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A court may create an “equitable easement”, on equitable grounds, even though the user is not entitled to an easement on one of the more traditional grounds. The judge balances the rights of the various parties to achieve an equitable solution. Generally, the courts apply a three-part test to determine if such an easement should be legally granted. In most cases there is an existing use, and either one landowner sues to stop the use (they see it as a trespass), or the user sues to legally establish the easement. However, in a recent decision out of Ventura County, the court granted an equitable easement where there had been no preexisting use.

Sacramento-equitable-easement-attorneyIn Hinrichs v. Melton, Hinrichs inherited two adjoining parcels. He used to live in a house on the southern lot, but had lived in Alaska for the past 20 years. He conveyed the southern property to Asquith, which left the northern parcel landlocked – it had no legal access from anywhere. The trial court granted the plaintiff an easement by necessity over the Asquinth parcel, up to the Melton property. Beginning at the Melton property, the court granted an equitable easement under the doctrine of balancing the hardships.

The Equitable Easement

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A fraudulent transfer is a transfer of property by a debtor to a third party with the intent to put that property out of reach of a creditor to satisfy their claim. If found to be a fraudulent transfer, the transfer is voidable as to the debtor. Voidable means that, if the third party took in good faith and gave reasonably equivalent value in exchange for the property, the transfer may not be reversed. If it had been void, the law assumes the transfer did not take place, and the creditor can attach the property. Parties facing a potential liability should consult with an attorney to determine the effect of transferring any assets to avoid a finding that the transfer was fraudulent relative to their creditors. In the decision I discuss today there was a judgment lien against real estate that was transferred and money borrowed, but the title insurer did not alert the lender. The lender in this case lucked out.

Sacramento-fraudulent-transfer-lawyerIn Nautilus, Inc. v. Chao Chen Yang et al., Nautilus is a maker of exercise equipment. It obtained a Judgment for $8 million dollars against Stanley Yang for counterfeiting Nautilus products. Nautilus recorded the judgment in April 2012. Immediately prior to the recording, Stanley and his brother Peter, who were both on title to a house in Fountain Valley, conveyed the property to their father Chao. After the judgment was recorded Chao obtained a reverse mortgage against the property. In the loan process the title Insurer failed to note the Judgment as an exception.

The loan cash was used to pay off the existing liens on the property, and Chao kept the balance of the cash. Nautilus discovered the conveyance and loan, and filed suit to set aside the fraudulent transfer. The trial court found that the lender was a good faith lender for value, and thus Nautilus could not recover damages from the lender. This appeal followed.

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Default judgments occasionally occur, and sometimes they may be set-aside or vacated by the court. There are several statutory grounds for a judgment debtor to get a default vacated. But what happens in the default judgment concerns title to real property? If there is a default judgment in the chain of title, potential buyers need to take notice and may need to consult a real estate attorney. There is a possibility that the judgment could be vacated, and the result would affect the buyer’s title. A question arises – is the potential buyer a bona fide purchaser for value, who may rely on the recorded judgment? And what are the limits to vacating the default? Those are questions learned the hard way by a disappointed buyer in a recent decision.

Sacramento-BFP-lawyerIn OC Interior Services, Inc. (OCI) vs. Nationstar Mortgage Inc., OC purchased real property knowing about a recorded default judgment in the chain of title. The default judgment nullified the appellant’s deed of trust. It started when the original owner obtained a $2 million loan on a property in Silverado, California. He filed a lawsuit to cancel the deed of trust and snuck in a default judgment. OCI paid $750,000 for the property, knowing that it was worth $1.5 million. OCI was aware of the issue; it obtained title insurance for $937,500- over $150 thousand more than the purchase price! Before OCI purchased the property it asked its title insurer “‘what happens if this [default judgment] gets appealed?’ And they said, ‘That’s why you have title insurance.’ ”

The original lender got the default judgment vacated and proceeded to foreclose. OCI filed this lawsuit. OCI claimed that it qualified as a bona fide purchaser for value, relying on the recorded default judgment showing that the deed of trust had been wiped out. The court of appeals did not agree.

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The Statute of Frauds requires certain agreements to be in writing. The reason is that these agreements are too important to allow oral agreements, as they are susceptible to fraud. It is codified in Civil Code section 1624, and also applies to agreements for real estate commissions, about which the Supreme Court has said that a “broker’s real estate commissions agreement is invalid unless the agreement `or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by the party’s agent.'” But what happens when not everyone who should sign does? Parties may need to consult with a Sacramento real estate attorney, because a dispute may result that the contract is not valid. I have never seen a matter where a real estate broker did not require ALL the parties on title to sign a listing agreement, but that was the case in a February decision regarding a listing agreement signed in 2013 – they waited four years to get a result, which is why, in my experience, everybody must sign. In this case, in a decision that combined the statute of frauds, the equal dignities rule, and the parole evidence rule, the broker lucked out…

Sacramento-Statute-of-frauds-attorneyIn Bernice Jacobs v. John Locatelli as Trustee, Jacobs was the broker looking to sell vacant land in Marin for over $2 million dollars. The broker Jacobs signed, as did Locatelli. However, there were blank signature lines for five other people, five other owners.

Right above Locatelli’s signature line is the notation “Owner: John B. Locatelli, Trustee of the John B. Locatelli Trust,” with his title listed as “Trustee.” As mentioned above, while there were signature lines for the remaining owners, they were left blank. However, at the very top of the agreement, “Owner” is defined (with emphasis added) as “John B. Locatelli, Trustee of the John B. Locatelli Trust, et al.” “Et al.” clearly means, in this context, “and others.”

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California law takes trees seriously and provides enhanced damages when someone harms them. There is provision for doubling the damages incurred for harm caused to timber, trees, and underwood, and trebling it if the harm is intentional. (Civil Code section 3346.) Another provision allows doubling the damages for harm to trees. (Civil Procedure section 733, set out below). Sacramento real estate attorneys commonly get asked about neighbor trees with overhanging branches and troublesome roots. However, in a recent decision where a landowner with an abundance of chutzpah went onto their neighbor’s property and cut trees to improve their view, they were surprised to learn that not only were they liable for three times the $40,000 to restore the property, but also three times the $30,000 awarded noneconomic damages for annoyance and loss of enjoyment of the property.

Sacramento-tree-damage-attorneyIn Jeanette E. Fulle v. Kaveh M. Kanani, the defendant lived uphill from the plaintiff. Plaintiff Fulle’s trees blocked the defendant’s view of the San Fernando Valley, so the defendant had workers go onto the plaintiff’s property and cut down the limbs and branches of six trees. Of course, he did not ask permission first. This lawsuit ensued.

The jury awarded $47,000 in damages, plus another $30,000 for noneconomic loss “including annoyance and discomfort, loss of enjoyment of the real property, inconvenience and emotional distress.” The trial judge trebled the economic damages per section 3346, but would not apply the multiplier to the noneconomic damages. It reasoned that use of the phrase “actual determinant” in 3346 intended to narrow the multiplier to economic damages. This appeal followed.

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There is a difference between an “Agreement to Agree” and an Agreement to Negotiate the Terms of an Agreement. An agreement to agree is not an enforceable contract, and thus there is no duty to negotiate. In the case of the agreement to negotiate, failure to reach the ultimate agreement alone is not a breach of the agreement to negotiate. Only if the failure is due to one party’s failure to negotiate in good faith is there a breach. That is because California law imposes an implied covenant of good faith and fair dealing in contracts. Parties entering preliminary agreements in expectation of further negotiations and a formal contract should be very careful how they describe that initial agreement. For example, a Letter of Intent regarding purchase of real property may be interpreted as containing a duty to negotiate in good faith, unless the Letter expressly disclaims such as agreement. The Agreement should also include waivers of the implied covenant of good faith and fair dealing and damages, and state that it does not create an obligation to negotiate. A party considering a Letter of Intent in a large real estate transaction may want to consult with an experienced real estate attorney to be sure the Letter describes what their actual intent is.

sacramento-letter-of-intent-attorneyIn one case a letter to the plaintiff from the defendant began: “ It is a pleasure to draft the outline of our future agreement ….” After outlining the terms of the agreement, the letter concluded: “If this is a general understanding of the agreement, I ask that you sign a copy of this letter, so that I might forward it to Corporate Counsel for the drafting of a contract. When we have a draft, we will discuss it and hopefully shall have a completed contract and operating unit in the very near future.” (Beck v. Am Health) The court concluded that it was an agreement to agree, because the language of the letter showed an intention that no binding contract would exist until there was a formal contract.

When parties begin the negotiation process with no obligation to do so, they do not have a duty to negotiate in good faith. It is only if the parties are contractually compelled to negotiate doe the covenant to negotiate in good faith become implied.

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In my prior post I discussed the doctrine of Practical Location and how it was historically the same as that of Agreed Boundary. Years ago in more rural times, properties were not so strictly delineated and there were few fixed and permanent monuments to guide owners. Sacramento real estate attorneys could know that where parties in good faith resolve their doubt regarding a boundary by the practical location of the common boundary it will be considered the boundary called for by the deed. Over time as land became more regulated these concepts appear to diverge, but did they really?

Sacramento-property-line-attorney It wasn’t until the French decision in 1963 that the court came up with a specific formulation for the doctrine of boundary by practical location, which appears to be from whole cloth as the elements described were not provided in the cases or the law review article cited by the court. The French court stated that the doctrine of practical location “… provides that where the owner of a larger tract conveys a parcel thereof that he has delineated on the ground by fixed monuments, and the parties rely on such monuments as establishing the intended boundaries, the latter will prevail over any differing description in the deed.” (French v. Brinkman (1963) 60 Cal.2d 547, 551.)

New in this decision was the requirement that there be fixed monuments, even thought there were none in the case before the court. In French the plaintiff figured the property line was at the fence, and he sold the property to the fence. The line was actually beyond the fence, and the dispute arose. The court found plaintiff’s testimony prevailing, and that title would be quieted by practical location, at the fence line. Worth noting is that there were no stakes, pins, posts or markers discussed. Prior to building improvements (including the wall that acted as a fence), the plaintiffs could not find the original surveyor’s stakes. “Accordingly, they ‘just guessed’ at the property line.” Yet, the practical location prevailed.

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In California real estate law, there are situations where the boundary lines as observed on the ground do not match the deed description. Disputes arise when someone has a survey completed, and does not like where the fence or other marker is located, and contact a real estate attorney. There are several legal theories which may resolve the matter, such as adverse possession, prescriptive easement, practical location and agreed boundary. Little known is the relationship between the last two and how they had evolved.

sacramento-real-estate-boundary-agreement-attorney A practical location of a boundary line is simply an actual designation on the ground, by the parties, of the bounds called for in the conveyances. It has also been said that when an uncertain boundary line is fixed by practical location it is binding. (91 A.L.R. 6th, 1, ‘2.) It shares traits with the doctrine of agreed boundary, and the early Supreme Court decision in of Martin v. Lopes in ruling for the defendant, stated “[m]anifestly, the elements of agreed boundary, or practical location, as it is sometimes designated, were not present.” (Martin v. Lopes (1946)) In 1959 the court again used similar language in Ernie v. Trinity: “It may be inferred that there was an uncertainty as to the true line at the time the structures were erected, which uncertainty was settled by practical location on the ground at that time and was agreed to by the then coterminous owners.”

Sacramento-fence-line-lawyer In Nebel v. Guyer, the Third District reviewed a decision in which the parties marked off a boundary on a town lot by notching a fence on one end, and setting a pin on the other. The court found that the boundary line fixed as the west line of plaintiffs’ land controls over the description in the conveyance, since markings were made establishing the west boundary. Likewise, In Arnold, iron stakes installed by an owner of the parcel were accepted as marking the boundary of the lots. (Arnold v. Hanson (1949))

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Assigning claims and causes of actions regarding real estate to someone does not necessarily give them the right to file a lawsuit for quiet title. A quiet title action seeks a declaration of the parties’ rights to the real estate. A description of the parties’ legal interests in real property is all that can be expected of a judgment in an action to quiet title. Without an interest in the property itself, a party has no standing to ask the court to quiet title in the property or to obtain damages for the cloud on title. An action to cancel a trustee’s deed or other instrument transferring title is no different. Parties in this situation should speak with a Sacramento real estate attorney to make sure that the assignment has them covered because the assignment needs something else – assignment of all the assignor’s interest in the property itself. This was a surprise to several people in a 2012 California decision.

Sacramento-real-estate-attorneyIn Chao Fu, Inc. v. Wen Ching Chen, Chao Fu Inc. (CFI) had a 25% interest in property at 852-860 Villa Street in Mountain View, CA (conveniently located between a brewpub and a beer garden.). CFI’s secretary, Kuo, borrowed money from Chen (Lender) and Chen received a promissory note. Chen got nervous and wanted security. They gave him a deed of trust against the Mountain View property. The CFI principals were out of the country for a long time, and the lender foreclosed, obtaining title to the property.

The lender, in a further attempt to collect on the note, sued Kuo. Kao obtained an assignment from CFI of its claims regarding the dispute with the lender. Important is the language of the assignment:

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In the ordinary real estate or business sale escrow, the escrow officer owes duties to the parties to only the parties to the escrow, and not to third parties. There are a few exceptions, such as when the parties real estate sale escrow instructions require following a third party’s instructions, such as lender’s instructions for closing a loan. But it is generally difficult to prove that an escrow holder owes a duty to a third party, the breach of which would result in a finding of negligence. Such was the case in a recent decision which resulted from a misguided and tangled effort to avoid the “no assignment” clause in a commercial lease; parties concerned with suck lease provisions should consult with a real estate attorney.

Sacramento-escrow-liability-attorneyIn Alereza v. Chicago Title, the plaintiff Bobby wanted to buy a gas station which was on leased property, which would require assignment of the lease to the buyer. Escrow #1 was opened, but the landlord required a personal guaranty to allow assignment and the plaintiff did not want to do that. The plaintiff formed an LLC and assigned the purchase contract to the LLC, but the landlord still wanted a personal guaranty. Escrow #1 was cancelled.

The parties had a new idea – plaintiff would buy the interest in the seller’s LLC, thus the tenant would not change, and there would be no assignment. They opened escrow #2. The landlord found out, and said he would consider it a breach of the lease. Escrow #2 closed, and the plaintiff was not a party to the escrow. The escrow officer obtained an insurance certificate for the purchased business, but incorrectly got it in the name of the plaintiff’s LLC (created for escrow #1), not the Seller’s LLC. The parties were not speaking at the time, and nobody knew what was happening. The insurer sent a notice of cancellation of the original policy, and the landlord demanded a personal guaranty. It was not given, and there was an eviction action. The plaintiff gave the personal guaranty, and sued the escrow company for negligence. The court found that, as the individual plaintiff Bobby was not a party to the escrow, there was no liability.