TRUSTEE SALE vs. JUDICIAL FORECLOSURE
Posted on April 27, 2012 Leave a Comment
RE: TRUSTEE SALE vs. JUDICIAL FORECLOSURE AND RELATED DEFICIENCIES
I have received several recent questions concerning the difference between a Trustee Sale and
Judicial Foreclosure Sale, as well as the difference between Purchase Money Loans and Non-Purchase
Money Loans.
A foreclosing lender under California law has two options: Trustee Sale or Judicial Foreclosure.
1. Trustee Sale.
If the lender sells the property by Trustee Sale, then the lender cannot obtain a deficiency
judgement against the debtor regardless of whether the property is residential or “purchase
money.” This is the most common method of foreclosure in California. Civil Code §580d.
2. Judicial Foreclosure.
A judicial foreclosure is when a lender sues in court to foreclose the loan. The court will
authorize sale of the property. The lender will be entitled to recovery of the deficiency. The
debtor will have a right of redemption discussed below.
Purchase Money Loans.
California treats purchase money loans against residential property differently.
A Purchase Money Loan is a loan where all proceeds were used to purchase the residence. If the
original loan was structured as an 80/20 loan, and both loans were used to fund the original
purchase, then both loans are considered Purchase Money.
If the loan is “purchase money” and the property is residential (i.e. 1 to 4 residential units), then
the commercial lender has no right to a deficiency against the debtor regardless of whether the
lender proceeds with trustee sale or judicial foreclosure.
Non-Purchase Money Loans.
Refinance Loans are considered Non-Purchase Money or Recourse Loans.
A lender can proceed by judicial foreclosure and recover a deficiency on refinance loans
regardless of whether the property is residential, commercial, industrial or other. If the lender
elects to foreclose by Trustee Sale, then the lender will have no right to recover any deficiency.
Seller Financed Loans.
California law treats seller financed loans differently than bank loans.
If the loan is “purchase money” using seller financing (i.e. no bank), then the seller has no right
to a deficiency against the debtor regardless of whether the property is residential, commercial,
industrial, vacant land or otherwise.
A Seller who provides financing for the buyer never has the right to a deficiency judgment and
are stuck with the property as sole security for the loan.
Seller financing can be dangerous for the Seller.
Statutory Right of Reinstatement.
A debtor can reinstate a loan and “cure” the default by payment of all delinquent payments
including late fees, interest, and costs at any time until five (5) business days prior to the sale date in
the case of a Trustee Sale.
A debtor can reinstate a loan and “cure” the default by payment of all delinquent payments
including late fees, interest, and costs at any time prior to entry of the order of foreclosure in the
case of a Judicial Foreclosure.
Statutory Right of Redemption.
The term Right of Redemption refers to the debtors right to recover the property after a judicial
foreclosure sale. A debtor has a limited right to repurchase the property after a Judicial
Foreclosure by paying all delinquent payments including late fees, interest, and costs.
There is no Right of Redemption following a Trustee Sale.
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CLOSING ESCROW WITHOUT DISCLOSURES
Posted on April 25, 2012 Leave a Comment
RE: CLOSING ESCROW WITHOUT DISCLOSURES
Can An Agent Close Escrow Without An Agency Disclosures?
Civil Code §2079.15 allows an agent to close a residential transaction without a signed
agency disclosure. However, the agent must diligently document reasons why he/she could not
get the disclosure in a declaration containing the following information:
1. The declaration must specifically identify the disclosure you cannot get;
2. The declaration must specifically identity all efforts made by the agent to get the
disclosure. The agent must show that he/she made a good faith effort to obtain the
disclosure by making requests by telephone, facsimile and e-mail;
3. The declaration must show that the agent told his/her client that he/she was unable
to obtain the disclosure;
4. The declaration must be signed “under penalty of perjury” by the agent; and
5. I recommend that the client sign the declaration acknowledging receipt.
The declaration must then remain part of the transaction file for a minimum of three (3)
years as required by California Business & Professions Code §10148.
Can An Agent Close Escrow Without Other Statutory Disclosures?
Civil Code § 1102.12 allows an agent to close a residential transaction without signed
statutory disclosures. However, identical to the agency disclosure, the agent must diligently
document reasons why he/she could not get the disclosure in a declaration containing the
following information:
1. The declaration must specifically identity the disclosure you cannot get;
2. The declaration must specifically identify all efforts made by the agent to get the
disclosure. The agent must show that he/she made a good faith effort to obtain the
disclosure by making requests by telephone, facsimile and e-mail;
3. The declaration must show that the agent told his/her client that he/she was unable
to obtain the disclosure;
4. The declaration must be signed “under penalty of perjury” by the agent; and
5. I recommend that the client sign the declaration acknowledging receipt.
The declaration must then remain part of the transaction file for a minimum of three (3)
years as required by California Business & Professions Code § 10148.
Sample Form.
Although neither Civil Code nor California Association of Realtors® offer a sample
form, the following sample complies with the record keeping requirements imposed upon the
agent:
“1. I, (Buyer’s/Seller’s Agent), have been unable to obtain a signed (Agency
Disclosure, Transfer Disclosure, Natural Hazard Disclosure, Lead Based Paint
Disclosure, Water Heater Bracing Disclosure, Smoke Detector Compliance
Disclosure).
2. I have made a diligent and good faith effort to obtain the disclosure. I have made
telephone calls to (specify person) on the following dates demanding the
disclosure. I have sent facsimile and e-mails to (specify person) on the following
dates demanding the disclosure. Despite my efforts, I have been unable to obtain
the disclosure.
3. On (specify date), I informed my client that I have not been able to obtain the
disclosure. I informed my client of the importance of this disclosure and advised
him/her to seek legal counsel prior to closing escrow without this disclosure.
4. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and
correct.
Date: _______ _ Sign: ________ _
I, (Buyer/Seller), acknowledge receipt of this declaration and understand its importance.
Date: ——– Sign: __________ ”
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REFERRAL FEES
Posted on April 16, 2012 Leave a Comment
RE: REFERRAL FEES
Commissions belong to the Broker. The agent’s right to commission is based exclusively upon his/her written agreement with the Broker (i.e. Independent Contractor Agreement).
Payment of referral fees between brokers is fine. Payment of referral fees between agents is also fine so long as payment is made through the Broker and disclosed.
Business & Professions §10131 requires a real estate license for anyone who:
1. Solicits prospective Sellers;
2. Solicits prospective Buyers; and
3. Solicits prospective borrowers and lenders.
Referral fees to unlicensed persons are generally prohibited in California and under RESPA. However, both California and RESPA allow payment of a nominal amount as a token of appreciation under limited circumstances.
Consider this example where a referral fee is unlawful. A real estate agent cannot advertise that he/she will pay a referral fee to anyone who “solicits” a Buyer or Seller. You cannot print flyers offering “$500.00 for each referral” and circulate those in the neighborhoods that you canvas.
The key term is “solicit”. A real estate agent cannot pay a referral fee for any “solicited” referral. However, a real estate agent can pay a nominal referral fee for an “unsolicited” referral. An “unsolicited” referral is best illustrated by example.
As a first example, assume that a past client of yours calls you and says ” a friend of mine wants to buy a house and I am referring him to you”. You thank your past client and offer to pay him $500.00 as a token of your appreciation upon close of the transaction. Payment of that nominal referral fee is permitted because the referral was not “solicited”.
As a second example, assume that you met Joe at a party. Joe says to you “I have a friend interested in selling his house” and gives you his friend’s phone number. You thank Joe and offer to pay him $500.00 as a token of your appreciation upon close of the transaction. Payment of that nominal referral fee is permitted because the referral was not “solicited”.
An agent may pay an unlicensed person a referral fee only for an “unsolicited” referral as a token of appreciation. An agent may never pay a referral fee for a “solicited” referral.
The amount of the referral fee must be minimal and appear as a mere token of appreciation. Anything more may violate California law, RESPA, or both.
Agents are advised to proceed very cautiously in this area.
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FIXTURES (RPA vs. MLS)
Posted on April 4, 2012 Leave a Comment
Phone: 888-NO-RISKK Facsimile: 909-982-4142
RE: FIXTURES (RPA vs. MLS)
Many disputes are wages over who owns “fixtures”.
Disputes generally arise when Buyer takes possession and discovers that Seller has taken the chandelier, trampoline, pool sweep or other personal property from the residence.
Paragraph 8 of the RPA defines “fixtures” and consists of Sections A, B and C.
Paragraph 8A of the RPA provides:
“Items listed as included or excluded in the MLS flyers or marketing materials are not included in the purchase price or excluded from the sale unless specified in 8B or C.”
This means that neither Seller, nor Buyer, is bound by statements regarding fixtures in the MLS or any marketing material unless those items are identified in the RPA.
In other words, Seller cannot rely upon MLS regarding “excluded” items. Seller must specifically exclude the items he wants to keep in the RPA.
Paragraph 8B provides that all fixtures and fittings attached to the property are part of the sale of the property.
This means that all “fixtures” are included in the sale and belong to the Buyer unless specifically excluded in Paragraph 8C. A Seller who wants to keep certain “fixtures” must exclude them in Paragraph 8C or they are deemed sold to the Buyer.
Paragraph 8C defines “fixtures” to include:
“Existing electrical, mechanical, lighting, plumbing and heating fixtures, ceiling fans, fireplace inserts, gas logs and grates, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas, satellite dishes, private integrated telephone systems, air coolers/conditioners, pool/spa equipment, garage door openers/remote controls, mailbox, in-ground landscaping, trees/shrubs, water softeners, water purifiers, security systems/alarms.”
All fixtures on this list are sold with the property. Fixtures on this list that Seller wants to keep must be specified as “excluded” from the sale in Paragraph 8C of the RPA.
Fixtures not included on this list (such as custom built-in furnishings) that Buyer wants to keep should be specified by reference in Paragraph 8B3 of the RPA.
When in doubt, just specify each fixture that Seller wants (8C) and that Buyer wants (8B3).
Then there is no confusion.
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SHORT SALE LENDERS
Posted on March 31, 2012 Leave a Comment
SHORT SALE LENDERS (SB 931; SB 458)
Important New Law
SB 931 became effective 1/01/2011 and required that a short sale lender waive any right to deficiency as a condition to approving a short sale transaction. This limitation did not apply to second, third and fourth lenders. This means that the short sale seller still had potential liability to lenders in the second, third and fourth positions.
SB 458 sponsored by C.A.R. was recently passed. That Legislation requires that all short sale lenders waive their right to a deficiency as a condition to approving a short sale transaction.
There is now closure when a short sale transaction closes escrow. None of the lenders can pursue a deficiency based upon this new law.
This is great news for our short sale sellers.
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INSPECTION DUTIES
Posted on March 31, 2012 Leave a Comment
RE: INSPECTION DUTIES
Duty to Inspect:
Easton v. Strassburger: In 1984, the Court held that a Seller’s agent has an affirmative duty to conduct a “reasonably competent and diligent inspection” of residential properties and must disclose all facts materially affecting market value or desirability.
California Civil Code §2079: In 1985, California Civil Code §2079 became law, and requires a licensed real estate professional to conduct a reasonably competent visual inspection of residential properties and disclose all “material conditions” affecting marketability or desirability. This inspection obligation is owed to both Buyer and Seller.
Duty of Care:
Montoya v. McLeod: In 1985, the Court held that a licensed real estate professional must exercise a “higher degree of skill” than a layperson in performing inspection duties required by Civil Code §2079. Agents are expected to conduct a more diligent visual inspection than an average Buyer or Seller.
RECOMMENDATIONS
- 1. CONDUCT A “REASONABLY COMPETENT VISUAL INSPECTION”.
NOTE ALL “RED FLAGS” ON THE TRANSFER DISCLOSURE STATEMENT.
LOOK INSIDE AND OUTSIDE OF THE RESIDENCE.
*STUCCO CRACKS
*CONCRETE CRACKS
*WATER STAINS
*LOW WATER PRESSURE
*RECENT REPAIR WORK
*DROP CEILINGS
*ODORS
*NOISE CONDITIONS (drums, neighbors)
*NUISANCES (lighting, airports, animals)
USE ALL OF YOUR SENSES.
*SIGHT – VISUAL DEFECTS OR CONDITIONS
*SOUND – NEIGHBORHOOD NUISANCES OR NOISES
*SMELL – ODORS
DOCUMENT YOUR VISUAL INSPECTION
*INSPECT EACH ROOM
*INSPECT THE GARAGE
*INSPECT OUTSIDE THE HOUSE
*INSPECT THE YARD
*NOTE ALL “RED FLAGS”
*NOTE ALL CONCEALED AREAS
*NOTE LARGE CARPETS OVER THE FLOOR
*NOTE STRANGE SMELLS
*NOTE NEIGHBORHOOD CONDITIONS (KENNEL, BAND, AIRCRAFT NOISE)
NOTE INACCESSIBLE AREAS OF THE PROPERTY
*BOXES IN GARAGE PREVENT INSPECTION
*LARGE FURNITURE IN LIVING ROOM PREVENTS INSPECTION
NEGLIGENT REFERRAL OF INSPECTOR
*PROVIDE BUYER A LIST OF MULTIPLE INSPECTORS
*HAVE BUYER ACKNOWLEDGE RECEIPT OF THE LIST
*ASSURE THOSE ON LIST ARE CREIA OR ASHI
INVESTIGATION AS TO PERMITS NOT REQUIRED
*MAKE NO REFERENCE TO ACTUAL SQUARE FOOTAGE W/O SOURCE
*MAKE NO REFERENCE TO STATUS OF PERMITS
*DISCLOSE ALL UNPERMITTED STRUCTURES YOU ARE AWARE OF
*BUYER TO CONFIRM STATUS OF PERMITS
*IF YOU MAKE REPRESENTATIONS, YOU WILL BE LIABLE
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AVOIDING CONTRACT DISPUTES
Posted on March 2, 2012 Leave a Comment
AVOIDING CONTRACT DISPUTES
Substantially Reduce Your Risks by Following These Simple Rules
1. ALL OWNERS MUST SIGN THE LISTING AGREEMENT.
*Signature by the Agent is INEFFECTIVE
*Signature by the Agent “per meeting” is INEFFECTIVE
*Signature by only one of many owners is INEFFECTIVE
2. ALL BUYER AND SELLERS MUST SIGN THE PURCHASE AGREEMENT.
*Signature by the Agent is INEFFECTIVE
*Signature by the “per meeting” is INEFFECTIVE
*Signature by only one of many owners is INEFFECTIVE
3. CONTINGENCY MUST BE REMOVED IN WRITING.
*Buyer has 7 days to provide Preapproval Letter (RPA @ 3H1)
*Buyer has 7 days to provide Verification of Down payment (RPA @ 3G)
*Buyer has 17 days to remove a Loan Contingency (RPA @ 3H3)
*Buyer has 17 days to remove an Appraisal Contingency (RPA @ 3I)
*Seller has 7 days to provide signed disclosures required by RPA 5 (RPA @ 14A)
*Buyer has 17 days to return signed disclosures (RPA @ 14B)
*Buyer has 17 days to make a request for repairs (RPA @ 14B2)
*Buyer has 5 days to approve or disapprove of Seller’s late disclosures (RPA @ 14B3)
*Buyer retains the right to cancel until Seller sends a Notice to Perform (RPA @ 14C2)
*Once contingencies are removed, neither party may cancel
*There is no passive removal of contingencies
4. USE STANDARD FORMS
*Use standard C.A.R. forms
*Use the correct Purchase Agreement
i.e. Residential, Commercial, Vacant Land, Sale of Business and New Construction.
5. CONVERSATION LOG
*Time, Date and General Substance of each telephone call
*Confirm all understandings in writing
*Take pride with your transaction file
6. PROFESSIONAL INSPECTIONS
*Make sure your client has a choice of inspectors
*Inspectors recommended must be CREIA or ASHA inspectors and have E & O
*Get Recommendations and Waivers in writing signed by your client
*Professional Home Inspection
*Termite Inspection
*Mold Inspection
7. DISCLOSE AGENCY RELATIONSHIP IN WRITING
*Disclose agency relationships in writing as soon as possible.
8. RETURN CALLS
*Amazing how simply returning calls can resolve disputes.
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EVICTION NOTICE SUMMARY
Posted on March 1, 2012 Leave a Comment
RE: EVICTION NOTICE SUMMARY (RESIDENTIAL TENANCIES)
I am receiving an increased number of calls concerning eviction notices. The following summarizes the basic notice requirements in California.
30-Day Notice: Required to terminate residential month-to-month tenancies of a year or less (i.e. tenant has resided at the property for 12 months or less).
60-Day Notice: Required to terminate residential month-to-month tenancies of a year or more (i.e. tenant has resided at the property for 12 months or more).
90-Day Notice: Required to terminate any tenancy following foreclosure sale (does not apply to owners who remain after foreclosure sale, only to tenants). Required to terminate Section 8 tenancies.
3-Day Notice to Pay or Quit:
Requires tenant to either pay rent or vacate the property within three (3) days. Landlord can pursue unlawful detainer at the end of three (3) days. Used when tenant fails to pay rent.
3-Day Notice to Quit:
Requires tenant to vacate in three (3) days. Landlord can pursue unlawful detainer at the end of three (3) days. Used when tenant remains after end of a lease or when owner remains after foreclosure sale.
3-Day to Cure Breach:
Requires tenant to cure any breach of the lease within three (3) days. Used if tenant is required to either do something or stop from doing something under the lease.
Counting the Days of Notice:
Notice begins on the next day after the Notice is served. If Notice is served on Monday, the first day is Tuesday. Weekends and Holidays count, but the last day of any Notice may not fall on a weekend or holiday. If it does, the last day of that Notice will carry over to the next weekday.
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ENCROACHING BRANCHES, ROOTS AND TREES
Posted on January 31, 2012 Leave a Comment
RE ENCROACHING BRANCHES, ROOTS AND TREES
I frequently receive calls concerning a property owner’s right to remove encroaching branches, roots and trees. The following is a summary of California law concerning encroaching branches, roots and trees.
- Ownership. Under California law, a tree owner is determined by the location of its trunk regardless of whether the branches or roots extend to adjacent properties.
- Overhanging branches. An adjacent landowner has an absolute right to remove overhanging branches. However, the adjacent landowner can only cut back those branches to the boundary line.
- Encroaching roots. An adjacent landowner does not have an absolute right to remove roots unless they are causing damage. Unless the adjacent property owner carefully documents the damage caused by those roots, he may be liable to the tree owner for damages. The adjacent landowner must consider less invasive options prior to electing to remove the roots.
- Right to cut down trees. An adjacent landowner cannot enter into the tree owner’s land and cut trees down. If he does, then the adjacent landowner is liable to the tree owner for all resulting damage. If the act was intentional, then the adjacent landowner may be liable to the tree owner for treble damages (3x actual damages). The adjacent landowner must obtain court approval before cutting any tree down.
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2011 CASE LAW AND STATUTORY LAW SUMMARIES RELATING TO REALTORS
Posted on January 31, 2012 Leave a Comment
Phone: 888-NO-RISKK Facsimile: 909-982-4142
The following is a summary of interesting case law and statutory law enacted in the year 2011 concerning the real estate industry. The text of any cited case below is available on line or through my office if you should want to review the entire decision.
CASE LAW
BROKERS LIABLE FOR NOT DISCLOSING SHORT SALE
Holmes v. Summer (2010) 188 Cal.App.4th 1510. Listing Brokers can be liable for not disclosing transactions with a high risk of failure. In this case, Listing Broker did not disclose in the MLS that the transaction was subject to short sale approval. The transaction failed, Buyer sued and the court awarded $392,000 in damages against the Listing Broker.
Listing Brokers now owe a duty to disclose any factors which could result in failure or delay of the transaction including short sale, tenancy, probate or family court issues.
Listing Agents and Brokers beware.
STATUTE OF LIMITATIONS IS FOUR (4) YEARS FOR BREACH OF FIDUCIARY DUTY.
Thompson v. Canyon (2011) 198 Cal.App.4th 594. This is the first published case establishing that the statute of limitations for breach of fiduciary duty is four (4) years from the date of injury. This is why it is important to carefully document your file because you may not be sued until four (4) years after the transaction closes.
Document retention practices shall be at least four (4) years to comply with CCP 343.
BUYER LOSES DEPOSIT FOR FAILURE TO TENDER PERFORMANCE.
Conservatorship of Buchenau (2011) 196 Cal.App.4th 1031. Seller deposited the deed 30 days after the closing date. Buyer refused to pay the purchase price alleging that Seller breached. The Court awarded Seller $33,000.00 in damages and $37,000.00 in attorney fees. The Purchase Agreement did not include a liquidated damages provision.
This case demonstrates the importance of documenting the other party’s failure to perform. Using the NSP or NBP would have established the breach on the closing date and entitled Buyer to cancel.
If you represent a Seller, Seller must deposit the deed and sign escrow instructions. If you represent a Buyer, Buyer must have signed escrow instructions and document a willingness to fund the escrow.
CIVIL JUDGMENT FOR FRAUD MAY AUTHORIZE SUSPENSION OF LICENSE.
The Grubb Co., Inc. v. Department of Real Estate (2011) 194 Cal.App.4th 1494. Business & Professions Code §10177 provides numerous bases to revoke or suspend a license. DRE may revoke or suspend a license whenever “a civil judgment against a licensee is entered upon grounds of fraud, misrepresentation or deceit relating to a real estate transaction”.
It is important for agents to recognize that their license may be in jeopardy anytime they are sued by a Buyer or Seller for fraud, misrepresentation or deceit.
This is why it is important to consult with counsel when these issues arise.
GRATUITOUS AGENT FOUND LIABLE AS MORTGAGE BROKER.
Smith v. Home Loan Funding (2011) 192 Cal.App.4th 1331. Agent found her Buyer a home and then promised to “shop around to get her the best loan.” The Agent refers the Buyer to her affiliated “in-house” lender. After close of escrow, Buyer sued because another lender offered a loan on better terms. Court awarded $72,000.00 against the agent representing the difference between the interest rates over 30 years.
Agents must be careful what they promise to do for their client.
DEEDS OF TRUST EXPIRE TEN (10) YEARS AFTER THEIR FINAL DUE DATE.
Schelb v. Stein (2010) 190 Cal.App.4th 1440. Court entered order of quiet title terminating a Deed of Trust ten (10) years after its final due date. Quiet title means that the Deed of Trust was no longer effective pursuant to Civil Code §880.020.
Keep in mind that Deeds of Trust can be terminated unless foreclosure occurs within ten (10) years of their final due date.
STATUTORY LAW
SB 931 & SB 458: RESIDENTIAL SHORT SALES.
Effective June 1, 2011, all trust deed lenders to waive their right to a deficiency as a condition to approving any short sale involving a residential transaction. No lenders continue to 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.
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