The Bay Area is known worldwide for a multitude of things, including being the hub of technological advancements, cultural diversity, and championship sports teams.  One of the more recent phenomena however doesn’t have to do with any of those things.  Currently, two Bay Area cities claim two of the top three spots for the costliest housing markets in the U.S. and Canada.  San Francisco is the costliest, with a median home price listed at $1,085,000.  Not far behind that is San Jose, ranking third with a median home price of $700,000.

This substantial rise in the cost of purchasing a home in the Bay Area has made the dream of buying a home an unrealistic fantasy for many residents.  Despite the economy being in a stage of recovery, and the workforce growing, employees are simply not making enough to meet the steep financial demands of homeownership.  The rise in the median price has led to a significant shortage of affordable housing, forcing a large percentage of residents to rent or to commute long distances to work.

In an effort to combat the effects of rising housing prices, the City of San Jose passed an ordinance that requires residential developments to designate 15 percent of homes as affordable housing when the development consists of 20 or more units.  The ordinance requires that 15 percent of the development has to be built to be sold at below-market prices.  These prices are determined by the City for buyers with qualifying income levels. Should the development wish not to participate, they would have to pay into a city housing fund.  Developments that satisfy this requirement will receive economic incentives, including a density bonus, reduction in parking and set-back requirements, and financial subsidies and assistance from the city.

In order to qualify, your household earnings cannot amount to more than 120 percent of the area median income for Santa Clara County.  The City of San Jose’s website has a chart designating their income and rent limits, and can be found at  For an example, a household consisting of two individuals who make $114,800 or less, would qualify for a 2 bedroom unit under the ordinance.

This ordinance is intended to alleviate the shortage in affordable housing and allow lower income families to become homeowners in the San Jose area, a situation that has been unattainable for most during the last couple of years.  Some of you may wonder what would stop people that qualify from buying one of these lower income units and reselling at market value, diminishing the intention of the ordinance.  Legislators anticipated this loophole and drafted the ordinance with regulations that require that the unit remain affordable.  All transfer documents, agreements, promissory notes, and etc. must be recorded on the chain of title subject to the ordinance.

San Jose’s Inclusionary Housing ordinance has not been met with open arms despite it being an effective tool in mitigating the shortage of affordable housing in the area.  Many claim that this ordinance will cause alternate housing prices to rise, causing a chill in housing development due to these newly enforced regulations.  One of the leaders of the resistance is the California Building Industry Association (CBIA).  CBIA brought suit against the City of San Jose in 2010, challenging the constitutionality of the ordinance, claiming that the city’s ordinance should be reviewed under a heightened level of scrutiny.  The City argued that the ordinance was within their police power to enforce land-use regulations and that they had met the deferential standard required under such.   The trial court ruled in favor of CBIA, determining that the ordinance was unconstitutional, rejecting the City’s argument.

On appeal, the trial court’s ruling was reversed, and the appellate court’s ruling was later affirmed by the California Supreme Court.  Both courts ruled that the ordinance is within the City’s police power and deemed that the ordinance is constitutional.  Further illustrating the importance of this ordinance, the CBIA petitioned to have the case reviewed by the United States Supreme Court.  On February 29, 2016, the U.S. Supreme Court declined to hear a challenge to the law and upheld the lower courts’ ruling.

Considering the current climate of the real estate market, this is one of the most important and city-friendly rulings in providing relief for the current lack of affordable housing.  The ordinance has a major impact, not only on San Jose, but all over the Bay Area.  This ruling could encourage neighboring cities to adopt a similar ordinance and cause a widespread change in the housing development world.  Stay tuned to see how developers and potential purchasers adjust to this precedent set by the Supreme Court.

(California Building Industry Assn v. City of San Jose (2013) 216 Cal.App.4th 1373)

{ 1 comment }

Post image for Court Makes it Easier to Strip Mortgages

Court Makes it Easier to Strip Mortgages

Henry Chuang

by Henry Chuang on March 30, 2016

in Mortgage Issues

Robert and Darlene Blendheim (“Blendheim”) were borrowers who obtained two mortgages from HSBC Mortgages Services in the amounts of $347,900 and $90,474.  In 2007, the Blendheims filed for Chapter 7 bankruptcy protection and obtained their discharge.  The day after receiving their discharge, they filed for Chapter 13 bankruptcy protection in order to restructure their debts.  Primarily, they were focused on the two loans secured against their home.  In the second bankruptcy, HSBC filed a proof of claim for the first mortgage.  The Blendheims challenged the claim and HSBC did not respond.  Accordingly, the bankruptcy court issued an order disallowing HSBC’s claim.  Strangely, after being served with the order, HSBC did not object to the order, but instead requested not to be further notified about the bankruptcy proceeding.  After the order, the Blendheims moved to void the lien secured against the property as the underlying claim had been disallowed by the bankruptcy court.  Over the opposition of HSBC, the bankruptcy court agreed with the Blendheims and ordered that the lien would be cancelled at the completion of the bankruptcy.  While the Court noted that it was hesitant to cancel the lien, which essentially would prevent HSBC from foreclosing or otherwise collecting on the loan, it noted that the statute required this conclusion.  As part of the second bankruptcy, the Blendheims submitted plans to reorganize their debt.  HSBC challenged those plans stating that the Blendheims’ plan should provide that HSBC’s first lien would be reinstated at the completion of the plan arguing that bankruptcy law does not allow a permanent cancellation of the lien if the debtors do not obtain a discharge.  The bankruptcy court disagreed and eventually confirmed a plan.  HSBC then appealed to the district court.

At the district court level, the Court affirmed all of the bankruptcy court’s orders.  First, it noted that HSBC was untimely on its appeal of the order denying HSBC’s proof of claim and on the order voiding the lien.  Second, the Court found that a debtor can permanently avoid a lien even if the debtor is not entitled to a discharge.  It noted that it would be a harsh result if a debtor faithfully performed all of the debtor’s obligations under the plan to just see the debtor’s debts “spring back to life.”  HSBC once again appealed to the Ninth Circuit Court of Appeals.


The United States Court of Appeals for the Ninth Circuit affirmed the district court and bankruptcy court’s ruling and held that HSBC’s first mortgage had been correctly voided and that the Blendheims could permanently void the lien.  The Court held that while there had been previous cases where a lien was not voided because the creditor had failed to timely file a proof of claim, those cases were not relevant because the statute explicitly provides that a lien cannot be voided because a creditor did not file a proof of claim.  Here, HSBC filed a proof of claim and it was successfully objected to by the Blendheims.  Since HSBC had timely filed the claim, the exemption did not apply.

Further, the Court found that the lien could be permanently stripped even if the Blendheims were not eligible for a discharge in the Chapter 13 bankruptcy.  The Court clarified that there were four different ways for a Chapter 13 bankruptcy to be resolved:  a conversion to a different type of bankruptcy, a dismissal of the case, the issuance of a discharge for the debtor, or the closing of a bankruptcy case.  Previously, the appellate court had implied that the only successful way to conclude a Chapter 13 bankruptcy matter was for a discharge to be issued.  However, the Court held that a Chapter 13 bankruptcy could be successfully concluded by a debtor successfully completing an approved plan even if no discharge is granted.  As a discharge is not required for a bankruptcy to be successfully concluded, a debtor did not need to be eligible for a discharge to permanently void a lien.


The Court has given its approval for “Chapter 20” bankruptcies.  A Chapter 20 bankruptcy is where a debtor first files for a Chapter 7 bankruptcy to obtain a discharge and then follows with a Chapter 13 bankruptcy, generally to strip liens off of underwater properties.  The reason that debtors had been filing Chapter 20s is because a debtor was not allowed to perform strip liens off their primary residence in a Chapter 7 or reorganize their debts in order to catch up.  While there previously had been concerns that a Chapter 20 was de facto bad faith and would not be permitted, this decision indicates that courts have given their blessings for debtors to pursue a Chapter 20.


HSBC’s actions in this case were largely inexplicable.  No good reason was ever provided by HSBC for their failure to take appropriate action in protecting the first mortgage.  Given HSBC’s negligence, it was unsurprising that the courts had little sympathy for HSBC’s position.  Further, by clarifying the legality of Chapter 20s, the court has provided debtors with new tools on managing and reorganizing their debts.


HSBC Bank USA, N.A. v. Blendheim, 803 F.3d 477 (9th Cir. 2015)


If you’ve recently purchased a home, or are looking to buy, you know how tough the market is.  The competition is intense, with there being more buyers than sellers.  Finally, your offer on your “dream home” has been accepted. The paperwork is drafted and signed by both parties, life couldn’t be better. That is, until the closing date comes, and the seller refuses to close escrow. Now what? Don’t worry, as the buyer you have strong options. Here is an outline of the options a buyer has when the seller refuses close escrow:

Typically, sellers refuse to close escrow for one of two reasons. First, the market has fluctuated and they think they can get a higher price from a subsequent offer, so they refuse to close at the lower agreed upon price. Second, the seller has issues obtaining alternate housing, either due to lack of availability or a failed deal. Unless the buyer’s transaction with the seller is contingent on the seller obtaining alternate housing, which is rarely the case, the two reasons mentioned above do not relieve them of their duties to the buyer. A rise in the market value of the home or difficulty obtaining alternate housing is no excuse for the seller to fail to perform.

In the event that you are the buyer in this situation, there is relief for you. Most of the standard real estate purchase contract forms in California have a mandatory mediation provision, requiring the parties to mediate prior to initiating any court action.  However, there are several exceptions to this. One of those includes the filing of a lawsuit for the purpose of recording a lis pendens. The lis pendens provides prospective buyers and lenders with notice that you have a pending action with the seller (Cal. Civil Code § 405.20). This limits the seller’s ability to try and sell the property to someone else at a higher price. The recording of a lis pendens can be costly as the lawsuit must be drafted and filed concurrently with the recording.  The lis pendens provides a vital security measure, and may prevent an exorbitant amount of fees down the road when trying to obtain the property from a subsequent buyer. Well worth the up front cost when your dream home is at risk!

After the buyer files a lawsuit, the primary relief in these circumstances is called specific performance, and the relief acts just as it sounds. Specific performance is a legal remedy for breach of contract claims that require the seller to perform the contract, placing the buyer in a position they would have been in had the seller performed (Cal. Civil Code § 3384). The seller is then legally required to forfeit the property to the buyer. The courts in these cases grant specific performance instead of money damages due to the unique characteristics of real property, with money damages not adequately satisfying the buyer’s damages (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463).

Either during the pending lawsuit or as an alternative to it, the parties can participate in mediation. It is substantially less expensive than a trial or arbitration, and many parties come to an agreement and settle. The mediation process, however, can take weeks to coordinate, and there is no guarantee that the seller will agree to participate.  Even more detrimental to the buyer, most parties agree to bear their own fees and costs of the mediation so if the buyer has out of pocket costs caused by the seller’s breach, the buyer may be waiving those costs as part of the mediation.

In contrast, the initiation of a court action to record a lis pendens can occur quickly after the seller’s default, and can provide some security to the buyers while they coordinate and schedule the mediation. And, as the liability is usually clear when the seller fails to perform, the contract provides for attorney fees to be awarded to the prevailing party.  The procedures discussed above tend to be complex, and legal representation is encouraged. Becoming a homeowner is a major milestone in most people’s lives. Thankfully there are legal remedies to help buyers achieve this goal when they deal with unreasonable sellers.


Tsvetana Yvanova (“Yvanova”) was a borrower who obtained a loan from New Century Mortgage Corporation (“NCMC”) in 2006.  In 2007, NCMC filed for bankruptcy and in 2008, its assets were liquidated.  In 2011, several years after NCMC was liquidated, NCMC executed an assignment of the deed of trust to Deutsche Bank National Trust (“Deutsche”) while noting that the beneficiary of the loan was a Morgan Stanley Trust.  The Morgan Stanley Trust had a provision where any loans that were to be held by the trust must be transferred to the Trust by 2007.  In 2012, Western Progressive was substituted in as the foreclosing trustee and recorded a notice of default.  Eventually, at the end of 2012, Western Progressive foreclosed on the property and recorded a deed of trust to the winner of the auction, THR California LLC.

In response to the foreclosure sale, Yvanova filed a lawsuit stating that the foreclosure was void for two major reasons.  First, NCMC had filed for bankruptcy in 2007 and could not have assigned the deed of trust to Deutsche.  Second, the Morgan Stanley Trust could not accept new mortgages after 2007.  The defendants demurred and the motion was granted without leave to amend.  Yvanova then appealed the decision and it was affirmed by the court of appeal.  There, the court found that a borrower could not challenge an improper assignment of the deed of trust because the borrower was not a party to the transfer and therefore had no standing to challenge transfer.  In addition, since Yvanova was in default of the loan, she was not harmed even if the transfer was defective.  Yvanova then filed an appeal to the California Supreme Court.


The California Supreme Court unanimously overturned the lower court’s decisions and held that a borrower had standing to challenge a completed foreclosure sale on the grounds that the assignment of the deed of trust was improper.  The Court went through an in depth analysis of previous lower court decisions and decision in other jurisdictions on whether a borrower could challenge the foreclosure sale based on an improper assignment of the deed of trust.  In the end, the Court found that such a challenge was possible because an improper sale was void as a matter of law and could never be ratified by the parties even if they wanted to.  The Court reasoned that in a situation where an assignment was improperly made, the foreclosing party never had a right to foreclose and therefore any sale arising from the foreclosure was without legal effect.  In addition, the Court rejected defendants’ argument that the borrower suffered no harm from the foreclosure because the borrower had already defaulted on the loan.  The Court held that this was not correct because that argument would allow any party, including roving commissions of bounty hunters, to foreclose on a delinquent loan without a borrower being able to challenge the sale.


This decision will likely open up the floodgates to more wrongful foreclosure litigation.  Previously, the courts had made it very difficult for a borrower to challenge a foreclosure sale after it had been completed.  Here, the Court reversed this position and gave borrowers rights to challenge a foreclosure sale after it had happened.  In fact, the Court implied in its decision that this right to challenge the sale based on a failure to properly assign the deed of trust could only occur after the foreclosure.  The Court explicitly refused to address whether a borrower could raise the argument pre-foreclosure and left in place a lower court decision that said a borrower could not challenge an assignment before the foreclosure sale occurred.


This case will cause serious problems for lenders and foreclosure investors.  Previously, the courts had focused on the importance of maintaining the integrity of the foreclosure process and the importance of protecting bona fide purchasers at foreclosure sale.  Here, the court reversed that position and provided grounds for challenging a foreclosure sale only after it had occurred.  Further, these securitization and assignment issues are prevalent throughout the industry and it is not clear if lenders will be able to successfully defend against such a suit.


THE DECISION:  The Supreme Court of California held that Code of Civil Procedure Section 580b prevents lenders from pursuing borrowers after approving the borrower’s short sale.

Previously, the case law had been clear that after a foreclosure sale, the lender was deemed to have taken their “one action” in collecting on the loan and therefore barred from seeking a deficiency for the shortfall.  However, short sales were a gray area that were not expressly covered by the statute in that lenders could argue, as J.P. Morgan Chase did here that the borrower forfeited the protection of the “one action” rule by requesting the lender accept a short sale rather than conducting the foreclosure sale—thereby allowing multiple collection avenues.

Carol Coker defaulted on her home loan with JP Morgan Chase Bank.  The loan had been a purchase money loan, which would normally protect Ms. Coker from a deficiency judgment if Chase foreclosed.  In 2010, Ms. Coker’s house was underwater.  She owed $452k to Chase but the house was only going to net $375k after a sale.  Chase approved the short sale and required Coker to waive the protections of CCP 726 (the “One Action” Rule) as a condition of her short sale, among other terms.

A year later, a collection company came after Coker for the $116k deficiency Chase was owed after the short sale.  Years of litigation ensued with this final victory on the borrower’s part.

Why this case is important: This case effectively shuts down the lender’s attempt at multiple collection efforts after having accepted the short sale proceeds on a purchase money loan.  The anti-deficiency protection of Section 580b is clarified, and the Court also explained that this protection is not reduced or limited by the recent enactment of Section 580(e) which also applies to short sales.

COMMENT:  This is a lengthy opinion, with a very good explanation of the court’s spectrum of decisions regarding California’s anti-deficiency statutes over the years.  This particular result was not surprising, as the cases have continually stated the public policy behind California’s anti-deficiency statutes, which is to prevent deepening a financial crisis and to instead keep the burden of the risk of underwriting to the lender.

In fact, for years, we have taken this very position in defending our borrower clients when collection agencies came knocking after the short sale.  Similarly, we advised our lender clients that anti-deficiency protection is not waivable by the borrower, and void as against public policy.

Coker v. JPMorgan Chase Bank (Supreme Court Opinion filed Jan. 21, 2016)


Sofia Borsuk (“Borsuk”) was a tenant at LA Hillcreste Apartments in Los Angeles.  In March, 2015, LA Hillcreste served Borsuk with a 3-day notice to pay rent or quit.  After Borsuk failed to pay rent, LA Hillcreste attempted to evict Borsuk.  In the lawsuit, Borsuk moved to quash service of the summons and the complaint.  The motion to quash is an argument that the court does not have jurisdiction over a party.  Here, Borsuk alleged that LA Hillcreste failed to properly serve the 3-day notice and therefore the court could not hear the case.  Borsuk provided declarations from her and her husband stating that the three-day notice was improperly left at her door.  In the complaint, LA Hillcreste alleged that it properly served the three-day notice by posting the notice on her door and mailing it.  The trial court denied Borsuk’s motion and she appealed to the Appellate Division of the Superior Court.

There, the court disagreed with the trial court and found that a motion to quash was the proper way for a tenant to challenge service of the three-day notice.  The judges there held that although they disagreed with a previous court decision, they were required to follow the decision until it was overturned.  One of the judges authoring the decision requested that the Appellate Court review the decision and reverse the previous case.  Accordingly, the Second Appellate District of the Court of Appeal accepted the matter and issued an opinion.


The Second Appellate District of the Court of Appeals overturned the lower court’s decision and held that a motion to quash was not the proper way for a tenant to challenge service of the 3-day notice.  Additionally, the Court found that the previous case was poorly decided and should be overturned.  The Court held that the purpose of the motion to quash is to determine if there are any challenges to the jurisdiction of the court, not to determine if there a plaintiff failed to meet elements required to prevail in the case.  As with any other lawsuit, a court has jurisdiction over a party when the summons and complaint are served.  Whether the 3-day notice was properly served does not change that fact, it only determines whether the landlord will be able to prevail in the case.  Further, since the landlord used a Judicial Council form, the landlord made all of the required allegations that service of the 3-day notice was properly completed.


Although this case focuses on technical issues, the practical implications are profound.  Previously, a tenant could provide evidence that the 3-day notice was improperly served and seek dismissal of the case without a trial.  Now, the court has held that such challenges are not permitted and essentially, the tenant has to raise the matter at trial.  While an unlawful detainer action is an expedited proceeding, this will force tenants to risk their case at trial without an opportunity to test their defense before a judgment can be issued against them.  Likely, this will cause many tenants to settle their case or reach other accommodations to avoid the risk of losing and having an eviction on their record even if they had a legitimate defense.


The Appellate Court’s reasoning was thorough and well thought out.  The Court went step-by-step in analyzing the underlying law and provided multiple reasons why the previous ruling was incorrect.  While the motion to quash was the wrong vehicle to challenge issues with the 3-day notice, the legal system does not provide any other method of raising a factual dispute over the 3-day notice.  It will be interesting to see if the legal system provides another creative alternative to allow tenants to raise factual challenges to the eviction process short of going to trial.


Post image for HOA Rules Upheld Once Again

HOA Rules Upheld Once Again

Simon Offord

by Simon Offord on January 19, 2016

in HOA Litigation

Recent cases have generally supported a trend that homeowner’s associations are given a fair amount of deference in establishing their own rules.  A recent case in San Luis Obispo County has yet again provided deference to the homeowner’s association.

Oak Shores consists of 851 parcels of land. A majority of these parcels are developed with single-family homes. Only about 20 percent, 125 to 150, of the homes are occupied by full-time residents. Approximately 66 absentee homeowners rent their homes to short-term vacation renters.

A small group of property owners (“Owners”) brought an action challenging regulations and fees adopted by the Oak Shores Community Association (“the HOA”).

Owners are absentee owners who rent their homes to short-term vacation renters. Owners complaint challenged the following revisions to the CC&Rs: a rule stating the minimum rental period is seven days; an annual fee of $325 imposed on owners who rent their homes; a rule limiting the number of automobiles, boats and other watercraft that renters are allowed to bring into Oak Shores; a mandatory garbage collection fee; boat and watercraft fees; building permit fees; and property transfer fees.

The HOA cross-complained, seeking to enforce the CC&Rs and for unpaid assessments. As part of their defense, the HOA argued that the rules were supported by the circumstances.  For instance, the HOA presented expert witness testimony that explained the detriment to the HOA of having guests and the additional cost the HOA incurs because of guests.

The Trial Court found for the Association on the complaint and further found that the Association’s rules and regulations were reasonable and complied with the Association’s governing documents and the law.  The HOA was also awarded their attorney fees in excess of $1.1 million dollars.  Owners appealed.


The Appellate Court affirmed the Trial Court decision.  The Owners argued, in part, that the rule applying judicial deference to association decisions applies only to ordinary maintenance decisions.   The Appellate Court disagreed, observing that the rule of judicial deference was not limited to routine maintenance decisions.  The Court further observed that the CC&Rs gave the board of the HOA broad powers to adopt rules for the community, that the CC&Rs did not prohibit the adoption of rules relating to short-term rentals, and that the Board may reasonably decide that all owners should not be required to subsidize the homeowners’ vacation rental business.


This decision gives homeowner’s associations additional deference and continues the theme of allowing boards significant control over their own rules and regulations.  What seemed to be critical in this matter was the fact that the HOA had specific data to support the changed rules.  For example, the HOA was able to establish that short-term renters cost the HOA more than guests or permanent residents.


It cannot be lost in this decision that Owners challenged the attorney fee award in favor of the HOA and lost.  Thus, Owners are facing a judgment against them in excess of $1.1 million.  This is a shockingly large attorney fee award for what does not seem to be that complicated of a case.  However, fee awards like this are a risk that is always present in homeowner’s association disputes, as most every set of CC&Rs has an attorney fee provision, as does the Davis-Stirling Act (the law that governs homeowner’s associations).

Moreover, this case is yet another example of the seemingly pervasive hostility towards short-term rentals.  Cities and homeowner’s associations statewide are restricting short-term rentals on an increasing basis, and this case is yet another example of this trend.

Watts v. Oak Shores Community Ass’n, (2015) 235 Cal. App. 4th 466


Court Finds that International Property Owners Cannot Avoid California Jurisdiction

by Henry Chuang December 21, 2015 Collection Disputes
Thumbnail image for Court Finds that International Property Owners Cannot Avoid California Jurisdiction

In 2007, Maria Soto (“Maria”) obtained a loan from Diana Buchanan (“Buchanan”) secured against a property she owned along with her husband and two other people.  In 2011, after defaulting on the loan, Buchanan sued Maria to collect the debt.  Just after being served with the lawsuit, Maria transferred her interest in the property to […]

Read the full article →

Supreme Court Enforces DirecTV Binding Arbitration Provision and Finds California State Law Invalid

by Julia Wei December 18, 2015 Legal Update
Thumbnail image for Supreme Court Enforces DirecTV Binding Arbitration Provision and Finds California State Law Invalid

In a recent Supreme Court decision analyzing a California class action, the Court favored DirecTV’s binding arbitration provision and dismissed the class.  DirecTV’s service agreement had a binding arbitration provision against each individual subscriber.  That meant that any subscriber who had a problem with DirecTV would have to undergo binding arbitration with DirecTV rather than […]

Read the full article →

Bah Humbug! How to Avoid Legal Issues During the Holidays

by Simon Offord December 16, 2015 Neighbor Issues
Thumbnail image for Bah Humbug!  How to Avoid Legal Issues During the Holidays

Winter is the time for festive celebrations, family, friends and giving.  However, we all know there are some Scrooges out there who do not share the joyful spirit. In this blog, we look at some of the real estate related legal issues that can arise during the holiday season: 1. Nuisances Created by Holiday Lights […]

Read the full article →