Archive for the 'Real Estate' Category

New Developments In Real Estate Law

Published on February 27, 2012 by Patrick Guevara in News and Real Estate. 0 Comments

By Phillip Vermont

On July 15, 2011, California Code of Civil Procedures Section 580e was passed by the California Legislature. That section changes the law of short sales for residential properties in two significant ways. First, it expands the protection for a borrower in a short sale scenario, so that if all lenders whose loans are secured by the property approve the short sale, none of the lenders may seek a deficiency judgment against the former borrower.

Also, it adds an additional protection by stating that none of the lenders who approve the short sale may require the former borrower to pay any additional compensation, aside from the proceeds of the short sale, in exchange for the written consent of the sale.

Prior to July 15, 2011, in a short sale situation, the former borrower still had to address a second or third loan, or for that matter, an equity line, recorded against the property. Only the first lender was prohibited from seeking a deficiency judgment.

Next, a significant case was decided in 2011, protecting commercial landlords. In that case, Frittelli, Inc. v. 350 North Canon Drive LP, the California Court of Appeal enforced the landlord’s liability exemptions in a commercial lease at the summary judgment stage of a litigation brought by the tenant alleging that the landlord’s renovation of the shopping center destroyed the tenant’s business. Specifically, the exculpatory clause in the commercial lease had exempted the landlord from liability for breach of lease, breach of the implied covenant of quiet enjoyment, rescission, and ordinary negligence. The lawsuit had arisen from the landlord’s alleged interference with the tenancy in remodeling the shopping center; the clause at issue stated that the landlord had no liability under “any circumstances” for breaches of the lease, and/or negligence for damages or injury arising from any cause in the areas of the shopping center outside the leased premises, or for injuries to the tenant’s business.

The lease was a “net lease”, which the court found ordinarily signals that the parties intended to transfer from the landlord to the tenants the major burdens of ownership of the real property over the life of the lease.

The lease at issue was a standard form agreement entitled “Standard Retail/Multi-Tenant Lease-Net”. While the court’s decision did not specify which form lease was utilized, in the commercial leasing field, it is quite common to use form leases which often contain similar types of exculpatory language.

This is an excellent case for commercial landlords. It is highly unlikely though that these types of exculpatory provisions would apply in a residential lease context.

Conversely, however, a decision of the Court of Appeal in Avalon Pacific – Santa Ana LP v. HD Supply Repair and Remodel LLC reached a decision that was not favorable for the landlord. In that case, the court found that the landlord could not recover costs of repair damages for the tenant’s breach of maintenance and repair obligations when the lease had neither expired nor been terminated. Similarly, the court found that when the lease will be in effect for an extended term, the landlord may only recover waste damages before the lease expiration of termination or a showing of substantial and permanent damage resulting in a reduced market value.

In other words, the court found that the time for a landlord to raise maintenance and repair damages (arising from the condition of the property) is when the lease expired, or was terminated from some action of the landlord, such as in an eviction action.

Tags: commercial lease, landlord, real estate, short sale.

California Participated in the Multi-Billion Dollar Settlement Over Wrongful Foreclosures

Published on February 9, 2012 by Patrick Guevara in Consumer, News and Real Estate. 0 Comments

In a press release today, California Attorney General Kamala Harris announced California’s participation in a nationwide settlement with the top five mortgage banks (Bank of America, Wells Fargo, Chase, CitiBank, and Ally) over wrongful foreclosures, robo-signing, and other mortgage servicing misconduct.

Calfornia’s settlement is valued at $18 billion. Unlike past mortgage crisis relief programs, the five banks have purportedly agreed to make principal reductions for California homeowners of at least $12 billion total. AG Harris also noted that the California settlement is unique from “the larger multistate agreement, which is enforceable in a federal court in Washington, D.C.,” in that the AG can enforce the settlement agreement in California state court. Also, the settlement does not include mortgage loans owned by the government sponsored enterprises (“GSEs”) Freddie Mac and Fannie Mae, which make up around 60% of residential mortgages nationwide.

AG Harris also took this opportunity to announce that she will propose “a comprehensive legislative agenda to protect homeowners in the mortgage market…including a single point of contact for mortgage-holders and an end to the unfair and confusing system of dual-track foreclosures.” These proposals are very relevant to the foreclosure cases I have recently worked on.

In a case before a federal court in San Francisco entitled Sohal v. Freddie Mac, we recently defeated the banks’ motion to dismiss. The primary issue was whether the foreclosing party, which sold the mortgage to Freddie Mac and merely acted as a servicer, had the standing and authority to foreclose on the property. Freddie Mac and Fannie Mae do not service loans so the point of contact of the loans they own are the servicers, who also typically originated the mortgage. While there have been numerous problems in dealing with the servicer, I don’t think a single point of contact will resolve the problem. The problem lies in the tangled web of ”back-end” contracts from the securitization of the mortgages. Servicers do not make the actual decisions. They have to obtain consent from the “investors.” Any proposed legislation should, instead, focus on properly define the roles, rights, and obligations of all parties in the transaction, including the originator, the servicer, the fictional “nominee” MERS, and the “investors.”

We also have a wrongful foreclosure action in state court involving dual-track. It’s not necessarily confusing. However, from the borrower’s point of view, it is certainly unfair that the lender can sue for foreclosure and at the same time go forward with a non-judicial foreclosure sale. The primary advantage for the lender (in addition to forcing the borrower to incur additional attorneys fees to deal with both proceedings) is that the lender can request the Court to appoint a receiver to collect rents if there is an assignment of rents. California’s nearly century old non-judicial foreclosure scheme was intended by the legislature to provide a streamlined process while balancing the interests of both the lender and borrower. The trend has been and continues to be in favor of lenders. Courts are unlikely to reverse this trend, so ultimately it will be up to legislative action to re-balance California’s foreclosure scheme. With the public backlash and the revitalized momentum of the recent settlements, foreclosure law should have very interesting year or two.

EQUITABLE EASEMENTS IN CALIFORNIA

Published on June 23, 2011 by NHargiss in Real Estate. 0 Comments

An easement is a non-possessory interest for the use of real property that belongs to another for some specific purpose. The most common easement is for ingress and egress (road access to the property), but easements can also be obtained for utility lines, windmills, logging, hunting rights, and even scenic views. Easements can be public (granted for public access to beaches or other public areas) or private (granted to a person for individual privileges.) It is not a fee interest in the land, but it is a right to an ownership interest and has an inherent value (particularly if it runs with the land, i.e. is transferable to future owners.) Indeed, easement rights are sometimes purchased for valuable consideration.

There are several types of easements: Continue reading ‘EQUITABLE EASEMENTS IN CALIFORNIA’

Free Speech Considerations in Commercial Real Estate

Published on June 17, 2011 by LBaxter in Business and Real Estate. 0 Comments

Owners and tenants entering into shopping mall or other commercial leases must cover many deal points in the lease documents. One issue that may get overlooked concerns free speech rights.

The general rule is that shopping malls must allow free speech protests within the visual and aural range of the targeted business, when the mall is open to the public. Current law requires a shopping mall to provide more access to public expression than stand-alone stores. This is because malls are more of a public meeting place than stand-alone stores. One recent court opinion signalled (without holding) that this rule may change. In the future, the distinction between malls and, say, big box stores which provide a public seating area, may blur. In the future, courts in California may look at the scope and nature of the public space offered by a store, to determine the scope of public expression.

A mall owner can create lease restrictions on speech and expression, but any restrictions on time, place and manner must be content-neutral. For example a court recently held that the rules for a Southern California mall unconstitutional; the rules were not content-neutral because they treated labor protests differently from other types of speech. The mall’s argument that the rules were constitutional, because they didn’t restrict the content of the labor protests, did not impress the court.

Retail property owners and tenants would do well to pay attention to free speech and expression rights and restrictions in their leases and rules. Reviewing the constitutionality of such lease terms and updating problematic language may prevent a constitutional legal battle in the future.

Leslie Baxter is a Partner at Randick, O’Dea & Tooliatos, LLP; she is an author of “California Real Estate Brokers Law and Litigation,” published by Continuing Education of the Bar.

Are You a Fiduciary? Are You Sure?

Published on April 26, 2011 by LBaxter in Real Estate and Uncategorized. 0 Comments

California law describes a broad definition of fiduciary, involving trust, confidence, and good faith between a principal and their agent. In a recent case, however, the federal bankruptcy court construed fiduciary capacity in a different and significantly narrower manner, with dramatic results.

In a holding at odds with other bankruptcy cases, a bankruptcy court recently held that a debtor’s status as a California real estate agent was insufficient to show that she stood in a ‘fiduciary capacity.” That holding allowed the agent, who had filed a Chapter 7 bankruptcy, to discharge a $356,000 state court judgment, awarded to her client, a potential real estate buyer. The California state court jury had found that the agent negligently and intentionally breached here fiduciary duty to the buyer, by misrepresenting the purchase agreement and falsely informing the seller that the buyer could not satisfy the financing requirements. While the jury found that the buyer was entitled to the $356,000 damage award, the bankruptcy court said no; under the federal bankruptcy statues, the agent was not acting in a fiduciary capacity because she did not hold property in trust for her client, the buyer. Thus, a damage award that may otherwise have been nondischargeable in bankruptcy because of the debtor’s fraud was found to be dischargeable.

Real Estate Agents in Bankruptcy

Under this holding, California real estate agents who negligently or intentionally breach their fiduciary duties may find refuge in bankruptcy court, where they may be able to avoid and discharge judgments against them. Even if no judgment is rendered, the settlement of high value disputes concerning brokers and agents may be influenced by the possibility that the insolvent wrongdoer will seek to discharge the debt in bankruptcy. In the future, the holding may extend to other types of fiduciaries as well.

Attorney’s Advice Can Maximize Outcomes

Conflicts in the law sometimes arise between federal and state courts. The law is sometimes more fluid than solid. An aggrieved party must look beyond the mere fact that they were wronged and, with competent counsel, broadly evaluate the chances of achieving and collecting a monetary judgment.

Leslie Baxter is a Partner, practicing Real Estate and Business Law at Randick, O’Dea & Tooliatos, LLP; she is an author of “California Real Estate Brokers Law and Litigation,” published by Continuing Education of the Bar.