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I have noted in a prior post how difficult it is to have a court review legal errors in an Arbitrator’s decision. A recent Federal Court Ninth Circuit decision nails the coffin closed under the Federal Arbitration Act.

The FAA provides that a court may vacate an award “where the arbitrators exceeded their powers.” Arbitrators exceed their powers when they express a “manifest disregard of law.” For this to be shown, court’s have concluded that it must be clear from the record that the arbitrator recognized the applicable law and then ignored it.’

In this case regarding a lawsuit between limited and general partners, the Arbitrator awarded the GP $1.5 million damages, plus $20 million in punitive damages.

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Mike Kelly of Sonoma recently reported in his blog that an unnamed executive with Bank of America told him that B of A will be using Equator (REOTrans) to manage their Short-Sale negotiations nationwide. This task oriented web portal means that they are getting serious about Short-Sales.

This move gives borrowers 24/7 access to a portal through which they can provide the necessary information to process a short sale and receive real-time status updates electronically. As reported in DSNews, it also automates decision making for the lender, handles approvals for faster turnaround, provides quick fulfillment, and assures full compliance with government programs.

This is a good thing. It’s no secret that Lenders have not been responding to short sale deals. Whether they chose to be understaffed or not, the workload has been an obvious problem. Automating the process, like their standard mortgage procedure, indicates the belief that short sales are no longer an aberration, but rather a new portfolio. The more lenders that take this approach, the better.

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Federal bank regulators issued guidelines allowing banks to keep loans on their books as “performing” even if the value of the underlying properties have fallen below the loan amount.

As reported in the Wall Street Journal, Regulators said that the rules were designed to encourage banks to restructure problem commercial mortgages with borrowers rather than foreclose on them. But the move has prompted criticism that regulators are simply prolonging the financial crisis by not forcing borrowers and lenders to confront, rather than delay, inevitable problems.

Banks have generally been avoiding commercial real-estate losses by extending these mortgages upon maturity, a practice, billed by many industry observers as “extending and pretending.”

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Jim Wasserman’s comments in the Sacramento Bee this week about the sobering outlook for the Sacramento office market are a local example of a nationwide problem.

Comptroller of the Currency John Dugan noted last Monday that the Nation’s banks may be in for a “very rough ride” due to their commercial real estate portfolios. Speaking at the annual convention of the American Bankers Association, reported by Reuters, he noted that Government agencies have some help on the way for the lenders facing these challenges. This week, the federal bank regulators will publish new advice on loan modifications for commercial mortgages. That’s right, Loan Modification guidelines for commercial borrowers. The regulators will be giving the banks guidelines.

As reported in the Philadelphia Enquirer, Capmark Financial Group Inc.’s (a major commercial mortgage lender) bankruptcy filing was no surprise, but was still a harsh reminder of the hard times ahead in the commercial real estate industry. “It’s not a turning point. The problems are only starting,” Dennis Yeskey, a senior adviser at AlixPartners L.L.P., a business-advisory firm in New York, said yesterday.

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A recent California decision pitted homeowners against the contractor who was supposed to build their retirement home. The job didn’t get done, and the contractor was in for a big surprise.

The homeowners contracted with the defendant corporation to construct the home for them. California law requires a corporation holding a contractor’s license to designate a “responsible managing officer” or “responsible managing employee”, either of which must be actively engaged in the work of the corporation. The contractor here was a corporation; the qualifying license holder, Diani, was an absentee owner, on a mission in Peru for three years, and had turned over all operations to Terry (who handled the homeowners’ project.). Diani testified that he did not own any stock in the corporation, that he had given it all to Terry. Diani did not receive any compensation or profits from the corporation.

There were numerous disputes between the homeowner and Terry, and work was stopped. Terry recorded a mechanic’s lien against the property, and the lawsuit began.

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On Sunday Gov. Schwarzenegger signed into law SB 94, effective immediately, which bans loan modification firms from being paid up-front, or even asking to be paid up-front. It also restricts attorneys from representing homeowners in trouble.

For some time the Department of Real Estate was already requiring licensed agents who received advance fees to have contracts approved by the Department. However, once the Notice of Default was recorded, no advance fees were permitted. Generally speaking, attorneys licensed in California were not subject to such prohibitions.

The new law requires that, under all circumstances, the loan modification firm must first fully perform all the services they contract to perform, or represent that they would perform, before being paid. Sounds simple- do the work first, and then get paid, what is wrong with that?

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On further review, I want to clarify my last post. (http://jfalconelaw.wordpress.com/2009/09/30/california-senate-bill-306-short-sales-easy-as-it-looks/trackback/)

It appears that the “short sale request” is actually the request for payment demand that the escrow officer sends to the lender.

The “short pay agreement” is the initial agreement with the lender,in which the lender approves a short sale. There is nothing in the statute that puts a deadline on the lender’s initial response to a request from an owner who has received an offer – that problem remains.

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Senate Bill 306, signed into law this September, changes some of the rules for California real estate short sales . Much of the excitement around this legislation is a revision to Civil Code section 2943 that provides, when an owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

This excitement overlooks what is required by the statute to trigger the lender’s duty to respond quickly. The statute describes a short sale request as a written request that includes;

A. A copy of an existing contract to purchase the property for an amount certain;
B. A copy of the short-pay agreement in the possession of the entitled person.
C. Information related to the release of any other liens on the property, if any.

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A recent California decision looked at a case where a seller of real property did not disclose recorded deed restrictions, but the buyer received a Preliminary Report from a title company which referred to the recorded restrictions, but did not describe them. The buyers claimed that they never read the preliminary report. When the buyers discovered the restrictions five years later, they sued the seller for failure to disclose.

The purpose of the recording law is to provide “constructive notice” of recorded documents regarding real property interests to resolve disputes regarding priority of interests. For example, a recorded deed of trust provides notice to a buyer that the property is subject to a lien, which if not paid before the title is transferred, remains attached to the property in the hands of the new owner. If the buyer did not check the recorder’s office, too bad for him, as he has constructive notice.

However, in this case the court of appeals noted that a seller has a statutory duty to disclose deed restrictions -it is on the Transfer Disclosure Statement- how could the seller miss it? The court found that the preliminary report did not satisfy the seller’s duty to disclose. It concluded that the existence of recorded documents does not prohibit the seller from suing for non-disclosure. However, the court did say that the seller may argue that the buyers could not justifiably rely on the seller’s nondisclosure, because they did have a preliminary report which disclosed the existence of the deed restrictions. A reasonably prudent buyer is obligated to read the preliminary report.

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Typically, not much attention is given to the language of arbitration provisions in contracts, especially California real estate purchase and sale contracts or leases, and never by consumers. A recent group of California decisions point out that rather than just initially the paragraph, contracting parties should consider what the provision provides for.

In 2008, the California Supreme Court reviewed an arbitration agreement that was governed by the California Arbitration Act. The agreement provided that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” The losing party appealed on the grounds that the arbitrator made a mistake of law. Earlier that year, the U.S. Supreme Court held that no such review was available under the Federal Arbitration Act. However, the California court ruled that, given the language used, under the California act an arbitration agreement can provide for review of errors of law by arbitrators. (Cable Connection 44 Cal.4th 13334.)

Subsequently, a court of appeal considered a case involving a California residential purchase contract that required binding arbitration would be governed by the Federal Arbitration Act (“FAA”). The FAA is commonly required on California Association of Realtor (C.A.R.) Purchase forms. In this case, the property was on an island and had two docks. After the buyers moved in, a neighbor tore out one dock and relocated to his own property-apparently he had this right. The buyer sued because the right to move the dock was not disclosed- apparently the Broker did know about it.

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