Posted by Carrie B. Reyes | May 24, 2013 | Buyers and Sellers, Real Estate, Your Practice | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Today’s narrow housing market moves fast and competition is fierce. But you already knew that — the real question is what to do about it.

In April 2013, 73% of buyer offers compete against other offers nationally, according to Redfin. It’s a crowded playing field, and not everyone is playing fair. Buyer-occupants have difficulty competing with cash-flush, asset-hungry speculators, most of whom are inexperienced syndicators with money to burn issuing securities.

If you represent a buyer-occupant in this environment, you know this all too well. So what can you do to increase your buyer’s chances and gain a competitive edge?

• Negotiate: contact the seller’s agent and find out what terms are most important to the seller. It helps greatly to know the seller’s agent personally.
• Inspect the property with your buyer, with the intention of their meeting and talking to the seller to build a personal relationship, returning again to further that bond.
• Submit your buyer’s offer in person, so you can personally present the best case for your buyer to the seller’s agent, and get a sense of the seller’s willingness to negotiate on terms.
• Don’t cram extra requests in your offer – once the offer has been accepted, you can always approach the seller about that personal item your buyer wants to stay with the home. Let the specifics come later, after the seller has agreed to sell to your buyer. Not pretty, but the nature of this market is often to bet.
• Honor the old adage of keep it simple stupid (KISS) by refraining from requiring little fixes (like a leaky faucet) in the offer. Don’t let these ancillary items derail your making a deal. Better you hit the seller with these items when your buyer gets the home inspection report.
• Exclude any appraisal or loan contingencies if your buyer has cash reserves beyond their down payment amount, even if they are going to finance the purchase.
• Include a substantial earnest money deposit to demonstrate your buyer’s seriousness, but limit their liability exposure to a few hundred dollars, never the deposit.
• Have the buyer’s loan officer contact the seller’s agent to vouch for the strength of the financing, if the seller’s agent wants it.
• Offer to get pre-approved by the preferred lender of seller’s agent.
• Include a personal and sincere letter to the seller if the buyer plans to occupy the property.
• Make sure the buyer’s proof of funds and loan pre-approval are current (within 30 days).
• Make the offer as strong as possible at a price the buyer’s won’t regret. Avoid the “we should have offered more” and “we offered too much” sentiments.

These are all ways you can increase the chance of a seller accepting your buyer’s offer. As Always, the steps you take to best represent your buyer will vary depending on their motivation for purchasing a home.

Related article:

Redfin: Redfin Bidding War Report Shows Early Signs of Cooling Real Estate Market in Some Cities While Competition Intensifies in Others

first tuesday insight

Today’s low sales volume yet competitive environment is entirely due to hyperactive speculators, a short-lived process. When you represent a buyer with small cash reserves or little flexibility for purchase-assist financing, consider counseling them to wait it out until the speculator presence shrinks or interest rates rise, as both inevitably will.

A bidding war environment, no matter the nature of the competing buyers, only benefits the seller. When buyers are foolish enough to compete against other buyers to acquire a property at a price beyond its fair market value (FMV), they make serious financial mistakes – primarily by paying a price that will not appraise. This is the opposite of a buyer’s ideal situation, which pits them only against the seller to negotiate the best price, not sparring with other buyers over the seller’s property.

A real estate transaction is about the interests of two parties only – one buyer, one seller. If otherwise, the prudent buyer walks away, until the buyer can return as the only bidder dealing with the seller. Third party distractions place the buyer at an unfair disadvantage, and seller’s agents very well know this.

Speculator activity will shrink later this year as home prices level out, then decrease. Price decreases consistently occur within 12 months after a continuing decrease in sales volume, and sales volume began a downward slip at the end of 2012 and that trend is with us to this day.

Since this sales pricing scenario for 2013 and into 2014 is foreseeable, buyers who feel intimidated by multiple offer situations have no good reason to be discouraged about future prospects and give up on home buying. What we have today is not the next big boom. Thus, buyers can afford to wait.

In fact, for buyers it will likely be more financially prudent to wait. A rise in interest rates axiomatically infers a financially equivalent drop in the seller’s pricing, since most all buyer-occupant purchases include funding by a new mortgage.

Related article:

Home sales volume and price peaks

But then again, how many agents truly see bidding wars as a negative?

As competition pushes selling prices higher, agents “earn” higher fees. Better for agents, as the excitement yields ever more listings and buyers, and of course fees. Stability is lost to extreme volatility.

Agents typically cringe at the thought of counseling buyers to wait. They have been taught differently. The longer it takes a buyer to go to escrow – to buy – the less likely it becomes that all of the agent’s hard work and talent invested will actually pay off with a closing.

But isn’t it the buyer’s agent’s duty to give the client the best possible advice on timing the market and secure the best price attainable for their client?

So what do you think: advise a buyer to wait it out for lower prices when things cool off (as they always do, thanks to the Fed), or go with the flow and buy while the market is speculator hot?

Share your opinions in the comments below and let your voice be heard in the poll!

RE: Tips for buyers in a fierce seller’s market from the Washington Post

Related topics:
agent advice, buyers,

Posted by Matthew Shade | Jul 24, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowners’ association (HOA) held an election to amend its bylaws to increase the spending threshold that requires a vote for approval. With the ballot, the HOA included a letter advocating for the amendment and published additional materials using HOA resources in support of the amendment. The HOA published no opposition materials and did not allow owners within the HOA to use HOA resources to voice an opposition, as required in the HOA’s Covenants, Conditions and Restrictions (CC&Rs). An election to increase the dollar threshold passed.

Claim:  An owner in the HOA community sought to void the election’s results, claiming the election was invalid since the HOA violated its CC&Rs as it used HOA resources to advocate a view and did not allow members with opposing views access to the same resource.

Counter claim:  The HOA claimed the election results were valid since all resources went to informational use, not advocating a particular position.

Holding:  A California Court of Appeals held the election results were void and the HOA may not amend its bylaws since the election violated the HOA’s CC&Rs requiring opposing views to receive equal access to HOA resources. [Wittenberg v. Beachwalk Homeowners Association (2013) ___ CA4th___]

Related topics:
conditions & restrictions (cc&rs), covenants, hoa, homeowners association (hoa)

Posted by Matthew Shade | Oct 18, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A borrower obtained a purchase-assist loan arranged by a California licensed broker and originated by a federally regulated lender. The borrower missed a payment and was assessed a late fee following a grace period. The borrower made the following payments within 10 days of the subsequent due dates, which were applied retroactively to the prior months’ missed payment. As a result, each monthly payment was considered late, incurring a late fee.  

Claim: The owner sought money damages, claiming the lender breached the loan contract since the payments were not applied to the installments due within 10 days of the payment as required of a loan arranged by a broker.

Counter claim: The lender claimed the loan contract had not been breached since payments were applied in the order they were due, as required of a federally regulated lender.

Holding: A California Court of Appeals held the loan contract was not breached since the lender was federally regulated and thus payments were to be applied in the order they were due. [Akopyan v. Wells Fargo Home Mortgage Inc. (2013) __ CA4th __]

Editor’s note— Under California state law governing loans arranged by brokers, payments made within 10 days of a due date installment are applied towards that installment. [Calif. Civil Code §10242.5]

However, the lender servicing the loan was federally regulated. Under federal law, payments are applied in the order they are due, and are thus applied to missed payments first. Had the lender been state regulated, the California law would have applied. However, as the lender was federally regulated, the federal law controlled. [12 United States Code §1 et seq.]

Related topics:
loan originator, mortgage loan broker (mlb)

Posted by Nicole Jessen | Dec 10, 2013 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Tighter restrictions implemented to stop unlicensed advertisers and protect consumers in PRLS transactions. PRLS license fees increase.

BRE citations for unlicensed advertisers

Business and Professions Code §§149
Amended by S.B. 269
Effective date: January 1, 2014

The Bureau of Real Estate (BRE) now has the authority to issue a citation ordering an unlicensed individual who runs an advertisement in a telephone directory offering to perform services requiring a license to cease the unlawful advertising. The BRE’s citation compels the company providing telephone service to the unlicensed individual to cancel telephone services.

The BRE Commissioner may cite unlicensed prepaid rental listing service providers

Business and Professions Code §§10080.9

Amended by S.B. 269
Effective date: January 1, 2014

The Real Estate Commissioner may order an individual who performs prepaid rental listing services without a prepaid rental listing services (PRLS) license or BRE broker license to cease activities. The Real Estate Commissioner may also assess a fine of up to $2,500 per violation.

PRLS license application fees increase

Business and Professions Code §10167.3

Amended by S.B. 269
Effective date: January 1, 2014

The application fee for a PRLS license has been increased from $100 to $125 for the first location and from $25 to $50 for each additional location.

Changes to the PRLS agreement

Business and Professions Code §§10167.9, 10167.95
Amended by S.B. 269
Effective date: January 1, 2014

An agreement to provide prepaid rental listing services is to include the PRLS licensee’s or BRE broker’s license number.

In addition to the agreement to provide prepaid rental listing services, the licensee is to provide the prospective tenant with the following notice in no smaller than 12-point type:

YOU MAY BE ENTITLED TO A REFUND IF YOU DO NOT RECEIVE THE SERVICES YOU HAVE BEEN PROMISED. COMPLETE TERMS AND CONDITIONS GOVERNING THE REFUND TO WHICY YOU MAY BE ENTITLED ARE CONTAINED IN YOUR CNTRACT. THE FOLLOWING IS A SIMPLIFIED SUMMARY OF SOME OF THE RIGHTS DESCRIBED IN YOUR CONTRACT:

If (name of licensee) does not provide you with at least three available rental properties meeting the specifications of your contract within five days after you pay the fee charged by (name of licensee) during the term of your contract, you are entitled to a refund of your fee, minus a service charge, which may not exceed ____ dollars ($____). To obtain this refund, you must provide (name of licensee) with written documentation or a signed statement that you obtained a rental without the assistance of (name of licensee) or that you did not move. This documentation or signed statement must be provided to (name of licensee) with a written request for refund, within 10 days following the expiration of your contract.

If (name of licensee) fails to refund your money, as required by your contract, you may sue (name of licensee) in a small claims court. The court may award you the refund you failed to receive, plus additional damages, up to$1,000.

If you wish to file a complaint about (name of licensee) or if you cannot collect on a court award, you should contact the Bureau of Real Estate at 1–877–373–4542 or www.bre.ca.gov.

PRLS licensees now subject to Consumer Recovery Account rules

Business and Professions Code §§10470, 10471, 10475
Amended by S.B. 269
Effective date: January 1, 2014

If the Consumer Recovery Account is less than $200,000 on June 30 of any year, PRLS licensees renewing their licenses within two years of the shortage are required to add an additional $1 to their renewal fees.

Consumers may now apply to recover settlement amounts or money judgments against a PRLS licensee from the Consumer Recovery Account. If Consumer Recovery Account funds are paid to a consumer to satisfy settlements or judgments against a PRLS licensee, that licensee’s PRLS license is automatically suspended.

Reinstatement of the PRLS license is granted when the licensee repays the amounts paid from the Consumer Recovery Account in full, plus interest.

Related topics:

Posted by Sarah Cantino | Aug 16, 2013 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Claim  your depreciation deduction for nonresidential properties!

26 United States Code §168
Amended by H.R. 8
Effective date: January 1, 2013

A 50% bonus depreciation is available for tenant improvements (TIs) on nonresidential property originally constructed and put into use between December 31, 2007 and January 1, 2014.

To qualify for this 50% depreciation deduction, the TIs must be constructed:

• under a lease agreement;
• on property used exclusively by the tenant; and
• more than three years after the building was placed in service.

The following improvements do not qualify for the 50% depreciation deduction:

• building enlargements;
• elevators or escalators;
• structural improvements to common areas; and
• the internal structural framework of a building.

Editor’s note — This 50% bonus depreciation deduction was originally slated to expire on January 1, 2013. It was extended by The American Taxpayer Relief Act of 2012, otherwise known as a fiscal cliff deal. A similar but separate 100% first-year bonus depreciation deduction was available in 2011.

Related article:

100% first-year depreciation deduction on tenant improvements

 

Related topics:

Posted by ft Editorial Staff | Aug 5, 2013 | Brokerage Reminder, Buyers and Sellers, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

When acting as a buyer’s agent, a large portion of your time is spent assisting your buyer locating qualifying properties. However, you generally are not involved in this initial step of locating a property when:

• you represent a buyer at a real estate auction;
• the buyer has already located a property to purchase independent of you; or
• you and the buyer have already located a property of interest and no written employment agreement assuring a fee exists. [See first tuesday Form 103]

When a specific property has been selected by the buyer, you need to enter into a written single property fee agreement with your buyer. The agreement safeguards your time spent on behalf of the buyer by assuring collection of a fee if the buyer acquires the property. [See first tuesday Form 103-1]

Related article:

Fee agreement to buy a specific property – the buyer assures payment

The single property fee agreement is essentially a buyer’s retainer agreement of the contingency fee variety, in contrast to an advance fee arrangement, setting the fee amount to be paid by the seller, and not by the buyer, contingent on the buyer acquiring the property.

Without the need to locate a suitable property, the single property fee agreement lists the specific tasks you, as the buyer’s agent, are to do to receive your fee, such as:

• evaluating the economic suitability of the transaction;
• attending an open house with the buyer prior to auction and inspecting the property;
• obtaining and analyzing a title profile on the property;
• examining pest control reports;
• obtaining plat maps of the area surrounding the property;
• checking the property’s proximity to schools, markets, financial institutions, etc.; and
• developing an opinion of the property’s fair market value (FMV). [See first tuesday Form 103-1 §3.1]

If the buyer is already aware of a suitable property, or has located a suitable property prior to or after working with you, you must then enter into a single property fee agreement with the buyer as soon as possible. With the writing in hand, you hold an enforceable fee arrangement with the buyer, whether it is the seller or the buyer who is to pay your fee.

Once a suitable property has been selected for purchase, it is in your best interest not to enter into a listing agreement with the seller to establish an enforceable right to collect a fee. Doing so with the seller unnecessarily creates a dual agency under circumstances not understood by many agents, and thus the dual agency goes undisclosed.

If you enter into a listing agreement with the seller, you will then be representing both the buyer and the seller, taking on an agency duty to each of the opposing parties in the transaction. This dual agency relationship must then be disclosed and consented to by both clients.

When you have been working with a buyer to locate property and the buyer decides to acquire a specific property, your prior conduct with that buyer has established a client relationship with them. Thus, it is the buyer who needs to sign a single property fee agreement. The writing formally employs you as the buyer’s agent and assures payment of a fee if the buyer acquires the property, whether it is the buyer or the seller who is to pay the fee. [L. Byron Culver & Associates v. Jaoudi Industrial & Trading Corporation (1991) 1 CA4th 300]

After the buyer signs the single property fee agreement granting you the right to collect a fee, you can then prepare a purchase offer for signing and delivery to the seller. The terms of the purchase offer signed by the buyer include a fee provision calling for your fee to be paid by the seller as part of the buyer’s agreement to purchase the property. [See first tuesday Form 159 §15]

In the instance of a real estate auction, a buyer’s agent has absolutely no assurance their buyer will be the highest bidder. Thus, under a regular buyer’s listing agreement calling for a fee to be paid on the buyer’s acquisition of the property, you run the very real risk of receiving no compensation for your time, effort and talent conducting due diligence investigations and assisting in the bidding – the epitome of sunk costs. Sunk costs are not recoverable under any present or future condition and are lost forever.

Related articles:

The private owner auction niche and licensees: Part I

The private owner auction niche and licensees: Part II

When the buyer does acquire the property as the highest bidder, the single property fee arrangement is structured as a percentage of the price paid, such as 3%, or a fixed dollar amount, to be paid by the buyer. [See first tuesday Form 103-1 §5.1]

However, you need to be paid under some formula for handling auction situations when the buyer does not win the bidding contest. When the buyer does not acquire the property, the fee under the single property agreement calls for compensation based on an hourly wage, such as a dollar amount per hour, for your time spent investigating and assisting the buyer prior to completion of the auction. Alternatively, you can arrange to be paid a flat lump-sum fee for your services rendered. [See first tuesday Form 103-1 §5.3(a), (b)]

Related topics:
buyers listing agreement

Posted by ft Editorial Staff | Sep 23, 2013 | Brokerage Reminder, Buyers and Sellers, Real Estate | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Consider a buyer who breaches a purchase agreement containing a liquidated damages provision, and cancels escrow. The seller is advised by their agent to make a demand on the buyer for the entire good-faith deposit since amounts up to 3% of the price are presumed valid. [Calif. Civil Code §1675(c)]

When the demand for the forfeiture is made on the buyer through escrow cancellation instructions, the buyer may:

• agree to forfeit the deposit;
• challenge the liquidated damages provision as voidable and demand a return of their deposit; or
• demand an itemization of the seller’s money losses to determine the buyer’s liability.

By demanding an itemized list of the seller’s money losses, the buyer makes a legal challenge to the presumed validity of a forfeiture provision for deposits up to 3% of the purchase price.

When a buyer demands their deposit be refunded, the seller is obligated to provide an accounting. In it, they state their losses in dollar amounts. If their unrecoverable losses equal or exceed the amount of the deposit, they can keep the entire deposit under the 3% validity rules. If the losses are less, the seller is not entitled to the entire deposit and is obligated to return the difference. [CC §1675(c)]

If the seller fails to respond with an accounting, they waive any claim they may have to recover their losses.

When challenged, the seller needs to itemize and prove their money losses caused by the breaching buyer. These losses include:

• any decline in the property’s value at the time of the buyer’s breach;
• the seller’s transactional costs incurred on the lost sale which are not recoverable on a resale; and
• any increased operating costs or rent losses caused by compliance with conditions in the purchase agreement and incurred prior to the resale of the property.

The buyer will cover these itemized losses from the good-faith deposit up to any dollar limitation set by a liquidated damages or liability limitation provision in the purchase agreement.

A seller who seeks to recover losses from a breaching buyer who asserts their right to pay only the seller’s actual money losses needs to:

• resell the property, rather than retain the property unsold;
• calculate the total amount of the price-to-value loss, lost transactional expenses and the loss of non-value-added improvements or repair expenditures made to prepare for the closing;
• make a demand on the buyer for the amount of the itemized money losses; and
• if not paid, pursue collection of the lost money and a release of the amount from the buyer’s deposit, subject to any agreed limitation on the dollar amount of the buyer’s liability for their breach.

If the seller decides to keep the property, they have no losses unless they provide evidence of their money lost. The seller may recover their itemized losses from the deposit. The remainder is returned to the buyer.

The 3% threshold

The deposit works as security for amounts owed the seller in the event of actual losses on the buyer’s breach. The recovery of losses is limited to the total amount of the deposit, regardless of amount, under liquidated damages clauses or contractual limitation provisions.

Also know that the good-faith deposit, even if released to the seller after contingencies have been removed, is the buyer’s money until:

• the buyer receives consideration (the property); or
• the deposit is offset by reimbursement to the seller for their actual money losses suffered due to the buyer’s breach, which is best shown by comparisons of the estimated closing statement for the breached transaction and the closing statement on the resale.

Related article:

https://journal.firsttuesday.us/brokerage-reminder-liquidated-damages-a…

Whether the deposit is more or less than 3% of the price is not the issue when it comes to what the seller can keep for money losses. Once challenged by the buyer, the seller has to prove they lost money. No matter the deposit amount as a percentage – more or less than 3% – the seller can keep nothing more than their actual losses.

For deposits up to 3% of the price, it may be said the buyer has to push the issue and get the evidence from the seller to overcome the forfeiture’s validity. The deposit is returned to the buyer to the extent the seller has no losses.

For deposits over 3%, the buyer demands the money without needing proof beforehand. Thus, it is the seller that is required to overcome the invalidity presumption by showing they lost more than 3%.

The end result is in the math – the same whether above or below the 3% threshold. Hence, no forfeitures on any amounts, as the seller is only able to recover money losses. As a matter of law, no part of the forfeiture is invalidated, only that the burden of proof of seller losses less than the deposit amount lies with the buyer when up to 3%, or with the seller on the excess over 3%. Either way, the seller needs to provide proof of their losses.

Bottom line, the seller can’t keep the deposit below 3% of price, unless they can prove they can. That is, they are only entitled to recover their losses on a resale if their demand is challenged under the presumption of validity in the seller’s favor. Also, the buyer can’t get the deposit in excess of 3% of price if the seller can ascertain they are entitled to it by proving their money losses under the presumption of invalidity in the buyer’s favor.

Related topics:
good faith deposit

Posted by Carrie B. Reyes | Feb 12, 2013 | Change The Law, Finance, Interest Rates, Reader Polls, Real Estate | 11

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

The Consumer Financial Protection Bureau (CFPB) announced new qualified mortgage rules that:

• prohibit loans approved with no or minimal buyer documentation (no/low doc loans);
• prohibit deceptively low teaser rates; and
•  submit loans to rigorous underwriting standards.

These rules will take effect in January 2014.

first tuesday insight

The qualified mortgage was envisioned to protect the market from bubbling out of control again due to Wall Street financing. But it is the qualified residential mortgage (QRM) that will ultimately ensure consistent market stability for years to come.

Although their names sound similar, the differences are significant.

The new qualified mortgage rules focus on underwriting standards. Prior to the housing crash, it was assumed that lenders would regulate themselves. Surely, regulators reasoned, a self-interested lender would not offer a loan to a woefully unqualified applicant. But you know what they say about assumptions.

This was the standard before the secondary mortgage market became the world’s mortgage dump heap ­— a place for Wall Street to easily unload the toxic waste it was creating. In the era of originate-to-distribute, the quality of an applicant was always trumped by quantity. We were endearing homeownership, you understand.

These new underwriting standards seem like common sense, but it has become necessary in the wake of the Millennium Boom to spell these things out.

On the other hand, the rules that will govern the QRM (which have yet to be released) will outline controversial down payment requirements for loans receiving the best interest rates. Down payment requirements of 10% and 20% have been suggested.

Historically, a 20% down payment is always best. It demands buyers have sufficient skin in the game. Homebuyers with a significant down payment invested in their home are less likely to default since:

• the more they have invested, the more they have to lose, a consideration imposed when buying a home; and
• they are more likely to retain a positive equity in a typical business recession.

The over-abundant availability of low- and no-down payment loans was mostly to blame for the size of the most recent boom and bust, the financial accelerator at work. Homebuyers were simply handed a mortgage, no questions asked. When they were unable to continue making payments or home prices returned to the mean, they defaulted en masse. After all, they had no down payment invested to lose and no obligation to pay — so why not?

On the other hand, a 20% QRM standard means first-time homebuyers who do not choose Federal Housing Administration (FHA)-insured financing will have to save longer for their down payment. This should rightly concern agents, as it forces many potential homebuyers to either delay purchasing or take out an expensive non-QRM. Eventually, however, the demand for housing will stabilize as everyone’s expectations adjust to saving for that home they will purchase.

first tuesday is in favor of a phased-in QRM. Rather than overwhelming the recovering real estate market with full-blown standards right away, a gradual introduction of the QRM starts by requiring a 5% down payment. As employment levels increase, the minimum down payment standard is increased.

Eventually, the down payment will reach the ideal 20% in seven to ten years when the economy’s potential has fully recovered from this financial crisis. This achieves the long-term goal of greater housing market stability during future recessions. In the process, the short-term lack of qualified buyers is avoided.

Related:

The 20% solution: personal savings rates and homeownership

What do you think the new QRM standards should be? Share your thoughts in the comments below!

Re: New Mortgage Rules Left Out Down Payments from The New York Times

Related topics:
consumer financial protection bureau (cfpb), qualified residential mortgage (qrm)

Posted by Matthew Taylor | Oct 28, 2013 | Finance, Laws and Regulations, Loan Products, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Two California homebuyer assistance programs eliminate due-on calls to conform to new FHA rules.

CalHFA energy efficiency improvement grants

Health and Safety Code §51065.1

Added by A.B. 984
Effective date: August 12, 2013

The California Housing Finance Agency (CalHFA) may now make grants directly to homebuyers to supplement Federal Housing Administration (FHA)-insured energy efficient mortgage (EEM) loans. EEM loans provide financing for homeowners to make energy efficiency improvements recommended by a home energy rating systems (HERS) report.

CalHFA downpayment-assist sleeping seconds assumable on FHA-insured first mortgages

Health and Safety Code §51175, 51504

Amended by A.B. 984

Effective date: August 12, 2013

Downpayment assistance to first-time low- and moderate-income homebuyers is offered through CalHFA’s California Homebuyer Downpayment Assistance Program (CHDAP). The downpayment assistance comes in the form of a sleeping second with a balloon payment of principal and accrued interest. The CHDAP sleeping seconds are now only available directly through CalHFA.

Additionally, before this legislation was passed, the agency was permitted to call these sleeping seconds due and immediately payable when the owner sold, refinanced, or repaid their first mortgage.

CalHFA, acting as the lender on a sleeping second CHDAP trust deed note, may no longer call these sleeping seconds using a due-on trust deed provision when the homebuyer’s first mortgage is owned or insured by the FHA. Thus, CHDAP second mortgages may be assumed by a new buyer by taking title subject to the CHDAP trust deed.

Editor’s note – These “due-on” avoidance rules were made to comply with recent FHA rulings under the 2008 Housing and Economic Recovery Act. For homebuyers with FHA-insured or -owned first mortgages, state and local agencies may no longer call their sleeping seconds due and immediately payable if the owner sells, refinances, or repays the FHA-insured first mortgage.

It’s not clear how many buyers will choose to assume these sleeping second mortgages, since assumption is only an advantage to the buyer in periods of rising interest rates. Nevertheless, the FHA rule prohibits CalHFA from interfering with the transfer of ownership in these cases.

Assumability means longer repayment periods for CHDAP sleeping seconds, but this is trumped by CalHFA’s mission to make homeownership accessible to a greater number of Californians.California made these changes to prevent the FHA ruling from effectively ending the CHDAP program, since 95% of CHDAP participants have FHA loans.

In a forthcoming article, we’ll discuss the implications of taking over CalHFA seconds.

Related topics:
california housing finance agency (calhfa), fha

Posted by Matthew Shade | Oct 21, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowner obtained a loan secured by a trust deed naming Mortgage Electronic Registration System (MERS) as the beneficiary. The trust deed did not name a trustee. The owner defaulted on the loan and MERS designated a trustee to initiate nonjudicial foreclosure. The trustee filed a notice of the trustee’s sale and the home was sold.

Claim:  The owner sought to void the foreclosure, claiming the trustee’s sale was not valid since the deed of trust did not designate a trustee and thus did not grant the authority to foreclose.

Counter claim:  The lender sought to uphold the foreclosure, claiming the trustee’s sale was valid since MERS as beneficiary had the authority to appoint a trustee prior to the foreclosure.

Holding: A California Court of Appeal held the foreclosure was valid since, regardless of whether the trust initially failed to name a trustee, the trustee designated by MERS prior to foreclosure had the right to foreclose. [Shuster v. BAC Home Loans Servicing (2012) ___ CA4th___]

Related topics:
nonjudicial foreclosure, trust deed, trustees sale

Posted by Matthew Shade | Oct 25, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A broker arranged a mortgage loan for a borrower which was funded by a lender, an entity solely owned by the broker. The broker did not receive a broker fee on the transaction. The note evidencing the loan carried an agreed-to interest rate exceeding the usury limitations. The borrower defaulted on the loan and the lender foreclosed on the property.

Claim:  The borrower sought to void the foreclosure sale, claiming the interest rate on the loan violated usury limitations since the broker was not paid a broker fee by either party for arranging the loan.

Counter claim:  The broker claimed the loan was exempt from usury interest rate limitations and the foreclosure sale was valid since the broker received compensation for arranging the loan as the owner of the lender.

Holding: A California Court of Appeals held the loan was exempt from usury limitations and thus the mortgage foreclosure sale was valid since the broker received compensation as the owner of the lender. [Bock v. California Capital Loans (2013) ___ CA4th___]

Usury: know your limits (and the law)

If a broker makes or arranges a mortgage, usury laws do not apply. Today, the primary goal of usury laws is the prevention of predatory lending practices by unlicensed and unrepresented private lenders.

Predatory lending involves charging interest at unreasonably high rates (read: a rate that is exorbitant).

Today, any non-exempt loan with an interest rate exceeding the threshold set by law is categorized as usurious, without regard for rates of inflation, risks or market conditions. [Calif. Civil Code §1916-3(b)]

California’s usury law limits the interest rate on non-exempt real estate loans to the greater of:

• 10%; or
• the discount rate charged by the Federal Reserve Bank of San Francisco, plus 5%. [Calif. Constitution, Article XV]

Related reading

Ch. 41 of Real Estate Finance: Usury and the private lender

During the Great Depression, California legislation exempted certain types of lenders from usury restrictions. The exemptions were implemented with the intent to open up the loan market. [Cal. Const. Art. XV]

These exemptions to usury laws remain in place today and more have been added. For example, in 1979, mortgages made or arranged by brokers in California were exempted from usury restrictions.

Other types of lenders exempted from usury law restrictions include:

• savings and loan associations (S&Ls);
• state and national banks;
• industrial loan companies;
• credit unions;
• pawnbrokers;
• agricultural cooperatives;
• corporate insurance companies; and
• personal property brokers. [Cal. Const. Art. XV]

In effect, licensed lenders are today exempt from usury law.

The exempt brokered real estate loans – trust deeds/mortgages – fall into one of two categories:

• the private lender who made the loan is a licensed real estate broker; or
• a real estate broker is compensated to arrange the loan as an agent of at least one of the parties to the loan. [Winnett v. Roberts (1986) 179 CA3d 909] (Disclosure: the legal editor of this publication was the attorney of record for the borrower in this reported case.)

But what do these distinctions actually look like?

Acting as an agent

In practice, acting as an agent can be parsed into two requirements:

1. the broker must negotiate the loan on behalf of a third-party; and
2.  the broker must receive compensation or arrange the loan in expectation of compensation. [Calif. Civil Code §1916.1]

If a broker is acting as an agent, they are neither the borrower nor the lender. Instead, they are a representative of either party. Thus, they are required to receive compensation for arranging the loan since they are not lending their money and receiving earnings – interest – on the loan.

However, in the Bock case, the lender was solely owned by the broker. Thus, the broker expected to receive compensation through the interest accruing on the loan made and held by the broker-owned entity – portfolio income for him rather than trade or business income.

Nothing in the made-or-arranged exemption for brokers requires the compensation received by a real estate broker to be in the form of a direct broker fee for the exemption to apply.

Thus, though indirect as passed through from a controlled entity, the broker received compensation as the stockholder of the entity which was the lender, satisfying this requirement. [Stickel v. Harris, 196 CA3d 575]

Further, a loan “arranged” needs to be negotiated by a broker on behalf of another (i.e., a third-party lender or the borrower) to be exempt from usury law. Thus, the corporate lender qualifies as “another” – a party distinct from the broker arranging the loan. [Calif. Business and Professions Code § 10131(d)]

Further, the lending entity (read: the lender owned by the broker) is considered a legal entity distinct from the broker. Since the broker negotiating the loan was the sole owner of the lender and the lender was a separate California corporation, the arranging broker qualified as the agent of “another” entity, legally distinct from the broker. [Grosset v. Wenaas (2008) 42 Cal.4th 1100]

Pay to play

If a buyer plans to obtain financing in the form of a brokered loan, they best be prepared to perform on their commitments in the note and trust deed.

Courts rarely invalidate contracts or their provisions which are entered into in good faith between competent persons. If the lender charged an outrageously excessive interest rate or committed fraud on the borrower, playing off of a buyer’s naivety and qualifying as predatory lending, legal remedies are available to protect the borrower.

However, this was far from the issue in the Bock case.

More often than not, cases involving claims of usury are the result of a buyer who bit off more than they can chew. These buyers simply want to escape from enforcement of their agreements and grasp at any legal foothold within reach. But courts abhor usury.  The defense to payment of an agreed rate of interest sets a chaotic precedent, one where mutually agreed to contract provisions can be reneged by one of the parties on a judicially disfavored technicality.

Already, usury is being phased out of the law, as evidenced by the growing collection of broad usury exemptions already in place. It is likely to continue to fade in influence, following the logical path it is already on, until all mortgages are exempt from claims of avoidance of the payment of any interest by the law of usury. However, for the time being, if a buyer signs on the dotted line agreeing to a loan arranged by a broker, the buyer cannot exit from the obligation by claims of usurious interest rates.

Usury has more to do with theological concepts dating back prior to Renaissance Italy than with the secular lending practices of today. Usury is a restatement of theology, which has no place in secular lending fundamentals.

In continuing with the separation of church and state and stripping of usury’s reach, expect to see fewer borrowers like the one above getting off the interest enforcement hook on claims the mortgage is usurious.

Related topics:
loan originator, mortgage loan broker (mlb), nonjudicial foreclosure

Posted by Matthew Shade | Dec 5, 2013 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

This law enables prosecutors to take action against credit reporting agencies who prevent consumers from receiving copies of their credit reports.

Prosecutors may pursue credit reporting agencies for preventing delivery of consumer credit reports

California Civil Code §1785.10.1
Added by A.B. 1220
Effective: January 1, 2014

If a credit report is used adversely against a consumer (including a prospective borrower or tenant), the consumer may request a written copy of the credit report from the entity making the credit decision (the landlord or lender.)

Editor’s note — Adverse actions include denying tenancy or a mortgage, or counteroffering with less favorable rental, lease or mortgage terms.

Credit reporting agencies are prohibited from attempting to circumvent this rule by blocking or dissuading a landlord or lender from providing copies of credit reports to consumers.

Credit reporting agencies who attempt to prevent or dissuade a landlord or lender from providing credit reports requested by consumers may be pursued, on behalf of the State of California, by:

• the Attorney General;
• any district or city attorney; or
• any city prosecutor.

The credit reporting agencies may be pursued in a civil action for a crime against the public, and be penalized up to $5,000 for each violation.

Related topics:
consumer financial protection bureau (cfpb), credit score, lending

Posted by Matthew Shade | Oct 17, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowner defaulted on their loan and applied for a loan modification. The lender sent the homeowner a written denial of their loan modification application, but a bank representative told the owner over the phone that approval of a modification was still pending. The lender later sold the property at a trustee’s sale.

Claim: The homeowner sought money damages from the lender, claiming the lender improperly foreclosed on their property since they were in in the process of modifying the loan at the time of the trustee’s sale.

Counter claim: The lender claimed it had not improperly foreclosed as it was no longer considering the eligibility of the loan for modification since it had sent the homeowner a written denial prior to the trustee’s sale.

Holding: A California Court of Appeals held the lender did not improperly foreclose on the property since it sent the homeowner a written denial of the loan modification prior to the trustee’s sale. [Aspiras v. Wells Fargo (2013) __ CA4d __]

Related topics:
lending, loan modification, trustees sale

Posted by Matthew Shade | Nov 15, 2013 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A residential landlord owned several rental properties. The city enacted an ordinance requiring annual inspections of all residential rental properties in order to identify substandard properties. Cities are precluded from enacting housing standards which conflict with those of the state.

Claim: The landlord sought to invalidate the ordinance, claiming the ordinance violated state housing standards since a city may not enact housing standards which conflict with those of the state.

Counterclaim: The city claimed the ordinance did not violate state standards since the inspections did not alter state standards, but only provides a method of their enforcement.

Holding: A California court of appeals held the ordinance does not violate state standards since the ordinance did not conflict with the state standards, but provided a method of enforcement of housing standards.

Also at issue in this case:

Facts: A residential landlord owned several rental properties. The city enacted an ordinance requiring annual inspections of all residential rental properties to identify substandard properties. The ordinance required inspectors to obtain consent from landlords and tenants prior to entering units for inspections. However, the ordinance allowed inspectors to enter properties without consent if the inspector had reason to believe a dangerous condition of the property required an immediate inspection for public safety.

Claim: The landlord sought to invalidate the ordinance, claiming the ordinance violated tenants’ right to privacy since the inspections allowed searches without a warrant.

Counterclaim: The city claimed the ordinance did not violate tenants’ right to privacy since landlord and tenant consent was a prerequisite to property inspections, unless an emergency threatened public safety.

Holding: A California court of appeals held the ordinance did not violate tenant privacy since inspectors were required to receive consent before entry, unless an emergency threatened public safety. [Griffith v. City of Santa Cruz (2012) 207 CA4th 982]

Related topics:
rent, rent control

Posted by Matthew Shade | Nov 5, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A residential tenant rented a room on a property. The property contained steps with a functioning light located over the steps. The landlord advised the tenant to turn on the light before walking down the steps. The tenant was unable to find the light switch, proceeded down the steps in the dark and fell, injuring themselves.

Claim: The tenant sought money damages from the landlord, claiming the steps constituted a dangerous condition since the tenant was unable to locate the light and injured themselves falling down the steps.

Counterclaim: The landlord claimed the steps did not constitute a dangerous condition since a functional light was located over the steps.

Holding: A California court of appeals held the landlord was not liable for the tenant’s injuries since the steps did not constitute a dangerous condition as a functional light was located over the steps. [Ramirez-Castellon v. US Bancorp (2013) ___ CA4th___]

Related reading:

first tuesday Realtipedia, Volume 4 Property Management, Chapter 35 “Defective building components”

first tuesday Realtipedia, Volume 4 Property Management, Chapter 36 “Care and maintenance of property”

-ft

 

Related topics:

Posted by Matthew Shade | Oct 16, 2013 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A landlord and tenant entered into a residential lease agreement. The landlord later sought to sell the property and wished to hold an open house on the weekend for the purpose of marketing the property to prospective buyers. The tenant refused to permit the landlord to hold an open house on the weekend.

Claim: The landlord sought to hold an open house on the weekend, claiming they had the right to show the property during a real estate agent’s normal business hours, which includes weekends.

Counter claim: The tenant sought to prevent the landlord from showing the property on weekends, claiming the tenant was not required to allow weekend access since the weekend was outside normal business hours.

Holding: A California Court of Appeals held the landlord was allowed to hold open houses during reasonable hours on the weekend since a real estate agent’s normal business hours include weekends. [Dromy v. Lukovsky (2013) __ CA4th __]

Related topics:
landlord,

Posted by Matthew Shade | Nov 8, 2013 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A rental property was owned by an owner and co-owner. The owner primarily managed the property, while the co-owner performed only limited management duties. The owner and co-owner held an insurance policy covering claims resulting from unknown dangerous housing conditions. As primary manager, the owner was aware of dangerous housing conditions on the property. A tenant of the rental property sued and was awarded money damages from the owner and co-owner for dangerous housing conditions. The insurance company paid the damages then sought to recover the cost of the damages from the owner and co-owner.

Claim: The insurance company claimed the damages were not covered under the insurance policy since both the owner and co-owner were aware of the dangerous conditions due to their mutual management of the rental property.

Counterclaim: The co-owner claimed their share of the damages was covered under the insurance policy since the co-owner had only limited involvement in the management of the rental property and therefore was not aware of the dangerous housing conditions.

Holding: A California court of appeals held the damages were not covered under the insurance policy and the insurance company was entitled to recover the cost of the damages from both the owner and co-owner since even the co-owner’s limited involvement in the management of the rental property put the co-owner on notice of the dangerous conditions. [Axis Surplus Insurance Company v. Reinoso (2012) 208 CA4th 181]

Editor’s note – The insurance company also recovered the cost of the damages from the owner since the owner, as primary manager of the rental property, was aware of the dangerous housing conditions.

Related reading:

first tuesday Realtipedia, Volume 4 Property Management, Chapter 37 “Implied warranty of habitability”

-ft

Related topics:
landlord,

Posted by Matthew Shade | Nov 4, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A fence ran between an owner’s property and a neighbor’s property. The owner and the neighbor disputed whether the fence was the boundary line between their properties. The owner filed a quiet title action to establish the true boundary line. Three surveys were ordered to determine the true boundary line. Two of the surveys revealed a portion of the property beyond the fence also belonged to the owner, and not the neighbor. The third survey contained a measuring error, and incorrectly placed the boundary elsewhere.

Claim:  The owner sought possession of the disputed portion of property, claiming the fence was not the boundary line since the actual boundary line was readily ascertained by the two accurate surveys.

Counterclaim:  The neighbor sought possession of the disputed portion of property, claiming the fence created an agree-to boundary since the surveys conducted to determine the true boundary were in conflict, and thus there was uncertainty regarding the true boundary line.

Holding: A California court of appeals held the fence was not an agreed-to boundary and the owner was entitled to possession of the disputed portion of the property since the actual boundary line was readily ascertained by the two accurately conducted surveys. [Martin v. Van Bergen (2012) 209 CA4th 84]

 

Related reading:

first tuesday Realtipedia, Volume 3 Legal Aspects, Chapter 13 “Boundary disputes”

-ft

 

Related topics:
easements

Posted by Matthew Shade | Nov 14, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: An owner of residential property and undeveloped land took out a loan secured by a trust deed on both. In the event of default, the trust deed stated the properties were to be foreclosed on in any order. However, the lender verbally assured the owner the undeveloped land was to be foreclosed on first. The owner defaulted on the loan and the lender foreclosed on the residential property.

Claim:  The owner sought to pursue money damages from the lender, claiming the lender engaged in unfair business practices since it foreclosed on the residential property first after verbally informing the owner it would foreclose on the other security in the event of default.

Counterclaim: The lender claimed it had not engaged in unfair business practices since the terms of the trust deed stated the properties were to be foreclosed on in any order.

Holding: A California court of appeals held the owner may not pursue money damages from the lender since the terms of the trust deed stated the properties were to be foreclosed on in any order as determined by the lender. [Wilson v. Hynek (2012) 207 CA4th 999]

Editor’s note – This case serves as another reminder that a lender’s word is only as good as smoke and mirrors if the fine print says something else.  

Related topics:
trust deed

Posted by Matthew Shade | Oct 21, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A lender originated a purchase-assist loan for an owner which was serviced by a separate loan servicer.  An escrow account was established into which the owner made monthly payments towards principal, interest, taxes and insurance (PITI). Later, the loan servicer notified the owner the escrow account had insufficient funds to meet all the debt obligations and the monthly payment amount would be increased. The owners sent three letters challenging the validity of the loan terms and requesting modifications to the loan servicer. The loan servicer did not respond to the letters.

Claim: The owner sought money damages, claiming the loan servicer had a duty to timely respond to the three letters disputing the loan terms and requesting modification since the letters were qualified written requests requiring a response.

Counter claim: The loan servicer claimed the letters were not qualified written requests requiring a response since the letters did not dispute the servicer’s servicing of the loan, but the validity of the loan terms themselves.

Holding: The Ninth Circuit Court of Appeal held the loan servicer was not required to respond to the letters since the letters were not qualified written requests as they challenged the terms of the loan, not the servicer’s servicing activity. [Medrano v. Flagstar Bank, FSB (9^th Cir. 2012) __ F3d __]

Related topics:
escrow, lending, loan modification, loan servicer

Posted by Matthew Shade | Oct 29, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: An owner purchased a mobile home park in a location governed by a rent control ordinance. The ordinance limited the increase in monthly rent charged to new buyers to 75% of the change in the consumer price index (CPI).

Claim: The owner sought money damages, claiming the rent control ordinance was an unconstitutional taking of profit from the owner since the ordinance limited the ability of the owner to charge fair market rent for their mobile home lots.

Counterclaim: The city sought to enforce the rent control ordinance, claiming the owner purchased the property when the rent control ordinance was already in effect, and thus, no taking occurred as the owner did not experience an unforeseeable economic disadvantage.

Holding: A California court of appeals held the rent control ordinance was not an unconstitutional taking since the owner purchased the property when the rent control ordinance was already in effect and the owner did not experience unforeseeable economic disadvantage. [MHC Financing Limited Partnership v. City of San Rafael (9^th Cir. 2013) 714 F3d 1118]

Related topics:
mobilehomes, rent, rent control

Posted by Matthew Shade | May 28, 2013 | Feature Articles, Laws and Regulations, Real Estate, Recent Case Decisions | 7

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

first tuesday case in point:   Local zoning ordinances may prohibit the legal operation of medical marijuana dispensaries (MMDs)

 

Facts: A business operated a medical marijuana dispensary (MMD) in a city where MMDs are prohibited under zoning regulations. The city filed a nuisance complaint against the MMD to have it shut down.

Claim: The city claimed the MMD violated city zoning law since it was by ordinance a nuisance.

Counter claim: The MMD claimed the zoning law prohibiting MMDs was unenforceable since it violates state law protecting MMDs.

Holding: The California Supreme Court held the city may shut down the MMD since state law protecting MMDs does not limit local authority from enforcing exclusionary zoning ordinances.  [City of Riverside v. Inland Empire Patients Health and Wellness Center, Inc. (2013) ___ CA4th___]

How time flies

Nearly one year ago, first tuesday reported similar cases where two lower courts came to opposite conclusions on the same issue of MMDs and zoning. As of May 2013, the haze has finally cleared with this California Supreme Court decision concluding local zoning trumps state law, at least when it comes to MMDs.

Related article:

“Can local zoning weed out medical marijuana dispensaries?”

What are the facts?

In California, medical marijuana is excepted from the state’s criminal and nuisance laws, protecting patients from arrest, prosecution or abatement under the Compassionate Use Act of 1996 (CUA) and the Medical Marijuana Program Act (MMPA).

California was the first state to legalize medical marijuana with the CUA, which enabled patients to legally use marijuana with a physician’s approval. In 2003, the MMPA was adopted to protect dispensaries that administer or cultivate marijuana exclusively for medical purposes. However, neither of these laws are able to protect patients from the federal Controlled Substance Act (CSA), which still prohibits the possession, distribution and manufacture of marijuana.

In this case, patient demands were not the direct target of the complaint filed by the city – the MMD supplier was.

Nuisance or not?

According to Riverside’s zoning ordinances, MMDs are classified as public nuisances that may be abated or removed (read: shut down). Public and private nuisances are defined as anything offensive, injurious or obstructive to the quiet use and enjoyment of property. More specifically, a public nuisance (as the MMD was characterized in this case) is a nuisance which affects an entire neighborhood or segment of the public. [See first tuesday Legal Aspects of Real Estate, 5^th Ed, Chapter 19: Nuisance: offensive, unhealthful or obstructive]

For instance, consider a homeowner’s residence that is located near a waste treatment plant which emits a noxious smell. The odors produced by the waste facility constitute a nuisance, as the smell affects the homeowner’s right to the quiet enjoyment of their property. [Varjabedian v. City of Madera(1977) 20 C3d 285]

Generally, nuisances have a physical element to them. In the previous example, the noxious odor creates a sensory condition preventing others’ enjoyment of their property. However, fear of intangibles (such as the medicinal use of a substance a neighbor may disapprove of) does not constitute a nuisance. [Koll Irvine Center Property Owners Association v. County of Orange (1994) 24 CA4th 1036]

It is strange that Riverside chose to define an MMD as a public nuisance in the face of the publicly approved legalization of MMDs. Riverside’s city attorney explained that the public had been complaining of increased illegal drug sales, robberies and DUI.

However, facts within the city region where the MMD was located show a very different story. The amount of robberies mirrored citywide robbery rates (dropping in the first three years of the MMD’s existence) and DUIs had a minor uptick. Most revealingly, drug abuse violations dropped by 31% from 2009, when the MMD opened, to 2012.

Did the sale of medicinal marijuana increase the amount of crime and public risk in the fair City of Riverside? No, in fact, it potentially aided in lowering the amount of drug abuse in the area.

For the people… who live somewhere else

The California Supreme Court held that while the CUA and the MMPA were created to take “incremental steps toward freer access to marijuana,” the CUA did not limit local authority. Rather, as long as a state law does not explicitly prohibit a local authority from criminalizing actions or substances recognized as legal by the state, local authorities can choose to penalize freely.

The city took action to please a portion of its constituency and argued that the MMPA was not designed to be a “one-size-fits-all” enactment. Riverside’s zoning ordinances specifically prohibited MMDs within the city and classified them as a public nuisance. Essentially, the city said if enough of the right people are uncomfortable with a legal right exercised within the city, we will zone it out. This is a startling example of brash regionalism thumbing its nose at the majority, to say nothing about a national trend.

After the court’s ruling, the city announced plans to remove all other MMDs within its limits. Neighboring cities with similar zoning restrictions gave similar announcements and many are in the process of closing local MMDs, such as Anaheim to the west and Beaumont to the south.

The Fallout

Users of medical marijuana will likely be able to obtain medical marijuana from MMDs in other locations with less restrictive zoning – or under the table from neighborhood dealers. This reshuffling just funnels money from one municipality into a nearby city or county or worse: off the grid. Economics are not limited by borders and the demand for marijuana shows no signs of shrinking.

The rise in medicinal marijuana in California eased out dealers and pushers who were less able to compete with dispensaries and found their prices dropping. If buyers can price compare, black market dealers can no longer take advantage of consumer’s lack of knowledge and they leave for a better market.

In an effort to control what goes on within their limits, the city may have inadvertently given up their ability to control marijuana use at all. With sanctioned MMDs, the city can regulate and tax the product; however, if users are pressured back into street-corner purchases, the city must invest in cat-and-mouse chases that will do little more than burn up valuable public resources.

Looking forward, it is clear marijuana is here to stay – not just in California, but likely at a national level. Already, nearly half of adults in America claim to have tried marijuana at some point, and even more are in favor of legalizing recreational marijuana. Whether medical marijuana distribution is regulated and profited from, or continued to be penalized in a nebulous legal grey area, is in the hands of state and federal governments.

The state has already voted to decriminalize marijuana and legalize its medicinal use. However, the local governments can decide whether they want to keep it open and taxable – or under-the-table and tax-free and, well, illegal.  Modocian Empire thinking as we see it at first tuesday.

Drawing lines in the ever-shifting sand

This case will have a strong impact across California, not just the city of Riverside. Numerous other cases regarding MMDs and zoning are pending before the California Supreme Court, and this case sets the precedent for how they will be handled. Now, the outcome has been decided by the court: local government authority legally preempts the protection that the public gave MMDs.

Related article:

May Supreme Court Watch

At this point, it appears the local governmental forces, or at least those local forces that control local councils, have aligned against medical marijuana, but popular opinion and grassroots activism for medical marijuana has only grown in tandem.

Open-ended conclusion

While the California Supreme Court did uphold the ordinance to shut down the Riverside MMD by zoning, the court did leave the potential for change. They acknowledged this issue is not fully resolved as a whole. “Nothing prevents future efforts by the Legislature, or by the People, to adopt a different approach,” the case reads.

The court’s secondhand reference to the People’s ability to decide is telling:  in this instance, local zoning efforts of the minority have successfully overridden the will of the general public. So until altered by the will of the people, welcome the dealer back to the neighborhood.

What do you think? Should local authorities have the right to shut down MMDs despite state law? Is some thinking about federalism and the constitution driving the emotions involved? Will access to medical marijuana continue to grow or shrink? Share your thoughts in the comments below!

Related topics:
california, california supreme court, zoning

Posted by ft Editorial Staff | Jul 22, 2013 | Buyers and Sellers, FARM Letters, Real Estate | 2

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Use this first tuesday FARM letter copy (Spanish version) in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

¿Ha considerado vender su casa y mudarse? ¡Si está considerándolo y desea evitar las molestias que pueden venir con una venta, el mercado de bienes raíces de hoy es lo que han esperado!

Estoy trabajando con compradores calificados, aprobados previamente, buscando casas en su vecindario. ¡Si usted quiere vender, llámeme! Usted se beneficiará de:

• evitar la molestia de tener su venta privada transmitido al público en el MLS;
• tener un período de escrow corto – se puede cerrar en tan poco como 10 a 20 días;
• apreciar una transacción bien administrada;
• evitar la inconveniencia de abrir su hogar a decenas de personas;
• la eliminación de las preocupaciones de su privacidad y seguridad; y
• recibir el valor del mercado superior.

Por favor, llámeme hoy mismo – las tasas de interés van subiendo y mis compradores están dispuestos a hacer una oferta ahora.

¡Para obtener más información sobre esta oferta, o un análisis de mercado, llámeme!

Related topics:
buyer, housing market, listing, spanish

Posted by ft Editorial Staff | Jul 22, 2013 | Buyers and Sellers, FARM Letters, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Use this free letter template in your marketing for home sales.

Download the Mail Merge Instructions Download the Microsoft Word Template Download the Excel Mail Merge Spreadsheet Template

Text Only

(RECIPIENT NAME)
(RECIPIENT ADDRESS)

(DATE)

Are you considering selling your home and relocating? If you are and would like to avoid the hassles that can come with a sale, today’s seller’s market is what you’ve been waiting for!

I’m working with qualified, pre-approved buyers looking for homes in your neighborhood. If you want to sell, call me!  You’ll benefit by:

• avoiding the hassle of having your private sale broadcast to the public in the MLS;
• having a short escrow period — you can close in as little as 10 to 20 days;
• experiencing a well-managed transaction;
• avoiding the inconvenience of opening your home to dozens of people;
• eliminating privacy and security concerns; and
• receiving top market value.

Please call me today – interest rates are on the rise and my buyers are ready to make you an offer now!

For more information on this offer, or a Comprehensive Market Analysis, call me!

(AGENT NAME)
(LICENSE #)
(PHONE)
(EMAIL)
(WEBSITE)

Related topics:
buyer, comparable market analysis cma, housing market, listing, letter

Posted by Sarah Cantino | May 10, 2013 | Buyers and Sellers, FARM Letters, Real Estate | 3

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Use this FARM letter copy in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

San Francisco home prices are rising! If you are like many homeowners in your neighborhood, the value of your home has increased 24 Case-Shiller index points during the past year. That translates roughly to a 22% increase in price.

What does this mean for you? Now’s a very good time to sell! This market is flying high, but the current bounce in prices won’t last forever. The law of gravity applies to real estate pricing as much as it does to anything else: what goes up (beyond the rate of inflation) must come down.

Today, California’s home prices are way above their historical level, but they always pull back down. Other market indicators, like sales volume, point to an approaching drop in prices. Sales volume has dropped since November 2012, a sign of prices cycling back to the mean price point. If you’re thinking about selling, don’t ignore this pricing pattern—instead, use it to time the market to your advantage.

If you want to make the most of today’s sellers’ market, call me for a free consultation!

Instructions for customizing your FARM letter

Case-Shiller provides home pricing data for three California regions:

• Los Angeles;
• San Diego; and
• San Francisco.

The home pricing data is further divided into three property tiers:

• High tier;
• Mid tier; and
• Low tier.

This information is updated monthly. To substitute data in this FARM letter for any region, property tier, or month, visit California tiered home pricing. This article offers current home pricing data. The information you need for FARM letter updates is given in the data table located below the market chart for each region of California. Simply find and enter the most current property pricing information in your FARM letter and you’re done!

Related topics:
farm letter, regional

Posted by Matthew Shade | Aug 21, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A Homeowners’ Association (HOA) engaged in a repair project funded by special assessments paid per unit. An owner was unable to make the full payment and attempted to negotiate a payment plan. After the owner made payments under the unconsented to payment plan, the HOA recorded a lien on the unit, failing to notify the owner within the required 10 days. Later, the HOA filed a judicial foreclosure action against the owner.

Claim: The owner sought to void the assessment lien and invalidate the foreclosure proceedings, claiming the HOA failed to perfect the lien since the HOA did not notify the owner within 10 days of recording and thus may not foreclose.

Counter claim: The HOA sought to enforce the lien and foreclose, claiming the lien was perfected despite failing to meet the mandatory notice requirements since the owner was aware of the recording in a matter timely enough to take reasonable action.

Holding: A California Court of Appeals held the HOA may not foreclose since the recorded assessment lien is not valid as it failed to meet the 10 day notice period. [Diamond v. Casa Del Valle Homeowners Association (2013) __ CA6d __]

Related topics:
disclosures, hoa, homeowners’ association (hoa), judicial foreclosure

Posted by Matthew Shade | Oct 16, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A distressed borrower applied for a loan modification under the Home Affordable Modification Program (HAMP). The lender prepared a trial period plan (TPP) stating the borrower will receive a permanent modification if they make trial modification payments and submit qualifying documents or otherwise be notified. The borrower made trial modification payments and submitted all required documentation to confirm eligibility for a permanent modification. The lender did not offer the borrower a permanent modification and did not notify the borrower of their failure to qualify.

Claim:  The borrower sought to compel the lender to grant a permanent modification, claiming the lender accepted their trial payments and documents and never gave notification of the borrower’s failure to qualify for a permanent HAMP modification as required by the TPP.

Counter claim:  The lender claimed it was not required to grant a permanent modification since the TPP was not a contract obligating the lender to provide a permanent modification or notice of ineligibility.

Holding: The Ninth Circuit Court of Appeals held the lender was required to grant a permanent modification as the borrower met all of the terms of the TPP and was not notified by the lender that a permanent modification was not granted. [Corvello v. Wells Fargo Bank (9^th Cir. 2013) 728 F3d 878]

Related topics:
home affordable modification program (hamp), loan modification

Posted by Matthew Shade | Nov 1, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A property owner inherited a 50% interest in a residential property which they occupied as their primary residence. One year later, the owner purchased the remaining ownership interest in the property. The owner claimed a first-time homebuyer tax credit in their tax filings. The Internal Revenue Service (IRS) denied the tax credit.

Claim: The owner sought the first-time homebuyer tax credit, claiming they were eligible  since they acquired a  50% ownership interest in property purchased that year.

Counterclaim:  The IRS claimed the owner was ineligible for the first-time homebuyer tax credit since the owner held interest in the property in the prior year, disqualifying the owner as a first-time homebuyer.

Holding: A federal tax court held the owner was ineligible for the first-time homebuyer tax credit since the owner held a 50% interest in the property in the prior year, disqualifying the owner as a first-time homebuyer. [Colca v. Commissioner of Internal Revenue (2012) ___ TC ___]

Related topics:
first-time homebuyer, tax aspects, taxation

Posted by Matthew Shade | Nov 1, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A commercial property owner owned property with an advertising space. The owner used the space to erect an advertisement exceeding the size limitations placed on advertising displays. The owner did not obtain the required permit for the advertising display.  The advertisement remained in place for over five years. A government agency issued a notice of violation to the owner.

Claim:  The owner sought to maintain the advertising display, claiming it was lawfully erected since it had been maintained for over five years and the agency had not taken action during that time.

Counterclaim:  The agency claimed the display was unlawful since it violated state law at the time of its erection and the agency’s inaction during the first five years of its existence did not prevent the agency from taking action after that period.

Holding: A California court of appeals held the display was unlawful since it violated state law at the time of its erection and the agency’s inaction during the first five years of its existence did not prevent the agency from taking action after that period. [West Washington Properties, LLC v. California Department of Transportation (2012) 210 CA4th 1136]

Related topics:
commercial property

Posted by Matthew Shade | Oct 30, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: Co-owners purchased a home. The first owner qualified as a first-time homebuyer since they had not owned property in the past three years. The second owner qualified as a first-time homebuyer since they had resided in the same residence for at least five consecutive years of the past eight years. The co-owners jointly filed their taxes and claimed the first-time homebuyer credit. The Internal Revenue Service (IRS) determined the co-owners were ineligible for the credit.

Claim:  The co-owners sought the first-time homebuyer tax credit, claiming they were eligible since both owners qualified separately as first-time homebuyers under different criteria.

Counterclaim:  The IRS claimed the co-owners were ineligible for the tax credit since both co-owners did not qualify as first-time homebuyers under the same criteria.

Holding: A federal tax court held the co-owners were entitled to the first-time homebuyer tax credit since both qualified separately as first-time homebuyers, despite qualifying under different criteria. [Packard v. Commissioner of Internal Revenue (2012) 139 TC 15]

Related topics:
first-time homebuyer, tax aspects, taxation

Posted by Greg Huitrado | Jan 4, 2013 | Finance, Loan Products, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

This act requires reverse mortgage counseling occur in person unless the borrower selects another method.

Civil Code §1923.2

Amended by A.B. No. 2010

Effective date: January 1, 2013

Reverse mortgage lenders must:

• advise applicants of the need to obtain reverse mortgage counseling;
• provide the applicants a list of at least ten approved counseling agencies; and
• receive certification that the borrower received counseling in person unless the borrower selects another manner.

The above must be completed before the lender can accept a completed reverse mortgage application or collect a fee.

Related topics:
reverse mortgage

Posted by Giang Hoang-Burdette | Sep 16, 2013 | Investment, New Laws, Real Estate, Tax | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Moving your equity into out-of-state property in a tax-free §1031 transaction?  The California tax man is tracking you for that taxable resale!

Revenue & Taxation Code §§18032; 24953
Added by A.B. 92
Effective date: Taxable years on and after January 1, 2014

Persons exchanging their equity in California property they own into out-of-state §1031 property are required to file an information return with the California Franchise Tax Board (FTB). Information returns are required for each taxable year in which profit is deferred untaxed. Previously, the information return was only required for §1031 transactions of properties located within California.

The FTB will estimate net income and assess taxes, interest and penalties due from persons who fail to file these §1031 information returns and any required tax returns.

Editor’s note — To meet this requirement, California taxpayers will complete and file IRS Form 8824 with their California tax returns. For persons who do not pay taxes in California (e.g., non-California residents), the FTB will create a standalone information return form.  

The purpose of this code is to recoup taxes from out-of-state individuals and corporations who skip out on paying California taxes on recognized gains when the eventual non-exempt sales transaction occurs years later.

Related topics:
1031, franchise tax board, taxation

Posted by ft Editorial Staff | Oct 14, 2013 | Buyers and Sellers, Feature Articles, Real Estate, Your Practice | 6

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

What happens when a deal takes you out of state? Find out the liberties and limitations California licensees have in surrounding states.

Brokers go home to collect

Real estate investors and job seekers migrate to follow employment and investment opportunities.  Looking to follow the business?  Read on to brush up on the rules for representing investors and relocating homebuyers in out-of-state markets.

Real estate and licensing laws differ from state to state. Thus, a broker’s right to collect a fee varies from state to state. In order to represent a buyer or seller in an interstate transaction, and obtain a fee in return, a California broker enters into two separate contracts:

• a listing agreement with their buyer or seller; and
• a cooperation agreement with a broker licensed in the state where the property is located.

Consider a California-licensed real estate broker contacted by a California resident to locate a buyer for the seller’s North Carolina property. An exclusive right-to-sell listing agreement is entered into in California to employ the broker to sell the out-of-state property. [See first tuesday Form 102]

The broker locates a buyer through an advertisement published in North Carolina, with or without the help of a North Carolina-licensed broker. The purchase agreement, which includes a brokerage fee provision, is prepared, mailed to and signed by the buyer and delivered to the seller. All steps are handled from the broker’s California office.

Later, the seller cancels the transaction without excuse or justification.

The California broker demands payment of their fee from the seller. The seller rejects the demand, claiming the broker is barred from collecting a fee since the broker is not licensed in North Carolina.

Can the California-licensed broker collect a fee under California law without also holding a North Carolina real estate license?

Yes! The broker performed all significant licensed brokerage services in California. [Consul LTD. v. Solide Enterprises, Inc. (9th Cir. 1986) 802 F2d 1143]

Out-of-state brokerage activity

A California broker avoids transgressing the licensing laws of another state when:

• all brokerage activities are conducted by phone, direct mail, email or fax from California, the state of the broker license [Consul LTD., supra];
• the listing and purchase agreements are negotiated, prepared and handled in the state of the broker license [Gold v. Wolpert (7th Cir. 1989) 876 F2d 1327];
• all brokerage activities and negotiations are completed in the state issuing the broker license and these facts are known to the client when the property is located in a different state [Coldwell Banker & Company v. Karlock (7th Cir. 1982) 686 F2d 596]; and
• the broker limits their out-of-state activity to no more than their property inspection and information gathering. [Coldwell, supra]

However, a California broker who sues in another state to collect their fee will be denied recovery by the out-of-state court when they conduct brokerage activities while physically present in that state, such as:

• showing the property to prospective buyers without being accompanied by a broker licensed in that state [Harrison & Bates, Inc. v. LSR Corp. (1989) 385 SE2d 624];
• negotiating on behalf of the buyer or seller located in that state [Paulson v. Shapiro (7th Cir. 1973) 490 F2d 1; Fields, supra]; or
• negotiating, preparing, signing or delivering the listing or purchase agreements in that state. [Baron & Company, Inc. v. Bank of New Jersey (1981) 504 F.Supp 1199]

Thus, California brokers soliciting and negotiating a transaction across state lines are to:

• physically stay in California, with the exception of property inspections while accompanied by an out-of-state broker;
• conduct all negotiations from California by phone, email, direct mail or fax;
• include a California choice-of-law provision in all fee provisions in purchase agreements [See first tuesday Forms 102 §4.8 and 103 §3.4];
• prepare and send all documents from California;
• require the principals to directly pay them their share of the fee through escrow, not through the out-of-state broker (unless otherwise required by their cooperation statutes); and
• sue to collect any earned and unpaid fee in a California court.

California brokers who negotiate to receive a fee from an out-of-state broker for an out-of-state deal are best served by confirming with the out-of-state real estate agency whether they may:

• be paid a share of any fee collected by the out-of-state broker; or
• travel into the other state to conduct activities such as inspecting, gathering data, showing the property or preparing documents.

Visiting out-of-state property

California brokers are charged with knowing the various types of conditions about the properties they list to sell. This requires brokers to personally inspect and investigate property they have listed for sale.  [Jue v. Smiser (1994) 24 CA4th 312]

However, California brokers are typically barred by other states from showing property in those states.

Consider a California broker who is cooperating with an Oregon broker to find a buyer for Oregon property. The California broker is prohibited by Oregon’s real estate agency from personally showing the Oregon property.

However, the California broker may:

• accompany their California client and an Oregon broker on an inspection tour of the Oregon property; and
• allow the Oregon broker to show the property to their California client.

The California broker’s best practice is to immediately write a memo to the Oregon broker, thanking them for showing the property to the California client. The memo provides written evidence that the Oregon broker showed the property. It also memorializes whether the California broker was present when the client was shown the Oregon property. [See first tuesday Form 525]

Interstate brokerage

States which permit fee splitting and information sharing with out-of-state brokers rarely permit out-of-state brokers to travel into the state and perform brokerage activity by themselves. Washington, Oregon, Nevada and Arizona have both:

• closed-door statutes; and
• collaboration statutes permitting the exchange of information and fee splitting between home-state and out-of-state brokers. [Revised Code of Washington §18.85.301; Oregon Revised Statutes §696.290; Nevada Revised Statutes §645.605; Arizona Revised Statutes §32-2163]

A California broker seeking to conduct business in Washington, Oregon, Nevada or Arizona has options, depending on how extensive their out-of-state practice is.

Washington

To buy, sell or lease Washington real estate, a California broker may either:

• cooperate with a Washington broker; or
• obtain a Washington broker license. [Washington Administrative Code §308-124A-720]

A California broker who cooperates with a Washington broker rather than obtaining a Washington real estate license may not perform any real estate activities within the state of Washington. Instead, the California broker relies on the Washington broker to conduct all real estate activities in Washington.  The California broker then shares in a portion of the fees received by the Washington broker. [RCW §18.85.301]

To show properties, conduct negotiations or perform other real estate activities within Washington, a California broker is required to first obtain a Washington broker license. Washington has education and exam requirements. A California license allows brokers to bypass Washington’s education requirements, but still requires them to pass Washington’s state licensing exam. [WAC §308-124A-720]

Oregon

Oregon’s nonresident broker policies resemble those of Washington. A California broker has an option to either cooperate with an Oregon broker or obtain their own Oregon broker license.

Consider an Oregon broker who enters into an agreement with a California broker to cooperate in finding an Oregon property for a buyer relocating from California to Oregon.

An Oregon property is located and the California broker goes with their buyer to Oregon to investigate the property and conduct negotiations with the seller without the assistance of the Oregon broker. The negotiations lead to the California buyer purchasing the Oregon property. The broker fee is paid by the seller to the Oregon broker as agreed.

On closing, the California broker demands payment of their share of the fee as agreed to be paid by the Oregon broker. The Oregon broker refuses. The California broker sues in an Oregon court of law to collect their share of the fee.

The Oregon broker claims the California broker is barred from collecting a fee from them on the sale of the Oregon property since the California broker is not licensed to perform any brokerage services in Oregon, a “closed-door” state.

The California broker claims they are entitled to collect a fee since Oregon permits the sharing of information and fee splitting between Oregon and out-of-state brokers.

Here, the California broker cannot collect their agreed-to share of the fee under Oregon law. Oregon, like California, does not create an exemption under collaboration statutes to allow an out-of-state broker to perform any brokerage activities (sale negotiations) in Oregon. Oregon merely permits the sharing of information and fee splitting with out-of-state brokers.

Although Oregon brokers may split fees with California brokers, California brokers lose their right to share a fee if they conduct brokerage activities while in Oregon. [Fields v. McNab (1984) 70 OrApp. 154]

California brokers intent on conducting sales negotiations in Oregon need to first obtain an Oregon broker license. Oregon does not waive its education requirements for nonresidents licensed in another state.

To obtain an Oregon broker license, a California broker is to complete the following courses:

• 30 hours of Real Estate Law;
• 30 hours of Real Estate Finance;
• 30 hours of Oregon Real Estate Practices;
• 15 hours of Contracts;
• 15 hours of Agency;
• 20 hours of Real Estate Brokerage; and
• 10 hours of Property Management.

After completing these courses, a California broker needs to pass Oregon’s state licensing exam.

While Oregon has reciprocity agreements with some states, California is not one of them. [ORS §696.265; Oregon Administrative Rule §863-014-0080]

Nevada

Nevada permits interstate cooperation, but requires out-of-state brokers who wish to conduct Nevada brokerage activity on behalf of California buyers to first obtain a certificate of cooperation from Nevada’s Real Estate Commissioner. [Nev. Rev. Stat. §645.605; Nev. Adm. Code §645.185]

California brokers who acquire a Nevada certificate of cooperation must work under the supervision of a Nevada broker. Under Nevada’s collaboration statutes, the Nevada broker is to be in charge of the interstate transaction at all times, including:

• accompanying the California broker and the California client to view the property;
• negotiating transactions with Nevada buyers;
• co-signing all documents dealing with the Nevada property transaction in cooperation with the California broker; and
• handling, accounting for and keeping records of all fees received in the cooperative transaction. [Nev. Adm. Code §645.185]

California brokers interested in obtaining a certificate of cooperation may write or call the Nevada Real Estate Division at:

2501 E. Sahara, Suite 102
Las Vegas, NV 89104
(702) 486-4033

http://www.red.state.nv.us

Brokers need to submit an application, a copy of the broker’s California Bureau of Real Estate (BRE) license with a certified license history, fingerprints and a $150 filing fee to obtain a one-year Nevada certificate of cooperation. [Nev. Adm. Code §645.180]

Arizona

Arizona allows California brokers to share information and split fees with Arizona brokers. However, the California broker is to first sign a written cooperation agreement with the Arizona broker, specifying the responsibilities of both brokers and the limitations of the California broker under the agreement. [ARS §32-2163]

Alternatively, Arizona also allows out-of-state brokers to obtain an Arizona broker license. A minimum of 27 hours of pre-licensing education specific to Arizona real estate law and practice is required. After completing the education requirement, the applicant is also required to pass Arizona’s state licensing exam. [Ariz. Rev. Stat. §32-2125.02]

Brokers interested in obtaining an Arizona nonresident broker license may contact the Arizona Department of Real Estate at:

2910 North 44th Street, Suite 100
Phoenix, AZ 85018
(602) 771-7799

http://www.re.state.az.us

Which court does the broker use?

Sometimes, buyers and sellers who have agreed to pay a broker a fee breach their agreement to pay. The seller typically breaches by canceling unilateral escrow instructions for payment of the fee to which the buyer did not consent (otherwise escrow will not close).

Brokers collecting their fee on an interstate transaction have the ability to sue in:

• federal courts, when the amount of the fee exceeds $75,000 [28 United States Code §1332];
• courts in the state which issued the broker’s license; or
• courts in a state related to the transaction, where the broker does not hold a license.

However, a broker always first attempts to collect their fee through the courts in the state of their licensing since:

• state courts often dismiss actions brought by out-of-state licensees [Fields, supra; Beggs v. Lowe (1973) 89 Nev. 547]; and
• the broker will receive more favorable treatment from courts in the state of their licensing.

For an example of home-court favoritism, consider a California BRE-licensed broker who lists Arizona property for sale. The broker does not hold an Arizona license, but goes to Arizona to:

• prepare and sign the listing agreement with the seller, an Arizona resident; and
• conduct sale negotiations with a California buyer who is relocating.

The purchase agreement is prepared in California and forwarded for signatures to each party in their respective state. The escrow instructions are drafted in Arizona, but escrow is opened with an escrow company in California.

However, the buyer cancels escrow before closing based on a misrepresentation by the seller, the broker’s client.

The broker demands the Arizona seller pay their fee since the broker fully performed their duties and had fully earned their fee under their listing agreement with the seller.

The seller refuses to pay the brokerage fee, claiming the Arizona-signed listing agreement was invalid since the broker was not licensed in Arizona to:

• solicit sellers; or
• handle any negotiations or documents.

The seller further claims the broker cannot sue in California since substantial brokerage activity occurred in Arizona.

The California broker sues the seller in a California court to collect their fee.

Despite all the broker’s activities in Arizona, which were improper under Arizona law, the California court held the broker was able to sue the out-of-state seller in California under California law since the most substantial brokerage activity — the preparation of the purchase agreement — occurred in California. [Cochran v. Ellsworth (1954) 126 CA2d 429]

Thus, an out-of-state principal may be compelled to appear before a California court of law when:

• they are sued by a resident real estate broker licensed in California, a fact known to the seller; and
• the California broker performed significant brokerage activities in California. [University Financing Consultants, Inc. v. Barouche (1983) 148 CA3d 1165]

Choice-of-law

Brokers involved in interstate real estate transactions are best served by including a choice-of-law provision in their listing and purchase agreements with their clients (be they buyers, sellers, landlords, tenants, borrowers or lenders). A California choice-of-law provision mandates that disputes arising from the brokerage fee arrangements are to be decided based on California law, even if litigated in federal or out-of-state courts. [See first tuesday Forms 102 §4.8 and 103 §3.4]

Related topics:
broker fees, licensing

Posted by Matthew Shade | Nov 11, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A buyer purchased property financed by a loan secured by a first trust deed and a seller carryback note secured by a second trust deed on the property. The seller failed to provide the buyer with all required property disclosures. As a result, the seller and the buyer entered into a settlement agreement to reduce the principal due under the carryback note. Later, the buyer defaulted on the first trust deed. The first trust deed lender foreclosed, wiping out the seller’s interest in the property. The seller demanded the buyer pay the principal remaining on the carryback note secured by the second trust deed, called a deficiency.

Claim: The buyer sought to avoid the seller’s demand, claiming the seller was prohibited from collecting the deficiency since the buyer was protected under state anti-deficiency law.

Counterclaim: The seller sought to collect the deficiency, claiming the buyer was not protected by state anti-deficiency law since the settlement agreement created a separately enforceable, independent obligation.

Holding: A California court of appeals held the seller was prohibited from collecting a deficiency on the carryback note from the buyer under state anti-deficiency laws since the settlement agreement did not create a separately enforceable independent obligation. [Weinstein v. Rocha (2012) 208 CA4th 92]

-ft

Related topics:
anti-deficiency, loan modification

Posted by Matthew Shade | Oct 24, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A property owner entered into an agreement with the state to establish a conservation easement over a piece of the owner’s property. Under the agreement, the state was required to post signs on the property prohibiting hunting and trespassing. The state never posted the signs. The owner sold their property to a buyer.

Claim:  The buyer sought to extinguish the conservation easement, claiming the state forfeited the easement by failing to comply with the posting requirement.

Counter claim:  The state claimed the easement was not forfeited since the easement was established by the agreement and the posting requirement was not a condition subsequent to the granting of the conservation easement.

Holding: A California court of appeals held the easement was not forfeited since the posting requirement was not a condition subsequent to the granting of the conservation easement established by the agreement. [Wooster v. Department of Fish and Game (2012) 211 CA4^th 1020]

Related topics:
easements

Posted by Matthew Shade | Oct 1, 2013 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A landlord leased property to a nonresidential tenant. The lease provided the landlord with the right to inspect the premises with reasonable notice. The tenant’s attorney notified the landlord all contact with the tenant is to be conducted through the attorney. Later, the landlord wrote the attorney, notifying the attorney of the landlord’s intent to inspect the premises. After no response, the landlord conducted the inspection without acknowledgment by the attorney or tenant.

Claim:  The tenant sought money losses for the unconsented to entry and to prevent further access by the landlord, claiming the landlord violated the lease since the landlord did not give the tenant  notice of the inspection before entering the property.

Counter claim:  The landlord claimed they did not violate the lease as they gave proper notice to the attorney since the tenant demanded the landlord send all communications to the attorney who was to act on the tenant’s behalf.

Holding: A California Court of Appeals held the landlord was not liable for unconsented entry since the landlord did not violate the lease as the landlord gave notice to the attorney as authorized by the tenant to receive all communications on their behalf. [Eucasia Schools Worldwide, Inc. v. DW August Co. (2013) ___ CA 2nd___]

Related topics:
lease agreement

Posted by Matthew Shade | Nov 20, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A tenant leased a mobilehome unit as their secondary residence. The lease prohibited subletting. Mobilehome units used as a secondary residence were exempt from local rent control, unless subletting was prohibited. The mobilehome park owner changed the park rules, without the tenant’s consent, to allow subletting, but did not notify the tenant in writing of the change.  The owner raised the tenant’s rent beyond the amount allowable under rent control.

Claim: The tenant sought damages equal to the difference in rent charged by the owner and the amount allowable under the rent control ordinance, claiming real estate law required the owner to provide written notice of the change in park rules six months prior to the change and thus the tenant was not subject to the new rules and not exempt from rent control since the owner never served notice.

Counterclaim: The owner claimed the tenant’s unit was exempt from rent control since the owner was not required to provide written notice of the change in park rule as the change in park rules expanded the tenant’s rights by allowing subletting.

Holding: A California court of appeals held the owner was liable for money damages equal to the difference in rent levels since real estate law required the owner to provide written notice of the change in park rules six months prior to the change and thus the tenant was not subject to the new rules and not exempt from rent control as the owner never served notice. [Freeman v. Vista de Santa Barbara (2012) 207 CA4th 791]

Editors note: California Civil Code requires landlords of mobilehome parks to give written notification of a change to the park rules if a tenant has not consented to the change. Written notification is to be given at least six months prior to the change. [Calif. Civil Code §798.25]

Related topics:
rent, rent control

Posted by Matthew Shade | Oct 23, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: An easement existed across two properties. A trust deed was recorded on the property benefitted by the easement. A neighbor held title to the property burdened by the easement and through common ownership acquired title to the property benefitted by the easement. The neighbor defaulted and the holder of the trust deed foreclosed and became the new owner of the property benefitted by the easement.

Claim: The neighbor sought to eliminate the easement burdening their property claiming through common ownership of the properties the easement was extinguished by merger.

Counterclaim: The owner claimed the easement was not extinguished since no merger of title occurred as the owner had held an intervening interest through the trust deed.

Holding: A California court of appeals held the easement was not extinguished since no merger of title occurred as the owner held an intervening interest through the trust deed. [Hamilton Court, LLC v. East Olympic, L.P. (2013) __ CA4th __]

Related topics:
easements, title dispute

Posted by Matthew Shade | Oct 22, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A government agency planned to construct a public walkway over an owner’s private property, reserving the land for open space and recreational use. The plan also included improvements to be built at a later phase. The agency condemned the property through eminent domain without preparing an environmental impact report (EIR) and posted a notice of exemption.

Claim: The property owner sought to retain possession of the property, claiming the agency’s use of eminent domain was invalid since the California Environmental Quality Act (CEQA) requires an EIR be completed before a government entity may condemn property.

Counter claim: The agency claimed the eminent domain action was valid since an EIR is not  required to condemn property to preserve open space and provide public access, it is only required prior to commencing the construction of improvements .

Holding: A California Court of Appeals held the eminent domain action was valid since an EIR is not required prior to condemning private property, it is only required prior to  improving the property. [Golden Gate Land Holdings LLC v. East Bay Regional Park District (2013) __ CA4th __]

Related topics:
eminent domain

Posted by Matthew Shade | Nov 12, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A buyer entered into escrow for the purchase of a home. The escrow company contracted with a notary to perform services for the buyer’s escrow. The notary was limited by statute to charging $10 per signature. The notary notarized two signatures and performed additional services for the buyer, such as traveling to the buyer’s residence outside of normal business hours and explaining documents. The notary charged over $20 for their services.

Claim:  The buyer sought money damages, claiming the escrow company engaged in unfair business practices since the notary charged more than the lawful $10 per signature.

Counterclaim:  The escrow company claimed it did not engage in unfair business practices since the amount charged included charges for services beyond the notarized signatures, such as travel outside of normal business hours and explanations of loan documents.

Holding: A California court of appeals held the escrow company did not engage in unfair business practices since the notary may charge fees for services beyond the notarizing of signatures when additional services are performed. [Hutton v. Fidelity National Title Company (2013) ___ CA4th___]

Related topics:
escrow, notary

Posted by Matthew Shade | Oct 28, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: The sole owner of a coastland mobilehome park applied to the city to convert their mobilehome park from tenant leasehold occupancy to fee ownership occupancy of each existing space in the park. The city rejected the application, stating the owner needed to first obtain a coastal development permit before subdividing the property.

Claim:  The owner claimed they did not need a coastal development permit since subdividing the mobilehome park to change only the nature of the occupancy from that of a tenant to resident ownership for each space was not considered development.

Counterclaim:  The city claimed the conversion of the park required a coastal development permit since a subdivision changed the intensity of land usage.

Holding: The California Supreme Court held the owner must first obtain a coastal development permit before converting the mobilehome park leasehold interests to resident ownership of park spaces since any subdivision changes the intensity of use of the land and thus qualifies as a development. [Pacific Palisades Bowl Mobile Estates v. City of Los Angeles (2013) 243 CA4th 574]

Related topics:
mobilehomes

Posted by ft Editorial Staff | Mar 1, 2013 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

New real estate laws digested in 2013

March 2013

• New smoke alarm requirements for residential rental properties

February 2013

January 2013

• In person reverse mortgage counseling required
• Statute of limitations extended for prosecution of unauthorized real estate practices

Related topics:

Posted by Matthew Shade | Oct 31, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: The sole owner of a mobilehome park applied to the city to convert their mobilehome park from tenant leasehold occupancy to fee ownership occupancy of each existing space in the park. As required by the application, the owner surveyed the tenants of the park. The survey was used by the city to determine whether the conversion was truly intended for resident ownership for each space or a sham to preempt rent control ordinances. The survey did not indicate the conversion was a sham, but a majority of tenant survey respondents did not favor the conversion. The city denied the application.

Claim:  The owner claimed the city’s denial of their application based on the results of the survey was invalid since the survey only needed to show the conversion was not a sham.

Counterclaim:  The city claimed their denial of the application was valid since a majority of respondents did not favor the conversion.

Holding: A California court of appeals held the mobilehome park owner may convert the mobilehome park leasehold interests to resident ownership of park spaces since the survey can only be relied on to reject the application if it indicates the conversion is a sham. [Chino MHC, LP v. City of Chino (2013) ___ CA4th___]

Related topics:
mobilehomes, rent, rent control

Posted by Matthew Shade | Nov 8, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: The owner of a mobilehome park subject to rent control ordinances applied to a government agency to convert the occupancy of the spaces in the mobilehome park from tenant occupancy to resident ownership occupancy. As required by the application, the owner surveyed the tenants of the mobilehome park to determine whether the tenants supported the conversion. In the survey, the tenants nearly unanimously opposed the conversion. Based on the survey, the government agency determined the conversion was a sham to preempt rent control ordinances. The government agency denied the application.

Claim:  The owner sought to convert the mobilehome park to resident ownership occupancy, claiming the government agency’s denial of the application was invalid since a government agency may not consider the survey results when making a decision on a conversion application.

Counterclaim: The government agency claimed its denial of the application was valid since a government agency may consider a survey results if the results indicate the conversion is a sham to preempt rent control ordinances.

Holding: A California court of appeals held the government agency’s denial of the conversion application was valid since a government agency may consider a survey’s results in making its decision if the results indicate the conversion is a sham to preempt rent control ordinances. [Goldstone v. County of Santa Cruz (2012) 207 CA4th 1038]

 

-ft

Related topics:
mobilehomes, rent, rent control

Posted by Matthew Shade | Nov 13, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A borrower refinanced their mortgage. After closing, the borrower discovered a lender’s representative had forged the borrower’s signature on multiple loan documents. The borrower informed the lender of the forgeries, and the lender began investigating the loan documents. The lender informed the borrower it was not accepting payments while the forgery was being reviewed. Later, the lender served the borrower with a notice of default. The borrower attempted to make payments after the notice of default, but the lender returned all attempted payments. The borrower was ultimately unable to bring the mortgage current and pay the late fees to reinstate the mortgage. The lender foreclosed.

Claim: The borrower sought money losses from the lender, claiming the lender committed negligent misrepresentation since the lender prevented the borrower from making mortgage payments and charged late fees, causing the borrower to be unable to reinstate the mortgage.

Counterclaim: The lender claimed the borrower was not entitled to money losses since the borrower was unable to repay the required amount to reinstate the mortgage.

Holding: A California court of appeals held the lender had committed negligent misrepresentation and the borrower was entitled to money losses from the lender since the lender prevented the borrower from making mortgage payments and charged late fees, causing the borrower to be unable to reinstate the mortgage. [Ragland v. US Bank National Association (2012) 209 CA4th 182]

Related topics:
mortgage fraud, notice of default (nod)

Posted by Matthew Shade | Aug 27, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: An owner purchased property with a loan secured by a deed of trust held by the lender. Later, the owner defaulted and the lender recorded a notice of default. The owner negotiated a sale of the property with a buyer for less than the remaining balance of the loan. The lender agreed to the short sale on the condition the buyer repay the deficiency balance. After the sale, the lender sent a collection letter to the owner demanding the remaining balance.

Claim: The owner sought to prevent the lender’s collection of the deficiency claiming anti-deficiency legislation prohibited collection of the deficiency balance since the loan was used to purchase property and was therefore nonrecourse.

Counter claim: The lender sought to collect the deficiency claiming the buyer was not protected by anti-deficiency legislation since anti-deficiency protection only applies to debt after foreclosure, which did not occur as the property was sold in a short sale.

Holding: A California Court of Appeals held the owner was protected under anti-deficiency law since the loan was purchase-assist and foreclosure is not a requirement of anti-deficiency protection. [Carol Coker v. JP Morgan Chase Bank (2013) __ CA4d __]

Related topics:
anti-deficiency, short sale

Posted by Matthew Shade | Oct 24, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A nonprofit, tax exempt religious organization owned a property. The neighbor fenced in and improved a portion of the organization’s property. The neighbor maintained consistent and notorious possession of the fenced in property for over five years. The neighbor did not pay property taxes on the improved portion of the property.

Claim: The neighbor sought title to the improved portion of the property, claiming they owned the property through adverse possession since they made and openly maintained improvements on the property for over five years.

Counter claim: The owner claimed the neighbor did not acquire title to the property through adverse possession since the neighbor did not pay property taxes on the improved portion of the property.

Holding: A California court of appeals held the neighbor acquired title to the improved portion of the property through adverse possession, despite the fact the neighbor did not pay property taxes, since the tax exempt, nonprofit religious organization  was not required to pay  property taxes. [Hagman v. Meher Mount Corporation (2013) 215 CA4th 82]

Related reading:

Legal Aspects of Real Estate Ch. 30: Real estate can be stolen

Related topics:
adverse possession, title dispute

Posted by Matthew Shade | Oct 29, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: An owner held an easement over their neighbor’s property which allowed the owner access to their landlocked property. A public road was later constructed giving the owner access to their property. The neighbor planned to develop the property on which the easement lay. The owner refused to abandon their easement rights.

Claim:  The neighbor sought to partially extinguish the easement by reducing its size, claiming the owner has no reasonable need for the easement since the new public road provides access to the previously landlocked property.

Counterclaim:  The owner sought to maintain the easement, claiming the easement may not be extinguished nor reduced even if it is no longer necessary.

Holding: A California court of appeals held an easement may not be extinguished by the owner of the burdened property when the easement is no longer necessary unless the owner of the benefitted property voluntarily abandons the easement. [Cottonwood Duplexes v. Barlow (2012) 210 CA4th 1501]

Related topics:

Posted by Matthew Shade | Oct 28, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowner obtained a loan from a lender secured by a trust deed on their property. The homeowner defaulted and the lender recorded a notice of a trustee’s sale. The homeowner filed for bankruptcy and the trustee’s sale was stayed. The stay was dismissed and a date for the trustee’s sale was set. On the day of the sale, the homeowner filed a request for the dismissal of their first bankruptcy filing and submitted a second bankruptcy filing. The home was sold at the trustee’s sale.

Claim:  The homeowner sought to dismiss the trustee’s sale, claiming the second bankruptcy filing automatically stayed the trustee’s sale since it was filed prior to the sale.

Counterclaim:  The lender sought to uphold the trustee’s sale, claiming the homeowner was ineligible for a second bankruptcy filing since they had just dismissed the first bankruptcy filing.

Holding: A federal bankruptcy court held the trustee’s sale was valid since the homeowner was ineligible for a second bankruptcy filing. [In re Leafty (9^th Cir. 2012) 479 BR 545]

Editor’s note — After unsuccessfully opposing the lender’s request for relief from the automatic stay in their first case, the borrower entered into another bankruptcy filing with the intent of stopping the pending trustee’s sale. 11 United States Code §109(g)(2) prevents this type of abusive bankruptcy filing. 

Related topics:
trust deed

Posted by Matthew Shade | Nov 14, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowner obtained a loan secured by a trust deed on their property. The owner went into default and the lender filed a notice of default (NOD). The lender failed to discuss alternatives to foreclosure with the owner prior to filing the NOD, as required by law. No agencies or penalties were in place to enforce the requirement on the lender. The lender foreclosed on the property.

Claim: The owner sought to pursue money damages from the lender, claiming the lender wrongfully foreclosed on their property since it failed to contact the owner to discuss alternatives to foreclosure prior to filing an NOD.

Counterclaim: The lender claimed the owner may not pursue money damages since the requirement to contact the owner did not create an owner’s right to pursue action against the lender for failure to discuss alternatives to foreclosure.

Holding: A California court of appeal held the owner may pursue money damages from the lender since no penalties or agencies existed to enforce the requirement, thus the owner had a private right to pursue action for the lender’s failure to discuss alternatives to foreclosure. [Skov v. U.S. Bank (2012) 207 CA4th 690]

Related topics:
notice of default (nod)

Posted by Matthew Shade | Nov 26, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A city inspected an incarcerated owner’s rental property and determined repairs were required to protect the safety of its residents. The court appointed a receiver who vacated all tenants and boarded up the property. The receiver was instructed to record a lien on the property to secure their payment but failed to do so. The owner defaulted and the lender later foreclosed and purchased the property at the foreclosure sale. The lender did not pay the receiver and sold the property.

Claim: The receiver sought full payment of their fees from the lender directly, claiming the lender was required to pay the receivership fees for the property since it became the owner of the property on foreclosure.

Counterclaim: The lender claimed they were not liable to pay the receivership fees since recovery of the fee comes through a lien on the property, which the receiver did not record.

Holding: A California court of appeals held the lender was not liable to pay the receivership fees since the receiver did not record a lien on the property as required for payment.

Also at issue in this case:

Facts: A city inspected an incarcerated owner’s rental property and determined repairs were required to protect the safety of its residents. The court appointed a receiver who vacated all tenants and boarded up the property. The owner defaulted and the lender later foreclosed and purchased the property at the foreclosure sale. The lender did not pay the receiver and sold the property.

Claim:  The receiver sought full payment of receivership fees directly from the lender, claiming the lender was unjustly enriched since it benefitted from the receiver’s services when the lender sold the property.

Counterclaim:  The lender claimed it was not unjustly enriched since it did not request the receivership and was not the owner of the property at the time the receiver provided services.

Holding: A California court of appeals held the lender was not liable for the receivership fees since the lender was not unjustly enriched as the receiver did not request the receivership and was not the owner of the property at the time the receiver provided services. [City of Chula Vista v. Gutierrez (2012) 207 CA4th 681]

Editor’s note – The lender was never liable for the payment of the receiver’s fees since the receiver failed to perfect their rights with a recorded lien on the property. Had the receiver recorded a lien prior to the lender’s purchase of the property, the lender would have foreclosed taking title subject to the lien, requiring it to pay the receiver’s lien which would be in a priority position to the lender’s junior trust deed. 

However, the lien was never recorded and thus the receiver did not have an interest in the property they could enforce against the trust deed lender.

Alternatively, if the lender had requested the receiver’s services, then the receiver may seek payment directly from the lender. However, the court appointed the receiver and instructed the receiver to record a lien, which the receiver did not do to their own detriment. Thus, the lender was not liable for the receiver’s fees, directly or indirectly.

 

Related topics:
junior lien, trust deed

Posted by Matthew Shade | Nov 6, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A homeowner owned residential property. A creditor obtained a judgment against the owner and recorded a judgment lien on the property. The owner sold the home to a buyer. The buyer then transferred title back to the owner as a gift. Later, the owner filed for bankruptcy.

Claim:  The owner sought to clear the lien from title, claiming the property was protected under the homestead exemption since they resided and held an interest in the property when they filed for bankruptcy.

Counterclaim: The creditor sought to maintain the lien, claiming the owner was not protected under the homestead exemption since the owner did not hold a continuous interest in the property after the lien was recorded.

Holding: A federal bankruptcy court held the lien was not avoided under the homestead exemption since the owner did not hold a continuous interest in the property after the lien was recorded. [In re Kuiken (9th Cir. 2012) 484 BR 766]

Related reading:

first tuesday Realtipedia, Volume 3 Legal Aspects, Chapter 41 “Clearing a lien-clouded title”

Related topics:
homestead exemption

Posted by ft Editorial Staff | Mar 1, 2013 | New Laws, Property Management, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Health and Safety Code §§13113.7, 13113.8, and 13114

Amended by S.B. 1394

Effective Date:  January 1, 2013, except where noted

As of January 1, 2014, a building permit issued for alterations or repairs of $1,000 or more on residential property will not be signed off until the property owner demonstrates all smoke alarms are on the current list of devices approved and listed by the State Fire Marshal. The signature restriction is an amendment to existing law.

Smoke alarms will meet the following requirements to be approved and listed by the State Fire Marshal:

• display the date of manufacture;
• have a hush feature;
• include an alarm indicating the unit needs to be replaced; and
• if battery operated, contain a non-replaceable battery that lasts at least ten years.

The State Fire Marshal can create exceptions to these requirements. In the event of a shortage of suitable alarm systems, the State Fire Marshal can suspend enforcement of these requirements by up to six months by posting a public notice on their website.

Additionally, the State Fire Marshal is no longer authorized to exempt housing units with only a fire sprinkler system from smoke alarm installation requirements. However, a fire alarm system with smoke detectors may be installed in lieu of smoke alarms.

Multi-family residential properties are no longer required to have smoke detectors in common stairwells. However, beginning January 1, 2014, owners of multi-family housing properties who rent or lease their property are now responsible for testing and maintaining smoke alarms within all the units in their properties. This applies to both occupied and unoccupied units.

On or before January 1, 2016, residential property owners who rent out one or more units must install any additional smoke alarms required under existing building standards. Existing alarms only need to be replaced if they are inoperable.

Related topics:
building code, construction, defensible space, fema, fire, home, insurance, multi-family housing, safety

Posted by Matthew Shade | Nov 5, 2013 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

This law establishes new rules controlling mortgage payment-free periods granted to military service members.

Military service member mortgage payment postponements – compounding and extensions

Military and Veterans Code §409.3
Amended by S.B. 720
Effective: January 1, 2014

Military service members may petition a court for a postponement of their mortgage principal and interest payments if their service has affected their ability to pay. This request may be made:

• during their service; or
• within six months of the end of their service.

If granted, the payment-free period begins on the date granted. The payment-free period is equal to the service member’s military service period. The mortgage term is extended by length of the payment-free period.

The lender may not compound interest accrued and unpaid during the payment-free period. The postponed mortgage term may run beyond the service member’s actual military service period.

Editor’s note — For example, consider a service member who petitions a court for a payment postponement. The postponement is granted 12 months into their service. The service member serves a total of 24 months. Thus, the payment-free period lasts 24 months: from the time the payment postponement is granted through the end of 12 months after the end of the service member’s service period.

The payment-free period does not postpone the required payment of property taxes, special assessments, mortgage insurance or hazard insurance through an impound account.

During the payment-free period, mortgage servicers are prohibited from:

• charging the service member penalties for nonpayment;
• compounding the interest accruing unpaid on the loan; and
• foreclosing on the mortgage.

Payments are to resume at the end of the payment-free period, under the terms of the extended mortgage.

All postponed principal and interest payments become due on the earlier of:

• any event triggering the lender’s due-on clause; or
• the end of the extended amortized mortgage term.

Related topics:
military

Posted by Matthew Shade | Jul 1, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A buyer entered into a purchase option agreement for raw land with a trust granting the buyer a five-year option to purchase up to seven acres of the trust’s property in exchange for an option fee. The option violated the Subdivision Map Act (SMA) by failing to require the buyer to file a parcel map application as a condition for exercising the option. Later, the trustee passed away and the buyer and a successor trustee amended the option to extend it four more years. The amendment also included a provision requiring the buyer to submit a parcel map application prior to any conveyance of the real estate to be in compliance with the SMA. The buyer filed a parcel map application and paid the option fee. The successor trustee passed away and a newly appointed successor trustee opposed the option and the application.

Claim: The buyer sought to exercise the option, claiming the option was enforceable since the buyer satisfied the SMA filing requirement when the option was amended.

Counter claim: The successor trustee claimed the option was unenforceable due to the original option’s violation of the SMA.

Holding: The California Court of Appeals held the amended option was enforceable since it was amended to comply with the SMA.  [Corrie v. Soloway (2013) ___ CA4th___]

Related topics:
purchase agreement, purchase option, trust funds

Posted by Nicole Jessen | Dec 9, 2013 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Head’s up: another change to the TDS coming in 2014.

California Civil Code §1102.6

Amended by S.B. 652
Effective date: July 1, 2014

Beginning July 1, 2014, the statutory Real Estate Transfer Disclosure Statement (TDS) is to include a disclosure about the existence of seller claims for damages stemming from construction defects in the property.

The TDS is amended to read (changes are shown in italics):

C. […]

16. Any lawsuits by or against the Seller threatening to or affecting this real property, claims for damages by the seller pursuant to Section 910 or 914 threatening to or affecting this real property, claims for breach of warranty pursuant to Section 900 threatening to or affecting this real property , or claims for breach of an enhanced protection agreement pursuant to Section 903 threatening to or affecting this real property, including any lawsuits or claims for damages pursuant to Section 910 or 914 alleging a defect or deficiency in this real property or ‘common areas’ (facilities such as pools, tennis courts, walkways , or other areas co-owned in undivided interest with others)

Editor’s note— first tuesday Form 304 – Condition of Property Transfer Disclosure Statement (TDS) has been updated to reflect these changes.

 

Related topics:
condition of property, transfer disclosure statement (tds)

Posted by ft Editorial Staff | Jan 1, 2013 | Laws and Regulations, Licensing and Education, Mortgages, New Laws, Real Estate, Your Practice | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Statute of limitations extended for prosecution of unauthorized real estate practices

Penal Code §802
Amended by A.B. 1950
Effective date: January 1, 2013

The statute of limitations for prosecution of:

• the unauthorized practice of law;
• the unlicensed practice of real estate, including the unlicensed activities requiring a mortgage loan originator endorsement;
• a real estate licensee who collects an advance fee, lien or power of attorney in connection with negotiating or arranging a loan modification on a loan secured by a one-to-four unit residential property; and
• a real estate licensee negotiating or arranging a loan modification who fails to provide a disclosure to a borrower about the borrower’s ability to deal negotiate directly with the lender and to obtain free counseling services available from nonprofit housing counseling agencies;

have been extended from one year to three years from the later of the start or completion of the violation.

Related topics:
mortgage loan originator, real estate licensing

Posted by Sarah Cantino | Sep 13, 2013 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Another tenant status permitting a residential lease to be terminated on 30-day notice.

Civil Code §1946.7; Code of Civil Procedure §1161.3
Amended and Added by S.B. No. 612
Effective date: January 1, 2014

Under existing law, victims of domestic abuse, sexual abuse, stalking, or abuse of an elder or dependent adult may terminate a residential lease by delivering to their landlord a written 30-day notice to vacate. Landlords may not terminate or fail to renew a tenancy based on the tenant’s status as a victim of these abuses. [See first tuesday Form 572]

Victims of human trafficking are now added to the list of tenants protected under this law.

A victim of human trafficking is any person whose personal liberty has been violated by another with the intent to obtain forced labor or services. [Calif. Penal Code §236.1]

The tenant’s 30-day notice to vacate must be accompanied by written documentation confirming the abuse. In lieu of a police report, documentation from one of the following qualified professionals may be used to confirm the abuse:

• a sexual assault counselor;
• a domestic violence counselor;
• a human trafficking caseworker;
• a doctor or nurse;
• a psychologist or therapist; or
• a clinical social worker or counselor.

The documentation is to display the letterhead of their employing agency or organization, and contain the following:

Tenant Statement and Qualified Third Party Statement

under Civil Code Section 1946.7

Part I. Statement By Tenant

I, [insert name of tenant], state as follows:

I, or a member of my household, have been a victim of:

[insert one or more of the following: domestic violence, sexual assault, stalking, human trafficking, elder abuse, or dependent adult abuse.]

The most recent incident(s) happened on or about:

[insert date or dates.]

The incident(s) was/were committed by the following person(s), with these physical description(s), if known and safe to provide:

[if known and safe to provide, insert name(s) and physical description(s).]

__________________ _______________

(signature of tenant) (date)

 

Part II. Qualified Third Party Statement

I, [insert name of qualified third party], state as follows:

My business address and phone number are:

[insert business address and phone number.]

Check and complete one of the following:

___I meet the requirements for a sexual assault counselor provided in Section 1035.2 of the Evidence Code and I am either engaged in an office, hospital, institution, or center commonly known as a rape crisis center described in that section or employed by an organization providing the programs specified in Section 13835.2 of the Penal Code.

___I meet the requirements for a domestic violence counselor provided in Section 1037.1 of the Evidence Code and I am employed, whether financially compensated or not, by a domestic violence victim service organization, as defined in that section.

___I meet the requirements for a human trafficking caseworker provided in Section 1038.2 of the Evidence Code and I am employed, whether financially compensated or not, by an organization that provides programs specified in Section 18294 of the Welfare and Institutions Code or in Section 13835.2 of the Penal Code.

___I am licensed by the State of California as a:

[insert one of the following: physician and surgeon, osteopathic physician and surgeon, registered nurse, psychiatrist, psychologist, licensed clinical social worker, licensed marriage and family therapist, or licensed professional clinical counselor.] and I am licensed by, and my license number is:

[insert name of state licensing entity and license number.]

The person who signed the Statement By Tenant above stated to me that he or she, or a member of his or her household, is a victim of:

[insert one or more of the following: domestic violence, sexual assault, stalking, human trafficking, elder abuse, or dependent adult abuse.]

The person further stated to me the incident(s) occurred on or about the date(s) stated above.

I understand that the person who made the Statement By Tenant may use this document as a basis for terminating a lease with the person’s landlord.

__________________________ _______________

(signature of qualified third party) (date)

Landlords may confirm the contents of the documentation with the qualified professional. However, landlords are prohibited from disclosing information about the victim’s abuse to any other party unless:

• the victim consents to the disclosure in writing; or
• a court orders the disclosure.

A tenant’s ability to use documentation other than a police report to confirm abuse will sunset on January 1, 2016.

Editor’s Note – Lawmakers have recognized the potential for tenants to abuse the relaxed documentation requirements in order to prematurely terminate their lease agreements. This temporary implementation is a test period.

The Judicial Council must create or amend a form for tenants protected under this rule to use as a defense to an unlawful detainer action. The deadline for the creation of this form has been extended from January 1, 2014, to July 1, 2014.

Related articles:

More tenant protections for abused elders and dependent adults

Tenant May Terminate a Lease due to Sexual Assault, Stalking, or Domestic Violence

Landlord’s responsibility to tenants who are victims of domestic violence, sexual assault or stalking

Tenant subjected to domestic violence, sexual assault or stalking has 180 days to serve notice to vacate

Related topics:
lease agreement, rental, tenant

Posted by Matthew Shade | Dec 6, 2013 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

The Bureau of Real Estate (BRE) may now revoke or suspend the license of a BRE licensee who tampers with documents the BRE requires to be maintained.

BRE may revoke or suspend the license of any licensee who tampers with documents

Business and Professions Code §10148
Amended by S.B. 676
Effective: January 1, 2014

If any real estate salesperson, broker, corporate officer or their employees knowingly destroys, alters, conceals, mutilates or falsifies any documents the BRE requires to be maintained, or requests during an audit, the BRE may revoke or suspend their license.

Documents which are required to be maintained or may be requested by the BRE during an audit include:

• listings;
• deposit receipts;
• cancelled checks;
• trust records; and
• any other document relating to licensed activities.

Related topics:
bureau of real estate

Posted by ft Editorial Staff | Jun 28, 2013 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

In the Departments of Real Estate’s (DRE’s) transition to the Bureau of Real Estate (the Bureau), their main office in Sacramento is moving.

Effective July 1, 2013, the Bureau’s new office address is:

1651 Exposition Boulevard, Sacramento, CA 95815

New P.O. Box numbers and section assignments have also been implemented. Some of the Bureau’s new P.O. Box numbers are:

• Examination mail: P.O. Box 137001, Sacramento 95813-7001
• Original license mail: P.O. Box 137002, Sacramento 95813-7002
• Renewals section: P.O. Box 137003, Sacramento 95813-7003
• MLO mail: P.O. Box 137008, Sacramento 95813-7008

Additional P.O. Box numbers and section assignments can be found here:

http://bre.ca.gov/files/pdf/adv/AdvisorySacOfficeMove.pdf

Call Center contact number(s) will not be changing. Licensees and consumers can still contact the Call Center by calling either 1-877-373-4LIC (English) or 1-877-373-4321 (Español).

The DRE’s transition to the Bureau will eventually involve the revision of their forms and website to reflect the name and address changes. However, the transition will be slow. For the time being, the DRE’s website is still up and all mail will be forwarded to the appropriate addresses. The slow change will give everyone ample time to make adjustments, and won’t interfere with license renewals or examinations.

For more information, visit the Bureau’s new website address is at www.bre.ca.gov — and don’t forget to update your bookmarks!

Related topics:
department of real estate (dre),

Posted by Nicole Jessen | Sep 30, 2013 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Good fences make good neighbors: this law sets forth new rules for the construction, upkeep and replacement of boundary fences.

California Civil Code §841
Added and amended by A.B. No. 1404
Effective date: January 1, 2014

Private owners of adjoining properties are presumed to benefit equally from boundary fences. Under this presumption, all adjoining owners are equally responsible for constructing, maintaining and replacing boundary fences.

The responsibility for constructing, maintaining or replacing boundary fences may be altered or removed only by:

• a written agreement between all affected owners; or
• an adjoining owner’s judicial petition to remove or alter their responsibility.

Upon an owner’s petition, factors considered when determining an owner’s responsibility for a boundary fence include:

• whether the boundary fence presents a financial burden disproportionate to the owner’s benefit;
• the cost of the construction, maintenance or replacement in relation to the value added to the owner’s property;
• whether financial responsibility for the boundary fence imposes unjustifiable financial hardship;
• the reasonableness of the construction, maintenance or replacement; and
• any other unequal impact the construction, maintenance or replacement of the boundary fence may have on the owner.

If more than one owner is responsible for a boundary fence, the owner who plans to construct, replace or maintain the fence is to provide a 30-day written notice to each affected adjoining owner. The notice is to include:

• a notification of the presumption of equal responsibility for the boundary fence;
• the problem to be addressed;
• the proposed solution;
• estimated costs;
• the proposed division of costs; and
• the proposed timeline to address the problem.

Related topics:
boundary fences

Posted by Jeffery Marino | Feb 17, 2013 | Finance, Laws and Regulations, Reader Polls, Real Estate | 1

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

first tuesday insight

91% of voters said big bank CEOs ought to be held personally and criminally responsible for wrongdoing perpetrated during the Millennium Boom.

Though you, our dear readers, don’t always agree with our insights, we are definitely on common ground with this one!

Unfortunately it seems that big bank CEOs have become too big to jail. At least that is their argument for immunity. Those who advocate protecting bank CEOs believe that jailing such high-powered and influential individuals would have a disastrous effect on the stability of our financial markets.

We beg to differ.

Holding bank CEOs personally responsible for criminal misconduct would create more stability in our financial and real estate markets. Aside from satisfying everyone’s healthy sense of justice, criminal prosecutions would create much needed legal precedent for financial services crimes.

We’re not calling for the guillotine yet, but it’s clear that the billion dollar settlements are not enough to deter the wolves of Wall Street.

Related article:

Do the Libor arrests herald justice?

 

Related topics:
consumer financial protection bureau (cfpb), libor, wall street

Posted by ft Editorial Staff | Oct 28, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A prior owner of property conveyed a portion of that property by grant deed, which described the portion they retained and provided as a condition of sale that no buildings were to be constructed on that portion. Separate parties later came to own the restricted and unrestricted properties.

Claim: The owner of the restricted property sought to confirm they held title free of the building restriction, claiming the building restriction was not a covenant running with the land, binding on future owners, as it burdened the restricted property described in the deed.

Counterclaim: The owner of the unrestricted property sought to confirm the building restriction persisted, claiming it was a covenant which ran with the restricted property, binding on future owners, since it was established for the direct benefit of the unrestricted property conveyed.

Holding: A California Court of Appeals held the building restriction was a covenant which ran with the restricted property, binding on future owners, since the covenant was made for the direct benefit of the unrestricted property and not with the purpose of burdening the restricted property described in the deed. [Self v. Sharafi (2013) ___CA4th___]

Editor’s note – A covenant runs with the land and binds future owners when it directly benefits the property conveyed with the grant deed. In this instance, the grant deed covenant restricted building on the portion of the property which was not conveyed. Thus, the court determined the covenant benefits the conveyed, unrestricted property since construction prohibition on the neighboring, restricted property “naturally enhances the market value” of the unrestricted property.

For more on covenants and their duration, see the first tuesday Realtipedia, Volume 3 Legal Aspects, Chapter 21 “Easements: running or personal?” and Chapter 23 “Covenants, conditions and restrictions.”

Related topics:
grant deed

Posted by ft Editorial Staff | Oct 22, 2013 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: A landlord notified a tenant of a change in the terms of their month-to-month rental agreement requiring the tenant to obtain personal property insurance. The notice of change of terms stated failure to comply constituted grounds for the tenant’s forfeiture of the unit. The tenant did not obtain personal property insurance.The landlord served the tenant a three-day notice to perform or quit. After expiration of the three-day period, the landlord filed an unlawful detainer (UD) action to evict the tenant.

Claim: The landlord sought to remove the tenant and take possession of the unit, claiming the tenant’s failure to comply with the new terms of the rental agreement allowed the landlord to terminate the agreement and revoke the tenant’s right of possession.

Counter claim: The tenant sought to maintain possession of the unit, claiming their failure to obtain personal property insurance was not a material breach warranting termination since personal property insurance is primarily a benefit of the tenant, not the landord.

Holding: The California Superior Court held the landlord cannot terminate the rental agreement and remove the tenant since the tenant’s breach of the requirement to obtain personal property insurance was not a material breach justifying termination of the contract as the requirement primarily benefited the tenant. [Nivo 1 LLC v. Antunez (2013) ___C4th___]

Also at issue in this case:

Do restrictions on changes of lease terms trump breach of contract?

Facts: A landlord of a unit subject to a local rent-control ordinance notified a tenant of changes to the terms of their month-to-month rental agreement, specifying failure to comply constituted grounds for the tenant’s forfeiture of the unit. The rent-control ordinance prohibited landlords from making unilateral changes to tenancy terms without the written consent of the tenant. The tenant did not agree to the change of terms in writing and did not comply with the new terms. The landlord served the tenant a three-day notice to perform or quit and filed an unlawful detainer (UD) action to evict the tenant after the three-day period.

Claim: The landlord sought to remove the tenant and take possession of the unit, claiming the tenant’s failure to comply with the new terms of the rental agreement allowed the landlord to terminate the agreement and revoke the tenant’s right of possession.

Counter claim: The tenant sought to maintain possession of the unit, claiming the changed provisions were unenforceable since the tenant did not agree to the change in agreement terms in writing.

Holding: The California Superior Court held the landlord cannot terminate the rental agreement and retake possession of the unit since the unit was subject to the local rent-control ordinance which prohibited landlords from making changes to rental or lease agreements without the tenant’s written consent, and the tenant did not agree to the changes in writing, rendering the changed provisions unenforceable. [Nivo 1 LLC v. Antunez (2013) ___C4th___]

Editor’s note –The critical question posed by this case is whether a tenant’s failure to obtain personal property (renter’s) insurance constitutes a material breach of a rental or lease agreement. In this case, the court found that renter’s insurance is primarily a benefit to the tenant, not the landlord, thereby making the tenant’s breach “trivial.” 

We disagree on this point, as renter’s insurance protects a landlord from liability for losses of the tenant’s personal property. It further provides for the landlord’s reimbursement for damages the tenant causes to the property.

Related reading:

Renter’s insurance: the no-lose policy

The Court elaborated that not every breach of a contract justifies termination of that contract. In this instance, other unspecified factual circumstances led the court to conclude the landlord enforced this provision selectively against this particular tenant, and no others, likely in an attempt to remove what the landlord perceived as a “problem tenant.”

See first tuesday’s Three-Day Notice to Perform or Quit. [first tuesday Form 576]

Related topics:
breach of contract, landlord, rent control, rental agreement, renters insurance, tenant

Posted by Matthew Shade | Oct 30, 2013 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal  — P.O. Box 5707, Riverside, CA 92517

Facts: The owner of a mobilehome park subject to rent control applied to the city to increase the monthly rent charged to tenants. The city permitted the owner to increase rent solely to the extent to maintain the owner’s net operating income. The city did not consider the owner’s debt obligations for their purchase and finance of the park.

Claim:  The owner sought money damages from the city, claiming the rent increase was not sufficient to provide a profit since the city did not take into consideration the owner’s debt obligations.

Counterclaim:  The city claimed it correctly assessed the owner’s net operating income as a basis for increasing the allowable rent since rent control does not need to consider the debt obligation of the owner.

Holding: A California court of appeals held the city correctly assessed the owner’s net operating income as a basis for increasing the allowable rent in the rent-controlled mobilehome park since the city is not required to take into consideration an owner’s debt obligations. [Colony Cove Properties, LLC v. City of Carson (2013) ___ CA4th___]

Editor’s note — If the city were to factor a mobilehome park owner’s debt obligations into the rent increase computation, inequities would result. In effect, an owner who obtained financing for their purchase of a rent-controlled mobilehome could then obtain higher rents than a party that paid cash.

Related topics:
mobilehomes, rent, rent control