Law Offices of Graden R. Tapley

How to Recover for Destruction to Property that is damaged by the borrower before foreclosure

When the foreclosures began in 2007 the initial reaction by borrowers and tenants was anger.  Sometimes this resulted in damage to the property that was being lost in foreclosure.  Now that foreclosures are more common they have become more accepted and destruction happens less frequently.    

If a lender suspects there will be damage to the property there are some steps that must be taken to protect rights or else the right to be compensated for the destruction or “waste” is lost. 

Waste is any action that impairs the lenders’ interest in the property.

A person that borrows money secured by property has a legal duty not to do anything that will substantially impair the lender’s security for the loan.  Anything that makes the property less valuable than when the loan was given is called “waste” and is prohibited.  The duty to prevent waste is part of the California Civil Code.  It is also usually a promise or “covenant” written into the deed of trust.  The trust deed will say something like “trustor has a duty to maintain and care for the property.”  A failure to maintain the property alone is grounds for foreclosing on the loan. 

Where the borrower is in default on a promise to make monthly payments the lender’s primary concern is whether it will be able to get its money back at the foreclosure sale.  Thus, the condition of the property at the sale is a paramount concern.   If the sale of the property does not pay off the loan entirely the lender wants to know if she can go after the borrower’s other assets to make up the difference.  This is especially the case if the property sold for less because the borrower, or the tenants, intentionally destroyed the property. 

If the borrower has no assets then the issue is moot

If the borrower has no job and no other assets then there is probably no point in worrying about it.   If the property being foreclosed on is a second “income” property that the borrower is losing the borrower may have other assets to attach.    

The Single Action Rule and CCP §580d prohibit deficiency judgments after a trustee sale

There are prohibitions that prevent a lender from taking certain actions against a borrower after a trustee sale (foreclosure).  The most important one to consider for the purposes of this article is Code of Civil Procedure section 508d.  This section prohibits a lender from suing the borrower for what is still owed if the trustee sale does not entirely pay off the loan.   The second rule to keep in mind is the “Single Action Rule” of Code of Civil Procedure section 726.  This says the lender can take only one action against the borrower.  A trustee sale is an action. 

The result of these two laws is that a lender is generally not able to go after a borrower for failing to maintain the property after a foreclosure.  The right to sue for damage or neglct gets lost after the foreclosure because the trustee sale is an action.  However, there is an exception. 

 There is an exception to the rule for “bad faith” destruction of property

The courts have made an exception to the rule for damage to the property that was done in “bad faith.”  This exception allows the lender to sue the borrower for destruction to the property.  But, it is important to understand the exception. 

 The initial analysis is whether the destruction made the property worth less than the security that was given by the borrower for the loan.  In other words, if the amount owed on the loan was $100,000 and the property sold at the trustee sale for $100,000 then it does not matter if the borrower destroyed the property.    The value of the security (the property) was equal to the amount of the debt and there was no harm to the lender- even if the lender ended up with the property.   If there was a loss then it must be determined whether it was caused intentionally, such as the occupant taking out all of the electrical fixtures and breaking holes in the walls.  If the loss was merely caused by the lender’s neglect then the exception will not apply. 

 What the lender should do at the foreclosure sale

If the analysis shows a loss in value caused by intentional destruction steps must be taken at the foreclosure.   At the sale what happens in most cases is the lender will take the property back because nobody is willing to bid as much as the lender.  The lender can bid for up to the full amount of the debt still owed without having to put down any additional cash.  But if there is intentionally caused damage to the property, instead of making a “full credit bid” for the amount of the debt, the lender should make a bid that reflects the anticipated loss in property value because of the destruction.   The problem is that the lender is usually unable to inspect the property before the sale.   It does not know if damage has been done. 

 A bid for less than the debt owed by the borrower protects the lender in case of intentional destruction of the value of the real estate at the time of the loan. 

If a lender bids less than the full amount due on the loan this will be reflected in the facts stated in the trustee’s deed.  The deed will reflect the outstanding debt and also the amount that was bid.   If the lender finds out after the sale that the property was destroyed it can come after the borrower for damages- up to the amount of the difference between the bid and the amount that was still owing on the loan at the time of the sale.    On the other hand bidding for less than the amount of the debt owed increases the risk of being outbid. 

The court will require that a lender who takes the property back at a foreclosure sale to prove that the destruction was in “bad faith” and that the property value at the sale was lower than the value at the time of the loan because of intentional destruction and not merely the result of overall market conditions.    If this can be proven a legal action should be filed in the court promptly.  Remember, there are statutes of limitations that act as deadlines to prohibit any court action.   See an attorney to determine what your limitation is for your particular circumstances.

New Law to Protect Tenants After Foreclosure – 90 Days to Vacate

Effective May 20, 2009 the federal Congress passed a law that protects tenants when the residence they are leasing is foreclosed on.  The federal law  provides greater protection than does California Law (CCP 1161b gives 60 days) and under the same circumstances.

The new federal law requires a buyer of a house at a foreclosure sale to give 90 days notice to vacate to tenants in possession of the property at the time of the foreclosure.    The tenants can have either a lease or be on a “month to month” tenancy.  Either will do.

The 90 Days Only Applies to Tenants – Not the Foreclosed on Owner

The limitation on the notice period under both federal law and state law is that the lease must be “bona fide.”  That is it must not be a sham created to get extra time to occupy the property.    (If there is no tenant then the former owner is only entitled to a 3 day notice!!)  A bona-fide lease can’t be one to an immediate family member like a child, parent,  or spouse.   It must be an arms- length transaction.  For example, you can’t write a lease to yourself or create a fake lease.  Furthermore, the lease must be at “market value” or at least not “substantially less than fair market value” -whatever that is.

Federal Law Supersedes the California 60 day Notice Law

California state law is even more strict.  The 60 day notice does not apply if the original owner is occupying the property.  So if there is a duplex and the owner lives in one unit on the same parcel the tenant in the other parcel technically would only be entitled to a 3 day notice.  (Not a very well thought out rule. )  Fortunately, the federal rule does not have this provision.

The Bank Will Usually Evict The Previous Owner And The Tenant At The Same Time

If I was about to go into default on my mortgage here is what I would do.  I would sign a lease to someone that is not within my family before the date of the “Notice of Foreclosure” is served and recorded.   I would make the lease market value.   After all, what is the market value to a lease for property that is about to be declared in default of the mortgage?  Probably not much.   (To be forthright I would disclose the status of the mortgage to the tenant.)  Interestingly, the federal law does not require that the lease be for the tenant’s primary residence.  It can be a part time rental.    So, I would want to find someone that would not be there much.    The law does not require that the tenant be current on the rent payment either, but the lease will require the tenant to pay rent.   My tenant will have an enforceable right to occupy some portion of the property and I will have an enforceable right to collect rent from my tenant which I will demand in the form of a personal check  (which I will photocopy for my records before I deposit it into my bank).

After the foreclosure when the Notice to Vacate the property is served it will probably be a 3 day notice to vacate because the bank that takes ownership after the foreclosure will not know that I have leased a portion of  the property to someone else.  (I might just lease out one of the rooms because the federal law does not require that the entire property be leased out.  The bank is not likely to try and oust me while my tenant is allowed to remain.  They will want to do it all at once.)

When the unlawful detainer complaint comes my tenant will file a special “prejudgment claim of right to possession” which does not require a court filing fee.  My tenant will file this on the last day required.   This prejudgment claim of right to possession is for anyone that is not named in the lawsuit who claims a right to possession of the property.

Once the prejudgment claim of right to possession is filed my tenant will  have 5 more days to file an answer to the complaint.  My tenant will file this on the last day also and allege that the 3 day notice was invalid by a properly alleged  affirmative defense.   A tenant at the time the bank serves/records the Notice of Default has a right to a 90 day notice after the foreclosure under the federal law.  This means the lawsuit will have to be dismissed and the bank will have to start over after a 90 day notice is given.

By handling it right I (and my tenant) can probably get another few months of occupancy out of the foreclosed on property.   To be really smart I recommend you hire an unlawful detainer attorney to handle the filing so that I know it all gets done right.

For the full text of the federal act see the ”Protecting Tenants at Foreclosure Act of 2009″ P.L. 111-22, Div. A, Title VII, 123 Stat. 1660, which is an amendment to 42 USCS section 1437f(o)(7) and also appers in part as 12 USCS section 5220.

When a person is unable to make her own decisions and is in need of treatment the doctor may be unable to act without authorization.  Merely being married is not enough to grant the authority of one spouse to another for medical treatment.  Your spouse does not become your health care agent just because you are married.    Everyone needs someone that is designated and authorized to make medical decisions in the event of traumatic injury or incapacity. 

A Power of Attorney for health care grants another person to make health care decisions for you.  These decisions include whether to refuse life support, medicine, or other procedures that would prolong your life and prevent you from dying.  A health care power of attorney also enables your agent to make funeral and burial decisions.  Generally this power of attorney enables the agent to make any health care decisions you could make if you had the mental capacity. 

A power of attorney for health care is usually written in such a way that it does not become operable until a person becomes incapacitated.  This means there must be a way to decide when you are unable to make decisions for yourself.  You can write into the power of attorney how this will happen.  It could be by a decision of a friend, a family member, a doctor, agreement of more than one doctor, or even by an order of the court after a hearing.

Planning for death or serious illness is not usually high on the “to do” list.  However, at some point or another all of us will face a situation when we are unable to manage our own affairs.  We will have to turn to our family and friends and possibly professionals to help us with the normal day to day tasks of life. 

The transition from being able to manage affairs yourself to relying on others is often a painful one.  We are so used to relying on ourselves that often it is embarrassing to have to ask others for help.  Our American culture of  “do it yourself” makes us feel inadequate when we can’t perform 100%.    

A person’s family is also under a strain when an illness or death occurs.  It is very hard to watch a mother, father, or other relative suffer from pain, fear of death, and the embarrassment of having to be taken care of.  It is so sad to see an old person’s hurt pride when they cannot do things like visit the bathroom without assistance.  Many times the family is just as overwhelmed by the thought of death and what it will be like without that person in their lives as the ill person is. 

In a traumatic situation a family wants to do the right thing.  They want to ease the pain and make their relative feel comfortable.  It is a natural response.  It is helpful if the relative is able to communicate what they need and want.  However, often times the relative still won’t ask for what they need because they don’t want to be a burden.  If the person cannot effectively communicate or has died families want to make sure that the person’s wishes and estate are handled as it would have been wanted. 

Families do not want to have to guess what a relative’s wishes were.  Doing what you think the person would have wanted is not the same as the satisfaction of doing what you know the person wanted.  The wondering just makes a difficult event more painful. 

When it is your turn to be taken care of your family will want to find something you have written that explains your wishes.  They will want to know how you want to be treated in the hospital.  Do you want to put on life support machines?  Given the option would you rather die in your own home?  Do you want a doctor to prescribe morphine if he or she believes your are in pain?  What is to happen to your estate?  Are there debts that need to be paid?  Are there assets, like savings accounts, that nobody knows about?  Should a small loan to a grandchild be forgiven?  Who should take charge of paying the bills and managing the property?  All of these questions will go through the minds of the family.  If there are written instructions your family will be greatly relieved. 

If you don’t leave instructions each family member will have a different idea about what should be done.  Everyone will be sure their idea is what you would have wanted.  Quarrelling between relatives wanting to do the right thing is common.  And, because the issues are very emotional, feelings are likely to be hurt.  Relationships between the family are often strained, sometimes for years. 

When you come into my office I take as much time as you need to explain all of your circumstances.  I have checklists that we carefully go over to make sure that you do not forget anybody or anything.  I ask about each family member and how that person fits into your wishes.  I ask about your health care wishes and how you want to be taken care of.  Finally, I itemize each asset in your estate and describe how it is to be used to pay for your care and distributed at your death.  We review your options and decide how your wishes are best handled.  It might be a will, a revocable trust (living trust), or both.  We also consider how your wishes can be handled in a way that minimizes estate taxes, and eliminates the need for probate. 

Client meetings are absolutely confidential.  They take place in my private conference room.  If you prefer I will also keep your signed documents in my care.  I will prepare a simple “Notice of Estate Plan” for you to take home describing what documents have been created, where they are, and under what circumstances I will provide them.  In this way your wishes can remain private until they are needed. 

I prepare estate plans for married couples and domestic partners also.  In order to meet with each spouse or partner together each is required to waive their right to confidentiality with respect to the other, but not to anyone else.  In this way I don’t have to keep information given to me by one a secret from the other.  I can then prepare wills, trusts, and other documents that work well together.     

Although planning for illness and death is not high on our lists of favorite things to do it is a step that each one of us should consider doing before it is needed.  Most people feel a sense of security once they have finished.  Clients tell me that even though it was not something they were looking forward to they are glad that they did it.

Real Estate Brokers and Agents Have Legal Duties to their Clients
A real estate broker or salesperson working on behalf an owner or buyer has certain duties which derive from agency law.  An agent is anyone that has been given authority to act on behalf of someone else (a principal) and to exercise some degree of discretion while doing so.  A real estate salesman acts as an agent of the real estate broker, and a sub-agent of the principal.  The broker is the agent of the buyer or seller- even if the buyer or seller never meets the broker and only ever meets the salesman.  A real estate salesman is not licensed to conduct business on his or her own, without a broker.  Even so, both the salesman has the same responsibilities of conduct to the principal that the broker does.

A Broker Must Have A Written Agency Contract
An agency relationship between a real estate broker acting as an agent of a buyer or seller of real estate is required to have a written agreement by law.  However, an agency relationship can be created even if there is no written agreement.  Even without the written agreement the agent has the same duties to the buyer or seller.  Without a written agreement the broker is violating the Business & Professions Code and may not enforce a claim for an unpaid sales commission in court.

An Agency Relationship Can Be Created Without A Written Agreement
Even if there is no written agreement giving the real estate agent the authority to act on behalf of the buyer or seller an agency relationship may exist. An agency relationship can be created by an oral agreement or by simply acting on behalf of the seller or buyer with the buyer’s knowledge. This is called an implied agency and often results in problems because the degree of authority to act on behalf of the principal is unclear. If the real estate broker does anything that the principal does not approve of the broker can expect the act to be seen as a breach of duty.
Even if a real estate broker or salesagent acted without authority an agency relationship can be estbilished after the fact by “ratification.”  This typically only occurs where the broker or salesman solicits a good deal that a person wants to enforce.  For example, a broker, without authority to do so, claims to be acting on behalf of a buyer and makes an offer on a house. If the seller accepts the offer but later refuses the buyer may argue that the deal is enforceable because the broker was their agent.

Conclusion
Many strange events can occur when one person is acting on behalf of another.  If you are a broker, salesman, or owner, that has been involved in an agency relationship which resulted in misunderstandings and disputes you may want to contact legal counsel to advise you of your rights and responsibilities.

From Sebastopol, the Law Offices of Graden Tapley represents clients throughout Sonoma County, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, and Windsor.

Real Estate Listing Agreements
An agreement between a real estate broker and a seller is called a listing agreement. The seller agrees to pay the broker for finding a ready, willing, and able buyer at an acceptable price. The agreement should be signed and must identify the property, the terms and conditions of an acceptable sale, and the amount of commission to be paid. In addition, the agreement should have an expiration date- this is the date by which the broker must find a buyer. Without an expiration date the right to the commission could arguably go on forever. There are also certain statements that must be included by law in each listing agreement by law under the Business & Professions Code.

Types of Listing Agreements
There are more than one type of listing agreement and depending on the real estate market not every type may be right for each seller.

An Exclusive Listing Agreement allows the real estate broker to be the only broker allowed to sell the property during its term. The owner may not enlist another broker to also make efforts to sell the house during the same time. If the owner hires a second broker to speed things up the first broker could be entitled to a commission even if the second broker finds the buyer.  Under an exclusive listing agreement the seller is usually able to cancel the listing during the term.  If the seller finds a buyer himself he or she may be able to avoid the broker’s commission.

An Open Listing Agreement is the most favorable to the seller. This type typically allows the seller to revoke the listing at any time, to sell it herself, or to list it with another broker during the same time. Because there may be more than one person at a time working to try and sell the house it is possible for disputes to arise as to which person is entitled to the commission. More than one broker may claim that he/she was the person who found the buyer.

An Exclusive Right to Sell Listing Agreement is the type most favorable to the broker. Under this type of agreement the real estate broker is entitled to a commission if the house is sold during the sales term no matter who finds the buyer. Even if the owners find the buyer themselves, using Craigslist for example, the broker will still be entitled to the full commission. There is typically no right to cancel the agreement during the term.

A Net Listing Agreement requires payment to the selling real estate broker any amount over a certain minimum.

From Sebastopol, the Law Offices of Graden Tapley represents clients throughout Sonoma County, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, and Windsor.

Can I Sell My Property Without A Real Estate Broker?

In today’s buyers’ market property is taking a long time to sell. Many properties are not selling at all, even after the offering price is dropped lower and lower again. Even foreclosure sales are not bringing bidders because if nobody is buying there are no profits to be made. Only the banks are bidding at the foreclosure auctions for the amount owed under the defaulted loan.

Because of the terrible real estate market many sellers are choosing to sell their property without a broker and salesagent. Sellers simply are not willing to pay 6% of the poor sales price to a broker.  In addition, in the last few years technology has changed the way property is being sold. One of the most useful tools in selling properties today is Craigslist. Both sellers and real estate professionals say that they have more luck selling property on the Craigslist than any other means of advertising. Craigslist is already more powerful than newspaper classifieds and is becoming more powerful than the Multiple Listing Service. Furthermore, it is free! Craigslist has revolutionized the way real estate is being sold.

Real Estate Attorney Instead of Broker. 
Instead of paying a broker 6% to find a buyer sellers are doing it themselves on Craigslist. When a sales price has been agreed on verbally the parties go to a real estate attorney to draw up a written purchase agreement. For a $500,000 house a broker would charge $30,000 to complete the deal.  A real estate attorney can usually put together a purchase agreement, deed, and seller’s disclosures for under $2,000. If the seller is going to offer financing a promissory note and deed of trust can also be prepared at a reasonable price.

Real Estate Attorney Standard of Care
A real estate broker can represent both the seller and the buyer at the same time. All the broker is required to do is have both parties sign a disclosure statement saying that each understands the broker shares certain duties to each party. What duties is the broker referring to?  The big one is the duty of confidentiality. The broker must not tell the buyer what the seller’s bottom line is, or vice versa. Further, there are duties of loyalty, fair and honest dealing, use of reasonable care and skill, and fiduciary duties.

The duty of loyalty of an attorney to a client is considered higher that of a real estate broker. An attorney usually cannot represent both a buyer and a seller at the same time. The duty of loyalty for an attorney is so high that in any situation where the representation of one client would render the attorney less effective in representing another it is forbidden. 

The only situations where a real estate attorney could possibly represent both a buyer and seller at the same time would be where the parties have already agreed on all of the terms of the sale and simply want the attorney to draw up the agreement to reflect their intentions. In this case the attorney is doing a service to both by making sure that their intentions are clearly reflected. The attorney is not advising on whether the terms that have been reached are in the parties’ best interests. Even this is not advisable because if there is a term missing that benefits one party to the detriment of the other the attorney may have a duty to inform the parties. Then it gets sticky because by advising the parties the attorney is harming one party to the benefit of the other.

From Sebastopol, the Law Offices of Graden Tapley represents clients throughout Sonoma County, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, and Windsor.

Easements and Rights of Way

Sonoma County Easements 
Sonoma County Real Estate Attorneys encounter easement disputes frequently.  Private easements are all over Sonoma County.  Any time the developer did not want to create a public road within a subdivision an easement was created.  Easements exist on the private subdivisions like Sea Ranch and the parcels that were created from breaking up the large rural tracts that once existed all over Sonoma County. 

Easement Defined  
An easement is a limited right to use land not owned by the person using it.  An easement may not be revoked like a “license to use.”  But, an easement can be lost by abandonment or harmed by encroachments.

Creation of Easements
An easement can be created in a number of ways.  The most common of which is by deed.  On the deed the easement is often called a “parcel” as if it were an actual separate plot.  The language will describe the location of the easement and its intended purpose.  Some common purposes are railroads, utilities, roadway, access to water, right of way, and for accessing subterranean mineral rights.  Mineral rights easements are often created when a seller divides a large section of land.  The seller will exclude from the sale any minerals, gas, or oil that is ever found underground, even if none is known to exist at the time of sale.  To get to the discovered oil the seller’s deed is encumbered by an access easement.  Because the possibility that minerals or oil will be discovered is unlikely the buyer does not usually care that the easement is on the title. 

Easement Descriptions
A surface easement will usually describe its size and location on the deed.  This might be done by a description of the metes and bounds or a reference to a parcel map.  For example a non-exclusive easement for access might be described as 200 ft by 40 ft wide running perpendicular to the public road.  Non-exclusive means it is not only for use by the person named on the deed.  The buyer is on notice that another deed may also create rights to use the easement.  Each user has a duty to accommodate the others. 

An Easement’s Purpose Controls Its Size
An easement’s intended purpose as written on the deed helps to define the easement.  The intent can be even more important than the size description.  For example, an easement described on a deed as a “40 ft right of way” for a residential sized lot will be interpreted as intended to allow access to the residence.  But a single residence does not need a forty foot wide driveway.  Because the need is less than what was deeded the actual easement will be less than what was granted.  The easement will only include what is reasonably necessary to get to the house, maybe ten feet wide or even sixteen.  The easement holder will have to accommodate the owner of the land the rest of the forty feet. 

An Easement May Be Lost 
An easement can be lost by abandonment.  While this is not true for a recorded easement it is possible for an easement that is merely established by usage.  It must not used for twenty years and it there must never have been a tax assessment recorded on value of its usage.  Even if the easement is recorded it could still be harmed by prescriptive rights.  Prescriptive rights are rights to land that are established by usage.  They are also called encroachments.    A person who drives across a parcel to access another parcel for five years might establish a legal right to an easement for that usage.  The same goes for usages that are harmful to an easement.    For example, putting a locked gate at the entrance of an easement that the user has to unlock each time.  Or, by narrowing the easement, limiting it to seasonal use, or preventing certain uses such as commercial use.  After time the encroachment becomes a legal right. 

Prevent Prescriptive Rights From Ripening Into An Easement 
One way an owner can prevent others gaining prescriptive rights to land is by posting a signs at each entrance at intervals of not more than two hundred feed reading “right to pass by permission and subject to control of owner.”  The hardware store has copies of these signs.  As long as a usage is by permission prescriptive rights do not ripen.  An owner can also enter into a written agreement with a known user in which it is expressed that usage will not accrue into legal rights.  

Protect Your Land Rights
Whenever land is being used by more than the landowner it is important to know what rights are being established or lost.   Not only is the land subject to the possibility that an easement will be established or eroded, but there are concerns about liability for personal injury that the owner could be responsible for.  Each situation is different.  If you have concerns you should consult an attorney and explain your particular facts. 

From Sebastopol, the Law Offices of Graden Tapley represents clients throughout Sonoma County, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, and Windsor.