11.10.11
Posted in Litigation, Real Estate Law at 14:14 by Administrator
Q. The lease for the house where I live is about to expire and the owner has listed the property for sale with a real estate broker. Although a registered sex offender lives directly across the street, and police have “raided” the offender’s residence, my understanding is that the owner of the house where I reside does not intend to inform the real estate agent of the offender’s presence in the neighborhood because such disclosure might “make the house unsellable”.
Would I be violating any law if I told the real estate broker that a registered sex offender lives across the street?
A. The situation you described recently was litigated in the appellate case Cross v. Cooper (California Court of Appeal, Sixth Appellate District, July 11, 2011). In that case, Stephan and Laura Cooper rented a house from Sandra Cross. Ms. Cross entered into a purchase contract with potential buyers, but the buyers cancelled the transaction.
Ms. Cross then sued the Coopers, asserted several claims relating to the Coopers’ disclosure or threats to disclose, the presence in the neighborhood of a registered sex offender. The Coopers responded to the lawsuit by asking the trial court to dismiss the case as a “Strategic Lawsuit Against Public Participation (SLAPP).
In their anti-SLAPP motion, the Coopers’ argued that Ms. Cross’s lawsuit was intended primarily to chill the exercise of the Coopers’ First Amendment Rights and that Ms. Cross could not demonstrate a probability of prevailing at trial. The trial court disagreed, declined to dismiss the lawsuit as an anti-SLAPP case, and ordered the Coopers to go to trial on Ms. Cross’s claims.
The Coopers appealed the trial court’s denial of their anti-SLAPP motion. The California Court of Appeal, unlike the trial court, held that disclosure by the Coopers, if any, of the proximity in the neighborhood of a registered sex offender was a “matter of public concern” and, as such, constitutes protected First Amendment activity. The Court of Appeal then concluded the trial court had erred in denying the Coopers’ anti-SLAPP motion and remanded the case for further proceedings.
Cross v. Cooper demonstrates how the exercise of First Amendment speech rights, in the context of a real estate transaction, can result in a lawsuit. Even though the Coopers alleged conduct was eventually deemed to have been protected under the First Amendment, the Coopers nevertheless had to go through trial court and appellate court proceedings in order to vindicate those rights. Even assuming the Coopers recovered their attorney fees, the fact remains that they had to endure litigation. Also, although apparently not a determining factor in the ultimate resolution of this case, one might reasonably wonder what the Coopers’ true motivation was in making the alleged disclosure. Were they primarily concerned about the safety of children in the neighborhood, or were they merely using that as a pretext to retaliate against their landlord who had decided to sell the property rather than renew the Coopers’ residential lease?
The case of Cross v. Cooper raises other legal issues which were not the subject of appellate litigation. As always, it is best to consult with your attorney before taking action which might lead to litigation.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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Posted in Litigation, Real Estate Law at 13:57 by Administrator
Q. I have heard various, and seemingly conflicting, summaries of California foreclosure law. Some assert that deficiency judgments are never available in California; others claim deficiency judgments may be available in certain cases. Which is correct?
A. There are two types of foreclosure actions in California: judicial and non-judicial. The vast majority of California foreclosure actions proceed as non-judicial foreclosures because judicial foreclosures take much longer to complete and to become final than do non-judicial foreclosures and, therefore, generally are more expensive for lenders.
California’s anti-deficiency statutes preclude or limit lenders’ ability to obtain personal judgments against defaulting borrowers in many situations where proceeds from the sale of a property which has been foreclosed upon fail to extinguish the outstanding debt which was secured by the property. See, California Code of Civil Procedure §§ 580a, 580b, 580d, 726(a).
C.C.P. § 580d generally prohibits deficiency judgments after any foreclosure sale, judicial or non-judicial, of property that is secured by a third-party purchase money trust deed or mortgage on owner-occupied residential property, or on a seller-held purchase money trust deed or mortgage on any kind of property. All standard purchase-money transactions are subject to the C.C.P. § 580b bar to deficiency judgments. Spangler v. Memel, 7 Cal.3d 603, 610 (1972).
Non-Judicial Foreclosure
By choosing non-judicial foreclosure, the creditor waives the right to a deficiency judgment. Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 43-44 (1963). When a deficiency judgment is barred following a non-judicial foreclosure under a deed of trust, the trustee has a duty to cancel the underlying note. Kerivan v. Title Ins. & Trust Co., 147 C.A.3d 225, 230-231.
Section 580d does not, however, bar recovery on a debt by a sold-out junior lienholder whose security has been rendered worthless by non-judicial foreclosure of a senior lienholder. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 43.
Judicial Foreclosure
A creditor may generally obtain a deficiency judgment following a judicial foreclosure, except where the purchase-money rule would bar such a judgment. C.C.P. § 580b. When recovery of a deficiency judgment is allowed, recovery is limited to the amount by which the outstanding debt exceeds either the fair market value of the property at the time of sale or, if less, the sale price. C.C.P. § 580a.
The purchase-money rule does not apply in cases where the property has been refinanced and the purchase-money loan replaced with a different loan which also is secured by the subject property. Union Bank v. Wendland, 54 C.A.3d. 393, 399-400 (1976).
Deficiency Judgments Generally
The “One-Form-of-Action” rule provides that foreclosure is the only form of action to recover any debt or enforce any right secured by a deed of trust or mortgage. C.C.P. § 726(a). The rule has two purposes: to compel a secured creditor to resort first to the security and to protect the debtor from multiple suits when a creditor holds multiple security interests. Savings Bank v. Central Market Co., 122 Cal. 28 (1898).
The security-first requirement of the One-Form-of-Action rule does not preclude, as mentioned above, an action on a debt by a creditor whose security has been rendered worthless without any fault on the part of the creditor. Id., at 33-36. The most common example is the sold-out junior lienholder, whose security has been rendered worthless by foreclosure of a senior lien. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 39-44.
This article is published in both print and electronic formats. You may register at http://earlelaw.com/newsletters to begin receiving future articles via a free email subscription to the EarleLaw Newsletter.
Earle Law Offices offers the LAW (Lawyer Available Whenever) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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04.06.11
Posted in Business Law, Litigation, Real Estate Law at 08:53 by Administrator
Q. I recently attended a seminar which promoted the idea of using a business entity to own and hold investment real estate, the primary purpose of which is asset protection. What are your thoughts on this asset protection strategy?
A. It has been argued that the American legal system unduly promotes and encourages a litigious society, with California often cited as evidence for the validity of this argument. Other states, in turn, often consult – and frequently follow – California legal precedent when addressing for themselves legal issues which California has previously considered. For this reason, it is important for real estate investors – whether they invest in California or other states – to be aware of the conflicting and sometimes inconsistent rulings by California courts on the issue of whether to recognize or disregard the asset protection qualities of business entities used to hold real estate assets.
Long before Limited Liability Companies (LLC’s) and other legal entities were commonly used to hold real estate for the purpose of asset protection, the “alter ego” legal doctrine arose in the law to “pierce the corporate veil” in cases where the “corporate-separateness” of legal entities had been used to commit fraud or to otherwise shield an entity’s owners from the entity’s violation of law. When a court uses the alter ego doctrine to pierce a corporate veil, the legal protections of an LLC or other legal entity are disregarded and the owners of real property held by the entity are treated as individuals for the purpose of civil litigation.
In addition to using the alter ego doctrine to pierce the corporate veil in cases where the owners of an LLC or other entity have committed fraud – which constitutes a legitimate and uncontroversial use of the doctrine – several California courts have applied the doctrine to cases where no law was violated nor fraud committed. The justification courts have given for this expansion of the doctrine is that invoking the court’s “equitable” powers as a means to apply the doctrine is necessary to prevent an “unfair” result.
In one such case, Mesler v. Bragg Management Co., 39 Cal.3d 290, 300-301 (1985), the California Supreme Court held that a group of affiliated real estate entities that were technically exempt from a local rent control ordinance because each entity held title to four rental units or less, could nonetheless be treated as a single entity for purposes of the rent control ordinance. The court found no evidence of fraud or bad faith on the part of the defendant entities or their managers, and the defendants produced an expert declaration stating that the use of separate entities to own individual properties is exceedingly common in the real estate industry. In justifying this result, the court said that even though “there are legitimate purposes for the way Defendants are organized does not preclude a finding that with respect to the [rent control ordinance] it would be inequitable to recognize Defendants’ separate existence. Id, at 300-301.
By disregarding the legal distinctions between the entities and their owners, the court in Mesler effectively substituted its notion of “fairness” for the law as enacted by the California legislature.
Judicial change in the law, like many other types of change, is usually incremental and gradual. Given recent trends in the law, it seems more likely than not that California courts will continue to decide cases based on what lawyers in black robes consider “fair” and “unfair”, rather than on the actual text of laws. Thus, it is entirely foreseeable that many California courts will further expand the use of the alter ego doctrine, so as to apply the doctrine in new, different, and more far-reaching contexts.
This article is published in both print and electronic formats. You may register at http://earlelaw.com/newsletters to begin receiving future articles via a free email subscription to the EarleLaw Newsletter.
Earle Law Offices offers the LAW (Lawyer Available Whenever) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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03.18.11
Posted in Business Law, Litigation, Real Estate Law at 12:39 by Administrator
Q. I recently retired from my professional career and became a real estate investor. After attending several real estate seminars, reading books, and engaging in other self-study, I put my newly acquired knowledge to work by forming a limited liability company (LLC) and using the LLC to purchase distressed residential investment properties.
Now, I would like to use my LLC to purchase a California home that I can use as my personal residence. Are there any potential legal issues associated with using an LLC to purchase one’s home?
A. First, let me congratulate you on what appears to be your apparent success with initiating the process of becoming financially independent by starting a real estate investing business.
Your statements that you used your LLC to purchase “distressed residential investment properties” and that you now want to use you LLC to purchase a California property to use as your personal residence, suggest that you purchased the investment properties during some phase of a foreclosure process and that you also want to purchase a property in foreclosure for use as your personal residence.
It is not clear in what state your investment properties are located, but if you purchased those properties in a state other than California, you may be unfamiliar with California’s Home Equity Sales Contract Purchase Act (HESCPA), which is codified at California Civil Code § 1695, et seq.
The HECSA requires that contracts for the purchase of California homes in foreclosure comply with certain, detailed requirements. The HECSA contains several exemptions to its application, one of which is for purchases by persons who intend to use the property as their principal residence. In the recent case Capon v. Monopoly Game, LLC, A124964, California Court of Appeal, First Appellate District (March 4, 2011), the court held that the personal residence exemption contained in the HESCA does not apply where the identity of the purchaser of the property and the intended resident/occupant are not identical, such as where an LLC purchases a residential property for use by the LLC’s sole member/manager.
For more information regarding the HESCA, please visit: http://earlelaw.com/newsletters and download your free copy of EarleLaw Newsletters, The California Home Equity Sales Contract Purchase Act (2009-01), Buying and Selling California Foreclosure Properties (2009-27), and General Release Insufficient to Overcome Non-Compliance with Home Equity Contract Purchase Act (2009-29). You may also register at http://earlelaw.com/newsletters to begin receiving your free email subscription to the EarleLaw Newsletter.
Earle Law Offices offers the LAW (Lawyer Available Whenever) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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03.15.11
Posted in Litigation, Real Estate Law at 10:20 by Administrator
Q. What deficiency judgment laws apply to foreclosures of California residential properties?
A. There are two types of foreclosure actions in California: judicial and non-judicial. The vast majority of California foreclosure actions proceed as non-judicial foreclosures because judicial foreclosures take much longer to complete and to become final than do non-judicial foreclosures and, therefore, generally are more expensive for lenders.
California’s anti-deficiency statutes preclude or limit lenders’ ability to obtain personal judgments against defaulting borrowers in many situations where proceeds from the sale of a property which has been foreclosed upon fail to extinguish the outstanding debt which was secured by the property. See, California Code of Civil Procedure §§ 580a, 580b, 580d, 726(a).
C.C.P. § 580d generally prohibits deficiency judgments after any foreclosure sale, judicial or non-judicial, of property that is secured by a third-party purchase money trust deed or mortgage on owner-occupied residential property, or on a seller-held purchase money trust deed or mortgage on any kind of property. All standard purchase-money transactions are subject to the C.C.P. § 580b bar to deficiency judgments. Spangler v. Memel, 7 Cal.3d 603, 610 (1972).
Non-Judicial Foreclosure
By choosing non-judicial foreclosure, the creditor waives the right to a deficiency judgment. Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 43-44 (1963). When a deficiency judgment is barred following a non-judicial foreclosure under a deed of trust, the trustee has a duty to cancel the underlying note. Kerivan v. Title Ins. & Trust Co., 147 C.A.3d 225, 230-231.
Section 580d does not, however, bar recovery on a debt by a sold-out junior lienholder whose security has been rendered worthless by non-judicial foreclosure of a senior lienholder. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 43.
Judicial Foreclosure
A creditor may generally obtain a deficiency judgment following a judicial foreclosure, except where the purchase-money rule would bar such a judgment. C.C.P. § 580b. When recovery of a deficiency judgment is allowed, recovery is limited to the amount by which the outstanding debt exceeds either the fair market value of the property at the time of sale or, if less, the sale price. C.C.P. § 580a.
The purchase-money rule does not apply in cases where the property has been refinanced and the purchase-money loan replaced with a different loan which also is secured by the subject property. Union Bank v. Wendland, 54 C.A.3d. 393, 399-400 (1976).
Deficiency Judgments Generally
The “One-Form-of-Action” rule provides that foreclosure is the only form of action to recover any debt or enforce any right secured by a deed of trust or mortgage. C.C.P. § 726(a). The rule has two purposes: to compel a secured creditor to resort first to the security and to protect the debtor from multiple suits when a creditor holds multiple security interests. Savings Bank v. Central Market Co., 122 Cal. 28 (1898).
The security-first requirement of the One-Form-of-Action rule does not preclude, as mentioned above, an action on a debt by a creditor whose security has been rendered worthless without any fault on the part of the creditor. Id., at 33-36. The most common example is the sold-out junior lienholder, whose security has been rendered worthless by foreclosure of a senior lien. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 39-44.
Legislative Update
Senate Bill 931 (SB931), which, effective January 1, 2011, created and added section 580e to the California Code of Civil Procedure. The purpose of Section 580e appears to have been to prevent mortgage lenders from obtaining deficiency judgments where the lender accepts an amount less than the loan payoff when releasing its security interest in a residential property. This new statute may not, however, accomplish its intended objective. For further discussion of Section 580e, see: http://earlelaw.com/Newsletters-2011/EarleLaw-Newsletter-2011-06.pdf.
Earle Law Offices offers the LAW (Lawyer Available Whenever) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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03.03.11
Posted in Litigation, Real Estate Law at 07:35 by Administrator
Q. I own a home in California that currently is in foreclosure. Although the money which was used to purchase (and subsequently refinance) the property was borrowed from a well-known mortgage lender, an entity known as Mortgage Electronic Registration System, Inc. (MERS) has initiated non-judicial foreclosure proceedings in my case. I did not borrow money from MERS. May MERS foreclose on my home?
A. There currently are many California foreclosure cases similar to your case. One such case, Gomes v. Countrywide Home Loans, Inc, California Court of Appeal No. D057005 (Fourth District, February 18, 2011), addresses the issue you have raised.
In Gomes, the borrower executed a promissory noted secured by a deed of trust that identified the lender and MERS “acting as nominee for Lender” as beneficiaries thereunder. MERS became the mortgagee of record. Countrywide Home Loans (Countrywide) retained the promissory notes, as well as the right to service the mortgages.
Gomes defaulted on the loans and MERS initiated non-judicial foreclosure proceedings. Gomes then filed suit against both MERS and Countrywide, alleging that MERS did not have the legal right to foreclose. The trial court dismissed Gomes’ lawsuit.
The California Court of Appeal affirmed the trial court’s dismissal, explaining that the California legislature, when enacting the comprehensive statutory scheme found in California Civil Code § 2924, intended to provide a creditor or beneficiary with a quick, efficient remedy against a defaulting borrower. Under this statute, the Court explained, a trustee, mortgagee, or beneficiary – or any of their authorized agents – may initiate foreclosure proceedings . The Court further held that Gomes’ lawsuit constituted an improper attempt to interject the courts into the non-judicial foreclosure process.
Gomes was decided in a California state court, which was applying California state law. The result may have been different if this same challenge to MERS’ right to foreclose had been brought in the context of a bankruptcy proceeding in federal court. Federal courts have exclusive jurisdiction over bankruptcy cases; bankruptcy cases may not be brought in state courts. For a discussion concerning why the result might be different depending on whether a case is litigated in a California state court, as opposed to a federal bankruptcy court, please see: Must Foreclosing Lenders “Show the Note”, http://earlelaw.com/Newsletters-2010/EarleLaw-Newsletter-2010-37.pdf.
Before you make any decisions concerning your case, and certainly well before any deadlines for you to take action have passed, you should consult with an attorney who handles California foreclosure cases.
Earle Law Offices offers the LAW (Lawyer Available Whenver) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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02.24.11
Posted in Constitutional and Civil Rights Law, Litigation, Real Estate Law at 20:39 by Administrator
Q. I own a residential property which I rent to tenants. Currently, I have tenants with whom my dealings have been unusually difficult; every time I have had to remind them to be courteous to their fellow tenants and neighbors (e.g., noise complaints, parking complaints, etc.), these difficult tenants respond by implying that I am “harassing” them only because of their race/ethnicity. If these tenants file a complaint with the government, and the government pursues a frivolous lawsuit against me, will I be able to recover the cost of my attorney fees if (when) I win the lawsuit?
A. Housing discrimination claims are claims for violation of a specific type of civil right. However, unlike most claims which allege violation of a civil right (e.g., claims brought to enforce rights protected, for example, by the First Amendment or Fourth Amendment to the Constitution), which typically are brought by individuals against the government, housing discrimination claims often are prosecuted by the government against individuals (owners/landlords) or businesses (third-party property managers).
In cases where an individual prevails in a civil rights lawsuit brought by that individual against the government, the individual usually may obtain an award of attorney fees in addition to any money judgment which is entered against the government. Thus, when an individual wins this type of civil rights lawsuit against the government, the government usually will have to pay, in addition to civil damages, some or all of the attorney fees incurred by the individual whose rights were violated.
However, according to one California Court of Appeal, landlords and property managers may not recover from the State of California attorney fees incurred by the landlord or property manager to defend against a frivolous housing discrimination lawsuit brought by California’s Department of Fair Employment and Housing (DFEJH). DFEH v. Mayr, H034935 (Sixth District, February 9, 2011). A copy of the court’s opinion in Mayr is available without charge at: http://earlelaw.com/news_real_estate.html.
Even though there is a long-standing principle in American law that one is innocent until proven guilty, the defacto assumption when the government brings a housing discrimination claim against a residential landlord orproperty manager seems to be that the landlord or property manager is [of course] guilty as charged. This defacto presumption pervades popular culture and, apparently (and more troubling), is also ingrained in the institutional thought of the California legislature and at least one California state appellate court.
In order to protect yourself, to the extent possible, from having to defend against frivolous housing discrimination claims (as well as against claims which may arise from unintentional violation of housing law) best practices suggest that landlords and property managers have an ongoing relationship with a real estate attorney whom they can regularly confer with, as needed. To assist landlords and property managers in this regard, Earle Law Offices offers the LAW (Lawyer Available Whenver) Plan, which provides a cost-effective means of obtaining legal advice when such advice is most-needed: before a legal problem arises, or as soon thereafter as possible. For details, please visit: http://earlelaw.com/lawplan.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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02.17.11
Posted in Family Law, Litigation, Real Estate Law at 13:30 by Administrator
Q. It is generally understood that spouses have a moral duty to deal fairly with each other, which includes disclosing certain facts to each other as well as conforming one’s conduct to certain standards. However, in today’s society, many people want to decide for themselves what is (and by implication, what is not) encompassed by this moral duty, which invariably leads to different interpretations and different results for different couples, even though the relevant facts are the same. What (uniform) duty does California law impose on spouses?
A. California imposes fiduciary duties – the highest form of duty recognized in the law – on, and between, spouses. The existence of spousal fiduciary duties is the reason that a different legal standard and procedure applies when entering into premarital agreements (entered into before marriage) and marital agreements (entered into during marriage) – both of which may accomplish, among other things, the same objective of “opting out” of California’s community form of marital property laws. See, Technicalities of Marital Agreements, http://earlelaw.com/blog/2011/01/22/technicalities-of-marital-agreements-2011-03/
For a period of time, there was some tension and ambiguity in California law between, on the one hand, the presumption that title to real property correctly reflects ownership of that property and, on the other hand, community property law which provides that, with certain narrow exceptions, all property acquired during marriage – regardless of how title is held – is community property. This issue has been settled, with the marital (community) property presumption prevailing over the title presumption. See, Who Owns that House?: What Spouses Need to Know, http://earlelaw.com/blog/2011/01/07/who-owns-that-house-what-spouses-need-to-know-2011-01/
The recent case In re: Marriage of Fossum, B214824 (Second Appellate District, January 28, 2011), provides further elucidation and guidance on the issue of marital fiduciary duty.
The court’s opinion in Fossum starts out in rather unremarkable fashion. Fossum involved a couple who divorced after a number of years of marriage. Many years prior to separation, one spouse transferred to the other, the former’s community property interest in a parcel of real property. The reason for the transfer was solely to facilitate financing. However, notwithstanding a promise to do so, the latter never reconveyed that community interest back to the former. The Fossum court held that, consistent with previous similar cases, the presumption regarding marital property trumps the title presumption. The court then disregarded the record title of sole ownership and deemed the parcel of real property to be a community asset which was subject to equal division. If this were all the court held, the decision in Fossum would hardly be worth noticing or mentioning.
What makes Fossum interesting, however, is its discussion of an additional issue concerning a credit card cash advance taken less than one year prior to separation and filing for divorce, but not disclosed to the other spouse. The court held that the failure to disclose the cash advance to the other spouse constituted a violation of the fiduciary duty owed by the spouse who obtained the cash advance. To emphasize the seriousness with which the law regards such conduct, the court further held that relevant statutes require trial courts, upon proper request, to make orders requiring spouses who violate their fiduciary duties to pay attorney fees incurred by the other the spouse to obtain legal remedy for such violation.
Because it is not reasonable to expect non-lawyers to be aware of all statutes and court decisions, the Fossum decision can also be understood as a reminder to consult with your attorney as soon as potential legal issues arise, and to disclose all facts during your attorney-client privileged conversations.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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02.11.11
Posted in Litigation, Real Estate Law at 15:22 by Administrator
Q. I am attempting to negotiate a short sale agreement with my mortgage lender, as the California home that I own is now worth much less than the balance of my mortgage loan. The lender, as a condition of agreeing to a short sale, wants me to sign a promissory note which would obligate me to repay the difference between what is owed on the first trust deed and the short sale price. Is this legal?
A. The California legislature, during 2010, passed Senate Bill 931 (SB931), which, effective January 1, 2011, created and added section 580e to the California Code of Civil Procedure. The purpose of Section 580e appears to have been to prevent mortgage lenders from obtaining deficiency judgments – civil court judgments for the difference between the payoff amount due on a mortgage loan and the (lesser) sale price of the home (deficiency amount) – where the lender accepts an amount less than the loan payoff when releasing its security interest in a residential property.
The perceived need for Section 580e arose, apparently, from the practice of mortgage lenders, such as your lender, requiring borrowers to execute an unsecured promissory note in an amount equal to the deficiency amount, as a condition of agreeing to a short sale transaction. Section 580e, ostensibly, solves this “problem.” But does Section 580e, perhaps unintentionally, create another problem? Will this new statute actually do what it purports to do? Let us look at two issues.
First, any law which prohibits mortgage lenders from attempting to recover deficiency amounts in this fashion creates a disincentive for lenders to accept short sale agreements. California may be able to force mortgage lenders to forgo attempted recovery of short sale deficiency amounts; however, the state may not (at least not yet) force mortgage lenders to enter into short sale agreements. Thus, the foreseeable result is an increase in foreclosures above that which would have occurred in the absence of Section 580e.
Second, this new statute may not actually accomplish that which it purports to accomplish. Section 580e provides only that “[n]o judgment shall be rendered for any deficiency under a note secured by a first [deed of trust or mortgage] . . . [and that agreement to a short sale] shall obligate [the mortgage lender] to accept the sale proceeds as full payment and to fully discharge the remaining amount [on the secured loan]. (Underline added.)
It is not inconceivable that some mortgage lenders might take the position that Section 580e does not in any way affect their short sale protocols. The argument would go something like this: the mortgage lender did accept proceeds from the short sale as full payment of the secured note and did fully discharge the remaining (deficiency) amount due on the secured note. The unsecured note – which was executed after the remaining amount due on the mortgage loan had been fully discharged – is a new and different promissory note, is fully enforceable, and that any judgment entered thereon (were the former homeowner to default on that note) would not be a judgment for a “deficiency under a note secured by a first deed of trust or first mortgage for a dwelling” but, rather, would simply be a judgment on an ordinary, unsecured note.
Because Section 580e is but a few weeks old, no appellate (or other) court cases interpreting the statute have been decided as of this writing. Borrowers and real estate professionals should continue the prudent practice of obtaining the assistance of an attorney when considering any short sale transaction.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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01.26.11
Posted in Litigation, Real Estate Law at 17:22 by Administrator
Q. I hired a general contractor to perform some remodeling work at my California home. Although I have paid the general contractor a large sum of money, I have concerns that the general contractor may not be paying the sub-contractors. What are my rights? What can I do to protect myself?
A. California law, as you may be discovering, provides significant protection for those who provide labor or materials for the development or improvement of real property. The public policy on this issue is so strong that the right to mechanics’ liens is found, in the first instance, in the California Constitution.
The current mechanics’ lien statutes, which implement the right found in the state constitution, have been in effect since 1969. The statutes are a bit complex and have been criticized for not providing sufficient protections for property owners such as yourself. Recent revisions to the law may, however, provide property owners with some relief.
Assembly Bill 457, which became effective January 1, 2011, amended California Civil Code §§ 3084 and 3146, which relate to the enforceability of mechanics’ liens on private (non-governmental) projects. The provisions of AB 457 impose a new requirement that contractors (including sub-contractors) must now give the owner of the property notice of a lien. Additionally, a notice of pending action (lis pendens) must now be recorded no later than 20 days after the filing of a lawsuit to enforce the lien. The requirement that a lawsuit to enforce the lien be filed no more than 90 days after the recording of a mechanics’ lien remains unchanged.
Other major changes mandated by AB 457 are that: (1) certain mandatory language is now required in mechanics’ liens, the purpose of which is to set a minimum level of disclosure regarding the nature of the claim; (2) the lien must now be served on the property owner by registered or certified first-class mail; (3) a proof of service must accompany the lien; and (4) failure to serve the property owner with a copy of the lien renders the lien “unenforceable as a matter of law.”
Further changes to the mechanics’ lien law are scheduled to become effective July 1, 2012.
Although property owners now have significantly greater rights since AB 457 became law, the procedural labyrinth associated with mechanics’ liens and related lawsuits to enforce such liens, can still be quite daunting. As such, you should retain an attorney to assist you with your case, if at all possible.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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