Recent Legal Developments
Upcoming Educational Programs and Events
Attorney Len Rifkind and Cari Lynn Pace, REB, have developed a “Bedbug Protocol Addendum” for use in complying with amendments by AB 551 to Sections 1942.5 and 1954.600 et seq. of the Civil Code, which became effective July 1, 2017.
In summary, these sections impose various obligations on landlords who rent out residential dwelling units, including the general requirement that a landlord provide each new prospective tenant with information about the treatment and control of bed bugs, an international scourge. Among the requirements are the notification of the procedure by which the tenant must alert the landlord to the presence of bed bugs, and the prohibition of retaliatory eviction when landlord is so noticed.
Landlords must provide such information to all tenants new or existing by January 1, 2018. The new law also requires that the landlord provide notice to the tenants of those units inspected by the pest control operator of the pest control operator’s findings within two business days. Landlords are prohibited from showing, renting, or leasing a vacant dwelling unit that the landlord knows has a bed bug infestation.
The Bedbug Protocol Amendment form to comply with these requirements is available at www.ProPubForms.com in the residential lease section.
By Allan E. Low and Kathryn L. Bilder, Perkins Coie LLP
An annoying question for lenders is whether or not a lender can enforce two loans to the same borrower and secured by the same property. The nagging issue is usually raised when a lender makes (1) a first loan and an additional advance to the borrower secured by the same property, (2) a first secured loan followed by a secured credit line or (3) a first secured loan and a new secured second loan to finance other properties.
In California, there can only be “one form of action,” either a judicial foreclosure or a non-judicial foreclosure. In a judicial foreclosure, if the real property collateral is sold for less than the amount owed under the secured debt, the lender may sue for a deficiency judgment—the difference between the amount owed and the fair market value of the property. (Cal. Civ. Pro. Code § 726). In a judicial foreclosure, the borrower has a right of redemption. In a non-judicial foreclosure, no deficiency judgment is allowed under a power of sale in a deed of trust. (Cal. Civ. Pro. Code § 580(d)). In a non-judicial foreclosure, the borrower has no right of redemption. When there is a senior deed of trust and a junior deed of trust and the senior lender sells the property by a non-judicial foreclosure and the real property collateral is sold for less than the amount owed under the total secured debt, the junior lender becomes a “sold-out junior,” and the junior lender may enforce its promissory note against the borrower in a judicial proceeding, (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2nd 35, 43-44).
So what happens when a lender holds both the senior deed of trust and the junior deed of trust? Can it non-judicially foreclose the senior deed of trust and then be a “sold-out junior” and sue on the promissory note?
In Simon v. Superior Court, 4 Cal.App.4th 63 (1992), the Simon court said no, a senior lender cannot non-judicially foreclose the senior deed of trust and then claim it is a “sold-out junior” and judicially collect on the promissory note. The rationale was “[w]e will not sanction the creation of multiple trust deeds on the same property, security loans represented by successive promissory notes from the same debtor, as a means of circumventing the provisions of section 580d.” (Id.) Under the Simon rationale, if a lender were to sue on the promissory note secured by the foreclosed-out junior deed of trust, then the judicial action on the second promissory note would “eliminate the debtor’s right of redemption thereto; and thereafter effect an excessive recovery by obtaining a deficiency judgment against the debtor on an obligation secured by a junior lien the creditor chose to eliminate.”(Id.at 78)
Since 1992, lenders did what Simon says.
Then, on June 14, 2017, in Black Sky Capital, LLC v. Cobb,17 C.D.O.S. 5699 (2017), the U.S. Court of Appeals for the Fourth District decided not to do what Simon says. The Black Sky court reasoned that “Section 580d precludes recover ‘for a deficiency on a note secured by a deed of trust . . . in any case in which the real property . . . has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust. By using the singular throughout the statute, the Legislature unambiguously indicated that section 580d applies to a single deed of trust; it does not apply to multiple deeds of trust even if they were secured by the same property.’” (Id. at 8) The Black Sky court held “that [section 580d] does not apply to preclude [the holder of a junior deed of trust] from suing for the balance due on the junior note [when the senior lender is also a ‘sold-out junior’ when the loans were not made concurrently]. It makes no difference whether the junior lienholder is the same entity or a different entity as the senior lienholder.” (Id.)
It is important to note that in Black Sky, the senior loan secured by the senior deed of trust was made in 2005. Two years later in 2007, the junior loan secured by the junior deed of trust was made. The default and the non-judicial foreclosure on the senior deed of trust occurred later in 2014.
Does it matter that there were two years between the senior loan secured by the senior deed of trust and the junior loan secured by the junior deed of trust? The Black Sky case stated that “the second loan was issued two years after the first, and the default did not occur until seven years later. There is nothing in the record that supports the conclusion that the second loan was in any way an attempt to circumvent the anti-deficiency statutes in the event of default on the first loan.” (Id. at 6)
Will the Black Sky case apply when the senior deed of trust and the junior deed of trust are recorded simultaneously? Will that appear as a circumvention of section 580d? Under the conclusion of Black Sky court, the timing of the recording of the multiple deeds of trust may not matter as the court relied on the plain language of section 580d and the references to a singular deed of trust.
There is a clear conflict between the Simon and the Black Sky cases. We will need to wait for the Supreme Court of California to resolve the differences. Until that happens, a lender is still vexed with double trouble if it makes two loans to the same borrower secured by the same property.
Allan E. Low is a partner in Perkins Coie’s Real Estate & Land Use practice in San Francisco. His broad range of experience includes real estate transactions, real estate finance and development projects.
Kathryn L. Bilder, an associate in Perkins Coie’s Real Estate & Land Use practice in San Francisco, represents financial institutions in connection with construction financing, bridge and permanent financing for new construction sites, hotel developments, residential and mixed use projects, and retail and office buildings.
Courtesy of CEB, we are bringing you selected legal developments in areas of California real property law that are covered by CEB’s publications. This month’s feature is from the August 2017 update to CA Real Property Remedies and Damages (Cal CEB). References are to the book’s section numbers. See CEB’s RPLS landing page for special discounts for section members.
In Hendrickson v Octagon Inc. (ND Cal, Dec. 2, 2016, Nos. Nos. 14-cv-01416 CRB,14-cv-01417 CRB) 2016 US Dist Lexis 167722, the court refused to reform an agreement that required a sports agent to share fees earned after leaving the employer, recognizing that the fee-sharing arrangement protected the investment of the agency training its agents and did not prevent the agents from leaving the agency for a competitor. See §2.34.
Fraud and Nondisclosure
In Horiike v Coldwell Banker Residential Brokerage Co. (2016) 1 C5th 1024, the court held that when there is a dual agency, all of the licensees have the duty to learn and disclose to the buyer all information materially affecting the value or desirability of the property. See §§3.17, 3.32, 3.32D, 3.57, 12.34, 12.43.
In Westside Estate Agency, Inc. v Randall (2016) 6 CA5th 317, 321, the court held that, due to the lack of a written agreement. a broker was not entitled to a $925,000 commission. See §3.32B.
In Jacobs v Locatelli (2017) 8 CA5th 317, the court held that extrinsic evidence was admissible to clarify the identity of parties to a listing agreement. See §3.32B.
Civil Code §1710.2 was amended by Stats 2016, ch 548 to provide that the owner of real property and the real estate agents are not required to disclose that an occupant of the property was living with HIV or died from AIDS-related complications. See §3.33.
Breach of Seller-Buyer Contracts
In Schellinger Bros. v Cotter (2016) 2 CA5th 984, the court confirmed an award of development costs to a land buyer, after the seller had committed waste
in the breach of a land contract, causing substantial delays of the project approval. The damages were "incurred in preparing to enter upon the land" as consequential damages under CC §3306. See §4.46.
In DeSaulles v Community Hosp. of Monterey Peninsula (2016) 62 C4th 1140, the court held that a plaintiff who receives a monetary settlement from a defendant in exchange for a dismissal is the prevailing party, having obtained a "net monetary recovery" within the meaning of CCP §1032(a)(4). See §4.49A.
In Taylor v Nu Digital Mktg., Inc. (2016) 245 CA4th 283, the court held that a contract that looked like a conditional sale of property may, on closer inspection, actually include a long-term lease, thereby allowing the plaintiff to regain possession through unlawful detainer proceedings. See §§4.64, 4.83.
In Walters v Boosinger (2016) 2 CA5th 421, 433, the court held that a party who knew of the existence of a disputed deed had 3 years from the date of discovery to bring an action under CCP §338(d). See §7.45.
Slander of Title
In Finch Aerospace Corp. v City of San Diego (2017) 8 CA5th 1248, the court concluded that Govt C §§818.8 and 822.2, which bar claims against public entities for misrepresentation, do not apply to a slander of title cause of action, because slander of title is not a form of misrepresentation, but rather "a form of the separate common law tort of disparagement, also sometimes referred to as injurious falsehood." See §9.12.
In Eden Place, LLC v Perl (In re Perl) (9th Cir 2016) 811 F3d 1120, the court held that executing on a writ of possession does not violate the automatic stay when the debtor, who lost property in foreclosure and filed a "skeletal" bankruptcy, no longer had possessory interest in the property and an unlawful detainer had already been granted. See §10.45.
Nuisance and Trespass
In Mendez v Rancho Valencia Resort Partners, LLC (2016) 3 CA5th 248, the court held that prima facie violations of a public nuisance noise ordinance were not a private nuisance, under a "substantial and unreasonable" standard. See §11.5.
In City of Crescent City v Reddy (2017) 9 CA5th 458, a city was able to have a receiver appointed by the court to oversee compliance with the trial court's judgment requiring abatement of building code violations. See §11.20.
In Wang v Nibbelink (2016) 4 CA5th 1, the court held that recreational use immunity also applies to injuries caused by the recreational user, but sustained by persons off the premises and uninvolved in the recreational use. See §11.30.
In Hensley v San Diego Gas & Elec. Co. (2017) 7 CA5th 1337, a resident owner whose land was burned was allowed to recover damages for annoyance and distress, regardless of whether the owner was physically present at the time of the fire and its aftermath. See §11.30.
In Pacific Gas& Elec. Co. v Rowe (2017) 10 CA5th 563, the court held that a utility was not immune from personal injury liability when a camper paid an entry fee to a county, because the county does not receive immunity under CC §846. See §11.43A.
Landslide and Subsidence Liability
In Fulle v Kanani (2017) 7 CA5th 1305, the court held that annoyance and discomfort damages resulting from injuries to timber or trees may be trebled. See §12.84.
Alternative Dispute Resolution
The California Supreme Court, in McGill v Citibank (2017) 2 C5th 945, would not enforce an arbitration agreement that precluded a plaintiff from seeking public injunctive relief in any forum as being contrary to California public policy. The court held that procedural devices, such as class actions, may be preempted by the Federal Arbitration Act, but that substantive statutory remedies are not. See §14.25.
In a case involving a class of customers that sued a genetic testing company, Tompkins v 23andMe, Inc. (9th Cir 2016) 840 F3d 1016, the court refused to find an arbitration clause unconscionable that awarded attorney fees and costs to the prevailing party, selected a forum, excluded some claims, and shortened the statute of limitations. See §14.42B.
In Sandquist v Lebo Automotive, Inc. (2016) 1 C5th 233, the California Supreme Court recognized that an arbitration agreement can allocate the issue of arbitrability to the arbitrator, but that no universal rule governs who decides arbitrability. The primary analysis examines the parties' agreement subject to interpretation under state contract law. See §§14.42B, 14.42F, 14.42H.
a. Webinar: Sep 15 (Fri), 2017 - 12:00pm to 1:00pm
b. Description: All attorneys are eager to gain a good reputation among the judicial officers they appear before. Yet every courtroom has its own unspoken rules and every judge a different personality. Every new courtroom is a minefield of potential faux pas. Avoid the naughty list—join Judge Lawrence Brown as he shares his tips on how not to be remembered by the judge for the wrong reasons. This program is appropriate for all levels.
c. Speaker: HON. LAWRENCE G. BROWN
d. Program Highlights:
a. September 23rd and 24th at UCLA’s Luskin Center
c. The link above will provide all of the information about the conference.
Event: Southern California Real Estate Symposium (RES)
Date: Friday, October 27, 2017
Time: 1 pm to 5:30 pm. Registration begins at 12 noon. A hosted networking reception takes place from 5:30 pm to 7 pm.
Location: The Irvine Marriott.
Highlights: Earn MCLE credit and learn from Wayne Bell, the California Commissioner of the Bureau of Real Estate, an Orange County Superior Court Judge, and leading attorneys, economists, and other residential real estate professionals on the trends and opportunities in the Southern California residential real estate market and how to navigate the unique challenges facing real estate practitioners in the current market rebound from the Great Recession.
1. Dormant Subdivisions: The Forgotten Housing Supply
2. Housing and the Economy: State, Regional, and Local Perspectives
3. Common Contract Claims: Strategies for Preventing and Resolving Them
4. Keynote: Insights from the Commissioner of the California Bureau of Real Estate
Get more details here!
Network and share ideas with Real Estate Professionals from around the State.
Save the Date!
Thursday - Sunday, April 19 – 22, 2018
37th Annual Real Property Law Section Retreat
April 18 – 22, 2018
Hyatt Regency San Francisco
Check back here for all the details as we get closer to the date.
We are delighted to publish legal cartoons from one of our own -- Scott Miller. Scott is Of Counsel to Dudnick Detwiler Rivin & Stikker LLP in San Francisco. His practice focuses on commercial real estate and environmental law. Check out http://www.blurb.com/bookstore/detail/2646318 to order Scott’s book on real estate cartoons, entitled A New Lease on Life. If you have any suggested topics for Scott, please feel free to contact him at firstname.lastname@example.org, and who knows? You might get your idea immortalized in the next E-Bulletin!
© 2017 Scott H. Miller
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