Articles Posted in real estate law

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Some southern California brokers listed a home for $749,000 to $799,000. A buyer entered a contract to buy for $749,000, and proceeding to sell their own house so they could pay for the new house.

The Brokers knew, but did not tell potential buyers, that there were loans against the property for over one million dollars, and the sale would never close unless they solved a little $392,000 problem by getting a short sale approved or the buyers throwing more cash at the deal.

The court first noted that when a seller knows of facts materially affecting the value or desirability of the property which are known to only him and not easily discoverable by the buyer, the seller has a duty to disclose. Where the broker knows of these facts, he is under the same duty.

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Al’s siblings were put on title to Al’s property so that it would pass to them if Al died. Al decided to create a trust, and have the trust be on title, so the siblings conveyed title back to Al, and Al conveyed the property to the trust. But, Al did not create the trust until 13 days later. The deed from Al to the trust was then recorded, and Al died shortly thereafter.

Al’s siblings claimed that the transfer to the trust was ineffective, because the deed was signed before the trust was created. The Court said it was effective, and the trust owned the property. The question has never appeared in a California published decision, so the court looked at the law in other states. It agreed with the general rule that a deed to a corporation made before its organization is valid between the parties, though void if asserted against third parties. It found that here, Al the individual granted the property to Al the trustee, anticipating the creation of the trust. Therefore, the deed was effective between them.

Luna v. Brownell (2010) 185 Cal.App. 4th 668.

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To set aside a default judgment in California, either the judgment must be void on its face, or the motion brought within two years of entry. In a recent case the motion was filed more then two years after the judgment was entered. The trial court found that the evidence showed that there was no actual service on the defendant, and set aside the default judgment.

The appellate court reversed, finding that on a motion filed more than two years after entry of default judgment, the trial court was precluded from considering evidence offered in support of motion. It also found that proof of service on “John Doe, co-resident” was not void on its face. People in apparent charge of businesses and residences often refuse to give their true legal names. For this reason, it is an accepted practice to name such a person as “John Doe” or similar fictitious name, or by description.

In this case (successfully argued on appeal by this blogger) it is likely that the defendant did know about the attempts to serve his, but did not do anything about it until the effort to collect the judgment more then two years later. Things often do not go well for those who sleep on their rights.

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Buyers bought a home in Southern California using the standard CAR purchase agreement, in which they initialed the requirement to arbitrate any disputes. Before they moved into the home, they learned it had extensive structural damage which was not disclosed. The buyers sued their broker, claiming that they knew about the damage. The brokers moved the lawsuit to arbitration, as the purchase Contract allowed them to do- big mistake for the broker.

The Arbitrator awarded the Buyer damages based on the benefit of the bargain” measure, which is applicable to damages not arising from a contract. The Brokers sought to set aside the award, claiming he should have used the “out of pocket” measure of damages (Civil Code 3343).

The Broker argued that the Arbitration provision requires the arbitrator to render an award in accordance with California substantive law; thus, this departs from the general rule of non-reviewability of arbitration awards. However, the court disagreed. Citing DirectTV, a provision requiring arbitrators to apply the law leaves open the possibility that they may apply it incorrectly.

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Under California law, a Grant Deed contains two implied covenants- these are promises that are not written into the deed itself.

In deed language, the “grantor” is the person or entity who grants the property and signs the deed; the “grantee” is the one who receives the interest in the property.

First is the implied covenant that, prior to this deed, the grantor has not conveyed the same interest in the property to anyone else. In other words, I grant this property to you, and I guarantee that I have not already given it to someone else. It is not a guaranty that I have good title.

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Homeowners in Discovery Bay, California, sought in 2007 to refinance their mortgage through GMAC. They provided the loan officer will accurate income information. It turned out, however, that the loan application prepared for them had a fabricated, inflated income. They were not given the application to review. They could not afford payments on the new loan, and lost the house through foreclosure. The homeowners sued GMAC and other defendants.

In the published opinion, the court dealt only with their claim of fraudulent misrepresentation. The homeowners’ attorney creatively argued that, in giving them the loan, GMAC falsely misrepresented that the homeowners could afford the loan based on their true income-the income information they provided to the loan officer. The homeowners claimed this told them that GMAC thought they could afford the loan.

The court said no; GMAC’s position that they qualified for the loan is not a representation that they could afford the loan. The lender’s efforts to determine the ability of the borrower to repay a loan is for the lender’s protection, not the borrower.

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In a recent case a husband and wife sold property to plaintiffs, who sued for misrepresentation. (There was no indication in the court’s opinion whether they had used a C.A.R. contract and initialed the arbitration provision.) Both parties attorneys and the judge signed a stipulation and order for arbitration and appointment of a private arbitrator. No clients signed the stipulation.

Plaintiffs won, and brought the standard petition in court for confirmation of the arbitration award. Meanwhile, the defendant husband “Valere” fired his attorney and was representing himself; the wife was still represented by the attorney. Valere opposed the petition, claiming that he had never agreed to arbitrate the matter.

The trial court confirmed the award, and Valere appealed. The court of appeal reversed the judgment.

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A developer-buyer entered an agreement with a landowner to buy 10 acres after buyer pursued county approval for subdivision. The contract contained a contingency that the buyer was not obligated to do anything and could cancel the contract at any time.

The buyer pursued the subdivision, spending money for engineering and permits, and obtained a tentative map. The seller changed his mind and refused to close, and argued that the agreement was an option and, since it was not supported by consideration, it was revocable. The California Supreme Court disagreed, finding it was both an option and supported by consideration.

The court found classic features of an option: 1st, the seller held open an offer to sell for three years; 2nd, the buyer was able to accept the offer by waiving contingencies, but was not obligated to do anything, even if all contingencies were satisfied. The court rebuked an argument that real estate contracts often have contingencies, such as loan or inspection, that allow one party to withdraw, noting that withdrawal is allowed only if the contingency fails. Here the buyer could withdraw anytime.

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Usury is the charging of interest for a loan in excess of the legal maximum. In California, the amount is set out in the state Constitution. Exemptions to the law are also described in the Constitution, as well as court decisions.

One the of court-established exceptions is for a joint venture. Where the relationship between the parties is a joint venture or partnership, the advance by the joint venturers is an investment and not a loan, and the profit or return earned by the investor is not subject to the statutory maximum limitations of the Usury Law.

In a recent decision, an experienced real estate investor and broker named Don found a commercial property in San Carlos that he wanted to buy. He contacted a hard money lender named Gary- one who specializes in providing money quickly and at high interest rates. He had worked with this lender many times before. They worked out a deal where they jointly took out a standard bank loan for $1.8 million, and the Gary contributed an additional $856,000 hard money, for which Don signed a promissory note at 12%, plus paying $14,000 in ‘points’. Don became a 90% owner of the property; Gary had 10%.

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Chang guaranteed three construction loans, totaling 4 million dollars, for another party. In the guarantees Chang waived the right to require the Bank to proceed first against the borrower, or foreclose against the borrower’s property. The other party defaulted, and the bank went after Chang first, filing a lawsuit and seeking a writ of attachment against HER personal property, that was not security for the loans.

The trial judge said no to the writ, claiming that C.C.P. Section 483.010 does not allow attachment on a claim secured by real property. The court of appeals said no, the writ can attach to Chang’s property.

The appellate judges pointed out that the guarantee is a separate and independent obligation from the principal debt (the underlying construction loans) Though the construction loans were secured by real property, the guaranties were not. Thus, the 483.010 prohibition does not apply, so long as the guarantor waives their right to require the bank to go first after the security for the original loans.

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