I’m reminded of good Sgt. Esterhaus, and his admonition, "Be careful out there…"
This one is also a runner up in my Personal "Darwin Awards" category…
Tenant guilty of burglary for breaking into his own apartment with intent to commit a crime.
A tenant and his wife jointly signed an apartment lease as co-tenants. The couple had a dispute prompting them to separate, causing the husband-tenant to move out. The husband-tenant returned to the apartment, "broke in" and stole money from his wife. The wife called the police, and the husband-tenant was charged with burglary. The husband claimed he was not guilty of burglary since he was listed on the apartment lease, and thus had a right to enter as co-tenant. The wife claimed the husband was guilty of burglary since he no longer lived in the apartment, and entered without the permission of his wife and with the intent of committing a crime. A California court of appeals held the husband-tenant was guilty of burglary since he no longer lived at the apartment he jointly leased with his wife, and he entered without permission with the intent of committing a crime. [The People v. Ulloa 180 CA4th 601]
Here’s one that should worry every REO listing agent that does work on behalf of a Bank to "get a property ready" for sale, especially if that work includes coordinating "contractors" who are painting, carpeting replacing, roofing or plumbing – since "coordinating" those jobs might in itself require a contractor’s license! Think about it – commissions are, by the way, "compensation."
A tradesman cannot collect for contractor’s services if unlicensed at any time during a job.
A homeowner hired a tradesman to perform contractor services at his home that required a contractor’s license. The homeowner was aware at the time he hired the tradesman that he did not have a contractor’s license. The tradesman obtained his license after commencing work but prior to completing the job. The homeowner paid for a portion of the completed work and terminated the tradesman before he completed the job. The tradesman made a demand for payment and the homeowner rejected the demand.
The homeowner sought a full refund of all monies paid to the tradesman, claiming he was entitled to a refund since the tradesman performed services requiring a contractor’s license and the tradesman was not a licensed contractor. The tradesman claimed he was entitled to collect a portion of his fee since he was licensed for a portion of the time he performed services for the homeowner and the homeowner was aware he did not possess a contractor’s license. A California court of appeals held the homeowner is entitled to a full reimbursement from the tradesman for all money paid to the tradesman since the tradesman is ineligible to receive compensation for services requiring a license when he is unlicensed at any time during the performance of the services, regardless of the homeowner’s knowledge that he was unlicensed when he was hired. [Alatriste v. Cesar’s Designs 183 CA4th 656]
How many times have you counseled a client that a Bankruptcy will "fix" their problem, or that it will "strip" a second lien? Here is an example of the Law of Unintended Consequences.
As bankruptcy strips a second trust deed, homeowner is forced to sell home.
A homeowner whose residence was encumbered by a second trust deed filed a Chapter 13 bankruptcy petition seeking protection from creditors. The value of his home was determined to be less than the balance owed on the first trust deed on the residence. The homeowner sought to keep his home, subject to the first trust deed only, by eliminating the second trust deed from title, since no equity existed in the property to secure the second trust deed.
The bankruptcy court stripped the second trust deed lien from title, thus converting the loan to an "unsecured debt" under the proposed bankruptcy plan, since the unpaid balance of the first lien exceeded the value of the residence it encumbered.
The bankruptcy trustee then sought to dismiss the Chapter 13 bankruptcy case before the plan was approved, claiming the homeowner’s total unsecured debt exceeded the limit for filing Chapter 13 bankruptcy, since the stripped second trust deed loan was now an unsecured debt.
The homeowner claimed the Chapter 13 petition was proper and should not be dismissed since the second trust deed would remain of record and the debt would continue to be secured until the bankruptcy plan was fully performed, and only then would the second be stripped from title.
The United States Bankruptcy Appellate Panel held the homeowner was ineligible for Chapter 13 bankruptcy on declaring the second trust deed loan an unsecured debt for purposes of the plan since the second lien, while remaining of record on title to his home, was now an unsecured debt – making his total unsecured debt exceed the statutory maximum for Chapter 13 eligibility. [In re Smith 9th Cir. BAP (2010) BR]
Without access to protection under Chapter 13, the homeowner’s alternative is Chapter 7, which then calls for his home to be sold and the proceeds paid to the first trust deed lender. Bankruptcy law places an unsecured debt ceiling of $336,900 on a homeowner to maintain a Chapter 13 bankruptcy petition. The unsecured debt limit coupled with the mortgage crisis obstructs homeowners from stripping off unmanageable debt from their title, leaving the homeowner qualified for only a Chapter 7 liquidation (sale) of the home, the antithesis of his intent to keep his home under the court’s order to strip away excess debt.
Once again demonstrating there is no such thing as a "non-refundable deposit" the court holds that – wait for it – there is no such thing as a non-refundable deposit!
Buyer’s deposit refunded, not forfeited, when a purchase agreement is breached.
A buyer and seller entered into a purchase agreement regarding the sale of a property. The buyer made an initial deposit upon opening escrow which the purchase agreement labeled as a "nonrefundable" deposit.
In exchange for extending the date for closing escrow as requested by the buyer, the buyer made an additional deposit into escrow, then released it with the initial deposit to the seller as consideration for the extension.
Before escrow closed, the buyer breached the purchase agreement by cancelling escrow without excuse or justification. The seller resold the property at a price producing greater net sales proceeds than a closing of the escrow with the breaching buyer would have produced.
The buyer made a demand on the seller to return his deposit, which the seller rejected. The seller claimed he was entitled to the buyer’s deposit since the purchase agreement called the deposit non-refundable and the release of the deposits from escrow was consideration for the extension of escrow. The buyer claimed the seller was not entitled to retain the deposits since the seller suffered no money losses as a result of the buyer’s breach.
A California court of appeals held the buyer was entitled to the return of his deposits on his deliberate breach of the purchase agreement since the seller received a greater amount of net sale proceeds on the resale than he would have received from the breaching buyer, suffering no loss justifying a retention of any part of the breaching buyer’s deposit. [Kuish v. Smith]
It is likely that, had the seller received less net sales proceeds from the resale of the property, he would be permitted to deduct his loss from the deposit and return the remainder to the buyer. This case is an example of a windfall sought by the seller which would have resulted in the seller being unjustly enriched by keeping both the buyer’s deposit and receiving more net sales proceeds than the buyer agreed to pay for the property – an impermissible punitive activity.
We’ve often advised clients NOT to sign ‘arbitration’ provisions – because, in our opinion, Arbitrators can be too arbitrary, and there is no right of review when they are. This case, holds that an Arbitrator can conceal things from the parties too. Important things, things you’d want to know before you agreed to a particular Arbitrator, with no remedy to you!
Arbitrator has immunity for failure to disclose conflict of interest.
A developer entered into arbitration with a contractor in an attempt to recover money losses. Following the conclusion of arbitration and an adverse award favoring the contractor, the developer learned the contractor’s lawyer was a long-time personal friend of the arbitrator, constituting a conflict of interest.
The developer sought a reversal of the arbitration award and demanded compensation from the arbitrator for the amount of money losses he sought from the contractor through arbitration, claiming the arbitrator’s decision was biased since he failed to disclose the conflict of interest with the contractor’s lawyer before the proceedings began.
The arbitrator claimed the developer was barred from recovering money losses, and the developer’s sole remedy was the reversal of the arbitration award since decisions made by an arbitrator as part of the judicial function are protected against civil lawsuits.
A California appeals court held the arbitrator was not liable for any money losses for his non-disclosure and the arbitration award was invalid since arbitrators are protected by arbitral immunity against civil lawsuits for decisions made as part of the judicial function. [La Serena Properties, Inc. v. Weisbach 186 CA4th 893]
So, how do you get out of a mandatory arbitration provision? You sue a third party who is not subject to the provision! Read on…
Arbitration provision between buyer and seller unenforceable when a third party is sued.
A buyer and a seller of real estate entered into a purchase agreement, which contained an arbitration agreement initialed by the buyer. Before closing escrow, the seller deeded the property to his broker and, by assignment, the broker became the substitute seller in escrow.
A dispute over mortgage payments arose, and the seller’s broker began foreclosure proceedings (since the broker was ‘the seller’ under the terms of the contract…). The buyer filed a lawsuit against the seller’s broker, as well as the buyer’s broker who was not a party to the purchase agreement. The seller’s broker sought to compel arbitration, claiming any dispute the buyer had under the purchase agreement must be decided in arbitration since the buyer initialed the arbitration provision in the purchase agreement, and the seller’s broker was the seller under the purchase agreement by assignment.
The buyer claimed the arbitration provision in the purchase agreement was unenforceable since the seller’s broker did not initial the arbitration provision in the purchase agreement on acceptance of the seller’s assignment.
A California court of appeals held the buyer may proceed with litigation in spite of having activated the arbitration clause by initialing it since only the seller’s broker by assignment of the seller’s purchase rights was a party to the purchase agreement containing the buyer-initialed arbitration provision and the litigation filed included claims against the buyer’s broker who was not a party to the purchase agreement under which the buyer agreed to arbitration. [Valencia v. Smyth (2010) 185 CA4th 153]
This case essentially provides a loophole for parties to real estate transactions to avoid an otherwise binding arbitration provision in a purchase agreement by taking the "shotgun" approach to litigation. If any party who is materially involved in litigation is not bound by an arbitration provision, then – apparently – no party involved in the litigation may compel arbitration.
Hmmm. How to get paid? Isn’t that always the question? But what if the broker doesn’t want the bother of suing? Can the broker give that right to the agent involved in the transaction? You betcha.
Sales agent enforces listing agreement against buyer on an assignment of the Broker’s right to collect the fee.
A buyer entered into an exclusive listing agreement with a broker to locate property for purchase. An agent of the broker located a suitable property, and the buyer entered into a purchase contract. Later, the buyer defaulted on the purchase agreement and refused to pay the commission owed the broker.
The broker assigned the agent his right to the broker fee due under the exclusive listing agreement. The agent filed an action, in his own name, against the buyer to recover the unpaid fee.
The buyer claimed the agent was barred from any action to collect a broker fee for services he was unauthorized to perform without a broker, since licensed real estate agents are ineligible to receive payment from anyone other than a broker.
The agent claimed he was permitted to file an action to recover fees earned by his broker under a written listing agreement since the fee had already been earned and the broker had merely assigned his right to enforce collection of the fee.
A California appeals court held the real estate agent was permitted to pursue enforcement of the broker fee earned under an employment agreement—the buyer’s listing—since the broker had assigned the agent his right to the already-earned fee. [Schaffter v. Creative Capital Leasing Group 166 CA4th 745]
By the way, the agent did collect the fee…
And on that happy note, we’ve another case where a broker has to sue to collect a fee… and won!
Buyer’s broker earns fee when his listed buyer acquires an option to buy.
A buyer entered into a listing agreement with a broker, agreeing to pay a fee if the buyer acquired any beneficial interest in property the broker was employed to locate. The buyer acquired a purchase option for a property the broker located. The broker made a demand on the buyer for his fee, which the buyer rejected.
The broker claimed his fee was earned when the buyer was granted a purchase option by the property owner, since the buyer’s listing agreement called for the broker to be paid a fee if the buyer acquired a beneficial interest in property the broker was hired to locate. The buyer claimed he did not owe the broker a fee since the buyer never exercised the purchase option and thus never acquired a beneficial interest in the property.
A California appeals court held the buyer owed the broker a fee since the buyer acquired a beneficial interest in the property at the time the purchase option was granted by the property owner, and an exercise of the option was not a condition which had to occur before the broker earned a fee. [RC Royal Development and Realty Corporation v. Standard Pacific Corporation 177 CA4th 1410]
With all the craziness related to short sales, and the frequent experience many short sale agents have had with a Bank foreclosing in the middle of a short sale process, we get asked – a lot – "Can they do that?" The answer is, generally, "Yes" – but this case might give a borrower another swing at the Bank.
A lender’s oral promise to negotiate a loan modification with a homeowner is enforceable.
A homeowner obtained an adjustable rate mortgage (ARM) from a lender and was unable to make the monthly payments after the loan was reset to fully amortize. The homeowner defaulted and the lender initiated foreclosure proceedings.
The homeowner filed a petition for bankruptcy protection, which stayed foreclosure proceedings.
The homeowner requested a loan modification and reinstatement and the lender agreed to enter into loan modification negotiations and reinstate the loan if the homeowner would forgo further bankruptcy proceedings. The homeowner agreed to forgo further bankruptcy proceedings in reliance on the lender’s promise to negotiate a modification and reinstatement of his loan.
After the bankruptcy stay on foreclosure was lifted, the lender never negotiated a modification of the loan and moved forward with foreclosure proceedings, selling the homeowner’s home at a trustee’s sale.
The homeowner made a demand on the lender for his losses, claiming the lender was liable for his losses due to the foreclosure of his home since he acted in reliance on the lender’s promise that they would negotiate a modification and reinstatement of his loan.
The lender claimed they could not be held liable for the homeowner’s losses since the lender did not enter into a written commitment for a loan modification with the homeowner and it was within the lender’s rights to foreclose on the homeowner’s home. A California court of appeals held the lender was liable for the homeowner’s losses due to the trustee’s sale since the homeowner acted in reliance on the lender’s oral promise to negotiate a modification and reinstatement of his mortgage when he abandoned his right to bankruptcy protection. [Aceves v. U.S. Bank (January 27, 2011) CA4th]
OK, this is really one of the "Top 10 for 11" but it was decided in January, and is really important – so we included it in the "Top 10 in 10" anyway…
New disclosure requirements have been imposed on a Listing Broker – requirements and duties that are now owed to a NON-CLIENT buyer! On its face, the case seems limited to the duty of disclosure of a short sale – but, in my opinion, it can be (is!) much more ominous than that.
Liens in excess of price must be disclosed by a listing agent before offer accepted.
A seller’s broker listed a single family residence (SFR) encumbered by liens in amounts exceeding the asking price (Sound familiar? This is the stereotypical "short sale" scenario.).
A prospective buyer inquired about the property and the seller’s broker responded but did not disclose his listed property was encumbered by liens which affected the seller’s ability to sell and convey the property at the asking price. The prospective buyer made a cash-to-new-loan offer on the property, which the seller rejected. The seller’s broker then prepared a counteroffer on behalf of the seller to bargain for a better price. The seller’s broker did not disclose in the counteroffer that the balance due on the liens exceeded the contract price, nor did he include a contingency provision in the counteroffer allowing the seller to cancel in the event the lenders would not accept the net sales proceeds in satisfaction of their liens.
The buyer accepted the counteroffer. Relying on his right to acquire the seller’s home, the buyer sold his home and incurred expenses. The seller’s broker later disclosed the clouded title condition to the buyer in a preliminary title report (prelim) containing lien information.
Ultimately, the seller was unable to close escrow as agreed since the lenders would not accept the seller’s net sales proceeds in full satisfaction of their trust deed liens. The buyer made a demand on the seller’s broker for his money losses, which the broker rejected.
The buyer claimed the seller’s broker was liable for his losses since he had a duty as a licensed real estate broker acting as the seller’s listing agent to disclose the existence of liens encumbering the property when the loan amounts are in excess of line the agreed-to price and do so prior to acceptance of the offer.
The seller’s broker claimed he was not required to disclose the status of the seller’s title condition as encumbered with mortgage liens prior to the acceptance of an offer since to do so would require the broker to breach his fiduciary duty owed to the seller by revealing confidential financial information, and that the buyer had "constructive notice" of the liens as they were recorded by the various lenders.
A California court of appeals held the seller’s listing broker is liable for the buyer’s losses due to his failure to disclose the existence of liens on the property with balances exceeding the purchase price, and do so prior to acceptance of an offer, since a seller’s listing broker has a general duty owed to prospective buyers before an acceptance occurs to disclose information regarding risks that may affect the seller’s ability to perform on conditions as disclosed. [Holmes v. Summer 188 CA4th 1510]
Listing agents! You better start Holmes-proofing yourself and your seller.
Holmes v. Summer is the agency case of the decade – the legacy of boom-time attitudes.
It is also, in my opinion, absolutely wrong! But, it is what it is. And we’re stuck with it now.
The only way for you, as a listing agent, to "Holmes-proof" yourself and your seller: comply with your duty to put prospective buyers on notice of conditions known or information readily available to you as the listing agent that might affect the buyer’s decisions regarding the listed property by preparing and handing the buyer a complete marketing package – and do so before your seller accepts an offer.
What does that mean? That’s the problem with this case. It means whatever a Buyer wants it to mean! You now need to be clairvoyant and determine what a Buyer will think is "a materials fact, affecting desirability or value" and to do so before an offer is accepted. Good luck with that!
So, every listing packet and every presentation packet should include – at a minimum – inspections related to:
- physical condition (the seller’s transfer disclosure statement (TDS) and a home inspection report?);
- title condition (property profile information and documents);
- property operations (monthly ownership expenses, any rents);
- property location (natural hazards and neighborhood security); and
- environmental conditions (man-made conditions hostile to human sensitivities).
When your sellers (in a short sale – let alone a bank that has already foreclosed) are so completely disinterested in the selling process, a listing agent’s burden to avoid liability has just increased ten-fold.
I couldn’t resist this one…
Death of property owner constituted change in ownership.
Sounds pretty straight forward, huh? Well, nothing to do with taxes – or money – ever is…
An owner of income-producing property transferred title to his property, vesting it in a living trust he established. On the death of the owner, the trust agreement provided the trustee was to retain title for the benefit of the deceased’s children until the last of the deceased children dies, at which time the trustee is to transfer title to the owner’s grandchildren.
Upon the owner’s death, the county assessor reassessed the property at its current market value, viewing the owner’s death as a change in ownership. The deceased’s children challenged the reassessment of the property, claiming a change in ownership does not occur on the owner’s death since title remained with the trustee without the transfer of any right to possess the property until the trust transfers title to the deceased’s grandchildren.
The assessor claimed a change in ownership occurred and the reassessment was proper since the owner’s entire interest in the property was transferred upon his death to his children (life estate) and grandchildren (a remainder interest).
A California appeals court held the reassessment of the property on death of the owner while title remained in the living trust was proper since the death of the property owner transferred all his ownership in the property, no matter how he may have vested his property’s title, which constituted a change in ownership triggering reassessment. [Phelps v. Orange County Assessment Appeals Board 187 CA4th 653]
Nothing is certain but death and taxes.