AUGUST 2008: 

CALIFORNIA CASES ON REAL ESTATE

CITY LIABLE FOR FLOODING CAUSED BY STATE HIGHWAY

City of Cloverdale v. Department of Transp. (August 29, 2008)

--- Cal.Rptr.3d ----, 2008 WL 3982075 (Cal. App., 1 Dist)

            City held liable for flooding caused by building of highway by State Department of Transportation.  Under California Streets and Highways Code Section 73, the State may relinquish to a city title to a highway.  The Court of Appeal held that this includes title to drainage channels.  The City could have fought this administratively, but it failed to do so.  In an unpublished part of the decision, the Court discussed possible equitable indemnity by the State for damages to private landowners which the City had to pay.

AFFORDABLE HOUSING LAW UPHELD

Action Apartment Ass'n v. City of Santa Monica (August 28, 2008)

--- Cal.Rptr.3d ----, 2008 WL 3971764 (Cal. App. 2 Dist)

            The Court of Appeal upheld a trial court order which had dismissed a challenge to an ordinance enacted by the City of Santa Monica which requires developers of multi-family dwellings to build affordable housing units.  The ordinance was challenged under the Fifth Amendment to the U.S. Constitution which prohibits government “taking” of private property without compensation.  Under established law, if a property is not actually taken by the government, but burdened by regulation, such government “exactions” are sometimes measured by the “rough proportionality” test of Dolan v. City of Tigard (1994) 512 U.S. 374, 386-391,  114 S. Ct. 2309, 129 L.Ed. 2d 304 and Nollan v. California Coastal Commission (1987) 483 U.S. 825, 836-837, 107 S. Ct. 3141, 97 L. Ed. 2d 677.   The Dolan/Nolland test, however, applies only to individual decisions, such as zoning variances, and not to generally applicable ordinances. 

WILLIAMSON ACT CHANGES APPLIED RETROACTIVELY

County of Humboldt v. McKee (August 15, 2008)

__ Cal. Rptr. 3d __, 2008 WL 3582739 (Cal. App. 1 Dist).

            Humboldt County changed the minimum size of agricultural preserve parcels under the Williamson Act from 160 acres to 600 acres.  The Court of Appeal found that this change applied retroactively to existing contracts.  Under the Williamson Act, Government Section 51200 et seq., counties are authorized to enter long-term contracts with landowners.  Under such a contract, the landowner promises to preserve the agricultural character of land, and, in exchange, gets an assured low property tax.

CITY CAN BE SUED TO FORCE REMOVAL OF FENCE

Kempton v. City of Los Angeles (August 13, 2008)

81 Cal.Rptr.3d 852, (Cal. App. 2 Dist.)

            Homeowner can sue city in equity for an injunction for public nuisance when neighbor erects fence on public property which blocks the sidewalk and causes danger of accident to plaintiff.   A public nuisance is one that affects an entire community.  Blocking a public sidewalk is a public nuisance per se.   A private person can sue a city to abate a public nuisance only when that individual suffers a special injury different in kind, not just degree, from the general public.  Fear of an accident to a particular neighbor is such a special inury.

SURVEYOR’S FIELD NOTES PREVAIL OVER PLAT MAP

Claudino v. Pereira (August 12, 2008)

--- Cal.Rptr.3d ----, 2008 WL 3319267 (Cal. App. 3 Dist.)

            In a boundary dispute, the field notes of the original surveyor were held to prevail over the plat map.  Because the property description was ambiguous, the trial court properly considered extrinsic evidence in resolving ambiguity.

CITY MAY NOT CLOSE STREET ON TIDELANDS WITHOUT HEARING

Zack's, Inc. v. City of Sausalito (August 11, 2008)

165 Cal.App.4th 1163, 81 Cal.Rptr.3d 797 (Cal. App. 1 Dist)

            A city may not lease a public street to a private party, without compliance with Streets and Highways Code Section 8309 and related statutes.  These require a public hearing before the public can be barred from use of a public street.  The private party may sue for nuisance, if the city withdraws a street from public use without compliance with these laws.  The City in this case argued that it was exempt from the ordinary rules, because the lands were reclaimed tidelands, which are subject to many different laws.  The Court of Appeal rejected this contention.

BROKER OWED COMMISSION THOUGH SALE CANCELLED, AND

LISTING AGREEMENT HAD NO END DATE

Schaffter v. Creative Capital Leasing Group, LLC (August 11, 2008)

--- Cal.Rptr.3d ----, 2008 WL 3274444 (Cal. App., 4 Dist.)

A speculator backed out of contracts to buy condominiums, because they did not appreciate in value.  He owed the broker a commission, because he had defaulted.  The buyer and seller had agreed to cancel the contracts; the Court found this irrelevant to the broker.  The listing agreement was to end “when escrow closed.”   This violated the prohibition in Business & Professions Code Section 10176 upon listing agreements without a definite end date.  The buyer cited Dale v. Palmer (1951) 106 Cal. App. 2d 663, that such contracts are void.  The Court of Appeal declined to follow Dale but instead followed Wilson v. Stearns (1954) 123 Cal. App. 2^nd 472 which held that whether such contracts are voidable in a particular case is a factual question.  In this case, the issue had not been raised at trial, so the facts were not developed.

NEW LAW SEEKS TO AVOID FORECLOSURES

            Seeking to encourage workouts rather than foreclosures, the California Legislature passed Senate Bill No. 1137, effective September 8, 2008.  The bill substantially changes existing foreclosure law in a number of ways.

Delay and Discuss Before Foreclosure

            First, the law delays foreclosure and requires discussion.  Under existing law, the first step in a nonjudicial foreclosure is the filing of a “notice of default,” which can be filed immediately after a missed payment.  Now, a notice of default may not be filed until thirty (30) days after the lender contacts the borrower to “explore options …to avoid foreclosure.”  Civil Code Section 2923.5. 

            A lender must comply with specific rules.  CC 2923.5(g).  A letter must be sent, with a toll-free telephone number to find a HUD-certified counseling agency.  CC 2923.5(g)(1).  The lender must make three attempts to call the borrower, at different times and on different days.  Automated dialing machines may be used, but, if the borrower answers, a live representative must speak.  CC 2923.5(g)(2).  If the borrower does not respond in two weeks, the lender must send a certified letter.  CC 2923.5(g)(3). 

            The lender or its agent must provide “a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.”  CC 2923.5(g)(4).   In our opinion, this provision is important and useful; we have had clients spend days trying to telephone their lender, who never got through.   Finally, CC 2923.5(g)(5) gives a detailed listing of what information the lender must post prominently on its website.  

            None of these rules apply if: (1) the borrower has surrendered the property; (2) the borrower has contracted with a business whose primary business is assisting lenders who have decided to abandon their homes how to drag out the process; and (3) the borrower has filed for bankruptcy.  CC 2923.5(h).

Encourage Workouts; Can Unreasonable Lenders Be Sued?

            Workouts often make good economic sense.  Nonetheless, borrowers often refuse to discuss them.  Civil Code Section 2923.6 tries to change this.

In the typical situation, the mortgage is for more than the house is worth.  If the lender forecloses, it gets only the value of the house, minus the delay, expense and aggravation of foreclosure.  The lender can thus often make more money, long term, if it agrees to reduce the loan amount to a level the borrower can pay.  Lenders often refuse to consider this, however, because they see it as their duty to be “tough.”

            CC 2923.6 tries to change this logic. It seeks to do this, in an elaborate and indirect way.  First, it provides that “any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, not to any particular parties…”  Second, it provides “that a servicer acts in the best interests of all parties” if it agrees to modify a troubled loan in such a way that the anticipated long term recovery is greater than that would be obtained in foreclosure.

            What does this mean?  The obvious intent of the law is to shield loan servicing agents who are sued by their clients for being reasonable to borrowers.

            Is the law also a sword?  Can borrowers sue lenders or their agents, if they refuse to be reasonable?  The law does not say.    Expect to see a borrower’s lawyer make this argument soon, and for the loser to take the issue up to the Court of Appeal.

Protect Tenants in Foreclosed Properties

            Gibson Law has had many clients approach us recently with the following situation.  The client leases a house, and has paid rent regularly.  The homeowner, however, has not used the rent to pay the mortgage, so the property is being foreclosed upon.  What are the tenant’s rights when foreclosure occurs?

            Subject to some odd exceptions, under current law the new owner can evict a tenant from a foreclosed property after being thirty days notice.  Newly enacted Civil Code Section 2924.8 gives tenants two new protections.  First, the tenant must be given notice of the foreclosure sale, via posting on the property.  Second, the thirty day notice period before eviction is increased to sixty days.  Code of Civil Procedure Section 1161b. 

Foreclosed Properties Must Be Maintained; $1,000 a Day Fines

            Foreclosures often reduce property values, both by the foreclosure process itself and because the new owner (who is often an institution rather than a family wishing to live in the home) fails to maintain the property.  Civil Code Section 2923.6 provides that properties obtained in foreclosure must be maintained.  “Maintaining” a property is defined as failing to care for the exterior of the property, including failing to cut the grass and other plans, failing to evict trespassers or squatters, and permitting mosquito larvae to grow in standing water.  Violators of this law may be fined up to $1,000 a day by local government agencies. 

Limitations on Application of Law

            Most of the new law applies only to residential mortgage loans made between January 1, 2003 and December 31, 2007.  The law expires on January 1, 2013, unless it is extended.