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In my last post regarding dedication of land I discussed how land may be dedicated for public use in a process is described as implied by law if the public has openly and continuously used the property for five years. Implied by law is similar to the process for a prescriptive easement, but it is not the same. The requirements were established by the series of court decisions up until the legislature took action, enacting new law effective in 1972. The possibility of dedication by use prior to 1972 is still controlled by the common law, but for uses beginning in 1972, the statutes apply. If a party is not sure about the public’s rights to use private property relative to the timing pre and post 1972, based on five years of use prior to 1972, they should contact a Sacramento commercial real estate attorney.

Sacramento-land-dedication-attorney-2The decision in Gion discussed in Part 1 resulted in a lot of hubbub due to perceived changes in the law. Previously there was a presumption that public use was by way of a license granted by the owner. But Gion held that the court would not rely on such a presumption. In addition, there was no requirement the use be “hostile” and “adverse” in the sense of a prescriptive right – the public did not have to use the property under color of title or claim of right. Nor is it required that the owner be aware of the public use.

The legislature responded by enacting Civil Code section 1009 (set out in full below), which provides that no use of property by the “shall ever ripen to confer upon the public or any governmental body or unit a vested right to continue” to use the property unless the owner made an irrevocable order of dedication that had been accepted by the governing body. Hence, the idea of implied dedication for public use is dead for uses after 1972.

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Land may be dedicated for public use, as a road for example, by express dedication, or it may be implied. The process is described as implied in fact if the public uses the property and the acts of the owner indicates that they consent; or implied by law if the public has openly and continuously used the property for five years. Implied by law is similar to the process for a prescriptive easement, but it is not the same. What was required was established under the common law (court decisions) up through the Gion decision, which resulted in the Legislature passing new law to protect landowners. However, the new legislation acted prospectively, meaning that, for uses occurring up through 1971 when the law was passed, Gion governs implied dedication. If a party wants to establish the public’s rights to use private property based on five years of use prior to 1972, they should contact a Sacramento real estate attorney. My next post, Part 2, will cover the 1972 legislation and what is now required to establish an implied by law dedication to the public,

Sacramento-property-implied-dedication-to-public-lawyerGion v. City of Santa Cruz involved an old roadbed on the seaward side of West Cliff Drive, between Woodrow and Columbia Streets in Santa Cruz, that had been quitclaimed to the owner and developer of the surrounding property by the city. Most of the area, however, had never been used for anything but the pleasure of the public. Since at least 1900, various members of the public parked vehicles on the level area and proceeded toward the sea to fish, swim, picnic and view the ocean. The city had filled in small amounts of the land and placed supporting riprap in weak areas. The city also put an emergency alarm system on the land and in the early 1960’s paved the parking lot.

Sacramento-property-dedicsion-to-public-attorneyThe trial court found that :

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Co owners of real property in California are entitled to bring an action for partition of the property, in which the property is either divided between the owners or sold and the proceeds split. The split goes by percentage of ownership interest – two equal coowners get 50% each. However, they are each entitled to an accounting for charges and credits upon their respective interests. Such items as improvements or payment of taxes are included in the calculation. In a decision out of the Third District Court of Appeal, the court clarified that an owner may be credited for what their predecessor in interest had done. Thus, when the father who was a co-owner who made improvements and then conveyed his interest to his daughter, she got credit for his improvements. However, she entered the property as a tenant, and the lease was not terminated when she became an owner. The improvements she made herself were governed by her lease, and she did not get credit in the partition.

Sacramento-partition-attorneyIn Wallace v. Daley the Third District Court of Appeal faced a partition of property in Arbuckle. The plaintiff started as a tenant; her father was a co-owner with the defendant. The property included an almond orchard, house, and outbuildings. When the plaintiff moved in the house was infested with rats; the septic tank overflowed, and sewage flowed over the ground; the back porch of the house had rotted to the ground from termite damage the roof of the bunkhouse had caved in, the barn was “totally useless.”

When his daughter moved in, she and her father laid a new foundation and built a new bathroom. A septic tank was added, the electrical wiring was renovated, and the burned-out barn and the bunkhouse were removed. The barn was replaced with a concrete and metal building, the chimney and well were repaired and the roof of the house was replaced. During plaintiff’s tenancy, a horse barn and corrals were built and the tank house was renovated.

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Contracts related to real estate transactions often have arbitration provisions included, requiring the parties to submit their disputes to an arbitrator rather than the court. Some standard forms, such as the CAR forms, have optional arbitration provisions that apply if accepted by all parties. Commercial Brokerages often require binding arbitration in the representation agreements. The argument for arbitration is that it is faster and cheaper. This may be true in low-dollar transactions, but otherwise, I believe it is a myth. Also, arbitrator decisions are not appealable, even if erroneous. I’ve written before about alternatives to arbitration, namely judicial reference and general reference, which allow hearings by a referee and oversight by the court. However, in a recent decision, a contract required binding arbitration under AAA rules (with a panel of 3 arbitrators) and the large brokerage was well on its way to bankrupting the plaintiff due to the cost of the proceeding. The court rescued the plaintiff, finding that if they could not afford the arbitration, the matter could be heard by the court.

Sacramento-real-estate-arbitration-attorney-1In Weiler v. Marcus & Millichap Real Estate Investment Services Inc., the plaintiffs hired Marcus & Millichap to advise them regarding a 1031 exchange of their Las Vegas Properties for a commercial property in Texas with a Red Robin restaurant, supposedly worth $4.1 million. They claim that M&M represented that this was a solid income producing property, and that the tenant was required to pay the property taxes. Shortly after the deal closed the tenant became delinquent in rent and property taxes. The plaintiffs lost money and eventually sold the property for $2.1 million less than they had paid.

The plaintiffs filed suit, but their contract with M&M required binding arbitration through the American Arbitration Association (AAA). M&M had the court order the case to arbitration. The court retained jurisdiction for monitoring the arbitration.

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A common belief is that to claim adverse possession of real property, all one has to do is pay five years of overdue property tax, and take possession of the property. Parties trying to establish adverse possession in California must prove several elements: (1) Possession must be by actual occupation under such circumstances as to constitute reasonable notice to the owner. (2) It must be hostile to the owner’s title. (3) The holder must claim the property as his own under either color of title or claim of right. (4) Possession must be continuous and uninterrupted for five years. (5) The holder must pay all the taxes levied and assessed upon the property during the period. This last element is seldom the focus of court decisions, but in a recent decision the claimant was disappointed to learn that a change in the law requires timely payment of assessed property taxes.

Sacramento-attorney-adverse-possessionIn McLear-Gary v. Emrys Scott, McLear-Gary claimed an easement along a logging skid trail. Emrys Scott replaced an old wooden gate with a metal gate across the easement route and kept the gate locked, blocking McLear-Gary from accessing the easement.

The trial court found that McLear-Gary had established an “exclusively pedestrian” prescriptive and implied easement over the properties belonging to the defendants, the court concluded this easement was extinguished by adverse possession when Emrys Scott, acting for the benefit of the common interests of his cotenants, locked and maintained the locked gate (not always hostile notice of adverse possession!) across the easement route and otherwise met the requirements for the affirmative defense.

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When co-owners of real estate cannot agree about what to do with the property, they always have a right to file a lawsuit for Partition. Traditionally, this process was designed and used to literally split the property in to “equal” parcels. However, if the value of the property is primarily a building or home, a physical split does not work, so the Judge may order sale of the property and splitting the proceeds. If the parties can agree, they may partition by appraisal, with one buying the other out. Courts have explained that Partition is “the procedure for segregating and terminating common interests in the same parcel of property. It is a “remedy much favored by the law. The original purpose of partition was to permit cotenants to avoid the inconvenience and dissension arising from sharing joint possession of land. An additional reason to favor partition is the policy of facilitating transmission of title, thereby avoiding unreasonable restraints on the use and enjoyment of property.” Sometimes, due to market conditions, it makes sense to ask the court to order the sale of the property immediately, and after the legal process unwinds, to split the proceeds. In a decision this year out of San Francisco the court ordered the sale first, with deciding the split later. However, one of the parties was unhappy when the court of appeals said that they had it backwards- you must first determine the split, then sell.

Sacramento-partition-attorneyIn Summers v. Superior Court, Summers and Tan were co owners of an investment property. They had a dispute and a partition action was filed. The trial court ordered the property to be partitioned and sold, and the parties’ ownership interests to be determined at a later date. Summers appealed.

The Court first noted that Code of Civil Procedure Section 872.720. Subdivision (a) declares that “[i]f the court finds that the plaintiff is entitled to partition, it shall make an interlocutory judgment that determines the interests of the parties in the property and orders the partition of the property.” (A ruling is interlocutory if it left issues for future determination.) The order of partition “shall order that the property be divided among the parties in accordance with their interests as determined in the interlocutory judgment (emph. added).” (§ 872.810.)

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In an action for “specific performance” a party to a contract seeks the court order the other party to perform as required by the contract. One requirement for such an order is that the remedy at law is inadequate – that is, the plaintiff cannot be adequately compensated by the payment of money. In the case of contracts for the sale of real property it is presumed that property is unique and breach cannot be adequately compensated for with money. (Civil Code section 3387.) The problem Sacramento real estate attorneys usually see is a dispute as to the buyer’s performance – did the buyer perform every trivial step such that the seller was forced to convey the property. In a recent decision a buyer of a commercial property spent over $600,000 on the purchase and seeking entitlements, but did not take the last required step of paying $3 million dollars within 30 days of getting permits, and he lost the property.

Sacramento-specific-performance-attorneyIn Tierney v Javaid, Tierney wanted to buy a gas station property at 376 Castro Street in San Francisco, and build condominiums. The parties entered a contract in 2004. The entitlement process was complicated and ended up taking Tierney eight years—until 2012—to secure the conditional use permit authorizing him to demolish the gas station and construct the residential units. At that point, however, the owner refused to sell, and the lawsuit followed.

The Purchase and Sale Agreement (PSA)

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When someone uses real property which they do not own, they are a trespasser, but if enough time passes that trespass can become an enforceable right. There are several flavors of rights- equitable easement, prescriptive easement, and adverse possession that are considered by the courts and real estate attorneys in analyzing these cases. In a recent decision the negligent trespasser struck out on all three.

sacramento-equitable-easement-lawyerIn Eric Hansen v Sandridge Partners, LP, the Hansens were farmers. They planted their own property plus a disputed area of ten acres. They learned that the neighbors were in talks to sell their property, and Hansen remembered that there was a discrepancy in the line they had been farming, and there was “a lot line adjustment issue.” He spoke with the neighbor about it and they discussed the issue, but there was no conclusion. The Hansens went ahead and put in irrigation on the disputed property, and then planted pistachio trees. The sale closed and the parties still could not resolve anything, so Hansen sued to quiet title to a prescriptive easement. The trial court denied this claim, but did find that the Hansens had established a right to an equitable easement. The court of appeals said no, the Hansens get nothing, no easement, no adverse possession. But I’ll bet that they would have gotten a prescriptive easement if their complaint was drafted correctly.

Equitable Easement

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The award of attorney fees in California lawsuits is governed by the “American Rule,” in which ordinarily each party pays their own fees. However, parties may enter a contract that has an attorney fee provision which allocates attorney fees, usually to the prevailing party in a lawsuit. A recent Northern California decision involved such provisions in a complicated real estate transaction. The Seller & Buyer of property (Sundower Towers in Reno) also entered a “repurchase agreement,” which required the Seller to later buy the property back. Later, they entered a third agreement – an option, in which the Buyer granted the Seller the right to buy the property back. A lawsuit followed based on the Repurchase Agreement, but the court found this agreement unenforceable because it created an illegal subdivision. However, the defendant raised the Option agreement as an affirmative defense and sought attorney fees under the Option. In a lengthy opinion, the Supreme Court found that raising the affirmative defense did not trigger the option attorney fees provision, but it still found a way to award attorney fees.

Sacramento-option-attorney-2In Mountain Aire Enterprises, LLC v. Sundowner Towers, LLC, the option agreement contained the following attorney fees provision:

“Litigation Costs. If any legal action or any other proceeding, including arbitration or an action for declaratory relief[,] is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees, expert fees and other costs incurred in that action or proceeding, in addition to any other relief to which the prevailing party may be entitled.” (Italics added.)

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California title insurance policies essentially indemnify the insured party against loss due to (a) Liens or encumbrances on, or defects in the title to said property; (b) Invalidity or unenforceability of any liens or encumbrances thereon; or (c) Incorrectness of searches relating to the title to real or personal property. The usual scenario Sacramento real estate attorneys see is where the insurance company has liability is if it misses a lien or title defect which later creates a problem. The insured property owner or lender then makes a claim and efforts are made to resolve the problem. But what happens when the title is transferred before the problem is discovered? the holder of insurance may get sued, and then they make a claim against their insurance. In a recent case in Fresno County buyer at a foreclosure was disappointed to learn that the foreclosing lender’s insurance would not help. Due to the policy language and the nature of a trustee’s sale, the insurance was out of reach, and the new owner had to pay off the lien.

Sacramento-title-insurance-attorneyIn Hovannisian v First American Title Insurance Company, Wells Fargo held a loan secured by a “first” deed of trust. First American provided a lender’s title insurance policy. The borrower defaulted and Wells Fargo foreclosed. The Hovanissians, plaintiffs here, bought the property at the trustee’s sale. They subsequently discovered that there had been a deed of trust recorded prior to Wells Fargo’s which was still a lien against the property. Apparently, this had not been discovered by the title company. Wells Fargo was thus unaware of it.

The plaintiffs made a demand on the title company which was denied – they were never an insured under the policy. Wells Fargo then made a demand on the title company, likewise denied, because Wells Fargo no longer owned the property. Wells Fargo assigned its claims against the title company to the plaintiffs. Plaintiffs then filed this action against First American.

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