Over four years ago, I wrote about the unpublished case of Jacobsen v. Aurora Loan Services (2012).  Jacobsen was a foreclosure investor who had been negotiating with borrower O’Brien.  O’Brien had borrowed $1.24M secured by a deed of trust against the property.  O’Brien’s payments to the lender and loan servicer became sporadic and eventually, O’Brien was in default.  The day before the Trustee’s Sale, O’Brien deeded the property to Jacbosen.

Jacobsen showed up at the foreclosure sale and bid $500.  His bid was not the highest.  Here’s where it gets problematic: as is customary, the loan servicer Aurora likely gave instructions to the foreclosing trustee to credit bid.  Accordingly, Aurora had the “winning” bid at over $1.5M.  However, for some reason, the Trustee’s Deed to Aurora noted a “cash bid”.  That became a disputed fact in the subsequent litigation between Jacobsen and Aurora.

Jacobsen and O’Brien ultimately sued Aurora Loan Services and Cal-Western (the foreclosing trustee) on a variety of theories to try to challenge the sale.  They sued to quiet title, to invalidate the loan documents, and for wrongful foreclosure.  At the trial court level in San Francisco, both sides brought motions for summary judgment.  A motion for summary judgment is essentially a trial on the pleadings and requires that there be no disputed material facts.

At that time, the Federal district court granted the defendants’ motions for summary judgment and to dismiss the case.

Plaintiffs appealed to the Ninth Circuit.  The Ninth Circuit affirmed the lower court’s ruling on the causes of action for quiet title, the loan validity, and cancellation of loan instruments.  However, the Ninth Circuit reversed on the claim of wrongful foreclosure, citing the elements as articulated in the Sciaratta case.  On appeal, the Ninth Circuit concluded that there was sufficient evidence on the record of a material dispute regarding the credit bid and whether the credit bid was proper.  Further, the Plaintiffs needed to prove that they suffered damage from any wrongful foreclosure and the lower court had not addressed this element in its opinion.  On those two grounds, the case was remanded.   Now the parties can continue to litigate at the trial court level on the propriety of Aurora’s credit bid and whether the plaintiffs were actually damaged by Cal-Western and Aurora’s foreclosure sale.

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Sholem Perl (“Perl”) owned a duplex in Los Angeles. Perl defaulted on his loan and the property was foreclosed on in 2013. At the foreclosure sale, Eden Place, LLC (“Eden Place”) purchased the property but Perl remained in possession of the property. After buying the house, Eden began the unlawful detainer process and on June 11, 2013, obtained a judgment for possession of the property. Eden Place then sent the Writ of Possession to the sheriff who posted a lockout notice. In an attempt to prevent the eviction, Perl asked the state court for a stay of the proceedings but then failed to comply with the requirements. After failing to obtain a stay from the state court, Perl filed for bankruptcy protection. In the bankruptcy court, Eden Place moved for relief from the automatic stay in order to proceed with the eviction. However, prior to the hearing, the sheriff locked out Perl and completed the eviction. Perl then made a motion to enforce the stay to allow him to stay the property. The court granted Perl’s motion finding that someone in possession of a property has sufficient interest in the property to be protected by the automatic stay. Eden Place then appealed the order to the Bankruptcy Appellate Panel (“BAP”). There, the BAP affirmed the bankruptcy court’s decision. Eden Place once again appealed the decision.

THE DECISION:

In Eden Place, LLC v. Perl (In re: Perl), the U.S. Court of Appeals for the Ninth Circuit reversed the BAP’S decision and held that serving the writ of possession did not violate the automatic stay. The Court held that under California law, a foreclosure terminates the previous owner’s legal interest in the property. More importantly, the Court found that after a judgment in an unlawful detainer proceeding is obtained, the court has adjudicated the rights to possession between the parties to that action. As such, once the owner or landlord obtains the judgment, the tenant no longer has any interest in the property, not even an equitable possessory interest. Without any interest in the property, the landlord does not violate the automatic stay by proceeding with the eviction and trying to regain possession of the property.

WHY THIS DECISION IS IMPORTANT:

This case reverses a number of prior cases that held the opposite. Those previous cases all held that by merely being in possession of the property was sufficient to give the tenant some right in the property that was protected by the automatic stay. The Court went out of its way to note that the previous cases, starting in 2005, came to the wrong conclusion and reversed them. It is also important to note that this case has been appealed to the United States Supreme Court and should be heard in the upcoming term.

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Multiple attempts have been made by California legislators in the past several years to limit the growing number of predatory Americans with Disabilities Act (“ADA”) lawsuits in California, whereby landlords and business owners are being sued for ADA accessibility violations. According to U.S. Congressman Ken Calvert, California has 40 percent of the nation’s ADA lawsuits, but only 12 percent of the country’s disabled population. California legislators’ task is difficult, given that they must walk a fine line between limiting the abuse of ADA accessibility claims and ensuring the disabled achieve equality under the law.

Earlier this month, Governor Jerry Brown approved Assembly Bill 2093 (“AB 2093”) in an effort to counter the growing number of suits. AB 2093 is an extension of Senate Bill 1186 (“SB 1186”), passed in 2012, which requires commercial landlords to disclose to prospective tenants whether their property has been inspected by a California Certified Access Specialist (“CASp”). SB 1186 was passed with the intent to initiate the ADA compliance conversation between landlords and prospective tenants.

AB 2093 bolsters SB 1186’s objective by expanding the disclosure requirements for construction-related accessibility. For leases or rental agreements executed after January 1, 2017, the commercial lessor will be required to disclose to a prospective tenant whether or not the property has been inspected by a CASp. Depending on the property’s accessibility inspection history and ADA construction-related compliance, the lessor’s disclosure requirements change.

If the commercial property has been inspected by a CASp, and meets current construction-related accessibility standards, the lessor must provide a copy of the current CASp certificate and inspection report to the prospective tenant. AB 2093 expands SB 1186, by allowing the prospective tenant to obtain a copy of the CASp certificate, rather than merely requiring the lessor to mention the existence of the certificate in the lease. This requirement will provide assurance to prospective tenants that the commercial property is in compliance, and lessen the likelihood of being upended by an ADA lawsuit.

In instances where the commercial property has been inspected by a CASp, but has not been altered or modified to meet ADA requirements, the landlord must provide a copy of the inspection report to the prospective tenant at least 48 hours before the execution of the lease. The 48 hour disclosure period will allow for the prospective tenant to decide whether or not they want to enter into the lease, and should they decide to, to negotiate with the landlord regarding the assignment of responsibility for any necessary repairs. AB 2093 establishes the presumption that repairs necessary due to non-compliance are deemed the responsibility of the landlord, unless contractually agreed to otherwise. This reform encourages commercial property owners and tenants to proactively handle compliance problems, instead of being forced to deal with them as the result of an ADA lawsuit. If the inspection report is not provided, the tenant will then have 72 hours from the date of execution to rescind the lease or rental agreement pursuant to the information contained in the CASp inspection report.

When the commercial property has not been inspected by a CASp to assess accessibility compliance, the lessor must state in the agreement or lease that, upon request by the prospective tenant, the commercial property owner cannot prevent an inspection. Additionally, if an inspection is requested by the prospective tenant, the parties must then mutually agree as to the time and manner of inspection, payment of applicable fees, and the cost of making required repairs.

Many property owners, business owners, and local residents are curious to see how effective this new bill will be. Given that ADA violations result in thousands of dollars in damages to landlords and business owners, the bill should create some incentive to property and business owners alike to proactively combat compliance issues. The bill appears to be effective and equitable on its face, given that it brings awareness to compliance without limiting access. Commercial property owners may also wish to consider a review of their current lease or rental agreement form pursuant to the passing of this bill.

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HOA disputes are something that we see on a regular basis. Although in a perfect world, none of us would get in disputes with our neighbors, the reality is that disputes between neighbors, or the association and an owner, are exceedingly common. However, most HOA CC&Rs have provisions to try and resolve these disputes without litigation. Moreover, if the CC&Rs do not have such provisions, the law governing HOA disputes, the Davis-Stirling Act, also has requirements for dispute resolution.

Over the decades, mediation has become an increasingly popular tool to resolve disputes. Most real estate contracts contain a mandatory mediation provision.  Similarly, almost every set of CC&Rs I have seen also contain one.  Finally, the Davis-Stirling Act requires mediation.  So, the first question is, what is mediation?

What is Mediation?

Mediation is a process by which a neutral (usually agreed upon by the parties) attempts to facilitate a settlement between the parties.  The mediators we prefer to use are generally experienced real estate attorneys or retired judges.  Mediation is fairly informal and collaborative.  The parties generally are separated and the mediator spends time with both sides to try and understand everyone’s position and communicate each side’s position to the other.  The mediator has no decision-making authority, thus the only way the cases settles is if both parties agree to a settlement.  Ideally, such settlement is documented at the mediation so parties cannot later change their mind before committing in writing.

When is Mediation Required?

Most every set of CC&Rs require parties (or the HOA) seeking to enforce the CC&Rs mediate their disputes before filing suit.  However, some HOAs even require the parties engage in “internal dispute resolution,” (IDR) whereby the parties are required to resolve their dispute by way of some sort of meeting or hearing with the HOA. These IDR provisions sometimes have specific guidelines, other times they are more open-ended. However the purpose is generally to try and work together as neighbors with the HOA to get a resolution. Generally, if an IDR provision exists, only after complying with the IDR provisions may  the parties proceed to mediation with a third party mediator.

If there are no IDR provisions, mediation will almost always be required to enforce the CC&Rs, if not in the CC&Rs, then by the Davis-Stirling Act.  Exceptions for mediation commonly exist for actions that are for injunctive relief, matters that are below the small claims jurisdiction ($10,000) or collection of delinquent assessments (these are the exceptions under the law, and most CC&Rs reiterate the same).  However, parties can still choose to mediate these disputes if desired.

What Happens if One Side Refuses to Mediate or the Mediation is not Successful?

If a party unreasonably refuses mediation, the court can take this refusal into consideration when awarding attorney fees to the prevailing party.  This is significant, because the prevailing party in an action to enforce the CC&Rs is entitled to recover their reasonable attorney fees and costs.  However, if the prevailing party refused to mediate, the Court can limit or altogether refuse to award the prevailing party fees.

In the event mediation is unsuccessful, or if one party refuses to participate, then the party seeking to enforce the CC&Rs can proceed to the next step, which is either filing suit in the Superior Court or demanding arbitration.   However, the differences between filing suit and arbitration is a whole topic unto itself, so you will have to wait for the next article to learn about these differences.

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In 2011, Andy Diaz (“Diaz”) lived in a property in Fullerton, CA (“Property”) with his then wife.  In 2011, Diaz suffered severe health problems.  Later in 2011, Diaz and wife divorced.  Due to his health problems, after several months of living in hospitals and therapy facilities, Diaz moved into his mother’s home as he could not care for himself.  During the time he was living in his mother’s home, his brother and sister-in-law moved into the Property.  In late 2013, Diaz filed for bankruptcy protection.  As part of the bankruptcy, Diaz claimed a homestead exemption for the Property.  The trustee challenged this claim as Diaz did not live at the Property and Diaz’s relatives lived in the Property.  The bankruptcy court agreed with the trustee and denied Diaz’s claim for an exemption as it was not his primary residence.  Diaz then appealed.

THE DECISION:

In In re; Diaz, The United States Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) reversed the bankruptcy court’s decision and remanded the matter back to the bankruptcy court.  The BAP noted that a person’s homestead is determined by considering two factors, physical occupancy of the property and the party’s intention to reside in the party.  The Court noted that just because one factor is present or lacking is not dispositive of the issue.  Here, the BAP noted that just because Diaz did not live in the Property, this alone was not sufficient to determine that he could not claim a homestead exemption.  In fact, Diaz had repeatedly made the claim that he would move back to the Property when he was able to live by himself and without the need of constant care.  As the bankruptcy court did not have sufficient information, the BAP ordered the bankruptcy court to allow additional evidence to be submitted.

WHY THIS DECISION IS IMPORTANT:

In 2012, the bankruptcy court clarified that the determination of a primary residence is determined as of the filing of the petition date.  Here, the court has further expanded this determination to allow debtors to show that even if they did not live in their home, they still may be able to claim a homestead exemption.  Indeed, it may be possible that this ruling may be expanded further to apply to cases against lenders in determining whether a property is a primary residence and the applicable state rights and protections, including those under the foreclosure statutes.

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The recent case of Taylor v. Nu Digital Marketing, Inc. discusses the issue of when it is appropriate for a seller to regain possession of a property from a buyer by filing an unlawful detainer action.

In Taylor, the Plaintiffs (sellers) and Defendant (buyer) entered into an agreement entitled “Contract of Sale Residential Property” in August of 2012. The agreement provided that the buyer will maintain possession of the property and make probationary installment payments for 60 months. These probationary installment payments did not go towards the purchase price. The buyer was also required to contribute to the purchase price during the 60 months by grants of equity in their corporation, property taxes, homeowner association fees, and payments in excess of the probationary installment amount.  At the conclusion of the 60 months, the remaining balance on the $1.25 million purchase price was to be paid in full in order for the buyer to own the property.

In June of 2013, the buyer defaulted on the probationary installment payments, and sellers filed an unlawful detainer action to regain possession of the property. Sellers claimed that their agreement with the buyer created a tenancy in which they could regain possession by unlawful detainer. Defendant argued that sellers’ complaint failed to state a cause of action because they were a purchaser, not a tenant. The trial court sided with the sellers.

The trial court held that despite the agreement being entitled ‘contract of sale’, the contract between the plaintiffs and defendant was primarily a lease agreement, with the contract for sale being secondary and taking effect at the conclusion of the 60-month term. Additionally, the court reasoned that both the ‘probationary installment’ payments and the sellers’ ability to use a Five-Day Notice to Quit as a remedy upon buyer’s default were characteristics of a landlord-tenant relationship.  (CCP§ 1161).

The Court of Appeal affirmed the lower court’s decision. The appellate court emphasized that the relationship created by the agreement must be characterized by reference to the rights and obligations of the parties and not by labels (Green v. Municipal Court (1975) 51 Cal.App.3d 450). The Defendant in Taylor only had a right of possession of the property for the first 60 months, and did not have the opportunity to own the property until the 60-month term elapsed and the purchase price was paid in full. Additionally, the agreement between the parties conspicuously stated that the Plaintiffs may use a 5-day notice. The appellate court went on to reason that when possession is achieved through a landlord-tenant relationship, unlawful detainer may be utilized to regain possession.  As mentioned by the lower court, the terms of the agreement were those readily found in tenancy agreements.

Buyer’s possession of the property was conditioned upon the satisfaction of the probationary installment payments. The court noted that the probationary installment payment provision set forth a 60-month lease, with the payments therefore being rent. To support that contention, the trial court reviewed email correspondence between the parties evidencing that both sides understood the payments to be considered “rent”. Through both the means in which the buyer in this case obtained possession, and the landlord-tenant characteristics of their agreement, an unlawful detainer action was an appropriate remedy.

This case is particularly relevant today with the prices of homes as high as they are. These contract for sale/lease hybrid contracts can be an affordable alternative to prospective purchasers.  With the benefit of affordability, also comes the risk. Prior to entering into a real estate purchase agreement similar to the one in Taylor, a prospective purchaser should consult with a real estate attorney to better understand the potential benefits and pitfalls.

 

Taylor v. Nu Digital Marketing, Inc., (2016) 245 Cal. App. 4th 283, Court of Appeals of California, Third District

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Pokémon Go is the latest craze that is literally everywhere we look. It is all over the news, and all over the streets with players of all ages trying to “catch ’em all.”  We have all heard about the stories of people falling, getting into car accidents, and even quitting their jobs to play full time, but does this game have any impact on real estate? Maybe, if you live in a house like this family’s: https://www.buzzfeed.com/stephaniemcneal/pokemon-go-house

In the article linked above, the family’s home had been labeled as a Pokémon “gym” (apparently churches and other public places are oftentimes identified as Pokémon gyms. This home was unique in that it was a former church, so the game considered it a gym).  Pokémon gyms appear to be quite a big attraction, as players can “train” their Pokémon for battle at such locations.

As a result, this home had substantial additional foot traffic as players showed up at all hours to train their Pokémon. There have been other stories in the news about homes close to parks or bodies of water having increased foot traffic. So, the question becomes, is this something you need to disclose?!

Under California law, a seller must disclose all material facts which affect the value, desirability and intended use of the property.

Is an increase in foot traffic something that materially affects the value of your home? To some owners, the answer is yes. The idea of having people congregating in your front yard or in front of your house at all hours is certainly less than ideal. Players could keep homeowners up at night or present a safety concern.   Imagine if you lived near a high school, but it was not so obvious to a purchaser that on Friday nights when the football games are played, this was the area everyone parked.  Would you disclose that?  A prudent seller would.

Now, the caveat to all this is if the condition is readily observable, a buyer should not be able to sue for closing a blind eye.  However, if I were buying a house, checking to see if it was a popular Pokémon Go site would be pretty low on my priority list, as I would not even know how to begin.

Obviously, we are not predicting a wave of Pokémon related disclosure issues being the new real estate legal trend. But this humorous situation is a great opportunity to remind our readers about how broad disclosure requirements may be. There is a reason the CAR and PRDS disclosure forms are upwards of 10 pages long (the statutorily required Transfer Disclosure Statement is three pages, and the “supplemental” disclosures which are commonly used are several more pages, depending on which set of forms you are using).  The issues contained therein are all things that should be disclosed to avoid the risk of a lawsuit.  Neighborhood conditions is certainly one such item.

If you ever need assistance in determining what should be disclosed, do not hesitate to reach out to us.  In the meantime, have fun playing Pokémon GO, but please do not play while driving, walking in the middle or the street, or riding your bike…

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Be a “HERO”: Remember to Disclose This Silent Lien

by Julia Wei July 25, 2016 Lending/Lender Issues
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Since 2001, California has had PACE programs available throughout the state.  One of the most well known is the “HERO” program, the Home Energy Retrofit Opportunity program which was first established in the Riverside County area. In late 2013, San Jose’s city council voted to participate in the HERO program, joining Berkeley, San Francisco, Menlo […]

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Court Finds that a Borrower May Sue for Wrongful Foreclosure Regardless of Ability to Repay Loan

by Henry Chuang July 20, 2016 Foreclosure
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In June 2005, Monica Sciarratta (“Borrower”) obtained a loan in the amount of $620,000 from Washington Mutual Bank.  In April 2009, Chase Bank (“Chase”), the servicer of the loan, recorded an assignment of the loan and transferred it to Deutsche Bank National Trust Company (“Deutsche”).  In that same month, Borrower began defaulting on the loan.  […]

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Court Holds That Landlord is Not Allowed to Evict a Tenant for an Immaterial Breach of the Lease

by Henry Chuang May 31, 2016 Landlord/Tenant Disputes
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Juan Juarez (“Tenant”) lived in a rent-controlled apartment complex owned by Boston LLC (“Landlord”) for more than 15 years.  Although his lease required him to obtain renter’s insurance, Tenant did not obtain the insurance.  After 15 years of not having insurance, on a Friday before a holiday weekend, Landlord served a three-day notice to perform […]

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