Articles Posted in Real Estate

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San Pablo BayReal property owners can grant rights to others to use portions of their property for certain purposes, commonly known as easements. In certain situations, however, a California real estate owner might unwittingly allow others to acquire rights to the use of their property. The California Legislature has set strict limits on the circumstances in which this might occur. Earlier this year, the California Supreme Court rejected a claim that the repeated use of someone else’s private property created an easement for the plaintiffs.

An easement is a limited interest in real property with no right of possession. It involves permission to use another person’s property for a specific purpose. A public utility easement, for example, gives a city government permission to use a portion of a parcel of land for utility lines, as well as the right to access the property to perform maintenance or repairs.

Easements are usually affirmatively granted by the property owners, but they can also be created as a matter of necessity. If one parcel of land is inaccessible from the road, except by crossing another person’s property, the owner of the otherwise inaccessible land could claim an easement across the neighboring property. The principle of adverse possession, by which someone can claim title to someone else’s property by openly possessing that property for a minimum period of time, could also support an easement claim in some circumstances. A person who routinely crosses another person’s property could claim an easement based on a lengthy period of continuous use. This is the type of situation California has tried to restrict, which the court addressed in Scher.

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14483258916_9c251023c2_z.jpgCalifornia Governor Jerry Brown declared a State of Emergency in January 2014 because of a severe drought that has persisted for several years. Since then, the state government has mandated widespread restrictions on water use, including restrictions on the ability of local governments and homeowners’ associations (HOAs), during emergency drought conditions, to enforce rules requiring residents to water their lawns. These water conservation efforts, however, continue to come into conflict with some HOAs around the state.

Governor Brown signed AB 2104 into law in September 2014. The bill amends the Davis-Stirling Common Interest Development Act (DSCIDA), the main law governing California HOAs, to restrict the enforcement of certain regulations during a state of emergency, as declared by the governor or a local government, related to drought. HOAs may not penalize their members “for reducing or eliminating the watering of vegetation or lawns.” Cal. Civ. Code § 4735. The bill responded to several situations in which HOAs imposed fines or assessments against residents who were responding to Governor Brown’s calls for water conservation.

In April 2015, Governor Brown issued Executive Order B-29-15 (PDF file), which instituted a wide range of water-saving measures. The order directs the State Water Resources Control Board to implement restrictions with a goal of a 25 percent reduction “in potable urban water usage” across the state by February 2016. It directs the Department of Water Resources to lead an effort “to collectively replace 50 million square feet of lawns and ornamental turf with drought tolerant landscapes.” Among many other provisions of the executive order are a ban on watering grass in public street medians and increased use of water-saving technologies.
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Sprinkler04.jpgCalifornia is experiencing a severe drought, which has resulted in substantial restrictions on water usage. This has led to a wide range of responses from homeowners looking to conserve water in regard to their landscaping. Some homeowners are replacing their lawns with hardier plants, gravel or sand, and other methods of xeriscaping. Other homeowners are simply allowing their lawns to go brown. A few homeowner associations (HOAs) around the state, however, have continued to enforce rules regarding lawn care and maintenance. HOAs can enforce their own rules, provided that they do not conflict with other laws. A bill recently signed by the governor brings these HOA restrictions into direct conflict with state law, undoubtedly to the relief of homeowners with dead lawns all over the state.

The drought has left millions of people across California and neighboring states without sufficient water. Many rivers and reservoirs reportedly reached their lowest points in recorded history this year. At least one town lost water entirely as its wells ran dry. Governor Brown declared a state of emergency in January 2014. State officials announced a few weeks later that they would not release water from the state’s reservoir system, choosing to focus on conservation instead.

Despite these dire conditions, a few HOAs are reportedly still enforcing rules regarding lawn maintenance. In one case, a homeowner in San Ramon replaced her lawn with native, drought-resistant plants. This earned her a rebate from the public water utility, but her HOA attempted to fine her $50 per month until she restored sod to her front yard. Homeowners in a development in Indio, in the Coachella Valley, reportedly received a notice from their HOA stating that they had to add grass to their lots by a specified deadline, or they could face a hearing before the HOA board of directors and a fine.
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unique-3-1098685-m.jpgIn the state of California, homeowners associations (“HOAs”) are governed by both bylaws, which establish how the association will be run, and by a declaration of covenants, conditions, and restrictions (“CC&Rs”). In addition, California HOAs must also adhere to several laws, including the Davis-Stirling Common Interest Development Act. A recent court decision and amendments to the Davis Stirling Common Interest Development Act represent expanded authority for Board Members in some instances.

Friars Village Homeowners Association v. Hansing

Following an October 9, 2013 decision by the Court of Appeal in San Diego County, the hurdles for enacting new director qualifications for a HOA may become less onerous. Prior to this decision, HOAs were traditionally required to formally amend their bylaws to establish, clarify, or expand director qualifications, which required a formal vote and approval of the membership. In Friars Village, association member Hansing challenged a rule that prevented two members from the same household serving on the board.

Rejecting Hansing’s argument that the rule established a new qualification that was inconsistent with the bylaws, the Court of Appeal found the rule was reasonable and supported the HOA’s rationale for adopting the rule. Based on the court’s decision here, a Board may adopt a qualification for election to the Board beyond what is set forth in the bylaws as long as the qualification is reasonable and consistent with the HOA’s governing documents and is reasonable. Importantly, this decision may open the door to a potentially broad grant of authority to HOA Boards relating to the adoption of qualifications by rule as opposed to formal votes.
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1260786_62055744.jpgElectronic signatures have become an everyday part of business deals and contracts around the world, beginning in 1996 when the UNCITRAL Model Law on Electronic Commerce was adopted by the United Nations. Three years later, the U.S. Code broadly defined e-signatures in the Uniform Electronic Transactions Act (adopted in the State of California) as “an electronic sound, symbol, or process, attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”

Both the UETA and the Electronic Signatures in Global and National Commerce Act (ESIGN) state that a document or signature cannot be denied legal effect or enforceability solely because it is in an electronic form. Additionally, laws specifically allow electronic signatures to be used in real estate transactions. Up until recently, however, e-signatures were not commonly used in real estate transactions because financial institutions were hesitant to accept electronic signatures on documents relating to real estate transactions. More recently, e-signatures finally began to gain momentum in the real estate industry, with more banks and financial institutions beginning to accept electronic signatures on documents related to real estate transactions.

As in the case with contracts signed on paper in handwriting, legal disputes can also arise concerning the authenticity of e-signatures. For example, a buyer or seller can claim that he or she did not sign or authorize the contract, or the buyer or seller can claim the content of a document is different than the actual document he or she signed. The authenticity of e-signatures can be proven in a variety of ways, including:

• Signer authentication – for instance, verifying a signer’s identity prior to signing or assessing a document by utilizing software that forces the signer to access the software via a link sent to a personal email account

• Activity logs – logs tracking information including the computer the software was accessed from, the software or web pages accessed by the signer

• Data security – information about how the software is physically and electronically secured to prevent tampering after a document is e-signed.
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house.jpgEminent domain is generally associated with the government taking private property from people. However, the City of Richmond is attempting to take a novel approach to this tool by using the power of eminent domain to keep its own residents in their homes. Earlier this month, the City Council of Richmond voted in favor of its mayor’s plan to allow the use of eminent domain to seize underwater mortgages. In doing so, the City of Richmond became the first city in the United States to take such a step toward helping its residents from avoiding foreclosure.

Recent reports highlight why the city might be considering taking such a drastic step. According to recent reports, in 2012, 914 families in Richmond lost their homes to foreclosure. In addition, not only were 4,649 Richmond residents underwater on their mortgages (49% of all mortgages in the city) by over $700 million combined, but these foreclosures have come at a great cost to the city. In 2012, there was a $1.4 million decline in property tax revenues to the city of Richmond, including $7.9 million cost to the local government.

The city hopes to acquire the mortgages with negative equity so that the families can stay in their homes. Since the City of Richmond does not have money to take on these loans alone, they joined with investment firm Mortgage Resolution Partners (MRP) to sort out a plan to prevent banks from foreclosing on the homes. More specifically, if the city goes forward with the plans, the city would seize the underwater mortgage through eminent domain. Then, investors brought together by MRP would pay off bondholders at close to the current appraised value, and eventually line up a new mortgage lower than the previous amount.
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1193075_monthly_fees_2.jpgMortgage discrimination is against the law. The federal Equal Credit Opportunity Act (ECOA) makes it illegal for a creditor to discriminate against an applicant on the basis of race, color, religion, national origin, sex, marital status, age, or whether an individual receives public assistance. Notably, if an adverse action is taken against an applicant, even if the applicant is not a member of a protected class listed above, the applicant is entitled to a statement of reasons for the adverse action. In this context, an “adverse action” includes the following: (1) denial or revocation of credit, (2) a change in the terms of an existing credit arrangement, or (3) a refusal to grant credit in substantially the same amount or terms requested. Importantly, a creditor is not required to provide notice of the “adverse action” if the applicant is delinquent or otherwise in default.

A recent decision by the Court of Appeals for the 9th Circuit ruled that a lender who forgot they modified a loan and began foreclosure might be in violation of the Equal Credit Opportunity Act. More specifically, in Schlegel v. Wells Fargo Bank NA, the borrowers took out a $157,000 loan in 2009. The loan, secured by their home, was assigned to Wells Fargo. The borrowers thereafter went into default and filed bankruptcy in 2010.

At that time, Wells Fargo offered to extend the term of the mortgage. The loan modification was then approved by the bankruptcy court and became effective July 1, 2010. Despite all of this, before the first payment was due, and only 10 days after the bankruptcy charge was entered, Wells Fargo sent a default notice threatening to accelerate the full balance of the loan. When the Schlegels received the notice, they contacted the bank, which told them to proceed with the loan modification.
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us capitol.jpgLockaway Storage v. County of Alameda

On May 9, 2013, the California Court of Appeal issued a ruling in Lockaway Storage v. County of Alameda with positive implications for property developers. More specifically, the court’s decision may make it easier for developers to allege damages caused by project delays.

In Lockaway, plaintiff Lockaway Storage purchased an 8.45 -acre parcel of land in Alameda County in May 2000. A year prior, the County approved a conditional use permit (“CUP”) for the property that authorized its use a storage facility for recreational vehicles and boats. However, in November 2000, only 6 months after Lockaway purchased the property, voters in Alameda County passed Measure D, which prohibited the development of a storage facility in the area where Lockaway’s property was located, except by public vote.

Since Measure D contained a grandfather clause providing that the ordinance did not affect existing uses that were legal at the time the ordinance became effective, Lockaway continued to the develop its property. During this time, the County planning department assured Lockaway that the ordinance did not prevent Lockaway’s development plans. Nonetheless, despite the grandfather clause and the County’s repeated assurances, on August 30, 2002 the County planning department reversed course and informed Lockaway that it had to obtain a new CUP by September 22, 2002 to proceed with its project. The County denied Lockaway’s extension request, and when Lockaway did apply for a new CUP before the deadline under protest, it was denied. By this time, Lockaway had spent $800,00 to purchase the property and another $400,000 on the storage facility project.

Following the County’s denial, Lockaway filed a lawsuit against Alameda County, alleging that the County’s conduct amounted to temporary taking under the Fifth Amendment. The trial court agreed and found that the County’s conduct constituted a temporary taking, meaning the government took private property for public use without just compensation.

The Court of Appeal affirmed, finding that the Lockaway project was exempt from the use restrictions of Measure D, and therefore the suspension of Lockaway’s project amounted to a constitutional taking. More specifically, the court found that, even though Lockaway’s property was not rendered useless after the County refused to allow Lockaway to continue the project, the County’s decision had a “devastating impact on Lockaway” and deprived the company of “a meaningful opportunity to protect its property rights.”

This decision shows a potential shift towards overreaching growth control measures by the government and may lead to more court judgments in favor of property owners for temporary and partial damages due to property as a result of subjective actions by city and county planning departments.
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for sale.jpgIt is well known that in the years leading up to the financial crisis, too many mortgages were made to consumers without taking into account a consumer’s ability to repay the loans, contributing to a mortgage crisis that led to a serious recession in the United States.

In response to lessons learned from the financial crisis, the U.S. government implemented a variety of rules and regulations hoping to prevent future crises, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) passed by Congress in 2010. The Dodd-Frank Act requires that for residential mortgages, creditors must make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan.

Most recently, in January 2013, the Consumer Financial Protection Bureau (CFPB)–the agency charged with implementing the Dodd-Frank Act–issued a final rule, referred to as the Ability-to-Repay/Qualified Mortgage rule (“ATR/QM Rule”). The rule, which will go into effect January 2014, not only forces mortgage lenders to consider a consumers’ ability to repay home loans before extending them credit, but also establishes a new category of loans that have more stable features called Qualified Mortgages (“QMs”). The new measures do not set minimum down payment amounts or credit score requirements. Finally, although the ATR/QM Rule applies to most mortgage loans, it excludes certain types of loans, including home equity lines of credit, timeshare plans, reverse mortgages, and temporary loans.

Ability-to-Repay Rule

The Ability-to-Repay rule has a variety of features, including the following:

• To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan;
• Lenders must determine a consumer’s ability to repay both the principal and the interest over the long term–not just during the introductory period; and
• A potential borrower must supply verifiable financial information to the lender (e.g., W-2, pay stubs)

Specifically, the lender must generally consider the following information:

1) Current or reasonably expected income or assets;
2) Current employment status;
3) The monthly payment for the mortgage;
4) The monthly payment on any other mortgage loans received at the same time;
5) The monthly payment for other mortgage-related expenses (e.g., property taxes)
6) Other debts (e.g., alimony and child support);
7) Monthly debt payments, including the mortgage, compared to consumer’s monthly income (“debt-to-income ratio”); and
8) Credit history

Qualified Mortgage Rule

In addition to the new guidelines, the final rule also creates a new category of loans, Qualified Mortgages, where borrowers would be the most protected. A QM cannot include risk features, such as extending beyond 30 years, nor can it include exotic terms like interest-only payment or negative-amortization payments where the principal amount increases. Moreover, a mortgage will only qualify as a QM if the borrower’s total monthly debt (including car loans, student loans, credit card debt, etc.) is less than 43% of the borrower’s monthly pre-tax income. Finally, mortgages in which fees and points cost more than 3% will not be considered QMs. Temporarily, QMs can also be loans that can be bought by Fannie Mae or Freddie Mac, or insured by certain government agencies, such as the Federal Housing Administration.
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Thumbnail image for sacramento.jpgIn September 2012, Gov. Jerry Brown signed Senate Bill 1186 into law, which attempts to reform California’s disability access laws. The law is aimed at helping businesses comply with the American Disabilities Act (“ADA”) and hopes to curb ADA lawsuits against small businesses in California. In addition, according to Senate President Pro Tem Darrell Steinberg, D-Sacramento, one of the bill’s sponsors, SB 1186 will provide incentives for business owners to fix the violations and enhance accessibility. Though the new legislation tightens disability access laws to further reduce past abuses and protect business and property owners against frivolous lawsuits, the law also imposes additional obligations on building property owners and tenants. Below is a summary of some of the provisions contained within SB 1186.

Demand Letters and Advisories

Effective January 1, 2013, SB 1186 places limits on the contents of demand letters sent by lawyers to property owners or tenants alleging that a business premise is not fully accessible. First, pursuant to the new law, lawyers are prohibited from sending “demand for money” letters to business owners or tenants, requesting payment from business owners in exchange for an agreement to not file a lawsuit. These demand letters must also state sufficient facts for a “reasonable person” to identify the basis of the claim. More specifically, these letters must:

• State the particular barrier their client faced;
• Indicate the date the barrier was encountered;
• Describe how the barrier interfered with their client’s full access or deterred them from visiting the business;
• Include the attorneys’ California State Bar Number; and
• Be sent to both the State Bar and the California Commission on Disability Access

In addition to any demand letter sent, SB 1186 also requires attorneys to send an advisory letter, listing any alleged construction-related violations, at least 30 days before filing a lawsuit. The Judicial Council will update a form that may be used by attorneys to comply with the new advisory requirements by July 1, 2013. In the meantime, attorneys will likely send these advisories in the form of a letter. These advisories must provide certain information to property owners, including but not limited to the owner’s legal rights and obligations, websites where information can be found on how to comply with disability laws, and a statement advising the owner to seek advice of legal counsel and contact their insurance carrier.

If you receive a demand letter or advisory, it is important to make sure that the letter satisfies each of these requirements. If an attorney fails to comply, he or she may be subject to disciplinary action by the State Bar of California.
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