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)

{ 0 comments }

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 DECISION:

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.

WHY THIS DECISION IS IMPORTANT:

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.

COMMENT:

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.

{ 0 comments }

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 DECISION

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.

WHY THIS DECISION IS IMPORTANT

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.

COMMENT

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

{ 0 comments }

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 her husband, Ramon Soto (“Ramon”).  Eventually, Buchanan won her lawsuit and obtained a judgment against Maria.

In addition to the collections suit, Buchanan filed another lawsuit against Maria and Ramon for fraudulently transferring Maria’s interest in the property to Ramon.  Although Buchanan attempted to serve Ramon with the paperwork for the lawsuit, she was unable to because Ramon had been sent to jail then deported back to Mexico.  In addition, Buchanan was unable to determine where Ramon lived as Maria refused to provide any information about Ramon except that he lived in rural Mexicali.  Accordingly, Buchanan petitioned the court to publish notice of the lawsuit instead of serving Ramon with the papers.  The court granted the motion and Buchanan eventually obtained a default against Ramon.  At trial, Maria argued that service was improper against Ramon and that a trial could not proceed without Ramon’s presence.  The Court rejected this argument finding that Ramon had been properly served with the lawsuit by publication and that Ramon was aware of the lawsuit as Ramon and Maria had discussed the lawsuit with each other.  The Court awarded a judgment in favor of Buchanan after a two day trial.

After the trial, Ramon finally appeared before the Court and requested that the judgment be overturned as he had not been properly served.  The Court denied his motion and Ramon appealed.

THE DECISION:

The Fourth Appellate District sustained the trial court’s decision and found that service was proper and that Ramon had sufficient contacts with jurisdiction to justify the trial court’s decision to move forward with the trial.  In Diana Buchanan v. Ramon Soto, the appellate court held that California law allows the court system to have jurisdiction over a non-resident for lawsuits relating to property located in California.  The Court found that because Ramon took advantage of California’s laws, he subjected himself to jurisdiction before California courts as relating to claims against California property.  The Court also found that the Hague Service Convention did not apply because Buchanan did not know where Ramon lived and Ramon had been attempting to avoid service of the lawsuit.

WHY THIS DECISION IS IMPORTANT:

This case clarifies the requirements for suing a party who owns property in California but lives abroad.  As more and more international investors purchase property in California, it is likely that there will be more lawsuits against individuals who do not live in the United States.  By providing guidance for the requirements of serving international investors, parties will be able to complete their lawsuits against non-resident owners of property.

COMMENT:

Here, both courts found that Ramon was a bad actor who intentionally avoided participating in the lawsuit even though he discussed the lawsuit with his wife while the case was pending.  It will be interesting to see if the courts continue to apply this ruling to instances where the defendant is not a bad actor and had legitimate reasons to not know about the lawsuit.

{ 3 comments }

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 litigate their grievances in their home state.  This is a very convenient provision for megacorp DirecTV, but not so convenient for the average consumer and subscriber of DirecTV’s services.

Under California state law until recently, class action waiver was unenforceable.  In 2011, that changed after the Supreme Court’s ruling in AT&T Mobility v. Concepcion et ux[1]. In Concepcion, the Supreme Court expressly overturned California’s rule that class arbitration clauses were unconscionable and unenforceable, finding instead that the Federal Arbitration Act overrode state law with regard to arbitration provisions.

This week, the Supreme Court again upheld the principle of Concepcion in DirecTV, Inc. v Imburgia[2]. Where does that leave us?

In the world of real estate law, we tend to see both mandatory mediation provisions and optional arbitration provisions in the published forms most commonly used here in the San Francisco Bay Area (C.A.R., PRDS and SFAR).

A brief review:

What is the Difference Between Mediation and Arbitration? And Should I Initial the Arbitration Provision?

Because real estate law in California is still governed by California law, those remain unaffected that this recent holding.

Also, in the world of loans secured by real estate, arbitration provisions are already expressly prohibited.  The Truth in Lending Act was amended in 2013 and as of June 1, 2013, “terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction” in any agreement for a loan secured by a dwelling were banned.  However, for loans originated (applications received before June 1, 2013) prior to that amendment going into effect, borrowers with older loans may still be bound by arbitration provisions and subject to the Federal Arbitration Act.

[1] AT&T Mobility v. Concepcion, 563 U.S. 333 (2011)

[2] DirecTV, Inc. v. Imburgia, 135 S.Ct. 1547 (2015)

{ 0 comments }

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

Many families relish driving around neighborhoods and looking at holiday light displays.  For instance, Fulton Street in Palo Alto has quite an impressive “Christmas Tree Lane.”  However, what happens when your display upsets the neighbor?

It is not too far-fetched to imagine over-the-top holiday decorations upsetting the neighbors.  Anyone who has seen National Lampoon’s Christmas Vacation knows what the neighbors thought of the Griswold family Christmas display.

Holiday decorations can create additional traffic and noise from on-lookers (or noise from the displays themselves).  They can also result in parking issues, blocking driveways, and late-night revelers.  The display itself can also be a nuisance to a close-by neighbor, who suddenly has lights flashing in the bedroom or the like.  It could even potentially cause power outages (right Clark?).

There was even the recent newsworthy story where a Town fined a homeowner for their “Zombie Nativity Scene,” claiming the display did not comply with zoning regulations and was too large.

Whether a neighbor has ever sued and demanded a restraining order for a particularly gaudy holiday display is unknown to us.  However, we would hope that before someone would resort to a lawsuit, the neighbors simply discussed the issue and worked out a reasonable accommodation.  It is the holidays after all!  That said, if the display is truly over the top, one could seek a restraining order to curtail the display.

2. Potential Issues with the new “Laser” Christmas Lights

This holiday season has seen an increase in “laser” holiday lights, which project lights onto one’s home or large trees.  These displays certainly are less work and less dangerous than hanging lights yourself, and actually are visually appealing.  However, there may be some potential issues.

Recent news articles have highlighted concerns with these laser lights, claiming that the lights can cause issues for pilots.  There have even been reported arrests for people who have “intentionally” pointed the lights at aircraft.

This is certainly a developing issue, as these lights are a new phenomenon.  I would not be surprised to see some regulations of these lights, including not allowing them within certain distances to airports.

These lights have also been newsworthy as they are apparently being stolen with some frequency.  As the lights are typically place on the front yard to illuminate the house, there are some Grinches stealing the easy to install displays (which also happen to be very easy to uninstall).

3. Contractors Installing Lights

Don’t want to go through the hassle and risk of installing lights yourself?  Hire someone else to do it and there is no risk, right?  Wrong, especially if the contractors are unlicensed.

As with any other situation whereby contractors are hired, the homeowner runs a risk in using unlicensed contractors.  The biggest risk generally is what happens if one of the workers is injured.  Licensed contractors are required to have worker’s compensation insurance.  Unlicensed contractors typically do not have insurance, so if one of the employees slips and falls off the roof, you may be getting a present you do not want: a lawsuit from the employee.


 

We certainly hope none of these issues arise for you, as the holidays are a time to get together with your friends, family and neighbors.  If the neighbor’s lights are problematic, go over to them and discuss it over some egg nog.  “Problems” like these should not end in lawsuits, and can oftentimes be resolved on their own.

Now, go out and enjoy the holidays!

{ 0 comments }

In April of 2008, Jeffrey Needelman (“Tenant”) entered into a lease agreement with DeWolf Realty Co., Inc. (“Landlord”) for an apartment in San Francisco.  After the lease expired, Tenant continued on as a month-to-month tenant.  In December of 2011, Landlord served a three-day notice on Needleman alleging that Needleman violated terms of the lease by harassing other tenants in the complex.  In January of 2012, Tenant filed an answer to the complaint.  In March of 2012, the parties entered into a settlement agreement that included the right to pursue a stipulated judgment with 24-hours notice, that Tenant was required to comply with the terms of the lease, that Tenant waived any claims he had, and that Tenant agreed that any property left in the unit would be deemed abandoned.

In May of 2012, Landlord notified Tenant that it was moving ex parte to enter a stipulated judgment for possession against him for violating the settlement agreement.  Tenant failed to appear at the hearing and the court granted Landlord’s request for the stipulated judgment.  Eventually, Tenant was locked out of his property.  In an attempt to stop the eviction, Tenant moved to set aside the judgment.  In July of 2012, the trial court denied Tenant’s motion stating that the agreement reached by the party was clear and there was sufficient evidence presented by Landlord to enter judgment against Tenant.  Tenant then appealed the judgment to the appellate division of the superior court.  In March of 2013, the appellate division of the superior court affirmed the trial court’s decision.

Not done with the judicial system, in May of 2013, Tenant filed a lawsuit against Landlord with claims largely based on issues that were raised during the unlawful detainer proceeding.  After several motions, the court eventually dismissed Tenant’s case finding that his claims were barred by res judicata and the settlement agreement.  Tenant then appealed the case to the appellate court.  On appeal, Tenant argued that his claims were not barred by the judgment and the settlement agreement because the settlement agreement violated constitutional protections.  Tenant contended that the 24-hour notice was insufficient as he had other obligations and could not attend the hearing.

THE DECISION:

The First Appellate District affirmed the trial court’s decision and found that Tenant’s claims were barred on multiple different grounds.  The Court held that although there are heightened standards for res judicata in unlawful detainer cases than other cases, the heightened standards did not apply when the parties had an opportunity to litigate the matter.  Here, the Court found that although no trial ever occurred, the mere fact that Tenant filed an answer and chose to settle the matter was sufficient to trigger res judicata of the claims.  Additionally, the Court rejected held that the 24-hour notice was agreed to by the parties and Tenant chose not to attend the hearing.  Because Tenant made a choice not to appear, his due process rights were not violated.

WHY THIS DECISION IS IMPORTANT:

Here, the Court upheld many of the terms routinely included in most settlement agreements including the shortened notice provision and waiver of claims.  A contrary decision would have made settlement almost impossible for most civil cases, especially in the unlawful detainer context.

COMMENT:

None of the holdings in this case were particularly surprising.  Here, the Court essentially affirmed that the terms most parties use in their agreements are constitutional.  However, if the Court had decided otherwise, it is unclear how parties could reach a settlement agreement in the future.

{ 1 comment }

Are Short Term Rentals for You?

by Simon Offord November 16, 2015 Landlord/Tenant Disputes
Thumbnail image for Are Short Term Rentals for You?




Short term rentals are becoming big business, and California and the Bay Area are no exception.  Companies such as Airbnb and VRBO have grown to become massive entities and have drawn a great deal of attention.  So much so that San Francisco recently had a proposal on the ballot to limit the number of days […]




Read the full article →

Real Estate Law Considerations for Fallen Leaves

by Ashlee Adkins October 29, 2015 Neighbor Issues
Thumbnail image for Real Estate Law Considerations for Fallen Leaves




Some Californians believe that California does not exhibit autumn colors. That is because most of the population lives near a coast, where Mediterranean plants dominate the terrain. However, California boasts some of the most beautiful autumn sceneries in the country. The changing colors of leaves means that piles of leaves on the ground are soon to follow, so […]




Read the full article →

Legal Notice of a Lis Pendens Requires Mailing to All Owners on the Tax Assessor’s Roll

by Matt Kabak October 27, 2015 Legal Update
Thumbnail image for Legal Notice of a Lis Pendens Requires Mailing to All Owners on the Tax Assessor’s Roll




In 2001, John Carr (“Carr”) claimed adverse possession of a vacant lot (the “Property”) in Riverside. The owner of record was a decedent’s estate in probate. In 2003, a judgment was recorded transferring from the estate one half of the Property to Ernest Ortiz (“Ortiz”) and the other half to Anna Colón (“Colón”). In March […]




Read the full article →