive knowledge” is what the prudent property owner should have known. The owner may not have knowledge of everything about the property, but a Sacramento business owner was recently surprised by a dangerous condition that may have been created by an employee.

property owner liability.jpg In Getchell v Rogers Jewelry, the plaintiff was a jewelry repairman who worked as an independent contractor at the defendant jewelry store in Arden Fair Mall. (This made the repairman a “business invitee” as opposed to an employee or customer). He was in the break room of the store (for employees and business invitees only) and slipped and fell when he stepped on a puddle of jewelry cleaning solution. The solution was kept in a five gallon bucket. There was no evidence that the bucket leaked. The only people with access to the cleaning solution and who could or would have used it were the store’s employees. The defendant business and its employees had exclusive control over the break room and the bucket of solution.

premises liability.jpg The trial court ruled on summary judgment for the defendant jewelry store, finding that the plaintiff had established that the store owner had actual or constructive notice of a dangerous condition. The court of appeals disagreed. It noted that this was not a ordinary slip and fall- the answer turns on whether the dangerous condition was created by the negligence of an employee of the store. Such cases are governed by the doctrine of respondeat superior- the employer answers for the actions of employees, and is presumed to have notice of what the employees know. Here, the evidence shows that a reasonable inference can be drawn that the condition was created by employees of the defendant, and that the defendant is then held to know what the employee knows about the dangerous condition. If the employee was acting within the scope of their employment (doing their job) the owner cannot claim that he had no notice of the dangerous condition.

Published on: September 10, 2012

Loan Modification accepted, lender foreclosed anyway, Part 2 – setting aside a wrongful foreclosure, when the borrower does not have to tender payment of the loan balance

by Law Office of James J. Falcone

My last post was about a California loan modification, where the borrower signed the modification documents and returned them to the lender, but the lender foreclosed anyway. The court decided that the there was a binding contract once the borrower signed and returned the modification agreement, even though the lender said it did not happen until after the lender returned a copy signed by them. This is a good result, as otherwise the borrower would be in limbo, making payments, while wondering why they lender did not send back the documents. Finding that a contract was created helped the borrower another way- in her claim for wrongful foreclosure.

WRONGFUL FORECLOSURE.jpg It is a general rule in California law that a lawsuit to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security. This is known as the tender rule. I think that the tender may be made on filing the lawsuit, but some courts may differ.

However, in our case, there is no claim of irregularities in sale notice or procedure. The claim is that the lender offered a modification, the borrower accepted, and they had a deal. The court noted that the power of sale, which gives the trustee the right to foreclose, is a creature of contract, not statute. If, after a default, the borrower and lender enter into an agreement to cure the default and reinstate the loan, no contractual basis remains for exercising the power of sale. Thus, under the terms of the modification agreement, there was no default, but they foreclosed anyway. The borrower had made a claim for wrongful foreclosure, and there was no need to allege tender of the balance of the loan.

Published on: August 31, 2012

California real estate loan modification accepted, but bank foreclosed anyway – Part 1 -Court finds that there was a modification contract once the borrower signed and returned the agreement.

by Law Office of James J. Falcone

Loan modifications have been getting a bit more predictable recently, but several years ago it was a crap shoot of false hopes and unreliable loan servicers. Issues I often saw surrounded what happened when the borrower signed the loan modification documents, and make the trial payments, but was told that they didn’t qualify. Borrowers in the loan modification process should consult with an experienced Sacramento real estate attorney, who can advise them as to the meaning of the documents they have been presented. A recent decision covers such an agreement proposed in 2009. This post covers the impact of the borrower signed and returning the documents. Part 2 will cover her claim for wrongful foreclosure.

In Barroso v. Ocwen, the borrower bought her house in 2005 for $372,000. She got behind on payments, and a notice of default was recorded in 2009. Ocwen told her that she qualified for the HAMP program, and sent her agreements for her signature. They were:

a. Trial Period Plan; payments for three months;