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In California, a third party who acts in reliance on a quiet title judgment retains its property rights even if the judgment is later invalidated as void, as long as the third party qualifies as a bona fide purchaser for value. The third party must do so without knowledge of any defects in the judgment. But “knowledge” is a slippery term. Does it mean actual knowledge, or include “constructive” knowledge? is a legal concept that, in real estate, generally applies when the document must be recorded as prescribed by law. The buyer may not have seen it, but the law treats them as if they had. In a recent decision out of Inglewood, CA, the court decided that they must have neither actual notice or constructive notice. This decision is interesting because the buyer would have had to do some digging (and actually did obtain title insurance) to realize there was a defect.

Quiet-title-judgment-attorneyIn Tsasu LLC v. U.S. Bank Trust, N.A the court had a complicated series of facts.

– Celestine borrowed money from CIT, who assigned the deed of trust to US Bank. It was then assigned to DLJ.

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The alter ego doctrine is a procedure that creditors use when their judgment is against a corporation or LLC which is owned by, or controlled by, a sole shareholder. Usually, the corporation has no assets to collect from, and the goal of the creditor is to go after the shareholder’s personal assets, claiming that the corporation is a sham. In effect, the corporation is the shareholder’s alter ego and the shareholder should not hide behind the corporation. Reverse veil piercing is a newer concept in which a creditor with a judgment against an individual goes after the assets of the corporation which the debtor controls. In a recent decision from Southern California, two LLC members got slammed for a huge judgment – as aptly described by the Court: “There are numerous ways in which an LLC or corporation is undercapitalized. Here, wealthy principals of an LLC withdraw or add money at will. This enviable position does not allow the LLC to become undercapitalized when its shareholders intend to avoid liability.”

Sacramento-alter-ego-attorneyIn Triyar Hospitality Management, LLC v. WSI (III) – HWP, LLC (an unpublished decision), Triyar was under contract to buy a hotel from WSI; the hotel was subject to a Hyatt operating agreement. The Hyatt agreement terminated while Triyar was doing its due diligence, but Triyar did not know about the termination. (What is due diligence anyway?) Triyar passed on the purchase but then learned about the termination of the Hyatt agreement. In a costly case of chutzpah, Triyar then claimed that the Hyatt agreement was so burdensome, the termination increased the hotel value by $11 million, and sued ESI for fraud – I guess not telling them the agreement had terminated.

The trial court said haha; it’s your own fault for not doing your due diligence. The court awarded WSI over $2 million dollars in attorney fees. WSI could not collect the judgment, so moved the court to amend the judgment to add the Yari brothers, principals of Triyar, to the judgment on an alter ego theory. The court agreed, and this appeal followed.

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A Quiet Title action is a lawsuit that a person files to establish their title against adverse claims. For example, what if a signature is missing on the deed of trust, and the deed of trust is foreclosed? Was it a necessary signature, for example, the wife of the owner, when the wife was not on the deed? In a recent decision from Grenada Hills, the Note Holder started the process for a trustee’s sale, and the owner filed a quiet title action. He claimed that it was community property, and there is a legal presumption that it is community property, so the deed of trust could be voided by the wife who did not sign it. He was right!

Sacramento-Deed-of-trust-attorneyIn Trenk v. Soheili, as a result of a Settlement Agreement in an unrelated matter, Trenk agreed to pay $100,000 and executed a promissory note and a trust deed on the Residence to secure the obligation.

Trenk stopped regular payments on the note after 2003, and by 2018 he still owed about $75,000. Soheili began nonjudicial foreclosure proceedings in January 2018. The Trenks then filed this lawsuit to clear title to their house, alleging that the trust deed was no longer enforceable.

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California law provides enhanced damages when someone harms a tree on another person’s property. The tree is owned by the owner of the real estate. There is a 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.) A statue can double the damages for harm to a tree. (Civil Procedure section 733). However, both statutes specify enhanced damages for “trespass.” In a recent decision, a party decided to build a house, but roots from the neighbor’s tree was in the way of the foundation. So they cut the roots killing the tree. The tree owner was disappointed that this did not qualify for treble damages.

sacramento-neighbor-tree-attorneyIn Raymond Russell et al., v. Cornel Dorin Man et al., a ‘massive” Jeffrey Pine (85 feet tall, 40 inch d.b.h.) was located on the property line between the two parties in Big Bear Lake. The defendants built a house on their property, though according to the city’s development code they should not have been allowed to. Almost any house on the property, no matter how configured, would be too close to the tree’s “critical root zone.” Under the Big Bear Development Code, it was forbidden to dig in a tree’s “critical root zone.” This was defined as a circle around the tree with a radius of one foot for every inch of the tree’s diameter at standard height (four and a half feet above the ground, which used to be called “breast height”). Here, the tree’s diameter at standard height was 40 inches, so it’s critical root zone had a radius of 40 feet.

Defendants had hired a draftsman who prepared the building plans and then submitted them to the city. Those plans misrepresented the tree as being behind the proposed house, rather than to the side. Even according to the plans, however, the house was within the tree’s critical root zone. In fact, there was no way to build on the property without killing the tree. Nevertheless, the city inspected the site and issued a building permit.

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The general rule is that a bona fide purchaser of California real estate for value who acquires their interest in the property without knowledge or notice of another’s rights or interest in the property takes the property free of such unknown interests. The usual way a purchaser receives notice is through recorded documents – mostly learned about in California by receiving a Preliminary Title Report, which the buyer receives if they are going to obtain title insurance. The way to research recorded documents is through the index – the recorder indexes documents by the names of the parties. The buyer’s title insurer searches for the names listed in the owner’s deed But sometimes the recorded documents do not all have the exact same names but some variation thereof. In a recent decision, when it came to names, the court said close, but no banana (some might say cigar). The buyer obtained the property free and clear of plaintiff’s liens because then names were not close enough and they did not have notice.

Sacramento-real-estate-attorneyIn Vasquez v. LBS Financial Credit Union, LBS had recorded Abstracts of Judgment against “Wilbert G. Guerrero.” Years later The Vasquezes bought property from “Guillermo Guerrero,” who was the same individual subject to the judgment. In the Guerrero – Vasquez purchase & sale documents were numerous versions of Guerrero’s name, including one handwritten reference in the 10-page purchase agreement to the name Wilbert Guillermo Guerrero. Guerrero’s cursive signature on page 10 appears to be either “Guillermo Guerrero” or “Guillermo Guerrero W.” The name “Wilbert Guillermo Guerrero” is handwritten below Guerrero’s signature, where the form specifies to “[p]rint name. In the counteroffer Guerrero signed the acknowledgment and acceptance twice. One signature appears to be “Guillermo Guerrero W.,” and the second appears to have the same signature, except it is not discernable whether the name is followed by a “W.” “Guillermo Guerrero. The Title report stated the Guerreros’ interest in the property was vested in “Guillermo Wilbert Guerrero and Laura Olivia Guerrero, husband and wife as joint tenants.” The report identified a deed of trust in the amount of $198,000 to secure a note for borrowers “Guillermo Wilbert Guerrero and Laura Olivia Guerrero, husband and wife as joint tenants.” The report also identified three tax liens against “Guerrero[,] Guillermo” and a 2008 abstract of judgment for $16,312.38 against “Guerrero Construction and Development, Inc. and Guillermo Guerrero.” The preliminary title report did not identify the LBS abstracts. LBS wanted their money, and this lawsuit ensued.

The Court first noted that the bona fide purchaser without notice may seek a legal determination through a quiet title action that the title it obtained remains free and clear of any adverse interest in the property. Constructive notice of a lien or other interest in property arises from the proper recording of that interest.

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Quiet title actions establish claims for and against title to California real property. Quiet title has its own rules regarding t when the statute of limitations begins to run – courts look to the underlying theory of relief to determine the applicable period of limitations. Once that is determined, whether a statute of limitations bars an action to quiet title may turn on “whether the plaintiff is in undisturbed possession of the land.” But what exactly disturbs possession of land? A recent decision out of Lafayette CA determined if the posting and recording of a Notice of Trustee’s Sale disturbed the owners’ possession. Wells Fargo was not pleased with the result.

Sacramento-quiet-title-attorney-1In Huang v Wells Fargo Bank, Wells Fargo held two letters of credit (home equity loans) that had been paid off in a refinance. Wells Fargo never issued or recorded any reconveyances of these two deeds of trust. The owner defaulted, and the refinance lender foreclosed. The Huangs purchased the Property from the successor to the foreclosing lender in February 2009. They were issued a policy of title insurance from Fidelity National Title Company (Fidelity). The following month, Wells Fargo recorded a notice of default and election to sell the Property under the power of sale in the First Wells DOT.

On August 24, 2009, Wells Fargo recorded its notice of trustee’s sale. The Huangs received the notice when it was posted on the door of the Property that month. The Huangs contacted their title insurer Fidelity, who informed them that it was going to conduct an investigation and contacted Wells Fargo to resolve the issue. The trustee’s sale did not proceed as scheduled. In the months following, Fidelity sent the Huangs periodic updates to identify new points of contact and to state the investigation was ongoing, but they never received any communication from Fidelity telling them there was a resolution of the dispute with Wells Fargo. Between July 2010 and May 2014, the Huangs heard nothing further and assumed the matter had been resolved. In May 2014, nearly five years after the Huangs gave Fidelity the notice of trustee’s sale, they were told that Wells Fargo claimed it had two deeds of trust secured by the Property and was again threatening to foreclose. The Huangs filed suit against Wells Fargo to quiet title to the Property.

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A junior lienor is a lender who is not in first place on the property – there is a senior lien in front of them. This often occurs when an owner has paid down the senior and takes out an equity loan, or may be the result of a purchase. If the senior forecloses, the junior can pay the senior lien, or buy the property at foreclosure. The junior then stands in the place of the senior. Alternatively, the junior can allow the foreclosure to take place, in which case it becomes a sold-out junior – it has no security for the debt. The junior must pursue the borrower personally to get paid. If the senior’s foreclosure results in a sale with excess proceeds, they may be paid by order of priority. But what happens if the junior lienor holds a lien on less than the entirety of the property? That was the case in a recent decision in which the junior was secured by only 75% of the property. The court found that the junior was only entitled to 75% of the proceeds. The owner of the 25% got the remainder.

Sacramento-junior-lien-AttorneyIn Zieve, Brodnax & Steele, LLP v Dhindsa, a father had 75% interest, and his son the remaining 25% in property in Turlock. The senior lender held a lien against 100% of the property, and the juniors lien was only against the father’s 75% – the son’s interest was not included. The senior foreclosed and got paid, leaving a surplus of $160,000 available. The dispute was whether the 25% owner got any.

The junior lender wanted all the proceeds, so it relied on Civ. Code, § 2924k, subd. (a)(1)–(4), set out in full at end of post.) This provides that First, the costs of foreclosure are paid. Second, the foreclosing creditor’s secured obligations are paid. Third, junior lienors are paid in their order of priority (this is what the trial court relied on). Lastly, any remaining funds are given to the vested owner of record at the time of the foreclosure sale. In this case the trial court awarded the entire surplus to the junior creditor, but it was reversed on appeal.

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In California real estate Partition actions, Courts are able to award reasonable attorney fees “incurred or paid by a party for the common benefit.” CCP §874.040. This applies even in contested partition suits. It is all in the court’s discretion – fees incurred by a defendant to a partition action could be for the common benefit, and therefore allocable in part to the plaintiff, despite the fact that the defendant had “resisted partition, with the claim that plaintiff had no interest in the subject property, that it belonged to defendant alone, and that plaintiff was a mere volunteer in paying the delinquent taxes. However, courts have found that fees incurred “advocat[ing] a position of limited merit” are not for the common benefit and should be borne by the party “pressing” such “spurious matters.” A court may achieve a similar result through an exercise of its equitable discretion under section 874.040 and require a party to bear its own fees. But what if there is a written agreement between the parties which contains an attorney fee provision? In a recent decision, the parties entered a settlement agreement regarding property that did not limit the right to partition. When one filed a partition action, claiming to be enforcing the settlement, the court disagreed that they could invoke the attorney fee provision.

Sacramento-partition-attorney-fee-attorneyIn Orien v. Lutz, three siblings were gifted two properties from their mother; they each obtained one-third undivided interest. Once mom died they fought over her probate estate, resulting in s a settlement agreement which included the 2 properties. The exact language is set out at the end of this post below; in summary, the Settlement said that if the parties agreed, they could sell the properties, but this did not prevent them from filing a partition action. Another provision provided for attorney fees to anyone who brought an action to enforce the agreement or prevent its breach.

Eventually the plaintiff filed this action seeking a partition. Partition was granted. The trial court awarded attorney fees to plaintiff pursuant to paragraph 21.1 of the settlement agreement and Civil Code section 1717, which governs awards of attorney fees for actions on contract. The trial court agreed that the action “concerned enforcement of one of the provisions of the settlement agreement—paragraph 11.1—that allowed for partition by sale of the properties at issue” and therefore fell within the attorney fees provision.

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Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust.

Sacramento-Deed-of-Trust-LawyerWe start with the U.S. Supreme Court decision in Carpenter v. Longan (83 US 271.) In that great 1872 style of legal writing, it states:

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity. That the debt is the principal thing and the mortgage an accessory. Equity puts the principal and accessory upon a footing of equality, and gives to the assignee of the evidence of the debt the same rights in regard to both.”

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A corporate merger is when two corporations combine to become a single firm. There are several types of mergers, including those where both corporations still exist after the merger. One type is a Triangular Merger. In this, the acquired corporation continues in existence as a wholly-owned subsidiary of the acquirer without transferring any assets. In a triangular merger there usually are two agreements which typically might be called “Agreement of Merger” and “Agreement of Reorganization”, respectively. The Agreement of Merger is the statutory agreement drafted, executed and filed with the Secretary of State pursuant to California Corporations Code.

A corporation is considered a separate legal entity apart from its owners. The transfer of corporate stock is not deemed a transfer of the real property of a legal entity because the separate legal entity still owns the property. However, a traditional merger—one in which two or more corporations merge, one survives and the others disappear—results in the transfer of the assets of each disappearing corporation to the surviving corporation. In a recent decision, parties did not want a transfer of real estate because of contractual relations that made a transfer of the property costly

(and it would trigger a property tax reassessment). They used a reverse merger so that there was no transfer of real estate. The court said that was ok… it was not intended to cheat shareholders or creditors, so the court would respect the transaction.

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