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July 16, 2012. Posted by: Samira Kermani.

New Anti-Deficiency Protection for Refinance Loans Made After January 1, 2013

Starting January 1, 2013, a new California law will protect homeowners who default on their refinance loans from personal liability for any deficiency following foreclosure. Existing anti-deficiency law protects a borrower from personal liability for the difference between the principal balance and what the lender receives at foreclosure if the loan is a purchase money loan secured by an owner-occupied property with one-to-four residential units. The new law, Senate Bill 1069, extends that anti-deficiency protection to include any loan used to refinance the purchase money loan, plus any loan fees, costs, and related expenses for the refinance. The anti-deficiency protection, however, does not extend to any "cash out" in a refinance, which is when the lender advances new principal not applied to any obligation owed under the purchase money loan. This new law does not affect the other anti-deficiency protections for non-judicial foreclosures (or trustee's sales) and seller financing.

This new law only applies to refinance loans or other credit transactions used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, that are executed on or after January 1, 2013. For purposes of this law, any payment of principal shall be deemed to be applied first to the principal balance of the purchase money loan, and then to the principal balance of any new advance and interest payments shall be applied to any interest due and owing.

C.A.R. supported Senate Bill 1069 in the legislative process as many homeowners do not realize that, by refinancing, they lose their anti-deficiency protection for a purchase money loan. Senate Bill 1069 is similar to Senate Bill 1178 sponsored by C.A.R. in 2010, but vetoed by Governor Schwarzenegger. The full text of the law is available at www.leginfo.ca.gov



December 14, 2011.   Posted by: Samira Kermani 

Homeowners' Associations' CC&R's
          A developer cannot compel binding arbitration of a construction defect action brought by a condominium homeowners association pursuant to an arbitration provision in the declaration of Covenants, Conditions & Restrictions.   Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc.  (filed November 8, 2011).
For the full text, please click here:  
http://www.metnews.com/sos.cgi?1111%2FB225086



December 1, 2011.  Posted by: Samira Kermani 

Eminent Domain
          Under California's "quick-take" eminent domain procedure--whereby a public entity filing a condemnation action seeks immediate possession of the condemned property upon depositing with the court the probable compensation for the property--if a lender holding a lien on the property applies to withdraw a portion of the deposit, the property owner's failure to object does not constitute a waiver of the property owner's claims and defenses.
Los Angeles County Metropolitan Transportation Authority v. Alameda Produce Market, LLC.
(filed November 14, 2011).  For the full text, please click here:
http://www.metnews.com/sos.cgi?1111%2FS188128 


October 21, 2011.  Posted by: Samira Kermani

Discipline of Real Estate Brokers and Licensees
            Real estate commissioner cannot constitutionally discipline a real estate licensee based on a judgment procured by proof by a preponderance of the evidence rather than on clear and convincing evidence.     The Grubb Company, Inc. v. Department of Real Estate.   First District, Div. Four.   Cite as 2011 S.O.S. 2336.  
Full text click here


October 19, 2011.  Posted by: Samira Kermani

Purchase and Sale Agreements:
            Nature of a contract for the sale of real property does not necessitate that a "time is of the essence" clause be implied where escrow instructions did not provide for one. Probate court did not err in finding buyers' failure to tender performance on escrow by the scheduled closing date to be breach of the purchase contract and properly authorized seller to retain buyers' bid deposits.   Conservatorship of Buchenau.   filed May 31, 2011, publication ordered June 21, 2011, Second District, Div. Seven.   Cite as 2011 S.O.S. 3344
Full text click here

October 17, 2011Posted by: Samira Kermani

Easements
            Trial court did not abuse its discretion in granting an equitable easement to owners of a landlocked parcel along a driveway that was already in use by neighboring landowners. Complaint directed toward goal of "obtaining a right of passage over the defendants' properties to allow for ingress and egress" to plaintiffs' property adequately raised a justiciable issue as to whether plaintiffs were entitled to an equitable easement. Procedural posture of the case did not prevent trial court from granting equitable easement where defendants undisputedly communicated to plaintiffs that they considered any use of driveway across their property to be trespassing and plaintiffs sought to have the matter resolved before proceeding with plans to develop their property. Longstanding prior use is not a condition for granting an easement in equity.   Tashakori v. Lakis.  Filed June 21, 2011, Second District, Div. Four.  Cite as 2011 S.O.S. 3339. 
Full text click here


October 14, 2011
Posted by: Samira Kermani


New California laws in 2012 affecting real estate agents and brokers, and consumers of real estate services - 

        Now that the first half of the 2011-12 legislative session is over, significant new laws have emerged that may affect REALTORS® and their clients.  Below are some of the new laws involving disclosures, licensing, small claims court, landlord-tenant, and other areas of interest for the real estate practitioner.  The full text of a bill is available at www.leginfo.ca.gov

             Strengthening DRE Enforcement: Effective January 1, 2012, the DRE will have greater disciplinary authority to achieve its highest priority of protecting the public.  A licensee will be required to report to the DRE within 30 days of any of the following: (1) disciplinary action taken by another licensing entity in California or another state, or by a federal governmental agency; (2) an indictment or information charging a felony against the licensee; or (3) a conviction of a felony or misdemeanor, including a plea of guilty or no contest.  Failure to comply with this reporting requirement will be cause for discipline.  The DRE’s broader disciplinary authority will also include, among other things, the ability to automatically suspend the license of anyone incarcerated after a felony conviction.  For disciplinary actions, the DRE can conclusively presume without a hearing that a licensee’s conviction of murder, rape, lewd and lascivious acts, or a violation of dangerous drugs or controlled substances laws is substantially related to the licensee’s qualifications, functions, or duties.  The DRE will also be able to enter into a pre-prosecution settlement with a licensee or applicant instead of issuing an accusation or statement of issues, but the settlement shall be considered discipline.  Additionally, the DRE can request that a disciplinary order requires the disciplined licensee to pay reasonable investigation and prosecution costs.  Failure to pay can result in non-renewal of license.  The DRE can also require that a restricted licensee pays the costs for monitoring the licensee and monetary restitution to any person who sustained damages caused by the licensee’s misconduct.  Again, failure to pay can result in non-renewal of license.  Senate Bill 706. 

                DRE Issuing Citations and Fines: Starting January 1, 2012, the DRE can issue a citation and fine up to $2,500 if, upon investigation, it has cause to believe that a licensee has violated the DRE rules, or a unlicensed person has engaged in licensed activities.  The person cited can request a hearing within 30 days from receipt of the citation.  The citation and fine will be in lieu of DRE disciplinary action for the offense cited, and the citation will not be reported as discipline.  However, failure to comply with the terms of the citation or pay the fine within a reasonable time specified by the DRE shall result in disciplinary action and non-renewal of license.  The DRE may also apply to a superior court for a judgment in the amount of the fine and an order compelling compliance.  All administrative fines collected will be deposited into the Real Estate Recovery Fund, which has, under Senate Bill 706, been renamed the Consumer Recovery Account.  Additionally under this law, if the DRE delays the renewal of a license due to a pending disciplinary action, the license will not expire until the results of the disciplinary action are final or the license is voluntarily surrendered, whichever occurs first.  This law also gives the DRE the authority to make public information confirming the fact of certain investigations or proceedings regarding a licensee, and to apply for a court order to enforce a subpoena if a licensee has refused to obey.  Senate Bill 53.

            Revising the Notice of Sale:
   Effective April 1, 2012, a notice of trustee’s sale for the non-judicial foreclosure of one-to-four residential units must contain specified notices to the owner on how to seek postponement of the trustee’s sale, and to potential bidders on the risks involved in bidding at trustee auctions.  Additionally, a lender or authorized agent must make a good faith effort to provide up-to-date information about sale dates and postponements to persons who want this information.  The lender must also provide updated information through the Internet, a telephone recording, or any other means that allows free access at any time.  Senate Bill 4.

            Renting Out Condominiums: C.A.R. also successfully sponsored legislation protecting owners’ right to rent out their units in common interest developments.  Starting January 1, 2012, an owner in a common interest development is exempt from any prohibition in a governing document against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit.  When renting out a unit, the owner must give the HOA verification of the owner’s acquisition date, and name and contact information of the prospective tenant.  An owner’s right to rent under this law does not terminate for certain transfers of title, including, but not limited to, probate, spousal, parent-to-child, adding a joint tenant, and other transfers exempt from property tax reassessment.  For sales transactions, the required HOA disclosures must include a statement describing any prohibition in the governing documents against renting or leasing.  This law does not apply to rental prohibitions in effect before 2012.  Senate Bill 150.

            Tenants Smoking Ban:  Beginning January 1, 2012, a residential landlord can prohibit the smoking of cigarettes and other tobacco products on the property, including any dwelling unit, building, other interior or exterior area, or the premises on which the property is located.  For new tenants on or after January 1, 2012, the areas where smoking is prohibited must be stated in the lease or rental agreement.  For preexisting tenants before 2012, a new provision prohibiting smoking is a change in the terms of tenancy that requires adequate written notice, depending on whether the tenancy is month-to-month or for a fixed term.  Senate Bill 332.

            Tenants Recycling Rights: Sarting July 1, 2012, a multifamily residential dwelling of five or more units (or a multifamily residential dwelling or business that generates more than four cubic yards per week of commercial solid waste as defined) must arrange for recycling services.  The intent of this law is to address the challenges local governments are facing in reducing solid waste disposal in multifamily properties.  The required recycling services are to be consistent with state or local laws, to the extent that these services are offered and reasonably available from a local service provider.  The property owner of a multifamily residential dwelling may require tenants to source separate their recyclable materials to aid in compliance with this law.  Assembly Bill 341.
 
   

 

October 1, 2011Posted by: Samira Kermani

            District court erroneously concluded that lack of Article III standing was grounds for dismissal under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim where Plaintiffs alleged concrete injuries-in-fact when they claimed that they overpaid for their homes, which they purchased in new developments, and suffered from decreased value and desirability of their homes, caused by the developers' practice of marketing neighboring homes to individuals who presented a high risk of foreclosure and abandonment of their homes, financing those high-risk buyers, concealing that information, and misrepresenting the character of the neighborhoods. Plaintiffs also sufficiently alleged that defendants, not third parties, inflated the "bubble" in their particular neighborhoods, causing plaintiffs to overpay for their homes. Plaintiffs should have been granted leave to amend their complaint to attach expert testimony on causation as to their decreased value claims.  Maya v. Centex Corporation
filed September 21, 2011.
Full text click here

September 27, 2011.   Posted by: Samira Kermani

Adverse Possession


In action to quiet title, evidence that plaintiffs "disced" their property two or three times a year, posted a "for sale" sign near the property, and introduced themselves as owners of the property at a meeting failed to establish a triable issue of material fact with respect to their claim that they acquired a 100% interest in the property by adverse possession under a claim of right where it was undisputed that the property was unimproved and that plaintiffs never told the defendant cotenants to stay off the property, never put up a fence or barrier prohibiting entry on the property, and never excluded the cotenants from the property.
Hacienda Ranch Homes, Inc. v. Superior Court (Elissagaray). 
Filed August 30, 2011, Third District.  Full text click here 
 

   
August 5, 2011
.  
Posted by: Samira Kermani

            
Exculpatory Clauses in the California Real Estate Purchase Agreement Do Not Bar Claims By Buyers Of Real Property Alleging That The Seller's Brokers Made Intentional Misrepresentations About The Property 
 
            Anne Manderville et al. v. PCG&S Group, Inc. et al.
(2007) 146 Cal.App.4th 1486 Here, the Court of Appeal  determined that exculpatory clauses contained in a purchase contract are against public policy to the extent such clauses exempt any individual from liability for his own fraud and therefore do not bar a buyer of real property from showing that he justifiably relied on a broker’s intentional misrepresentation about the character of the property.  The court also found that any lack of due diligence by a buyer in investigating zoning and other laws restricting the use of property, even if negligent, does not preclude the buyer from establishing justifiable reliance if (a) there has been an intentional misrepresentation; and (b) the purchase contract only permits, but does not require, the buyer to undertake his or her own due diligence.

        Background:  Buyers agreed to purchase property to subdivide and build adjacent homes on.  Buyers, through their agent, Fowler, found a multiple listing service (MLS) advertisement for property located in El Cajon, California.  The listing stated in part that the 2.62 acre property could be split. However, Buyers and Fowler found a previous MLS listing for the same property that did not state that the property could be subdivided.As a result of the discrepancy in the two MLS listings, Fowler contacted the Listing Broker (“Brokers”), and asked for confirmation that Buyers could indeed subdivide the property.  During her deposition, Fowler testified that although she lacked a specific recollection of the Brokers’ answer, her handwritten notes made during the call indicated that the Brokers stated that the County of San Diego already approved a subdivision of the property to some extent and that a purchaser could subdivide the property.  However, the Brokers knew that the county classified the property the property could not be subdivided.Several days after the telephone call, Buyers submitted an offer to purchase the property on a standard C.A.R. purchase agreement form. 

             The fully executed Agreement contained 3 exculpatory clauses: (1) paragraph 7 stated that Buyers had the “right” to conduct inspections and investigations and strongly advised Buyers to investigate the condition and suitability of all aspects of the property, including ordinances affecting the zoning and development of the property; (2) paragraph 26 contained an integration clause stating that the Agreement embodied all understandings with respect to the agreement and could not be contradicted by evidence of any prior agreement or contemporaneous oral agreement; and (3) a handwritten term from the seller’s counteroffer stating that “Buyer[s] to satisfy themselves to use of property with warranties or representation to use.”After the close of escrow, Buyers discovered that they could not subdivide the property because the general plan mandated a minimum lot size of 4 acres.  Based on the representation of the Brokers that the property could be split, Buyers filed a claim against the Brokers alleging three counts of deceit for intentional misrepresentation, negligent misrepresentation, and suppression of facts.  The trial court granted summary judgment in favor of the Brokers, finding that Buyers contractually assumed a duty to investigate limitations on the future development of the property and, as a matter of law, Buyers could not show justifiable reliance on the Brokers’ statements.

              Exculpatory clauses in real estate purchase agreements do not prevent a buyer from showing justifiable reliance on a broker’s intentional misrepresentation.

              
The Court of Appeal held that Buyers could maintain a claim for intentional misrepresentation notwithstanding the Brokers’ claim that the three exculpatory clauses in the Agreement prevented Buyers from showing that they justifiably relied on the Brokers’ misrepresentation that the property could be subdivided.  The court noted that all contracts that exempt anyone from responsibility for his own fraud, willful injury to another, or violation of a law are against public policy.  That the Brokers were not parties to the contract did not preclude the court from finding that the exculpatory clauses, as applied to the Brokers’ liability for their intentional misrepresentations, were invalid.  Since the trial court had found that a fact-finder could reasonably determine that the Brokers intentionally misrepresented the feasibility of subdividing the property and that Buyers reasonably relied on this misrepresentation, the Court of Appeals found that summary judgment on Buyers’ intentional misrepresentation claim was inappropriate.A buyer’s failure to diligently investigate a broker’s representations does not bar a claim for intentional misrepresentation.

              Finally, the Court found that Buyers’ negligence in investigating the Brokers’ misrepresentation that Buyers could subdivide the property did not bar their claim for intentional misrepresentation.  The court noted that a plaintiff’s negligence in discovering the falsity of a misrepresentation is never a defense when the misrepresentation was intentional.  Moreover, the court found that the purchase agreement did not impose a contractual duty on the Buyers to investigate whether they could subdivide the property, but instead only conferred on them the right to do so.  Thus, Buyers’ failure to further investigate whether they could subdivide the property did not bar their claim against the Brokers for intentional misrepresentation.

May 1, 2011.  Newly released forms by the California Association of Realtors

Click here to view PDF's 
part 2 of 3 
part 3 of 3  


January 8, 2010.   Posted by: Samira Kermani

In a quiet title action the court has equitable powers to award compensation as necessary in the interest of justice even though neither party's pleadings specifically requested compensation.

        Vanderkous v. Conley, 188 Cal.App.4th 111 (2010)  
        
        Plaintiff Vanderkous brought action to quiet title against his former wife Conley.  The trial court found that plaintiff had legal title but that defendant retained an equitable interest. The court directed Conley to quitclaim her interest to plaintiff and directed plaintiff to pay Conley the full market value.  The court had jurisdiction to set aside Vanderkous’ Code of Civil Procedure Sec. 473 motion to dismiss and to order him to pay Conley’s attorney fees to defend against plaintiff's motion.  The trial court had equity jurisdiction to award Conley compensation for her interest in the property, even though she did not file a cross-complaint seeking affirmative relief, where defendant sought "such other and further relief as the Court may deem just and proper."   
        
        The appellate court affirmed and ruled that substantial evidence supported the trial court's valuation of defendant's interest.   Conley’s interest was formerly a garage area connected to the home on other lot--as a conforming legal lot.   Plaintiff previously intended to live on that lot in an apartment above the garage and wanted to give the other lots to his daughters.   Conley’s appraiser testified that the garage area parcel conformed to the size requirement for a single family lot under existing zoning and could be a legal single family lot if it were approved by the city.  Defendant's appraiser acknowledged that his valuation took into account the presence of functional utility hookups for the property.   Thus, it was affirmed that:  1) the trial court properly set aside the dismissal of the action; 2) the court properly ordered Vanderkous to compensate Conley for her equitable interest in the property when it quieted his title to the garage area; and 3) substantial evidence supports the property's valuation as a conforming legal lot.  Judgment of $214,000 in favor of Conley was upheld.    

  

December 17, 2010.   Posted by: Samira Kermani

California’s CCP § 580(e) - New Antideficiency Protection for Borrowers and Sellers of Real Property

            Effective January 1, 2011, SB 931 adds Section 580(e) to the California Code of Civil Procedure.  This new law is great news for most borrowers and sellers of real property involved in a short sale. The new California law provides that when the seller of a one to four unit residential property sells the property at a short sale, the first trust deed holder who consents in writing to the short sale cannot seek a deficiency judgment.

             A deficiency judgment is a judgment against the borrower for the difference between the unpaid balance of the secured debt and the amount produced by the sale of the security, whichever is greater. See CCP 726(b).  In plain English, we are addressing the shortfall between what is owed and the property’s final selling price.

             The new law applies only to loans secured by dwellings of one to four units. The new law does not apply to second or other junior lines against the property.  Section 580(e) also does not apply if the trustor is a corporation or a political subdivision of the state.

             Just as important, are two exceptions to the antideficiency protection, which have been heavily litigated and on which ample case law is available. The first is if the trustor commits “fraud” and the second is if the trustor commits “waste”.  The requisite elements of both exceptions are worthy of separate discussions as California case law has shaped the analysis and debate in both.  Beware that if the facts of your case fall under either of these two situations, Section 580(e) does not limit the ability of the lender to seek damages.

             In 2010, given the dismal state of California’s real estate market, the legislature passed additional antideficiency protections. Governor Schwarzenegger, however, did not let all the new protections through. He vetoed antideficiency protection made applicable to refinanced purchase money loans (SB 1178), which would have redefined “purchase money” to include “subsequent loans, mortgages, or deeds of trust that refinance or modify the original loan” and would have extended the protection to refinance loans.

             Section 580(e) protects homeowners as well as investors, as it is not limited to consumer transactions, nor limited to homeowner occupied dwellings.

             Antideficiency rules are complex, and many exceptions from the rules exist for junior lenders.

             The first part of the bill is nearly word for word from Code of Civil Procedure Section 580(d) which provides” “No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or estate for years therein” when the property is sold by the mortgagee or trustee under a power of sale contained in the mortgage or deed of trust (i.e., California’s nonjudicial foreclosure) it bars a personal judgment against the homeowner for the difference between the debt and the amount of the foreclosure sale and the amount owed by the homeowner. But it specifically states that it doesn’t matter if it was refinanced or not and is not limited to owner-occupied dwellings.

             The new 580(e) provides:
            580e. (a) No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.
            (b) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.
            (c) This section shall not apply if the trustor or mortgagor is a corporation or political subdivision of the state. 

October 28, 2010.   Posted by: Samira Kermani

Holmes v. Summer 188 Cal.App.4th 1510 (2010).

A new California appellate case expands liability for real estate brokers.

Prior to our current foreclosure debacle, this case may have come out differently. However, in this era of rampant foreclosures and upside-down properties, this ruling makes sense. The appellate court admits that its holding is based in part upon the current economic climate. It stated that transactions like this one that are "doomed to fail" in a "downtrodden economy" when the public needs to have confidence in real estate agents and brokers.

Holmes v. Summer holds that if a real estate broker knows that a listed property is substantially upside-down and cannot be sold without a "short sale", that broker has a duty to disclose to this material fact to a potential buyer. In this case, the buyer entered into a contract with a seller to purchase a house for $749,000. Then, the buyer (in reliance upon the sale) sells his own home to get the money to buy the new one, only to discover to his horror that the loans on the house total over $1.14 million, so the agreed upon purchase price won’t cut it. Holmes v. Summer, G041906 (Cal. App. 4th, filed Oct. 6, 2010). For the sale to have gone through, either the seller would have had to come up with the extra $392,000 or the various lenders would have agreed to write it off. Justice Moore writes "$392,000 is not exactly 'chump change."

Here, homebuyers sued the seller's broker, claiming that the broker was under an obligation to disclose to the buyers that the property was over-encumbered and could not be sold at the agreed upon purchase price. The Court of appeal reversed the trial court's judgment sustaining the brokers' demurrer to the complaint. The Court found that under the facts of this particular case, the brokers were obligated to disclose to the buyers that there was a substantial risk that the seller could not transfer title free and clear of monetary liens and encumbrances.

The seller’s broker argued that she had a duty not to disclose the seller's confidential financial information. However, the court ruled that the existence of the three deeds of trust was public record and could be disclosed.

I believe that even though most sophisticated brokers do disclose the existence of a short sale on the MLS and do use the C.A.R.’s short-sale addendum", the risks and the details of the "short fall" in dollars are often not clearly communicated to buyers.

Thus, this decision expands broker liability. The court now tells brokers they are "obligated to disclose to the buyers" when there is "a substantial risk that the seller [can] not transfer title free and clear of monetary liens and encumbrances."

This ruling raises troubling issues for brokers and it will be interesting to see if the California Association of Realtors becomes involved in the case if it is appealed further.

For a copy of the court opinion please click here.

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