Bay Area Real Estate Lawyers — Palo Alto, San Jose Real Estate Attorneys

Bankruptcy Court Finds Exception to “Snapshot” Rule.

by Henry Chuang on May 14, 2012

The Ninth Circuit Court of Appeals recently ruled that in order for debtors to receive the benefit of the homestead exemption after a forced sale of their home, they must reinvest the proceeds in another home. The Court held that the “Snapshot” Rule, the general principle where the status and value of everything is determined at the time of filing, did not apply to homestead exemptions. The Court decided held that California’s homestead statute requires reinvesting the proceeds in a new home within 6 months. This holding demonstrates the importance of state law in applying bankruptcy statutes and puts into question the value of the homestead exemption.

In Wolfe v. Jacobson, a creditor, Cunningham, received a judgment against the Jacobsons after 15 years of litigation. After preventing a discharge in the initial bankruptcy for the wife, Cunningham, the creditor, was able to force the sale of the Jacobsons’ home in the wife’s second bankruptcy proceeding. When the home was sold, the Jacobsons received $150,000 due to their homestead exemption. However, because they did not reinvest that money in a new house, the trustee filed suit to force the Jacobsons to turn over the $150,000. Although the trustee lost in the bankruptcy and bankruptcy appellate court, he prevailed on appeal. At the appellate level the Court found that states have the freedom to decide what exemptions are allowable and on what terms. Since California determined that a homestead exemption is valid only when the debtor reinvests the proceeds within six months, the bankruptcy court did not have the authority to overturn that public policy decision.

The takeaway of this ruling is the fact that state exemptions trump other bankruptcy provisions. While bankruptcy rules are designed to give the debtor a clean slate, that is balanced by the states’ determination of the rights of creditors and debtors.

Additionally, given the cost of homes in Silicon Valley, this ruling throws into question the value of the homestead exemption. It is difficult to imagine that someone in bankruptcy would be able to obtain sufficient financing to purchase another home, even after receiving $150,000 from the homestead exemption.

If you or someone you know may need legal assistance regarding such matters, don’t hesitate to contact the Law Offices of Peter N. Brewer at (650) 327-2900, or visits our firm website to learn more about our attorneys and their practice areas at www.BrewerFirm.com.

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Hey Vanna, Can I Buy A Comma?

by Peter Brewer on May 1, 2012

in Contract Disputes, Real Estate Law

How the absence of a comma in a Listing Agreement cost a broker a $340,000 commission.

How important is it to be accurate in your listing agreement? Plenty, as one broker found out. Take the February 2012 case of RealPro Inc. vs. Smith Residual Company LLC. Smith Residual was the seller of 46.8 acres of vacant land in Riverside County. Smith listed the property with MGR Services Inc., a real estate broker. The listing agreement set forth the following price and terms: “$17,000,000.00 cash or such other price and terms acceptable to (Sellers), and other additional standard terms reasonably similar to those contained in the (standard AIR purchase agreement) …”.

The Listing Agreement went on to authorize MGR to cooperate with other brokers, and stated that a cooperating broker may, as a third party beneficiary, enforce the terms of the listing agreement against the Sellers or MGR.

RealPro delivered to MGR a written offer to purchase the property for all cash at the full listing price of $17 million, and stated that the buyer was ready, willing, and able to purchase the property on all material terms contained in the listing. Smith received the offer and counter-offered with a new listing price of $19,500,000. Other than the increased price, all the other terms of RealPro’s offer were acceptable. Both MGR and the Sellers confirmed the brokerage fee of 4%, split 50/50 between RealPro and MGR.

The increased price was not accepted by RealPro, and RealPro subsequently filed its complaint for a broker’s commission of 2%. RealPro argued that the use of the word “or” in the listing agreement meant that RealPro could procure an offer of either $17 million, or some other offer on terms and conditions acceptable to the sellers.

The Sellers argued that the listing price was “$17,000,000 cash or for such other price and terms acceptable to the owner” and that escrow must close prior to the obligation to pay any commission.

The trial court sustained the Sellers’ demurrer, meaning the court tossed RealPro’s case out, and RealPro appealed.

The Court of Appeals said, “Regardless of all the arguments raised by both parties, the outcome of this appeal is solely dependent upon interpretation of the language in the Listing Agreement.” Then, after some discussion, the Court of Appeal said, “The confusion centers on the use of the word “or” in the Listing Agreement . . .. RealPro interprets the word “or” as separating $17 million from “such other price and terms acceptable to (Sellers).” however, we interpret it to include “such other price.” Thus, the listing was for $17 million or such other price, plus terms acceptable to Sellers.”

The Court of Appeal thus concluded that the presentation of an all cash offer for the full listing price of $17 million did not obligate the Sellers to sell at that price. Rather, it was merely an offer to purchase the property for $17 million plus terms acceptable to Sellers.

It is not that the interpretation of the Listing Agreement by the Justices of the Court of Appeals is necessarily the correct one. (It is made correct by the fact that they are the Justices of the Court of Appeals.) A different interpretation of the language of the Listing Agreement could be just as soundly and correctly reached by someone else. But the thing that screams from the pages of this case is that RealPro could have earned their $340,000 commission by just the judicious placement of a single comma.

Another remarkable thing about this case, at least to me, is that it was even necessary for the Court of Appeal to parse the language of the listing agreement to arrive at its conclusion. Very little discussion was given, and even that only at the end, to the question of whether a listing is an offer to sell at the listing price. Most of the cases that have addressed this question have been pretty consistent that a “listing” is a solicitation for offers, not an offer itself. This might by why a prospective buyer submits an “offer” instead of an “acceptance,” and the buyer’s “offer” is usually followed by the seller’s “acceptance” or “counter-offer” until a contract is formed.

In any event, it is probably a very good idea to be precise in the language of your listing agreements and all your other important real estate contract documents. The omission of a mere comma just might cost you $340,000!

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Commercial Evictions… The Three Day Notice

by Charles Bronitsky on April 30, 2012

in Eviction, Real Estate Law

I have recently been handling a number of commercial evictions. Several years ago I stopped handling residential evictions, but there are a lot of similarities in the process.

In California an eviction, (called an Unlawful detainer) is most often initiated because the tenant has failed to pay the rent when due. The first step in such instances is to review the lease to make sure that any grace period has elapsed and then to serve the tenant with 3-day notice.

There are a number of requirements mandating what must be in a 3-day notice Unlawful detainer cases are strictly construed so if you mess up, you get to start all over again. Among the key items in a 3-day notice are the name and address of the person to whom the past-due rent can be paid, the amount of rent due, and an election of forfeiture of the lease in the event that payment is not made. There are other requirements as well so make sure you know what they are if you are going to do this yourself.

One of the advantages of a commercial tenancy is that the landlord can estimate the rent due in the 3-day notice. Thus, if the estimate is wrong, that is not fatal to the unlawful detainer action.

The next step is to serve the tenant. Service must be made personally or by a form of substitute service recognized under California law such as leaving a copy of the notice with someone at the premises and then mailing or posting and mailing if no one is available to leave the notice with. California law also allows for notice as provided in a commercial lease, but serving the notice in a way not specifically authorized under California law is risky.

When the notice is effective may depend on whether the tenant was personally served or served by substitute service. Clearly, if the tenant was personally served then the 3-day notice is really three days. There is a split, however, when the tenant is served by substitute service and so the safer practice is generally to add another five days from the date of mailing.

If the tenant pays in full within the three days then there is nothing left to do until the next time the tenant defaults. However, if the tenant makes a partial payment, you should be careful in deciding whether to accept it and it may depend on what you put in your 3-day notice.

Assuming the tenant has not paid, the next step is filing the unlawful detainer action, which I will cover in a subsequent post.

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Real Estate Case Update: Dual Agents – Longer Liability Exposure

by Julia Wei on April 24, 2012

in Court & Appearances, Real Estate Law

Bad Facts for the Licensee:

The buyers bought a house with substantial water damage. The problem? The sellers had painted over the damaged areas with dark brown paint. The bigger problem? The buyer’s agent was present and taking photos of the paint job. The biggest problem? Nobody disclosed the water damage to the buyers and the agent did not give the photos to the buyers.

Why This Case is Important:

The appellate court decision specifically lays out the statute of limitations for certain claims against brokers, and concludes that Civil Code Section 2079.4’s duty of disclosure only applies to the seller’s broker.

The Lawsuit:

Unsurprisingly, the buyers filed suit against the sellers and the agent who was acting as both the broker for the sellers and the buyers. [William L. Lyon & Associates v. Superior Court of Placer County, 2012 DJDAR 4655, April 13, 2012] The buyers also executed an exclusive Broker-Buyer C.A.R. form contract with the broker. The parties closed escrow on May 9, 2006, but did not discover the water damage (because the dark brown paint had covered up the water stains and efflorescence) until after the winter/spring rains, sometime in the spring of 2007. The suit was filed in May of 2009.

The broker defendant brought a motion for summary judgment on the theory that the buyer’s claims were untimely because the contract reduced the statute of limitations to two years (it is typically four years in California) and because California Civil Code Section 2079.4 provides only a two year limitations period.

Court’s Holding:

The trial court denied the motion, finding that the 2 year limitation of Section 2079.4 applied, but that it was equitably tolled while the parties tried to mediate the dispute. The appellate court affirmed, but determined that buyers’ claims against the broker were viable for entirely different reasons.

Section 2079.4 (Agent’s Visual Inspection Disclosure) – Since the statute does not say which broker must provide it suggesting all brokers involved must provide it, the practice has evolved that all brokers make a visual inspection disclosure to the purchaser. However, the Lyon Court determined that only the seller’s broker (listing agent) had a duty under Section 2079.4 and therefore, the 2 year statute of limitation for Section 2079.4 did not apply in this case because the buyers had sued the dual in the capacity as the buyer’s broker. They based this reasoning on the case holding from Easton v. Strassberger, which was the impetus for enacting Section 2079.
The CAR form Buyer-Broker Agreement – The form the plaintiffs signed limited the claims period to two years. The court concluded the provision did apply, however, the discovery doctrine also applied, and so it was a question of fact as to when plaintiff buyers discovered the latent defects. Accordingly, more than two years could pass under that delayed discovery doctrine.

Author’s Comment:

Courts are usually reluctant to add words that are not there to the language of the statute. Section 2079 clearly states: “It is the duty of a real estate broker or salesperson… to a prospective purchaser of residential real property… to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property…if” and here’s the important part, “if that broker has a written contract with the seller to find or obtain a buyer or is a broker who acts in cooperation with that broker to find and obtain a buyer.” This means that either the listing broker or the cooperating broker—and that is the buyer’s broker. Accordingly, since Section 2079 imposes the duty to disclose on both agents in the transaction, the limitations of 2079.4 should apply to both agents, or the dual agent in the transaction as well.

Further, from a public policy perspective, the statute is to benefit consumers, and to limit the duty to only one of the professionals seems counter to advancing consumer protection goals.

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Where Did My View Go? Homeowners’ Rights to Easements for Air, Light, and Views.

by Simon Offord on April 16, 2012

in Neighbor Issues, Real Estate Law

One of the most important features for some people in deciding whether to purchase a home is it’s view. Palo Alto and the San Francisco Bay Area are no exception. A good view can be worth hundreds of thousands of dollars, so we would assume it is something that is automatically protected, right? Unfortunately, in most cases, it is not.

The old English doctrine that gave a landowner an easement over adjoining land for the passage of light and air was repudiated long ago in California. As a general rule, California landowners do not have a right of access to air, light and view over adjoining property. However, as with most laws, there are certain exceptions that may apply.

Express Agreement

The right of a landowner to air, light, or an unobstructed view may be created by private parties through the granting of an easement. This would require the express grant from one homeowner to the other in writing. One may not obtain such a right through prescription or implication.

The right to air, light, or an unobstructed view may also be obtained through the adoption of conditions, covenants, and restrictions (CC&Rs). Thus, if you are an owner of a condominium, or more likely, a home in a subdivision, the CC&Rs may provide that neighboring homeowners may not build anything to obstruct another’s view. This can be as far reaching as requiring fences or foliage to be a certain height and not made or planted in such a way to prevent others from seeing through them.

Created By Government Entities

The right of a landowner to air, light, or an unobstructed views may be created by the legislature. The most predominant example is the Solar Shade Control Act (Pub. Resources Code, §§ 25980 et seq.), which provides limited protection to owners of solar collectors from shading caused by trees on adjacent properties.

Local governments may also adopt height limits to protect views and provide for light and air, including by way of building codes.

However, neither the Solar Shade Control Act nor violations of local building codes typically create a private nuisance cause of action entitling one neighbor to sue and obtain relief from the other (absent exceptional circumstances). Thus, the injured homeowner would have to rely on the government agency to enforce it’s own restrictions.

If you feel your rights to air, light or view have been violated or would like to establish those rights, or if you have any other questions about real estate legal issues, contact the Law Offices of Peter N. Brewer at (650) 327-2900, or on the web atwww.BrewerFirm.com.

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Federal Court Holds That There Is Still a Difference Between a Note and a Mortgage.

by Henry Chuang on April 9, 2012

in Banking Issues, Bankruptcy, Contract Disputes, Foreclosure, Mortgage Issues

Although most people in California refer to a loan secured by a house as a mortgage, the legally accurate terminology is a promissory note secured by a deed of trust. There are two different theories for these loans. Some states, such as Massachusetts, subscribe to a lien theory where the loan is actually known as a mortgage and acts as a lien against the property. Under this theory, there are only two parties involved, the lender and the borrower, and the borrower retains title to the property.

In other states, such as California, the prevailing theory is the title theory where the borrower gives a deed of trust to a third party. Under this theory, there is a lender, a borrower, and someone known as the trustee. The trustee holds conditional title to the property and is the party that either forecloses on the property if there is a default, or re-conveys the property back to the borrower if the loan is paid in full.

The reason behind these differences is based on a long line of cases and laws where lenders in title states would have an easier time foreclosing and taking possession of the property. However, as the legal theories evolved, the distinctions between the two have faded whereby almost all of the rights under title theory were granted to lenders in lien theory states.

Recently though, the Southern District Court of California held that there is still a distinction between the two. In U.S. Bank v. Salazar, the court held that a California law stating that the only party who can foreclose on a mortgage is the beneficiary or its assignees only applies to a mortgage and not a deed of trust. A beneficiary is a party who is entitled to receive payments on the loan and an assignee is an entity of the beneficiary’s choosing that is vested with the right to foreclose on the property.

In that case, U.S. Bank foreclosed on the property owned by Mr. Salazar. After foreclosing, U.S. Bank moved to evict Mr. Salazar from the property. During the eviction proceedings Mr. Salazar filed for bankruptcy protection. To continue with the eviction U.S. Bank petitioned the bankruptcy court for relief from stay. At that hearing the bankruptcy court denied the motion for relief from stay finding that Mr. Salazar had made a case that the foreclosure sale was void. U.S. Bank appealed the decision and the appellate court reversed the bankruptcy court’s decision and found that the law the bankruptcy court relied on did not apply. In holding that the law did not apply, the court determined that the lender and Mortgage Electronic Registration Systems (“MERS”) have the power to foreclose on the Property regardless of whether an assignment of the deed of trust was recorded. The court reversed the bankruptcy court’s ruling that the foreclosure sale was void due to the failure of the lender to comply with California law.

While most legal professionals will understand that when people say mortgage in California, they really mean deed of trust, there are still important differences between the two that create different rights and obligations. If you have any questions or have any issues related to your deed of trust, please do not hesitate to set up an appointment with us. Contact the Law Offices of Peter N. Brewer at (650) 327-2900, or send one of our attorneys an e-mail by visiting our website at www.BrewerFirm.com.

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Mechanics’ Lien Law Changes Coming Soon

by Charles Bronitsky on April 2, 2012

in Construction Law, Real Estate Law

On July 1, 2012, just three months from now, an all new series of mechanics’ lien laws will be in place in California. This new law, or actually a series of laws, will alter the process that has been in place for many years. This will affect not only contractors, subcontractors and material suppliers, but owners and design professionals as well. I strongly recommend spending some time during the next three months getting up to speed on the new laws, and if applicable, updating your forms for these new laws.

The new laws will be codified in California Civil Code Section 8000 et seq. and it is entitled “Works of Improvement.”

Under newly enacted Civil Code §8200(e)(2), even the prime or general contractor (called the “Direct Contractor” in the new law) must give preliminary notice to the construction lender.

Minimum requirements for all types of notices required under the mechanics’ lien law will be standardized under Civil Code §8102. Depending upon the type of notice, (notice of cessation, notice of completion, preliminary notice, stop notice) there may be additional notice requirements.

Under Civil Code §§ 8132, 8134, 8136 and 8138, conditional, unconditional, periodic and final release forms have also been modified. Since any “waiver and release shall be null, void, and unenforceable unless it is in substantially the [statutory] form”, owners and developers will also need to revise their forms to comply with the new laws.

Under the new Civil Code §§ 8480-8488, owners have certain rights to release their property from mechanics’ lien, including as a result of the failure to foreclose on the lien in a timely manner. These procedures have been substantially revised under the new laws. In addition, lien release bonds have been reduced from 150% of the claim to 125% of the claim in the new Civil Code § 8424.

A design professional may record a mechanics’ lien for providing work authorized for a work of improvement, subject to specified conditions. Under the new Civil Code §8319, a design professional may convert a recorded design professional lien to a mechanics’ lien if certain requirements are met.

This is just the tip of the iceberg on mechanics’ liens and as you can see, it will be very important to understand the new laws if you are in the construction business. These laws go into effect on July 1, so the time to get ready is now.

If you think you or someone you know may need legal assistance regarding such matters, don’t hesitate to contact the Law Offices of Peter N. Brewer at (650) 327-2900, or on the web at www.BrewerFirm.com.

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Co-ownership of Real Property – Fighting the Partition Action Can Cost You.

by Julia Wei March 26, 2012 Landlord/Tenant Disputes

There is a fundamental premise in California law that a co-owner of real property has the right to sever the co-ownership at any time by forcing a sale of the property through partition. The only exception is if the co-owners have expressly waived the right to partition in a contract, such as part of a [...]

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Insurance Coverage for Damage Caused by Encroachments

by Simon Offord March 19, 2012 Boundary Dispute

A very common dispute that we see on a regular basis are encroachments on neighbor’s land. These encroachments can be anything from a driveway, a portion of a home or balcony, or oftentimes fences or landscaping. In many situations, the offending party did not intend or even know they were encroaching, and the affected party [...]

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Bankruptcy 201: Relief From Automatic Stay

by Henry Chuang March 9, 2012 Bankruptcy

By: Henry Chuang, Esq and Julia M. Wei, Esq. Now that we have covered some basic bankruptcy terms in the prior two articles “Bankruptcy Basics, Part I” and “Bankruptcy Basics, Part II,” this article addresses the single most important motion for most creditors—the motion for relief from the automatic stay. The general rule is that [...]

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