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Altered or forged deeds are subject to some specific rules in California. In some cases, where it is altered by a party to the deed, they may be declared void, and of no effect. If it is altered by a third party, it is not entirely void – it is still valid as between the original parties. In a recent decision, The person who should have been an owner of property did not consult a Sacramento real estate attorney, and misunderstood what a deed actually said. When it was improperly altered before recording, the result did not change the effect of the conveyance – she had no interest in the property.

Sacramento altered deed attorney.jpgIn Lin v. Coronado, Lin pooled her $150,000 with $100k provided by River LLC and Elevation LLC to buy a residential property at a trustee’s sale. The property was bought by the LLCs for $250,000. The original deed from the trustee was to “Cal-Western Reconveyance Corporation (herein called trustee) does hereby grant and convey, but without covenant or warranty, express or implied to RIVER FOREST FINANCIAL LLC 75%, ELEVATION INVESTMENTS 25% HELEN LIN.” However, the deed that was recorded states “Cal-Western Reconveyance Corporation (herein called trustee) does hereby grant and convey, but without covenant or warranty, express or implied to RIVER FOREST FINANCIAL LLC 75%, ELEVATION INVESTMENTS 25%.” Lin was not named in the recorded deed. River LLC and Elevation sold the property to Coronado, the defendant in this appeal.

Lin filed suit against River & Elevation for fraud, and also against Coronado, the buyer, to quiet title. Regarding the quiet title, she claimed that the deed was altered after it was executed, it was void, and thus did not convey title. The buyer claimed that Lin never had an interest in the title in the first place, so they were a bona fide purchaser for value, and the claim failed. The Court agreed with the buyer.

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When a foreclosure sale occurs, the lender often bids at the sale the entire amount due on the loan. If no one bids higher, they obtain the property. But are they entitled to then collect insurance for pre-foreclosure damage? Sometimes insurers obtain their own insurance policy, which covers them for all damage to the property. However, commercial lenders often are insured through their borrower’s policy, which only covers the value of the debt. There is an important difference if the lender forecloses, and parities in this situation may need to consult with a real estate attorney. In a recent case, the lender discovered that making a full credit bid at the foreclosure sale was a mistake, and lost its chance to collect on the policy.

sacramento credit bid attorney.jpg In Najah v. Scottsdale Insurance Company, the plaintiff sold a commercial property taking back a note for $2.5 million secured by a 2nd deed of trust. The first loan was for $2 million. There was a structure on the property, and the terms of the Notes required that the buyer not remove or destroy the building, and to repair any damage that occurred. The Note required the buyer to provide an all risk insurance policy insuring the seller, which the buyer obtained.

The Buyer went into default and the first lender pursued foreclosure. The seller, holder of the second, bought the interest of the first lender for the balance due on the first loan, $1.75 million. The Seller was also assigned the first deed of trust. The seller then foreclosed on its 2nd deed of trust. At the foreclosure sale, the Seller made a full credit bid – that is, it bid the full amount due on the 2nd Note.

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The security first rule is one of the numerous anti-deficiency protects provided to borrowers under California law. “Security first” means that a creditor must first exhaust all real property security through judicial process in the “one form of action” authorized by Code of Civil Procedure section 726–that is, a judicial foreclosure. The rule is violated if the lender attempts to obtain a personal judgment against the debtor before first exhausting all the real property in a judicial foreclosure lawsuit. This can be a serious penalty in the case of commercial properties, and lenders and borrowers should consult with a real estate attorney to be sure of their options. If the creditor violates the security first rule, it loses its chance to get a deficiency judgment, which holds the borrower personally liable for the balance of the debt above the value of the property.

If the borrower raises the security first rule as an affirmative defense, there are four ways the case may proceed:

1. The lender may amend the judicial foreclosure to include the omitted security;

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Parties such as corporate directors, partners and managers of LLC’s owe each other a fiduciary duty, which is a duty of loyalty and a duty of care. These are legal duties to act solely in another party’s interests, and not profit from their relationship with their principals unless they have the principals’ express informed consent. Violating this duty can result in liability. But, even if you do not owe someone a fiduciary duty, you can be found liable for aiding and abetting someone else in breaching such a duty, something to be aware of in any any transaction.. Under California Law, liability may be imposed on one who aids and abets the commission of an intentional tort if the person-

(a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act, or

(b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.

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When the same debt is secured by liens on both real property and personal property, the lender has options as to how they are allowed to enforce their security interest. They can enforce against the real property under real property law, against personal property under the Commercial Code, or both. There are specifics under both areas of law which must be observed, or the lender may lose their security, and a party in this situation may want to consult with a business and real estate attorney. Otherwise, they may run into the problem faced by a lender recently when they failed to adequately describe the personal property in the deed of trust. The Court of Appeals found that the deed of trust did not successfully describe personal property as additional security, and thus any further recourse for the lender would be contrary to the purpose of the antideficiency laws.

mixed collateral attorney sm.jpgIn Thoryk v. San Diego Gas and Electric Company, the owner of an avocado ranch in San Diego County wanted to subdivide it into two-acre homesites. The owner borrowed $1 and ½ million from Highland for this purpose. There was a wildfire which did extensive damage to the property, and the project stopped. Highland foreclosed and obtained title to the property. The owner believed that San Diego Gas and Electric was at fault and sued for damages. Highland joined the suit, claiming that its deed of trust was secured by more than just the property, and extended to any of the owner’s recovery of damages caused to the property; i.e. it was also secured by personal property. Highland argued that it was entitled to a judicially imposed lien under the terms of its deed of trust and related note.

The owner argued that he was protected by the antideficiency laws, which prohibits collecting money from the owner after a trustee’s sale. However, where there are liens established upon both personal and real property in the subject transaction, a foreclosing lienholder using the power of sale may continue to pursue remedies against the former property owner/borrower. The creditor is not seeking a personal judgment for the unpaid balance of a loan, but instead seeks to enforce additional security secondarily liable for the principal loan.

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Individuals create LLCs, same with corporations, for ownership and investment purposes primarily to enjoy limited liability. If you invest $10 in an LLC and someone gets a huge judgment against the LLC, the most you could lose is your investment -the $10. The judgment creditor would not be able to come after you personally to collect the balance of their judgment. However, not all LLCs or corporations have assets from which a judgment may be collected. Sacramento area business and real estate attorneys are occasionally asked by clients withe judgments what can be done to go after the members, managers, directors or shareholders. As one group of LLC members recently discovered, if the LLC’s distributions to them leaves the LLC penniless and essentially dissolved, the creditor may collect from the members.

Yolo LLC attorney.jpgIn CB RICHARD ELLIS, INC. v. TERRA NOSTRA CONSULTANTS, the real estate broker was seeking their commission on sale of 38 acres in Murrieta for $11.8 million. While the broker had the property listed, the buyer made an offer. Before closing, either the listing ended or the LLC which owned the property fired the broker, it was not clear. The sale closed. A few days after the cash went from escrow to the seller LLC’s bank account, it all left the account and was distributed to the members. The broker arbitrated its dispute with the LLC (because there was an arbitration provision in the listing agreement) and obtained a judgment against the LLC. But, of course, the LLC had no money.

The broker than filed suit against the members. Its argument was in the Corporations code, which provides for liability in the event the entity has been dissolved. Applicable was the old Section 17350 (which was replaced by the equivalent section 17707.07) provides:

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Judicial reference, unlike arbitration, works within the court system. A lawsuit is filed, and the judge appoints a referee to assist in the case, or decide it on their own. Parties can agree, in their contracts, that disputes are to be determined by a general judicial reference. This means the entire dispute is to be resolved by a referee. An advantage of judicial reference over other forms of dispute resolution (read ‘binding arbitration’) is that a referee’s decision is treated like a judge’s decision for purposes of appeal. On the other hand, an arbitrator’s decision cannot be appealed for errors of fact or law, as I have railed about several times in this blog. But as some parties found out in a 2011 decision, a judicial reference provision is not a guaranty that the dispute will be decided by a referee, and parties interested in reference should consult with a Sacramento business and real estate attorney as to what is possible. In this case the California Supreme Court concluded that a judge could decline to appoint a referee if there is a possibility of conflicting rulings on a common issue of law or fact.

Sacramento judicial reference attorney.jpgIn Tarrant Bell Property, LLC v. The Superior Court, 120 residents of a mobile home park in Alameda County sued the park owners complaining that they had not maintained the common areas of the park and subjected residents to substandard living conditions. Of those residents, 100 residents’ leases had a provision that provided that disputes were to be resolved, first, by arbitration, or should the arbitration provision be found to be unenforceable, by general judicial reference. Key here is that the remaining 20 residents, 17% of the total, had leases that did not require arbitration and reference.

The plaintiffs asked the judge to order arbitration or reference, the park owners opposed either. The trail court judge refused to order arbitration or reference. The opinion does not describe why the court denied arbitration, but focuses instead on denial of reference.

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Homeowners Insurance is not limited to fires, fallen trees, and general mayhem. When a homeowner is sued by a neighbor, the homeowner should routinely ‘tender’ the claim to the carrier (present the lawsuit to the insurance company, asking the insurer to provide your defense in the lawsuit). The question then becomes whether or not the lawsuit will be covered under the terms of the policy. Standard insurance policies cover an “occurrence”, which is usually defined as an accident. If you are sued over a neighbor issue, you should consult a Sacramento real estate attorney regarding whether there may be insurance coverage. Over the years the California courts have set out guidelines for determining what could be considered an “accident” for these purposes. One homeowner, after an earthquake, rebuilt their residence encroaching onto their neighbor’s property “by accident.” The neighbor sued, and the homeowner tendered the suit to their insurance carrier. The homeowner was disappointed when the court found that, even though they had a good faith but mistaken belief that they were legally entitled to build where they did, it did not qualify under the policy and the insurer did not have to cover the defense. The bottom line – mistakenly believing that you have a right to do something, and then doing it, does not result in an accident.

sacramento homeowners insurance attorney.jpgIn Fire Insurance Exchange v. the Superior Court, the property was in Big Bear. When the owner tendered the claim to their insurer, the insurer denied the claim, so the homeowner sued the insurer. The insurer argued that the owners intentionally built their house over the property line, so it was not an accident. The owners countered that they were mistaken, believing that they owned the property where they built, so the construction was an accident.

The court first looked at the language of the insurance policy: it covered –

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A creditor who is awarded a money judgment in California must still collect the money that they are owed. The two most common steps they take are to garnish wages (if possible) and to record an ‘abstract of judgment’ in any county where the debtor owns real estate. The abstract then creates a lien against the property. If the owner seeks to sell, or refinance, the judgment must be paid off to clear title. The judgment creditor could also foreclose the judgment lien, if there is sufficient equity in the property.

However, what if a senior lien forecloses? In a decision out of Costa Mesa, the judgment creditor was disappointed to learn that recording the abstract was not enough. As explained below, the foreclosing trustee was not required to search the record for abstracts. The creditor is required to also record a request for notice under Civil Code section 2924b(a). However, that does not work if a notice of default had been already recorded – in that case the creditor must monitor the foreclosure, and make a demand on the trustee immediately after the sale, before surplus funds have been distributed. Unsure creditors should consult with a Yolo and Sacramento real estate attorney.

Yolo real estate attorney 3.jpg In Banc of America Leasing & Capital, LLC v. 3 Arch Trustee Services, the creditor obtained a judgment against the real property owner. It recorded an abstract of judgment. Unfortunately for the creditor, the notice of default and notice of sale had already been recorded. The sale occurred, and, the borrower having equity in the property, there was a surplus of almost $115,000 left after paying the senior lien. The trustee paid this money to former owner, who also had the judgment against him. He made out ok.

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Figure this – you are in the process of buying a commercial real property and you see service vehicles (such as FedEx, UPS, and other companies) from the neighboring business crossing over the property to access their business, and some of the other property employees parking in the soon-to-be your parking spaces. What do you do? Ask the owner of the neighboring property about it? That is what the disappointed buyer in today’s post. Your Sacramento real estate lawyer might advise you to get representations from your Seller, as a condition to your contract. Also, some title insurance policies will cover prescriptive rights, but our buyer just brought it up with his future neighbor eight months before escrow closed. He told him that he did not want their vehicles crossing the property line. The neighbor replied ‘no problem. We’ll take care of it.’ But they did not take care of it -in fact, the neighbor already believed that he had a prescriptive easement. The sale closed escrow, the trespass continued, and the buyer sued the trespassing neighbor.

sacramento real estate attorneys.jpgIn Steven Hoffman v. 162 North Wolfe LLC, The buyer, who was a commercial real estate broker, sued the Sunnyvale neighbor, claiming that the neighbor defrauded them by falsely advising that they had no claims or interest with respect to the property. (Here’s the google street view of the two properties) The Hoffmans alleged two fraud claims–concealment/suppression of facts, and intentional misrepresentation. After the conversation discussed above, the buyer did not bring the matter up with his seller, nor did he again discuss it with the neighbor. He claims that he thought it was taken care of.

concealment/suppression of facts- No legal relationship

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