RE: SUMMARY OF NEW LAW 2013
RE: SUMMARY OF NEW LAW 2013
The following is a summary of interesting case law and statutory law enacted in year 2012 concerning the real estate industry. More detail is available on my website at www.fehlmanrealestatelaw.com.
CASE LAW
DON’T HIRE UNLICENSED CONTRACTORS.
Gravelin v. Satterfield (2011) 200 Cal.App.4th 1209. Beware that unlicensed contractors are considered to be employees of the homeowner. This means that the homeowner is liable for any injuries to the unlicensed contractor doing work at their home.
To make matters worse, most homeowners’ insurance policies exclude claims by unlicensed contractors. This means that the homeowner is personally liable for any injuries sustained by the unlicensed person at the property.
On the other hand, independent contractors (i.e. licensed contractors) and their employees cannot sue a homeowner for injuries caused at their home.
Agents, brokers and owners should only hire licensed contractors to rehab their properties.
THINK TWICE ABOUT SUING YOUR HOA.
Salehi v. Surfside III Condominium Owners Association (2011) 200 Cal.App.4th 1146. Homeowners who sue their HOA for breach of CC&R’s need to remember that they will owe the HOA its attorney fees if they lose.
Civil Code section 1354 allows the HOA to recover its attorney fees against the homeowner on any action to enforce the CC&R’s. The HOAs are wasteful by nature and incur excessive attorney fees at every corner.
In the Salehi case, the homeowner sued the HOA for failure to maintain common areas. The homeowner lost her case, and the HOA was awarded $250,000.00 in attorney fees.
You better win if you choose to sue your HOA.
CANNOT SET ASIDE FORECLOSURE SALE WITHOUT TENDERING FULL PAYMENT.
Stebley v. Litton Loan Serving (2011) 202 Cal.App.4th 522. Courts will generally not unwind a foreclosure sale based upon “technical mistakes” unless the homeowner tendered full payment to the lender before the sale date.
Civil Code section 2923.5 requires the lender to explore options with the homeowner prior to conducting a foreclosure sale. However, courts refuse to set aside foreclosure sales even when the lender violates the law and fails to contact the homeowner unless the homeowner tendered full payment to the lender before the foreclosure sale.
I get calls all the time by homeowners wanting to sue their lender to unwind the foreclosure sale. These cases go nowhere unless the homeowner tendered full payment, which most simply cannot do.
FAILURE TO CONFIRM AGENCY LEADS TO JURY TRIAL.
Duncan v. The McCaffrey Group, Inc. (2011) 200 Cal.App.4th 346. In this case, the listing broker representing the developer accidently checked both boxes on the RPA representing buyer and seller.
The development was originally sold as executive housing. The developer changed the CC&R’s to allow low end housing. Buyer than sued the developer for fraud and the listing broker for breach of fiduciary duty. Remember, the listing agent never actually represented the buyer.
Although the listing broker only represented the developer, the court allowed the case to proceed to a jury trial based upon this simple mistake of checking both boxes.
It is critical that you clearly document whether you represent buyer, seller or both.
REFUSING MEDIATION RESULTS IN LOSS OF ATTORNEY FEES.
Cullen v. Corwin (2012) 206 Cal.App.4th 1074. This case makes clear that a buyer or seller who refused to mediate will not be entitled to recover their attorney fees even if they ultimately prevail at trial.
The RPA requires all buyers and sellers to mediate (paragraph 26A) their disputes before resulting to litigation. Mediation is required even if the parties did not sign the arbitration provision (paragraph 26B).
Remember, the RPA was revised last year to allow the broker to enforce mediation and arbitration against a buyer and/or seller. Upon learning of a dispute, the broker should immediately respond with a written demand for mediation and arbitration. This will prevent the complaining party from immediately proceeding with litigation against the broker.
Mediation is required for all parties before litigation.
GUARANTORS REMAIN LIABLE FOR DEBT AFTER FORECLOSURE.
Gray1 CPB, LLC v. Kolokotronis (2011) 202 Cal.App.4th 480. Generally, one who guarantees payment of a loan secured by real estate has no defense to the lender’s action for payment.
This means that guarantors are not entitled to rely on the anti-deficiency or single action rule defenses and remain liable for all of the lender’s losses regardless of whether the lender has foreclosed.
Think twice before you guarantee anyone’s loan.
STATUTORY LAW
LANDLORD/TENANT; NOTICE OF DEFAULT.
Effective January 1, 2013, every landlord must disclose in writing to any prospective tenant that a Notice of Default has been recorded against the property. Failure to comply allows the tenant to terminate the lease and recover damages.
If the agent knew of the Notice of Default, then the agent also has an affirmative obligation to disclose the Notice of Default to the prospective tenant. The agent is also liable for damages to the tenant if the agent fails to disclose the Notice of Default.
LANDLORD/TENANT; TENANTS’ RIGHTS AFTER FORECLOSURE.
Effective January 1, 2013, a tenant in possession on the date of foreclosure can remain in the property until the end of his/her lease term. This means that if your client purchased an REO property, and that property has an existing tenant, then your buyer cannot evict that tenant until the lease expires.
There are some exceptions. For example, buyer can terminate the lease if: (1) buyer intends on occupying the property; (2) tenant is the prior owner’s spouse, child or parent; (3) the lease is not the result of an arm’s length transaction; or (4) the lease requires rent that is substantially less than market value.
Otherwise, your buyer is stuck with the tenant.
MODIFIED “2 IN 5” RULE.
This is not new law, but is certainly worth revisiting. In the past, an owner of rental property could make the property their primary residence for two (2) years, sell it and exclude up to $500,000.00 in gain from income tax. This was commonly known as the “2 in 5” rule.
This rule changed in 2008. Owners are now only entitled to exclude the “percentage” of ownership time that the property was used as a primary residence from income tax. For example, assume that an owner owns a residence for ten years. If that owner rented the property for eight (8) years and then claimed it as a primary residence for the last two (2) years, then the maximum exclusion is only $100,000.00 (not the entire $500,000.00 as under the old rule).
Any owner selling a rental property should seek advice of their CPA to determine their additional tax liability caused by this change in the “2 in 5” rule.
RESIDENTIAL SHORT SALES; CIVIL CODE SECTION 580E.
This is not new law, but is certainly worth revisiting. Effective June 1, 2011, all Trust Deed lenders waive the right to deficiency as a condition to approving any short sale involving a residential transaction.
Lenders no longer have a right to deficiency following short sale. This applies regardless of whether the loan is recourse or non-recourse, and regardless of whether the property is owner or non-owner occupied.
