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The following is a summary of interesting case law and statutory law enacted in the year 2010 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.
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 have a duty to disclose any factors which could result in failure or delay of the transaction including short sale, probate or family court approval. Listing Agents and Brokers beware.
ERRONEOUS ARBITRATION AWARDS ARE FINAL.
Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413. Parties agreeing to Arbitration in the RPA have no right to appeal. The US Supreme Court held that an Arbitration Award cannot be overturned even when based upon glaring errors of law. In other words, the Appellate Court will uphold all Arbitration Awards including those based upon legal error. Parties to real estate contracts should think long and hard before agreeing to Arbitration.
TITLE COMPANY HAS NO LIABILITY FOR FREE REPORTS.
Soifer v. Chicago Title Company (2010) 187 Cal.App.4th 365. Agent represented an investor purchasing at foreclosure sale. Agent received a free Prelim from his representative at Chicago Title and used that report to advise his client that a property had no liens. The client purchased the property based upon the Prelim and discovered shortly after the purchase that the property was encumbered by a $1,000,000.00 Note. The Court dismissed the case against Chicago stating that title companies are not responsible for errors in free reports. You cannot rely upon a free Prelim in advising clients. If you are going to rely upon a Prelim, then pay for it.
HOME EQUITY SALES ACT IS “NARROWLY CONSTRUED”.
Capon v. Monopoly Games LLC (2011) 193 Cal.App.4th 344. A Buyer who purchases after the NOD records who intends to occupy that residence is generally exempt from the Home Equity Sales Act. In this case, Buyer contracted to purchase a residence after the NOD recorded, but instructed escrow to record the Deed in the name of his company Monopoly Games. Buyer became subject to all penalties under the Home Equity Sales Act when the Deed recorded in the name of his company instead of himself. The Court unwound the transaction and awarded Seller damages and attorney fees. If you represent a Buyer purchasing a residence in foreclosure, then Buyer must take title in his own name and must intend to occupy the property.
UNLICENSED CONTRACTORS CANNOT BE PAID.
Alatriste v. Cesar’s Exterior Designs (2010) 183 Cal.App.4th 656. Business & Professions Code §7031 provides in substance that an unlicensed contractor may not sue to collect compensation. In this case, a contractor was forced to regorge $57,500.00 paid for labor and materials because the contractor was unlicensed at the time work started. Keep this case in mind if unlicensed contractors are working on REO properties.
COMMISSION IS EARNED WHEN THE PURCHASE AGREEMENT IS SIGNED.
RC Royal Development v. Standard Pacific (2009) 177 Cal.App.4th 1410. Broker commission is earned when the Purchase Agreement is signed. Close of escrow is the timing for payment of commission. If Buyer or Seller properly cancel based upon failure of any contingency, then commission is not due. If Buyer or Seller improperly cancel for any reason, then commission is due even though the deal never closes. Once the deal is non-contingent, the Broker is entitled to be paid. This case is a good summary of the law regarding real estate commission.
SB 931: RESIDENTIAL SHORT SALES.
This Legislation requires first trust deed lenders to waive their right to a deficiency as a condition to approving any short sale residential transaction. This Legislation only applies to first trust deed lenders. All other lenders (except purchase money lenders) continue to have a right to deficiency following short sale.
AB 1263: COMMERCIAL TENANTS-UNLAWFUL DETAINER NOTICE
This Legislation eliminated the requirement to personally serve the tenant a 3-day notice at his place of residence. This has been a problem since many landlords do not know the address of a commercial tenant. A landlord may now serve the tenant: (i) by delivering a copy personally to the tenant; (ii) by leaving a copy with an adult at the property and sending a copy by mail; or (iii) by posting a copy on the property and sending a copy by mail.
SB 183: CARBON MONOXIDE DETECTORS.
This Legislation requires installation of a carbon monoxide detector in every single family residence on or before July 1, 2011 (see C.A.R. form disclosure). A carbon monoxide detector must be installed in all other dwellings by January 1, 2013.
Phone: 888-NO-RISKK Facsimile: 909-982-4142
The following is a summary of interesting case law and statutory law enacted in the year 2008 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.
Steiner v. Thexton (2008) 163 Cal.App.4th 359. The Court held that a Buyer could not enforce a purchase contract which contained contingencies based upon Buyer’s “sole and absolute discretion”. Agents should avoid drafting contingencies based upon Buyer’s “sole and absolute discretion”. Drafting enforceable purchase agreements with contingencies just got harder.
PROPERTY MANAGEMENT AS “HIGH RISK”.
Tan v. Arnel Management Co. (2008) 162 Cal.App.4th 621. Courts continually expand a property manager’s duty to protect tenants. This case held that a property manager has a duty to protect a tenant from being shot by criminals in an apartment complex in a high crime area. Insurance companies now regard property management as a “high risk” area of the real estate business. Many errors & omissions insurance policies exclude property management leaving the Agent and Broker with no coverage for claims. Agents engaged in property management beware.
ARBITRATION AWARDS ARE FINAL.
Hall Street Associates LLC v. Mattel, Inc. (2008) US Supreme Court No. 06-989. Parties agreeing to Arbitration in the RPA have no right to appeal. The US Supreme Court held that an Arbitration Award cannot be overturned even when based upon glaring errors of law. In other words, the Appellate Court will uphold all Arbitration Awards including those based upon legal error. Parties to real estate contracts should think long and hard before agreeing to Arbitration. The following language added to the Purchase Agreement would be favorable:
“The Arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error. Except as specifically set forth, the award is not appealable.”
COMMERCIAL LEASE SQUARE FOOTAGE DISCREPANCY.
McClain v. Octagon Plaza, LLC (2008) 159 Cal.App. 4th 784. Court permitted tenant to sue for misrepresentation based upon difference in square footage in a commercial space notwithstanding disclaimers in the lease agreement. Commercial landlord cannot rely upon a contractual stipulation whereby the parties estimate square footage or upon related disclaimers. If square footage is not accurate, then the tenant may sue the landlord for a rebate in rents regardless of disclaimer provisions in the lease.
UNENFORCEABLE FORBEARANCE AGREEMENT.
Secrest v. Security National Mortgage (2008) 167 Cal.App.4th 544. In this case, Borrower signed and returned a forbearance agreement to the lender with payment of $13,000.00 as required by the forbearance agreement. Lender never signed the agreement, but accepted the money. Two years later lender foreclosed. Court held that the forbearance agreement was unenforceable because it was not signed by the lender. Loan modifications, short sale approvals and forbearance agreements are unenforceable unless signed by the lender. Get lender’s signatures at all cost.
People v. Martinez (2008) 161 Cal.App.4th 754. Jury convicted agent of forgery when the agent told the client she was signing a Bankruptcy Petition when, in fact, the document was a Note and Deed of Trust paying money to the agent. This case is important because a forgery was committed when an agent, by fraud or trickery, causes his client to sign documents without understanding the nature of the document. In other words, an agent commits forgery even though his client signed the documents.