RE: EASEMENT TERMINOLOGY
Posted on May 29, 2013 Leave a Comment
RE: Easement Terminology
I am receiving more calls this year regarding easements than at any time in the past. This article is intended to be instructive as to the types of easements that you are likely to see in California.
Easements Generally.
Easements take on a variety of forms. There are utility easements for gas, electric and telephone. Other easements are between neighbors to protect views or allow access for ingress or egress.
An easement is a right to use land that belongs to someone else. Easements are referred to as either Affirmative or Negative. An Affirmative easement allows a particular use on property while a Negative easement prevents a particular use on property.
For example, a Negative easement can be used to prevent a homeowner from building on his property in a way that interferes with the view of neighbors (i.e. a view restriction). An Affirmative easement, for example, can be used to allow one to use a portion of his neighbor’s lot as a driveway to access his lot (i.e. an ingress/egress easement).
Easements are also classified as being either Appurtenant or In Gross. An Appurtenant easement transfers with title and benefits the property. An In Gross easement does not transfer with the title and benefits an individual, not the property.
An example of an Appurtenant easement would be a right of way easement over another’s land. An example of an In Gross easement would be the right of an individual to take water, timber or minerals from another’s land.
Most easements in residential settings are Appurtenant-Affirmative easements.
Creation of Easements.
Easements are created by grant, reservation or court order. An easement created by grant is created by a recorded Deed and shows up on the title report. An easement created by reservation is also created by a recorded Deed but arises when an owner of two adjacent properties transfers one and reserves an easement in the Deed.
Easements by Prescription and Necessity are generally created by court order. A person seeking to enforce an Easement by Prescription or Necessity will file a lawsuit and request that the court issue an order confirming the easement. The order can then be recorded in the county recorder’s office and the easement will then reflect on the title report.
The differences between easements by Prescription and Necessity are explained below.
Easement by Prescription (Prescriptive Easement).
A prescriptive Easement is implied by law based upon prior use. A prescriptive easement is similar to adverse possession and arises from unauthorized use of another’s property for five (5) years.
A prescriptive easement requires: (1) continuous use for a period of five (5) years; and (2) possession in a manner that was open, notorious, and clearly visible to the owner of the burdened land.
A prescriptive easement generally arises when one property owner uses a portion of a neighbor’s property to access a garage, backyard or side yard. For example, I have a client who has been using 3’ of his neighbor’s land as a driveway to access his garage in the back of the house. After five (5) years, my client acquired prescriptive easement rights and the neighbor cannot prevent him from using the land in the same manner in the future.
Even if you haven’t used the disputed land for five (5) years, you may still qualify if a prior owner also used the disputed land. The concept is known as “tacking”. You can tack onto the use of prior owners to reach five (5) years of continuous use.
A prescriptive easement is defeated with consent. Oftentimes, you will see a stamp on a driveway which states “use of this driveway is with consent of the owner”. The Claremont Colleges have this posted all over campus to defeat any claims of prescriptive easement.
Unlike adverse possession, you can establish a prescriptive easement without paying any property taxes for the disputed property.
Prescriptive easements are commonly argued in residential boundary disputes.
Easement by Necessity.
An easement by necessity is implied by law when it is “absolutely necessary” to access a landlocked parcel.
Easements by necessity require that: (1) both parcels (front and back parcels) were originally owned by the same person; and (2) one parcel became completely landlocked as a result of conveyance by the common owner (i.e. the owner sold the back parcel).
Easements by necessity often arise when an owner of two adjacent parcels sells the back parcel which is landlocked. Since the only access is over the front parcel, the court will imply an easement by necessity in favor of the back parcel for ingress and egress.
An easement by necessity only exists when strictly necessary for access. Once there is another access, such as a new road by the back parcel, then the easement automatically terminates.
In practice, an easement by necessity is limited and only applies to landlocked parcels.
Summary.
In summary, easements are created by: (1) grant in a Deed; (2) reservation in a Deed; (3) prescription (i.e. continuous use for five (5) years); and (4) necessity (i.e. landlocked parcel).
RE: SUMMARY OF NEW LAW 2013
Posted on January 10, 2013 Leave a Comment
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.
RE: BUYER/SELLER CANCELLATION RIGHTS
Posted on November 13, 2012 Leave a Comment
RE: Buyer/Seller Cancellation Rights
Buyer and Seller each have a limited right to cancel a pending transaction when the other party fails to perform.
Neither party can cancel until a Notice to Buyer to Perform (“NBP”), Notice to Seller to Perform (“NSP”) or Demand to Close Escrow (“DCE”) has been sent to the other party.
Cancellation rights are controlled by Paragraphs 14A through 14F in the RPA.
Seller’s Right to Cancel
Seller cannot cancel any transaction without first delivering to Buyer a Notice to Buyer to Perform (14B) or a Demand to Close Escrow (14E).
The RPA requires Buyer to make the initial deposit within three (3) days, provide preapproval letter within seven (7) days and provide verification of closing funds within seven (7) days. If Buyer fails to do any of these tasks, then Seller can only cancel after first delivering a NBP to the Buyer.
The RPA also requires Buyer to remove all contingencies within 17 days of the contract date. Contingencies include appraisal, financing, inspection, title report and approval of all disclosures.
If Buyer fails to remove contingencies, then Seller must deliver a NBP to the Buyer. If the Buyer ignores the NBP and fails to remove contingencies within 24 hours, then Seller can: (1) terminate immediately; or (2) proceed in hopes that Buyer will eventually close. If Seller elects to proceed without requiring Buyer to remove contingencies, then be advised that Buyer can cancel up until the closing date and get his deposit back.
Paragraph 14B(4) states:
“Continuation of Contingency. Even after the end of the time specified in 14B(1) and before Seller cancels this Agreement, if at all, pursuant to 14C, Buyer retains the right to either (i) in writing remove remaining contingencies, or (ii) cancel this Agreement based upon a remaining contingency or Seller’s failure to Deliver the specified items. Once Buyer’s written removal of all contingencies is Delivered to Seller, Seller may not cancel this Agreement pursuant to 14C(1).”
Listing agents should obtain an informed written consent from the Seller if the deal proceeds without Buyer removing contingencies. Seller would acknowledge in the informed consent that the agent has advised that Buyer can cancel up to the closing date and get his deposit back, and agree to hold the agent/broker harmless from any loss caused by last minute cancellation.
The burden of demanding that Buyer remove contingencies is on the listing agent and your Seller will blame you if Buyer cancels at the last minute.
Buyer’s Right to Cancel
Buyer cannot cancel any transaction based on Seller’s default without first delivering either a Notice to Seller to Perform (14A) or a Demand to Close Escrow (“DCE”).
The RPA requires Seller to deliver all required disclosures, reports and information within seven (7) days of the contract date (“Required Disclosures”).
Required Disclosures include the Lead Based Paint Disclosure, Transfer Disclosure Statement, Natural Hazard Disclosure Statement and Supplemental Tax (Mello-Roos) Disclosure (6A-C). Required Disclosures also include information required by Paragraph 4, 7(A), 9(A), 11(A)-(B), and 12 such as inspection reports, HOA documents, pest insurance claims, preliminary title report and any disclosure specified by Paragraph 11 of the RPA.
If Seller fails to deliver any of the Required Disclosures, then Buyer should give Seller a Notice to Seller to Perform (“NSP”) prior to cancelling. If Buyer delivers a NSP and Seller still fails to deliver the required disclosures, then Buyer can: (1) terminate; (2) proceed reserving the right to cancel based upon the disclosures at a later time; or (3) sue for specific performance.
I advise that it is in Seller’s best interest to deliver all Required Disclosures as soon as possible. If Seller delays delivery of any Required Disclosure, then Buyer simply gets more time to cancel. Regarding late disclosures, Paragraph 14(B)3 states in part:
“However, if any report, disclosure or information for which Seller is responsible is not Delivered within the time specified in 14A, then Buyer has 5 (___) Days After Delivery of any such items, or the time specified in 14B(1), whichever is later, to Deliver to Seller a removal of the applicable contingencies is Delivered to Seller. Seller may not cancel this Agreement pursuant to 14C(1).’
For example, if Seller delays delivery of the Transfer Disclosure Statement until five (5) days prior to close of escrow, then Buyer can disapprove the late disclosure on the closing date and get his deposit back.
Close of Escrow
If a Buyer or Seller refuses to close on the closing date, the transaction cannot be cancelled until after the performing Buyer or Seller first delivers a Demand to Close Escrow (“DCE”) to the other party.
Paragraph 14E provides:
“Close of Escrow. Before Seller or Buyer may cancel this Agreement for failure of the other party to close escrow pursuant to this Agreement, Seller or Buyer must first Deliver to the other a demand to close escrow (C.A.R. Form DCE).”
California Association of Realtors introduced the DCE form in 2005. Its introduction was necessary because the NBP form when used by a Seller to Demand Close of Escrow inadvertently gave the Buyer the option to cancel at the last minute and get his deposit back even when all contingencies had been removed.
The DCE form requires the performing party to allow three (3) days to expire before cancelling. If the performing party wants to give less time, the DCE form can be modified to provide for less notice (i.e. 24 or 48 hours). There is no reason why the DCE cannot be served three (3) days prior to the closing date to assure timely performance by the Buyer.
It is critical that the listing and selling agents both understand that neither can cancel based upon failure of a Buyer or Seller to close escrow until the DCE form has been sent and the time for response has expired.
Any party that cancels without first delivering a DCE form to the other party is in breach of the Agreement.
Summary
Anytime a Buyer or Seller cancels, your transaction file must contain either a NBP, NSP or DCE.
DEBT RELIEF ACT
Posted on October 1, 2012 Leave a Comment
RE: MORTGAGE FORGIVENESS DEBT RELIEF ACT (RECENT EXTENSION)
I have received many recent questions about whether Mortgage Forgiveness Debt Relief Act (“Debt Relief Act”) would be renewed before its extension on December 31, 2012.
The Debt Relief Act spares homeowners who receive debt cancellation following foreclosure, short sale or loan modification from paying federal income tax on the forgiven debt.
Under the federal tax code, all debt forgiveness is taxed as ordinary income. Without the Debt Relief Act, a homeowner who owes $500,000.00 and short sales his home for $200,000.00 will owe an ordinary income tax on the $300,000.00 difference.
The Senate Finance committee recently approved a bipartisan bill which extends the current Debt Relief Act through December 31, 2013. Limit is $2 million in debt cancellation for a married couple filing jointly and $1 million for single filers.
Although originally doubtful that the current fractured committee could agree on anything, the extension was approved thanks to significant lobbying by the National Association of Realtors®.
The extension is expected to move to the full senate for approval after the election. All indications are that it will pass and the Debt Relief Act will remain law through 2013.
Your clients should seek counsel from their CPA for a full explanation.
RE: MODIFIED HOME SALES EXCLUSION (A.K.A. THE 2 IN 5 RULE)
Homeowners who sell their primary residence can exclude up to $500,000.00 in gain from income tax. This rule has become known as the “2 in 5 rule” whereby the exemption applies if a homeowner used any property as his “primary residence” during 2 in the last 5 years.
The rule changed upon passage of the Housing Assistance Act of 2008 (H.R. 3221). Under the so-called Assistance Act, the amount of profits from the sale of a residence that can be excluded is now based upon the “percentage” of time that the residence was used as a primary residence.
A determination of the “percentage” is based upon an allocation of qualifying and non-qualifying use of the residence. Qualifying use is when the property is being used as a “primary residence” by either one or both spouses.
Non-qualifying use is when the property is being used as a rental, second home, vacation home or left vacant. For the purpose of calculating the tax, a non-qualifying use is any period that the property is not used as a primary residence on or after January 1, 2009. Non-qualifying use prior to January 1, 2009, is disregarded.
For example, assume that a married couple purchased a house as their primary residence on January 1, 2009. They moved out of the house and rent it out for two years between January 1, 2001 and January 1, 2013. They sell the house on January 1, 2013.
Under this example, the couple owned the house for four years. Because they rented it for two out of the four years of ownership, they only get 50% of the exemption. In other words, they get only $250,000.00 (not $500,000.00) of the exemption (50% x $500,000.00 = $250,000.00).
The amount of available exemption under the new rules is the “number of years/months of non-qualifying use = number of years/months of ownership”.
The take-home message is that once owners chose to rent their property, they will never qualify for the entire $250,000.00/$500,000.00 exemption.
Your clients should seek counsel from their CPA for a full explanation.
RE: STEP-UP BASIS & REASSESSMENT
Posted on August 23, 2012 Leave a Comment
RE: STEPPED-UP BASIS & REASSESSMENT
I have recently been asked to explain the difference between a “stepped-up basis” in value and “reassessment” relating to the gift or inheritance of real property.
Stepped-Up Basis
A “stepped-up basis” is a “capital gain” tax issue. Any property that you acquire has a basis or value regardless of whether you get title by purchase, gift or inheritance.
When you purchase a property, the basis or value is generally the purchase price. When you acquire a property by gift or inheritance, the basis or values are determined differently.
When you resell a property, you make a profit, post a loss or break even. If you make a profit, then you sold the property for more than its original basis and that profit is generally subject to a “capital gain” tax.
This article only concerns properties acquired by gift or inheritance.
1. Inherited Property.
Property that is inherited generally gets a “stepped-up basis” in value. A stepped-up basis means that if you inherit property, the new tax basis of the property is its value on the date of death.
For example, assume that a daughter inherits a residence worth $410,000.00 at her mom’s death. Her mom originally paid only $10,000.00 for the property in 1960. The daughter gets a “stepped-up basis”, which means that the new tax basis would be the value of the property on the date of mom’s death.
When the daughter resells the property, she will only owe a tax on the gain in excess of $410,000.00. She will not owe any tax on the difference between the original purchase price paid by mom and the value at date of death.
If you inherit property and later resell it, you will pay “capital gain” tax based only on increases in value in excess of the value at date of death.
2. Gifted Property.
If a property is gifted during the owner’s lifetime, then the beneficiary does not get a “stepped-up basis” in value. This means that the beneficiary will owe a “capital gain” tax on sale based on the amount originally paid by the grantor.
For example, assume a mom deeds the same residence to her daughter one week before her death. The daughter does not get the “stepped-up basis” because the property was not inherited.
When the daughter sells the property, she will owe a capital gain tax on $400,000.00 in gain ($410,000.00 (value at mom’s death) minus $10,000.00 (mom’s original purchase price) = $400,000.00) in addition to any gain in excess of $410,000.00.
In other words, if you are gifted property during the grantor’s life and later resell it, you will pay “capital gain” tax on all amounts in excess of the original purchase price.
Any contemplating gifting property during their lives should consult their CPA prior to executing the deed.
It is generally better to inherit than to receive gift property.
Reassessment
A “reassessment” is a property tax issue. The Assessor in the County where a property is located generally has a right to reassess any property to market value upon transfer. The amount of property tax due is based upon this reassessed value.
Certain transactions are exempt from reassessment. Transfers between parents and children are exempt from reassessment. Transfers between grandparents and grandchildren are only exempt if the parents are deceased on the date of the transfer. CA Rev & Tax Code §63.1.
These exemptions apply only to a primary residence and the first $1 million of real property other than the primary residence. In other words, the exclusion from reassessment is limited.
To qualify for the exemption, a claim form must be filed with the Assessor within three (3) years of the transfer or prior to the transfer of the property to a 3rd party, whichever is earlier. If a claim is not filed timely, then the exemption will not be granted (if at all) until the beginning of the next year.
The best procedure is to file the claim form at the same time as you record the Deed.
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ELECTRONIC RECORDS
Posted on June 27, 2012 Leave a Comment
RE: ELECTRONIC RECORDS
I have received several recent calls asking: (1) how long a broker is required to retain records; and (2) is a broker required to retain the original records once converted to electronic files.
Here is a summary of the general recommendations.
Electronic Files.
Business & Professions Code §1014(a) requires the broker to retain all listings, deposit receipts, cancelled checks, offers, contracts and other documents for which a license is required for three (3) years from the date of closing or termination.
The broker does not need to retain the original files once they are converted to electronic files so long as the conversion complies with Title 10, Chapter 6, Reg. 2729. Reg. 2729 allows a broker to store their files on electronic media if the following terms are met:
1. The electronic files must not be able to be erased or changed;
2. The electronic record must provide for ready access to each document;
3. The electronic record must be viewable from the broker’s office (i.e. not from an off-site storage facility); and
4. The electronic files must be converted from the original record at the broker’s office.
Although Business & Professions Code §10148(a) requires retention for three (3) years, the statute of limitations on some causes of action do not expire for four (4) years. I recommend that the broker keep transaction files for at least four (4) years.
The broker does not need to retain the original records once they have been converted to electronic files.
Tax Returns.
Keep copies of tax returns for seven (7) years. The IRS has three (3) years from the date you file to audit your return if it believes that you made a mistake. It has six (6) years to audit you if it believes that you underreported your gross income by 25% or more. It has no statute of limitations to audit a “fraudulent” return.
IRA, Retirement and Savings Records.
Keep copies for all contributions permanently. You may need to prove why you are not required to pay tax when you begin to withdraw it during retirement.
Bank Records.
Keep monthly bank statements for seven (7) years. Keep checks relating to taxes, business expenses, mortgage payments and home improvements permanently. All other checks can be shred annually at your discretion.
Home Improvement Records.
Keep documents related to your purchase and sale of real estate for at least six (6) years. Keep home improvement records permanently. The expenses will reduce your capital gains tax when you sell.
Bills.
Bills can generally be shred once you receive a canceled check or statement showing that the payment has cleared. This is true for electric, gas, telephone, credit card, car payment and other revolving debt or consumable transactions.
Receipts.
Receipts for larger items such as appliances, jewelry and collectibles should be kept permanently in case you need to prove value in the event of an insurable loss. Receipts for items under warranty should be kept at least until the warranty expires.
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WHEN IS THE TRANSFER DISCLOSURE STATEMENT REQUIRED?
Posted on June 12, 2012 Leave a Comment
RE: WHEN IS THE TRANSFER DISCLOSURE STATEMENT REQUIRED?
The Real Estate Transfer Disclosure Statement (“TDS”) is required any time an interest in Residential Property is sold. Residential Property is defined as real property “consisting of not less than one nor more than four dwelling units”. (Civil Code §1102(a).
The TDS is generally not required for standard residential leases, but applies to standard purchase agreements, land sale contracts and residential leases with an option to purchase. It also applies to ground leases which include one to four dwelling units. Civil Code §1102(a).
Certain Residential Property transactions are exempt from the TDS requirement. The following is a brief list of residential transactions that do not require the seller to complete a TDS (see Civil Code §1102.2):
- any transfer by Court Order including, but not limited to, transfers by probate order, transfers, by bankruptcy order, transfers by family law order, transfers by writ of specific performance (i.e. Buyer sues Seller to enforce purchase agreement);
- any transfer by a lender who acquired title by judicial foreclosure,
trustee sale or deed in lieu which includes most REO transactions;
- any transfer by an executor, guardian or trustee in the exercise of their fiduciary duties in administering a decedent’s estate, guardianship or trust. This exemption does not apply if the executor, guardian or trustee is the former owner or lived in the property during the past 12 months (i.e. trustee of a revocable or family trust);
- any transfer between joint tenants, tenants in common or other co-ownership arrangement; and
- any transfer between spouses.
Contrary to popular myth, corporate Buyers who flip Residential Properties are not exempt from providing a TDS. Investors must complete a basic inspection and complete the TDS to the best of their ability.
Even if your Seller is exempt from providing a TDS, the agent still owes a duty to conduct a reasonable diligent visual inspection and disclose any material defects (i.e. “Red Flags”), which affect value or marketability.
The agent must conduct a visual inspection of every Residential Property and document any Red Flags or similar disclosure. Remember, the visual inspection is only as good as the documentation. This means take pride in completing your AVID and document each Red Flag as accurately as possible.
The take-home message is that the agent still has an inspection obligation even if the Seller is exempt from completing a TDS.
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RE: UTILITIES (RPA PARAGRAPH 10C)
Posted on May 17, 2012 Leave a Comment
RE: UTILITIES (RPA PARAGRAPH 10C)
1. The RPA Requires Seller to Keep Utilities on for Inspection.
The RPA requires your Sellers to have utilities turned on at the property through the date possession is turned over to the Buyer. I get calls every week from Sellers who are surprised to learn that they are in breach of contract because the utilities at the property have been turned off.
Specifically, Paragraph 10(c) states:
“Seller shall have water, gas, electricity, and all operable pilot lights on for Buyer’s investigations and through the date possession is made available to Buyer.”
This requirement is often a problem for short sale Sellers who have moved out of the property and cannot pay to keep the utilities on. Many short sale Sellers have had their utilities turned off by the utility company, owe a substantial amount in back charges and cannot afford to have them turned back on for the inspection.
If you represent a short sale or other Seller who cannot keep utilities on, then you need to address this issue by counter offer at the time the contract is made. If this issue is not addressed by counter offer, then your Seller will be in breach of the RPA if he/she cannot keep the utilities on for Buyer’s inspections and through the date of possession.
2. The Agent is Liable for All Damage if he/she Turns Utilities On.
Can the agent turn on the utilities in his/her own name? This is a bad idea for the following reason. The agent is liable for any personal injury or property damage that occurs when they turn the utilities back on.
For example, I had an agent in Orange County turn on the water for an inspection. The refrigerator had been removed by the Seller, and the water line to the ice maker was left on. When the water was turned on, the kitchen was flooded causing $20,000.00 in damage. The agent was liable for this damage.
For another example, an agent in San Francisco turned on the electricity for an inspection. There was a short in the wall, which resulted in a fire, which destroyed the property before the agent showed up for the inspection. The agent was again liable for the cost to repair the damage.
3. Recommendations.
Determine if the Seller can keep the utilities on at the time you take the listing. If your Seller cannot afford to keep the utilities on, then negotiate that term out of the contract by counter offer.
Under no circumstances should the agent/broker turn on the utilities. The agent/broker will be liable for all damage caused if they turn on the utilities (i.e. flooding, fire, gas leaks, personal injury, etc.).
If the Buyer elects to turn the utilities on, then the agent/broker must require the Buyer to sign a disclosure holding the agent/broker harmless from any personal injury or property damage caused by turning on the utilities.
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HOME INSPECTION DISCLOSURE
Posted on April 27, 2012 Leave a Comment
RE: HOME INSPECTION DISCLOSURE
Brokers who refer home inspectors could be liable to the buyer for damage caused by a negligent
inspector.
If the broker has a list of home inspectors that it refers, then assure that those inspectors are (1) a
member of either ASHI or CREIA and (2) have Errors & Omissions Insurance.
Consider the following language for your Home Inspection Disclosure which buyer should sign
and which should become part of the transaction file:
“Buyer is responsible for selecting a home inspector. Buyer may choose any home
inspector and is not limited to an inspector referred by broker. Buyer is strongly advised
to conduct due diligence as Buyer deems necessary prior to choosing a home inspector.
It is Buyer’s responsibility to assure that his/her home inspector has adequate errors
& omissions insurance.
Broker does not endorse or recommend any particular home inspector or home inspection
service. Broker does not guarantee the work of any particular home inspector or home
inspection service. Broker makes no representation or warranty that any particular home
inspector or home inspection service will perform competently.
I, (Buyer), acknowledge receipt of this disclosure and understand its importance.
Date: _______ _ Sign: __________ “
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MEDICAL MARIJUANA
Posted on April 27, 2012 Leave a Comment
RE: MEDICAL MARIJUANA
The Compassionate Use Act (Prop 215) as Amended by Senate Bill 420 are collectively the
California Medical Marijuana Laws. CUA offers the owner/lien holder some protection, but only
if the law is followed to the letter. If there is any violation, then California has a right to seize
the property.
The Controlled Substance Act is the Federal Law regulating marijuana. Part 21 USC §88l(a)(7)
of the Act allows the federal government to seize any property where marijuana is found.
Federal law recognizes an “innocent owner defense”, which allows an owner or lien holder to
retrieve their investment if they can prove that they knew nothing about the marijuana.
California law and Federal law are in conflict. Federal law has a zero tolerance provision and
preempts California law. Even if the use complies to the letter with CUA, the property can still
be seized by the Federal government.
Federal enforcement is on the rise. In the last six months, the DEA sent out thousands of letters
to owner/lien holders regarding illegal use of marijuana. I have represented several owners
seeking advice on leasing to persons either using for personal use or wanting to operate medical
marijuana facilities. The risk is simply too high in the current environment.
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