Articles Posted in Real Estate

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Without financing, home ownership would likely remain out of reach for most people in this country. Few homebuyers have the means to pay the full purchase price in cash. Mortgages typically include a deed of trust granting the lender the right to foreclose on the property. The foreclosure process allows the lender to recover some or all of their investment if a borrower defaults. Most deeds of trust include a “power of sale” clause, which allows a trustee designated by the lender to sell the property without a court order. This is known as nonjudicial foreclosure. California foreclosure law protects homeowners by requiring trustees and lenders to follow a rigid process before selling a property. Federal law protects consumers from unscrupulous debt collection practices, but courts have reached differing conclusions about whether federal debt collection laws apply to nonjudicial foreclosure. The U.S. Supreme Court recently agreed to hear a case that raises this question, Obduskey v. McCarthy & Holthus LLP.The federal Fair Debt Collection Practices Act (FDCPA) prohibits “abusive, deceptive, and unfair debt collection practices” by debt collectors. 15 U.S.C. § 1692(a). It defines “debt collectors” as anyone who “collects or attempts to collect” debts owed to other people or businesses in interstate commerce, or who engages in such activities as a regular business. Id. at § 1692a(6). In addition to its prohibitions on misleading and abusive practices, the FDCPA also requires debt collectors, after contacting a consumer regarding an alleged debt, to provide them with information validating the debt. Id. at § 1692g.

California’s nonjudicial foreclosure laws also require notice and disclosures to debtors. A mortgage lender or trustee must provide notice to a borrower at least 30 days before filing a notice of default in the public record, and it cannot conduct a sale of the property for several months after that. Cal. Civ. Code §§ 2923.5, 2924. California homeowners’ associations (HOAs) can pursue nonjudicial foreclosure as a remedy for unpaid assessments, but only if the total delinquent amount is at least $1,800, or the delinquency has persisted for over 12 months. Id. at § 5730. In addition to various notice requirements, an HOA’s board must vote on the foreclosure at least 30 days before they may sell the property. Id. at § 5705.

The dispute in Obduskey arose from allegations that, among other violations, the lender failed to follow the procedures for validating the debt under § 1692g of the FDCPA. A Colorado federal court dismissed the lawsuit, finding that the lender was not a “debt collector” within the meaning of the FDCPA because it was responsible for servicing the loan before the plaintiff went into default. Obduskey v. Wells Fargo, 879 F. 3d 1216, 1219-20 (10th Cir. 2018). In other words, its responsibilities went beyond merely collecting unpaid amounts owed by the plaintiff.

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California real estate development involves numerous potential risks, ranging from lost money on an investment to legal liability for injuries caused by hazards or defects. Determining who is liable for an injury often requires an extensive examination of ownership and any improvements made to the property. The owner of a piece of real estate might be liable for an injury caused by a hazard on their property under the theory of premises liability. Injuries—both personal injuries and financial losses—could also be a result of negligence by someone hired to work on the property. In 2014, the California Supreme Court ruled on a dispute between a homeowners association (HOA) for a San Francisco condominium project and two architectural firms involved in designing the project. The plaintiff alleged, on behalf of all of the homeowners, that negligent architectural designs led to defects that “made the condominium units uninhabitable and unsafe during certain periods due to high temperatures.” Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP, 59 Cal.4th 568, 572 (2014). The court ruled in the plaintiff HOA’s favor.

One of the fastest growing forms of residential property is the “common-interest development,” in which separately owned residential units share common areas such as elevator lobbies, fitness centers, and pools. Developers create HOAs as private nonprofit organizations to handle the management and maintenance of common areas. An HOA has a legal duty, under premises liability law, to maintain common areas that are reasonably free of defects or hazards, and to warn residents, their guests, and others of known hazards on the premises. The Beacon case, in contrast, was about duties owed to an HOA with regard to defects on the property.

The plaintiff in Beacon was the HOA created for a 595-unit residential condominium project in San Francisco. The developer hired the defendants to “provide architectural and engineering services.” Beacon, 59 Cal.4th at 571. The defendants were aware “that the finished construction would be sold as condominiums.” Id. The plaintiff’s lawsuit alleged negligent design, which caused “several defects, including extensive water infiltration, inadequate fire separations, structural cracks, and other safety hazards.” Id. at 572. The allegation of uninhabitability during summer months arose from “solar heat gain” caused by a lack of ventilation and substandard windows. Id.

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California real estate law allows the creation of homeowner associations (HOAs) to govern certain types of properties, known as “common interest developments” (CIDs). An HOA is responsible for maintaining a CID’s common areas, and it has the authority to collect fees from homeowners to pay for maintenance. When an HOA negligently fails to maintain a common area, the HOA may be liable for injuries that occur as a result. A recent appellate court decision from New Jersey addressed HOAs’ duty of care to residents and others. It is worth revisiting California law on this issue.

Determining a property owner’s liability for an injury occurring on their premises involves two important distinctions:

– First, did the injured person have permission to be on the property? A property owner owes a minimal duty of care to a trespasser, meaning someone who enters their property without permission.

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Any business that operates a “brick and mortar” location that is open to the public is subject to laws that address accessibility for people with disabilities. The Americans with Disabilities Act (ADA) of 1990 established rules and guidelines for businesses in California and around the country. The statute prohibits any business operating a “public accommodation” from discriminating against individuals on the basis of a disability. Failing to provide reasonable accommodations to people with disabilities can result in administrative penalties and civil liability to aggrieved individuals. A bill currently pending in the U.S. Congress, however, could limit individuals’ ability to bring suit under the ADA. H.R. 620, also known as the ADA Education and Reform Act (AERA) of 2017, would require complainants to provide notice to business owners about “architectural barriers to access,” and it would only allow a California discrimination lawsuit if the business fails to respond adequately.

The ADA defines “public accommodation” broadly, including hotels and other lodging facilities, restaurants and bars, theaters and exhibition spaces, auditoriums and other event spaces, retail establishments, service establishments like laundromats and gas stations, public transportation depots, parks and other recreational areas, schools, shelters and other social service establishments, and exercise or recreational facilities like gyms or bowling alleys. 42 U.S.C. § 12181(7). In short, any business that is open to the general public is likely to meet the ADA’s definition of a public accommodation.

Businesses that operate public accommodations may not discriminate “in the full and equal enjoyment” of whichever goods or services the business provides because of a customer’s disability. Id. at § 12182(a). This means that businesses cannot deny service to a person because of a disability, much as they cannot discriminate on the basis of race or religion. It also means that businesses, whenever practicable, must remove architectural barriers that prevent access by people with disabilities, and they must provide facilities that allow such access. Id. at § 12183; 28 C.F.R. §§ 36.304, 36.401.

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Real 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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California 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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California 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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In 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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Electronic 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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Eminent 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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