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Real Estate Legal Q & A

Broker Involvement is a Key Exemption to California’s Usury Law

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What is “usury”, and how are you protected from it?

In making of loans to conventional real estate buyers and “flippers”, investors should remember that for most private transactions, California enforces its usury law against What is usury?excessive interest charges, with certain exemptions for seller carry back loans, and loans “made or arranged” by a licensed broker.

Usury is defined as charging a rate of interest in excess of the legal limit, and for personal, family or household purposes it is 10% per year, and for loans for “any other purpose”, the legal rate is either 10% per year, or 5% per year plus the federal discount rate that exists on the 25th day of the month preceding the date of the loan contract or date the loan was made, whichever is greater. The rate is set by California’s constitution, but there are exceptions for federal banks, credit card companies, and other institutional lenders, including the VA and FHA.

Investment loans used to purchase, build or improve real estate, also known as “hard money loans”, are considered loans for “any other purpose” and are subject to the higher of the 10% rate or the rate based upon the federal discount rate. Read more Broker Involvement is a Key Exemption to California’s Usury Law ›

Who’s At Fault When a Real Estate Transaction Doesn’t Close? Section 3543 May Be A Tie-Breaker

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With Deception, Comes Consequence

For transactions with a middleman that deceives both the seller and buyer, section 3543 of California’s Civil Code can break the tie where both parties are negligent, statingSection 3543 can break ties in real estate negligence where one of two innocent persons must suffer by the act of a third (i.e., middleman), he, by whose negligence it happened, must be the sufferer. Huh? What does not mean in simple English?

In other words, if both parties are negligent in closing a sale after being deceived by the middleman, the one who is more responsible for the loss must suffer and bear the loss. That appears easier to understand, but the application of section 3543 depends on the facts.

First, being the victim of deception can be interpreted as negligence or unreasonable conduct, a rather sad commentary on our internet society that almost demands that you mistrust, confirm and verify everything you may be told. So it may not be enough to prevail by claiming there was no resisting the false promises or conduct of the middleman. Read more Who’s At Fault When a Real Estate Transaction Doesn’t Close? Section 3543 May Be A Tie-Breaker ›

Legal Documents: How You Sign is as important as What You Sign

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What is your liability when signing legal documents?

Legal documents are frequently prepared by the professionals involved in the transaction, such as escrow or title companies, but it is important that the signer of  the Legal Documents: How you sign is as important as what you signdocuments carefully review the manner in which the signer’s name is set forth on the documents, and in what capacity he signs the documents, especially if the party to the transaction is a legal entity such as a corporation or limited liability company.  Unless the document is signed “By”, or “as President”, or “as Managing Member”, it may be determined that the document was signed in an individual capacity, with personal liability for the signer.  Such a result defeats the corporate shield, the main purpose of entering into contracts as a corporation or limited liability company.  In California, it is essential that the documents disclose the identity of the principal (e.g., trust, corporation, limited liability company) to relieve the agent (i.e., signer) from liability.  If the principal is not sufficiently disclosed, the agent may be found to be personally liable on the contract.  The simple addition of the word “By” on the signature line would reveal that the other party was dealing with a corporation or other entity that was liable, and not the agent signing the document.  In addition, the signer can specify his officer position with the corporation such as “as President” or “as Secretary” to further guard against personal liability. Read more Legal Documents: How You Sign is as important as What You Sign ›

Taking the Mystery Out of Short Sales

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Taking the mystery out of short salesQ: The value of my residence is less than the amount that I owe on the mortgage, and because I lost my job, I cannot continue to make the loan payments. Do I have any option other than losing the property to foreclosure?

A: Given the one‐two punch of falling property values and increasing unemployment, the number of homes with debt that exceeds their value, and the owners inability to keep payments current, have caused short sales to become an increasing share of the market. Whether a short sale is a better alternative than foreclosure is subject to many factors, including the flexibility of seller and buyer, and convincing the lender that it can get a better deal from the short sale than the inevitable foreclosure. The keys to a successful short sale are patience, persistence, and a convincing package that satisfies all of the lenders’ requirements. Read more Taking the Mystery Out of Short Sales ›

Upper Land Owners Must be Reasonable in Diverting Surface Water

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With the recent fire in the hills where I reside, and the rains that have caused severe mud slides that appear to be heading my way, how can I protect my property and not get sued by the lower owners?Q: With the recent fire in the hills where I reside, and the rains that have caused severe mud slides that appear to be heading my way, how can I protect my property and not get sued by the lower owners?

A: In California, water that is diffused over the surface of the land and resulting from rain, snow, or springs is known as “surface water”. The mud flows from burn areas are caused by heavy rains on the denuded slopes, and the resulting surface water carries mud and debris downhill. Surface water is different from water flowing in a fixed channel such as a river or stream, or the extraordinary overflow of rivers or streams that is termed “flood water”.

One of the three basic rules that courts follow in the United States in considering ground water cases is termed the “common enemy doctrine”, and it holds that each landowner has an unqualified right as the owner of his land to fend off surface waters without being required to consider the consequences of water diversion methods to other landowners. In other words, every owner for himself. This doctrine was followed in Hawaii, Washington, North Dakota, New York, and Massachusetts, among other states. Read more Upper Land Owners Must be Reasonable in Diverting Surface Water ›

Protection of California’s Anti-Deficiency Law Depends Upon the Lender and the Type of Loan

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Forry Law Group: Real Estate and Civil AttorneysQ: I obtained a loan to purchase my single family residence in 2002 from Bank 1, and then I obtained a line of credit secured by a second deed of trust on my residence in 2005 from Bank 2. Although I remain employed, the value of my property is less than the amount I owe on both loans and I have stopped paying the mortgages. If Bank 1 forecloses on its loan to me, will I still be liable for the amount I owe to Bank 2 on its loan?

A: A determination regarding whether a borrower remains liable for a debt secured by real property depends upon whether the California antideficiency statutes provide protection from a deficiency judgment. A deficiency judgment is a personal money judgment against the debtor for the difference between the price realized for the secured property at a foreclosure sale, and the balance remaining on the deed of trust being foreclosed and any other loans on the property. Read more Protection of California’s Anti-Deficiency Law Depends Upon the Lender and the Type of Loan ›

Overhanging Branches from a Neighbor’s Tree Can Be Cut

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Q: My neighbor's camphor tree has branches that overhang the wall between our properties, and its roots are extending into my yard and damaging both the wall and my patio deck. Can I cut the branches and roots and bill my neighbor? A: With recent developers positioning houses very close to the property lines to maximize the number of houses in the development, it is more common for branches and roots of a tree to extend over and into the property of the adjacent owner. Although the adjacent owner has rights to cut the intruding branches and use any overhanging product, such as fruit, both the tree's owner and the adjacent owner have certain duties and responsibilities depending upon the particular circumstances. First, the location of the trunk of the tree determines who owns it, even if the roots grow into the land of another. If the tree is located directly on the boundary line between the properties, then both landowners have common ownership of the tree which affects application of the rules described below. Neither owner has a right to cut down a tree on the property line or cut any part without the consent of the other owner, even if the tree is causing damage. The most common situation is a tree owned by a neighbor that has branches or roots, or both, that intrude over and into the property of the adjacent landowner. The rights and liabilities of the landowners depends upon the particular circumstances created by the nature and extent of the encroachment. Both the tree's owner and the adjacent owner should try and agree on a remedy to the encroaching roots before either takes any action. It is always beneficial to document any attempt to have a tree's owner act reasonably to limit encroachments caused by the tree because if a court action is ultimately required, the documentation will demonstrate the good faith of the adjacent landowner to resolve the dispute before resorting to self‐help or legal action. The tree's owner is responsible for any damages that are caused to the adjacent owner from falling branches or roots. So it is in the best interest of the tree's owner to control the growth of the tree so it does not create a source of potential damage to the adjacent landowner. In the situation where a tree is located entirely on the neighbor's property, and reasonable good faith efforts to resolve the dispute are unsuccessful, then the adjacent landowner has certain rights. For example, the adjacent owner can cut the branches and can collect any product, such as fruit, that overhangs his property. However, the branches can only be cut back to the property line. The adjacent owner cannot enter the neighbor's property and cut the tree down. Such conduct would be viewed as trespass of the neighbor's property and exposed the adjacent owner to a claim for damages based upon the value of the tree. If the court determines that the cutting down of the tree was willful and malicious, the tree's owner may recover treble damages under Civil Code, section 3346, and Code of Civil Procedure, section 733. If the branches are so extensive or high that a profession arborist is required to remove the encroachment, the bill can be sent to the owner of the tree, and if payment is refused, a small claims action can be filed to recover damages in the form of the cost of removal. If the roots of the tree extend onto the property of an adjacent property, then the tree owner is responsible for a trespass and the owner of the adjacent property can cut the roots if they are causing damage. Therefore, while there is an absolute right to cut back encroaching branches, encroaching roots can only be cut if there is evidence of damage to the adjacent property. If the roots are cut when there is no damage evident, then the tree's owner may recover damages if the tree is damaged. Encroaching branches and roots that cause or threaten damage may constitute a nuisance and a court may agree to issue an injunction against the encroachment. However, in order to obtain the injunction, the court will typically require a showing the branches or roots are causing damage or otherwise interfere with the use and enjoyment of the adjacent landowner's property. The best course of action when a neighbor's tree is encroaching is to discuss the issue and attempt to work out a solution with the neighbor, and if an agreement can be reached, then the terms should be reduced to writing and signed by both parties. Before using self‐help or filing a court action, written communications should be sent to document the nature and extent of the good faith efforts to resolve the dispute. But if all else fails, then the general rules outlined above should be considered, and professional advice obtained, before taking any action. The opinions expressed in this article are those of the author and not the Daily News. Individual circumstances may vary and professional advice is recommended before making decisions.Q: My neighbor’s camphor tree has branches that overhang the wall between our properties, and its roots are extending into my yard and damaging both the wall and my patio deck. Can I cut the branches and roots and bill my neighbor?

A: With recent developers positioning houses very close to the property lines to maximize the number of houses in the development, it is more common for branches and roots of a tree to extend over and into the property of the adjacent owner. Although the adjacent owner has rights to cut the intruding branches and use any overhanging product, such as fruit, both the tree’s owner and the adjacent owner have certain duties and responsibilities depending upon the particular circumstances.

First, the location of the trunk of the tree determines who owns it, even if the roots grow into the land of another. If the tree is located directly on the boundary line between the properties, then both landowners have common ownership of the tree which affects application of the rules described below. Neither owner has a right to cut down a tree on the property line or cut any part without the consent of the other owner, even if the tree is causing damage. Read more Overhanging Branches from a Neighbor’s Tree Can Be Cut ›

Hostile Use of Land Can Create a Prescriptive Easement and Loss of Exclusive Use

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Hostile Use of Land Can Create a Prescriptive Easement and Loss of Exclusive Use Q: For a long time, my neighbor has used a trail across my backyard, even though I repeatedly told him he was trespassing. He recently told me that he would continue to use the trail and there was nothing I could do about it. Is he right, and what can I do to prevent his use of the trail?

A: There are many types of real property concepts that have continued since the middle ages, but a prescriptive easement is one of the more egregious types because it enables a person who is not an owner and who has repeatedly trespassed despite objections, to have the right to use the land together with the rightful owner. Once established, the prescriptive easement lasts forever, and must be disclosed as a cloud on the title to the property that can reduce the value of the property. Therefore, an owner must be vigilant when another person is repeatedly using the land. Read more Hostile Use of Land Can Create a Prescriptive Easement and Loss of Exclusive Use ›

Every Owner Should Record a Homestead Declaration to Protect Equity in a Residence from Creditors

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A Homestead Declaration can protect your equity from creditorsQ: I own my residence with my wife and a friend mentioned that I should record something called a declaration of homestead because I have been sued and a judgment may be entered against me, but I do not know what it is, how to prepare it, or what benefit it may provide to me. Should I prepare and record a homestead declaration and what do I need to do to have it become effective?

A: So long as the statutory specified procedures are followed, any owner of a residence can declare that it is the owner’s homestead. Article XVII of the California Constitution creates the right and the California Code of Civil Procedure, sections 704.720 through 704.995 provide the statutory procedures that must be followed to declare a homestead. The owner does not have to be a citizen of the United States, and an unmarried person can record a declaration on his or her undivided interest in the property that is owned in co‐tenancy with the other owner. Read more Every Owner Should Record a Homestead Declaration to Protect Equity in a Residence from Creditors ›

A 1031 Tax Deferred Exchange Can Delay Payment of the Taxes Owed On the Sale and Subsequent Purchase of Business and Investment Property

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Forry Law Group: Real Estate and Civil AttorneysQ:  I have a residence that I have been renting and I want to sell it, delay payment of the capital gain tax, and then purchase an office building.  Can I use a 1031 tax deferred exchange to delay payment of the tax I would otherwise have to pay?

A:  Subject to the extensive tax code and rules and regulations of the IRS, the use of an exchange of property under section 1031 of the tax code should be considered as a method of delaying payment of the capital gains tax owed on the proceeds of the sale of relinquished property.  However, it is a relatively complex transfer of real property that has significant tax issues, and the advice of a qualified and trustworthy accommodator should be sought before making a decision about using a 1031 tax deferred exchange. Read more A 1031 Tax Deferred Exchange Can Delay Payment of the Taxes Owed On the Sale and Subsequent Purchase of Business and Investment Property ›