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Real Estate Purchase Contracts encountered in California are often detailed and explicit as to the terms of the deal – parties, price, escrow, when closing is to occur, time for inspections, etc. While some terms are subject to varied interpretation, rarely do Sacramento real estate attorneys encounter contracts with glaring omissions. But when they do, the question arises, is the contract enforceable? In a 2008 Supreme Court decision, the court clarified that the only elements necessary for enforceability are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred. Everything else can be provided by the court based on what is usual and customary.

sacramento real estate contract attorneyIn Sunil Patel v. Morris Liebermensch, Patel was a tenant in a building owned by Liebermensch. Patel held a lease option – he had the right to buy the property under specified terms. The option purchase terms were as follows:

“Through the end of the year 2003, the selling price is $290,000. The selling price increases by 3% through the end of the year 2004 and cancels with expiration of your occupancy. Should this option to buy be exercised, $1,200.00 shall be refunded to you.”

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A Quiet Title action is a lawsuit which a person files to establish their title against adverse claims. The plaintiff’s interest in the land can be the title to the property, an easement, a license, a lease, or title by adverse possession. Sacramento real estate attorneys often see quiet title used in situations where there is a dispute as to title and ownership in real estate. However, there is a general rule is that the holder of equitable title cannot maintain a quiet title action against the holder of legal title. This begs the question – what is the difference between legal title and equitable title?

Sacramento legal title attorneyLegal Title

A shorthand way to consider it is that legal title means that you are on the deed. The term ‘legal title’ has been defined as ‘one cognizable or enforceable in a court of law, or one which is complete and perfect so far as regards the apparent right of ownership and possession, but which carries no beneficial interest in the property, another person being equitably entitled thereto; in either case, the antithesis of “equitable title.” ’ ” (Solomon v. Walton, 109 Cal.App.2d 381)

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The plan to build tunnels to ship water from the Sacramento-San Joaquin delta is underway. The Department of Water Resources needed to conduct environmental and geological tests by boring test holes on over 150 privately owned properties. Normally, the government is not allowed to take actions on privately owned real estate without a standard condemnation proceeding, but the California Eminent Domain law provides a procedure for precondemnation entry and testing. Owners faced with such a situation may want to consult a real estate attorney to ensure that they are protected. In a recent test of the law, the Court of Appeal ruled that the state could not conduct geologic studies – boring deep test holes – without conducting a classic condemnation action. The Supreme Court disagreed.

Sacramento condemnation attorneyNO NEED FOR A CLASSIC CONDEMNATION ACTION

The court of appeal ruled against the state in finding that this procedure was not good enough and that a classic condemnation was required.

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A lis pendens, or Notice of Pending Action, is a document which may be recorded which provides notice of a lawsuit that has to do with title to real property. It cannot properly be recorded until after the lawsuit has been filed. The owner of the property can file a motion to clear their title by having the lis pendens expunged, i.e. declared invalid by the court, if the lawsuit does not concern title to real property. Sacramento Real Estate attorneys often hear from parties who are anxious to record a lis pendens, but really do not have a property title claim. This is so important that if the party is not represented by an attorney but are representing themselves, they must get court approval to record a lis pendens. If a lis pendens is expunged, the property owner may also receive an award of their attorney fees and costs. But what about the harm to the owner while the property was tied up with the lis pendens? Slander of title is a false statement about real estate which harms the property’s value or salability, causing a direct pecuniary loss. As the court of appeal points out, a wrongful lis pendens may still not be found to be a slander of title.

Sacramento slander of title attorneyIn Alpha and Omega Development, LP v. Whillock Contracting, Inc., Whillock was a builder who brought an unsuccessful action to foreclose a mechanics lien. Part of that action included a lis pendens. Alpha had the lis pendens expunged. Alpha defaulted on the loan, and the property was foreclosed. Alpha then brought a slander of title action against the defendant, claiming that defendant without justification and without privilege caused to be recorded a Lis Pendens against the real property; that the recording of the lis pendens “directly impaired the vendibility and value of the [subject real property] on the open market while the real estate market in San Diego was rapidly declining”; and that as a result of the lis pendens, Alpha was damaged.

The elements of a cause of action for slander of title are

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Indemnity provisions usually refer to third-party claims. This means a claim by a person other than the two parties to the indemnity. If I sell you a box of widgets and indemnify you for all claims resulting from the use of the widgets, the idea is that if a third person is injured by the widget and sues you, I am on the hook. But these provisions are commonly more expansive, and include first-party claims. Thus, if you get injured using the widget, I am on the hook. Environmental indemnity agreements are typically the most expansive types of provisions you can find and seem to have included all the word someone could think of. One concerned about what an environmental indemnity provision covers should consult with a real estate attorney. In a recent decision, I suspect that the defendant knew that the provision covered first-party claims, but still make the argument and was shown to be wrong. There was a lot of money at stake. A second case discussed below does not include first party claims.

Sacramento indemnity attorneyIn HOT RODS, LLC v. NORTHROP GRUMMAN SYSTEMS CORPORATION, Hot Rods bought contaminated property from Northrop. The purchase contract had an indemnity provision to protect Hot Rods from environmental actions and remediation. Over time Hot Rods incurred remediation expenses, and Northrop reimbursed them. Eventually, Northrop called it quits and stopped reimbursing Hot Rods. Hot Rods sued, claiming that a tenant had delayed entering a lease because of remediation issues, Hot Rods claimed lost rent; Northrop denied being liable for this, claiming that the indemnity provision only covers third-party claims. Here, where Hot Rod was making its own claim for damages, this was a first party claim.

Covers First-Party Claims

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The California civil code provides that, in a breach of a real estate purchase and sale contract, the breaching party may be liable for consequential damages. An appellate court determined that this may include lost profits in certain cases. Where lost profits are recoverable as consequential damages, “Not only must such damages be pled with particularity [citation], but they must also be proven to be certain both as to their occurrence and their extent, albeit not with ‘mathematical precision.’” Thus, the offended party in consultation with their real estate attorney must develop their argument to establish their lost profits to ensure that they can be awarded. In discussing how a particular plaintiff failed to provide sufficient evidence for lost profits, the court indicated what it would take.

lost profits attorneyIn Greenwich SF. LLC v. Wong, Mr. Chan bought property with Mr. Wong with the intent to remodel or develop it, and they held title as joint tenants. They had worked together on flipping properties, as Chan was a contractor. Mr. Wong died, so title automatically passed to Plaintiff. But Wong’s wife tied up the property in Probate (! Mr. Chan should have consulted with a real estate attorney, this mess should never have occurred!) and refused to convey the property to Chan. She led Mr. Chan to believe that she would once it cleared probate. Chan eventually formed the plaintiff LLC for the redevelopment. The plaintiff had plans drawn up. The defendant widow entered a contract to sell the property to plaintiff. Ultimately, Wong’s widow refused to convey the property as she could sell it for more to a third party, and plaintiff filed this suit for breach of contract. Part of the damages claim was for lost profits.

Until this time California law was unsettled as to whether lost profits could be claimed in a breach of a real estate purchase contract. Civil Code Section 3306 allows consequential damages in the breach of a real estate contract, but no decisions have decided the lost profits may be included as consequential damages. Here, this court determined that lost profits ARE available, as long as such damages are pled with particularity, and they must also be proven to be certain both as to their occurrence and their extent.

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For a California real property owner, liability to third parties for their injuries on the property requires that the injured person prove the owner had a duty of care to the injured party, there was a breach of the duty of care that was the proximate cause of the injuries, and the injured party suffered damages. Often most difficult test is the duty of care. The landowner must exercise ordinary care or skill in the management of their property. The idea is that the owner has control over the property and the ability to prevent the harm. When the owner is aware of (or should reasonably be aware of) a dangerous condition on the property, there are obligated to either fix it or warn people of the risk. I have written previously of the failure to warn of a dangerous attic stair, and how the real estate agent failed to warn a person who was injured. The California Supreme Court has established a list of factors in determining whether there is a duty of care:

(1) the foreseeability of harm;

(2) the degree of certainty that the plaintiff suffered injury;

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For a parcel to be “landlocked,” the owner must have no legal right of access to the property. They would have to cross someone else’s land, but the problem is that they do not have a legitimate easement which gives them that right. In cases where traditional easements do not apply, California Courts may exercise their equity powers to establish an “equitable easement”. Landowners with access problems should contact a real estate attorney to see if an equitable easement will apply in their situation. For the Court to create an equitable easement, it must apply the relative hardship test, and find three factors:

Three Factor Test for Equitable Easement-

• First, the defendant must be innocent. That is, his or her encroachment must not be willful or negligent. The court should consider the parties’ conduct to determine who is responsible for the dispute.

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California real estate financing typically includes a note and deed of trust. In event of default the trustee named in the deed of trust is a third party who would conduct the non-judicial foreclosure process, and hold a trustee sale. This is not a true ‘trustee’ with fiduciary duties but an agent for the parties with statutory duties. When disputes arise regarding foreclosure, Sacramento real estate attorneys often see that the trustee is often named in the lawsuit by the borrower with the other defendants. Given that the trustee relies on instructions of the beneficiary and does not act on its own, the complaint does not allege any specific wrongful act committed by the trustee. As a result, Civil Code section 2924l provides that the trustee may file a “Declaration of Nonmonetary Interest” in the case. The declaration must state that the trustee’s “reasonable belief that it is named as a defendant … solely in its capacity as trustee and not due to its acts or omissions.” Unless another party objects, the trustee then avoids participation in the lawsuit and liability for damages and attorney fees.

woodland deed of trust attorneyIn Bae v. T.D. Service Company, Bae defaulted on a $5 million dollar property in Glen Ivy. The property was sold at a trustee sale, and the plaintiff sued everyone, including the Trustee. The trustee filed a Declaration of Nonmonetary Interest, and not an answer to the complaint. The Plaintiff’s attorney entered the trustee’s default and obtained a default judgment, all without providing notice to the trustee’s attorney. That’s right, the clerk entered the default, the judge granted the judgment, all without notifying the trustee’s attorney. Unbelievable, but it happened, and the trustee moved to set aside the default and won. More bizarre- the plaintiff appealed.

The court first looked at requirements for setting aside a default. Civil Procedure section 473.5 permits the court to set aside a default or default judgment if the defendant, through no inexcusable fault of his own, [received] no actual notice” of the action, provided that relief is requested not more two years after the entry of the default judgment. But here, the Trustee filed its motion more than two years later.

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Real Estate investors in California often work through a licensed Broker, who puts together investor’s cash with potential borrowers. Investors prefer these arrangements (hard-money loans) because they can obtain a higher interest rate for their money, fully secured by a deed of trust recorded against real property. These loans are made through a licensed Broker because broker arranged loans are not subject to usury laws. (More details at the end of this article.) Real Estate Attorneys may be tasked with the job of determining if the usury law applies, and if so, whether this particular loan is usurious. If the loan is usurious, the concern for the investor is to be treated as a holder in due course, free from the defense of usury. It was a bad day for some investors in the Bay Area when the court decided that they were not holders in due course, because the unlicensed Broker kept possession of the notes in order to service them.

In Creative Ventures, LLC v. Jim Ward & Associates, Jim Ward was a licensed real estate broker, and his license was placed with a corporation. He retired and the license expired. He came out of retirement, created a new corporation, JWA, and applied to the DRE to renew his license for the old corporation. Apparently he did not realize that he needed a new license for the new corporation.

A real estate developer borrowed $3 million from JWA. It was through four Promissory Notes, two at 8% interest and two at 10% interest. All the notes included a 6% Broker commission. (For usury purposes, the interest rate is added to the commission, so here they were 14% and 16%, over the 10% usury limit.) This would be ok if JWA was licensed, but it was not. A lawsuit followed.

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