Law Firm Obtains Dismissal of Wrongful Foreclosure Action - December 21, 2011

Shannon B. Jones Law Group recently successfully defended a broker and agent in a lawsuit filed in federal court by a borrower alleging that their property had been wrongfully foreclosed. The borrowers asserted claims against the real estate agent claiming that the agent was somehow involved in the wrongful foreclosure and had wrongfully discarded their personal possessions after the foreclosure. Our office filed a motion to dismiss. When faced with the motion to dismiss, the plaintiffs voluntarily dismissed the action without receiving any form of compensation. Shannon B. Jones and David M. Austin defended this action.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Upholds Jury Verdict in Favor of an HOA Arising out of the Installation of Solar Panels- December 20, 2011

In Teroso Del Valle Master Homeowners Association v. Griffin, a California appellate court recently upheld a jury verdict in favor of a homeowners' association prohibiting homeowners' construction of a solar energy panel. In Teroso, defendants purchased a home in a community governed by covenants conditions and restrictions ("CC&Rs"). The CC&Rs provided that no construction would be undertaken without the approval of the architectural control committee ("ACC"). The CC&Rs contained restrictions on constructing structures on slopes due the risk of erosion, slide problems or interference with drainage. After moving into the home, defendants undertook to build a solar energy system on the slope outside their home. They submitted an application to the ACC, which was denied. Defendants proceeded with the installation anyway.

The HOA filed suit alleging breach of contract and negligence. Defendants filed a cross-complaint alleging claims of breach of contract, breach of the implied covenant of good faith and fair dealing and breach of the California Solar Rights Act. The matter proceeded to trial. The jury found in favor of the homeowners' association. The homeowners appealed and the court of appeals affirmed finding that there was substantial evidence supporting the jury's verdict that the restrictions imposed by the HOA were reasonable. The primary concern was the ACC's concerns about location, safety and aesthetics of the solar system. The court found that this was a reasonable basis for denying the request for the solar system.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court holds that a Plaintiff May Not Pursue Injuries Arising Out of a "Trivial" Defect at the Property.- December 20, 2011

In Cadam v. Somerset Gardens Townhouse HOA, a California appellate court recently held that the difference in height between two adjoining pieces of a sidewalk, which was less than one inch was "trivial," so as to preclude the property manager from being held liable for the defect. In Cadam, plaintiff tripped on a walkway in front of her townhouse severely injuring herself. She sued the homeowners' association and its management company for injuries. She claimed that the injury was caused by a separation in the walkway. The difference in height between the two segments was approximately three-fourths to seventh-eights of an inch. According to plaintiff, the Association was aware of the separation and directed the builder to repair it. However, the Association had done nothing to warn pedestrians of the defect. A jury awarded plaintiff approximately $1,336,197 in damages. The trial court granted the Association's motion for judgment notwithstanding the verdict finding that the defect was "trivial." The appellate court affirmed.

The court found that it is well settled that a property owner is not liable for damages caused by minor, trivial or insignificant defects in properties. People are not required to maintain sidewalks either public or private in a "perfect condition." The trial and appellate courts both agreed that the walkway defect was "trivial" as a matter of law and therefore, not actionable.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Appellate Court Refuses to Set Aside a Foreclosure Sale Where the Lender's Agent Submitted an Incorrect Opening Bid to the Auctioneer - December 19, 2011

In Biancalana v. T.D. Service Company, a California Appellate Court recently upheld a foreclosure sale where the lender submitted an incorrect opening bid to the auctioneer. In Biancalana, T.D. Service Company acted as the trustee under a deed of trust which was scheduled for a foreclosure sale. T.D. submitted a delinquency amount of $21,894 rather than the specified credit bid submitted by the lender, which was $219,105. The latter amount was what T.D. should have used as the opening bid at the sale. The plaintiff arrived at the sale and discussed the property with the auctioneer. The auctioneer twice telephoned T.D. inquiring about the opening bid. T.D. confirmed that the opening bid was $21,894. The property sold to plaintiff for $21,896. The auctioneer accepted plaintiff's check. T.D. subsequently discovered its mistake and attempted to declare the sale void. When T.D. refused to issue the trustee's deed after the sale, plaintiff sued for quiet title, specific performance and declaratory and injunctive relief. The trial court initially denied T.D.'s motion for summary judgment. The court subsequently granted T.D.'s motion for summary judgment on reconsideration. The appellate court reversed upholding that there was not procedural irregularity at the foreclosure sale that would support entry of summary judgment. The appellate court stated that once the trustee's deed had been delivered after a non-judicial foreclosure sale, there existed a rebuttable presumption that the sale was conducted properly. Where the deed had not been transferred, the sale may be contested on grounds of a procedural irregularity. However, in this case, there was no procedural irregularity on the foreclosure sale. The court upheld the sale.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Upholds Easement to Access Landlocked Lot - December 19, 2011

In Tashakori v. Lakis, a court of appeals recently held that a trial court did not err in granting an equitable easement for access to the owners of a landlocked vacant lot where a balance of the relative hardships was in favor of the owners' use of a strip of land owned by a neighboring property owner.
In the suit, the plaintiff buyers purchased a property with a residence on it, as well as an adjoining vacant lot. The two properties were accessed by a shared driveway, which traveled over a portion of a neighboring property. Apparently, when the buyers purchased the two properties, they believed that the lot had easement access; this belief was based, in part, on inaccurate representations made by their real estate agent. The buyers later sold the property with the existing home, but kept the lot, based on their impression that the lot had an access easement. At that time, they learned that there was no recorded access easement for the lot and that the lot was actually landlocked. The buyers filed suit against the neighboring property owners to establish access to the lot over a strip of land owned by the neighbors. The trial court granted the buyers an equitable easement over the driveway. The neighbors appealed.

The issue before the appellate court was whether the trial court erred in granting an equitable easement over the neighbors' property. The court noted that the three-part "relative hardship" test, which is typically applied in encroachment cases, had also been applied in cases involving disputed property access issues. Applying the test in these circumstances, the buyers needed to show that: (1) they were "innocent" (i.e., purchased the lot with the belief that an easement existed); (2) the hardship to them in not granting the easement would be grossly disproportionate to the harm the neighbors would suffer if the easement were granted; and (3) they would be irreparably harmed. The court found that the buyers were innocent, the neighbors would suffer virtually no harm from the buyers' use of the shared driveway (the driveway was on a part of the neighbors' property that they did not use and that was segregated by a fence from the rest of their property), and the buyers would be irreparably harmed if they had no means of accessing their property. Thus, the buyers were entitled to an equitable easement.

The neighbors argued that the equitable easement theory can only be raised as a defense to a property owner's suit to enjoin an encroachment or trespass. The court disagreed, finding that the procedural posture of the case did not prevent the court from granting an equitable easement. The neighbors also argued that the equitable easement doctrine can only apply when there has been a long-standing use of the claimed easement. Although the court recognized that several equitable easement cases arose out of long periods of use of the disputed property, it explained that there was no requirement for a long-standing use.
The appellate court concluded that the trial court did not abuse its discretion in granting the equitable easement and affirmed the judgment.

- Hannah M. Shafsky, Senior Attorney

Question and Answer Regarding Expired Power of Attorney- December 12, 2011

Question - I am the listing agent of a property. The property is in a trust directed by a husband and wife. The husband is elderly and no longer has the mental capacity to sign any of the documents associated with the listing and sale of the property. His wife had a power of attorney to sign on his behalf. The wife signed all of the contract and disclosure documents. The title company subsequently advised us that the power of attorney is invalid and therefore, she had no right to sign on behalf of her husband. Fortunately, the sellers' son is a successor trustee and the title company has opined that the son can sign on behalf of the husband. Inspections are completed. Can the son sign all of the documents moving forward or does he need to sign all of the previous documents, which were signed by the wife under the power of attorney?

Answer - If the wife signed the previous documents under an invalid power of attorney, none of her signatures are valid and cannot be considered binding. Therefore, it is highly recommended that the son sign all of the documents previously signed by the wife under the power of attorney to ensure that the documents are binding and legal.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Appellate Court Denies a Petition to Compel Arbitration After Hearing Oral Testimony Regarding an Ambiguity in the Clause - December 2, 2011

In Burch v. Premier Homes, a California appellate court recently held that a trial court properly admitted witness testimony to clarify the ambiguity in the contract's arbitration clause. In Burch, plaintiff submitted an offer to purchase a new home. The defendant builders countered with an addendum including a new home warranty and arbitration clause. The buyer refused to execute the arbitration clause. A conference call was subsequently scheduled whereby the builder represented that by signing the addendum, plaintiff could sue under the California statutory scheme and the addendum would not be limiting her remedies. Based on the conversation, plaintiff agreed to the addendum, but only if they struck a provision at the end of the addendum indicating that her remedies would be limited to the arbitration provision. Buyers closed escrow. She subsequently sued for construction defects. The sellers moved to compel arbitration based on the arbitration addendum. The trial court, after hearing testimony from all of the parties, overruled the petition to compel arbitration. Defendant appealed and the appellate court affirmed finding that the trial court did not violate the parole evidence rule in accepting the testimony regarding the parties' intent. The appellate court found that there was no mutual assent to arbitrate and therefore, the trial court properly denied the sellers' motion to compel arbitration.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Holds Borrower May Not Sue Lender For Fraudulent Scheme Without Proving Damages - December 1, 2011

In Bank of America Corporation v. Superior Court (Ronald), a California appellate court held that home borrowers could not sue a mortgage lender for alleged fraudulent concealment of a scheme to sell mortgages at inflated values unless they could a causal connection between the alleged scheme and a diminution in value of the borrowers' homes.

In Bank of America, Ronald, among others, sued Bank of America, formerly Countrywide, and other lenders alleging that Countrywide had devised a fraudulent scheme to inflate property appraisals throughout California and to resell those loans to investors at inflated values. Ronald alleged that the lenders had a duty to disclose to him that the mortgage offered to him was part of a fraudulent concealment, which could result in loss of equity and damage to his credit rating. He alleged that the scheme destroyed California home values. He further alleged that Countrywide induced him to enter his mortgage when it knew that the scheme would lead to a liquidity crisis and damage his property value.

Countrywide demurred alleging that plaintiff could not have justifiably relied on any omissions or misrepresentations in the disclosure that it had a right to resell the mortgage and that the fact that the loan might have been securitized had no bearing on the mortgage. The trial court overruled the demurrer. Countrywide petitioned for a writ of mandate, which the court of appeals granted. The court of appeals held that there was no connection between the alleged fraudulent concealment of Countrywide of its alleged schemes to bilk investors and the diminution in Ronald's property. The court also found that the lender had no independent duty to disclose to Ronald its alleged intent to defraud investors by selling its mortgage pools at inflated values, despite its duty to refrain from fraud.

-Shannon B. Jones, Partner, sbj@sbj-law.com

New Foreclosure Law was Passed - November 26, 2011

On September 6, 2011, the California Governor signed SB4, which relates to notices of default and notices of sale. Effective April 1, 2012, a notice of sale given pursuant to a deed of trust, which is in default, must now contain language notifying potential bidders of the risks involved in the bidding on the property at a trustee's sale and a notice to the property owner informing the owner regarding how to obtain information for a postponement of the sale. The bill would also require a good faith effort to be made to provide current information regarding the sales dates and postponements and that the information will be provided free of charge. The bill amends Civil Code §2924f. Please contact our office for further information.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Denies Adverse Possession Arising Out Of Co-tenants' Regular Weeding of the Lot- November 9, 2011

In Hacienda Ranch Homes, Inc. v. Superior Court (Elissagaray), a California Appellate Court recently denied a claim of adverse possession by a co-tenant arising out of weeding of a lot. In Hacienda Ranch Homes, Roger and Annette Elissagaray bought a 24.5% interest in a property at public auction after the owner of that interest defaulted on tax payments. Thereafter, they removed all of the weeds and grasses from the property and disced it several times per year. Six years later, they filed a complaint to quiet title to the property. They alleged that since they purchased the property, they had "openly and exclusively occupied and possessed" the property to the exclusion of all prior owners, none of whom had asserted any claim to the property. The complaint sought a judgment of 100% ownership of the property. Plaintiff moved for summary judgment arguing that the Elissagarays' tax deed was ambiguous and they claimed that even if the Elissagarays owned 24.5% interest, they had the burden to establish an adverse possession claim to the remaining 75.5% interest in the property by a claim of right. They argued that they could not assert that claim. The court denied the motion for summary judgment.

The court of appeal granted Hacienda's petition of writ holding that the Elissagarays failed to present any triable issue that would support their claim of adverse possession. The court found that the property was unimproved and the Elissagarays never told the co-tenants to stay off the property. They never put up a fence or barrier prohibiting entry and never excluded the co-tenants from the property. The court found that discing the property several times per year and posting a "for sale" sign did not involve the type of open, notorious ouster of co-tenants that would be required under an adverse possession claim.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Allows New Purchasers to Sue Developers for Failure to Disclose Lending Practices - November 6, 2011

In Maya v. Centex Corporation, the Ninth Circuit Court of Appeals recently allowed buyers to sue their developers for failing to disclose lending practices that led to an inflation of prices in their neighborhood. In Maya, plaintiffs, individual homeowners, who purchased homes in new developments sued for injuries allegedly caused by the developers' practices of marketing neighboring homes to individuals who presented a high risk of foreclosure and abandonment, financing those high-risk buyers, concealing that information and misrepresenting the character of the neighborhoods. The plaintiffs sought damages alleging that in marketing homes to high-risk buyers and financing those buyers, the defendants created a "buying frenzy" that artificially increased the demand and consequently, home prices. Because those buyers were not properly qualified, those mortgages led to foreclosures and a subsequent decrease in value of the properties. Defendants filed a motion to dismiss, which the district court granted. The homeowners appealed.

The court of appeals reversed ruling that the homeowners had sufficiently alleged an injury-in-fact and causation to establish standing. The court included that the homeowners had established damages and causation with regard to overpayment and rescission claims. The court held that the homeowners should be permitted to amend their complaint to pursue the claims.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Appellate Court Holds that Lenders Who Recorded Deeds of Trust
At the Same Time Have Equal Priority - November2 , 2011

In First Bank v. East West Bank, a California Appellate Court recently held that two lenders who recorded deeds of trust at the same time on the same property have equal priority. In First Bank, borrowers procured loans from two banks, including the plaintiff and defendant. The deeds of trust were recorded against the same property on the same date at the same time. Both deeds of trust were delivered to the County Recorder's Office prior to the Recorder's Office opening at 8 a.m. However, defendant's deed of trust was officially recorded at 11:26 a.m. and plaintiff's at 3:08 p.m. Plaintiff sued defendant to establish priority of its deed of trust. On motions for summary judgment, the court found in favor of the plaintiff finding the deeds were recorded concurrently and should be given equal priority. Defendant appealed. The Court of Appeals affirmed the decision finding that the deeds of trust were delivered to the Recorder's Office at the same time and should be treated with equal priority.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Agents Must Comply With Mortgage Acts and Practices- November 1, 2011

The Federal Trade Commission ("FTC") has recently issued its Mortgage Acts and Practices - Advertising Rule, which is also referred to as MAP. MAP imposes requirements on those that provide information and mortgage product credits to buyers and prohibits misrepresentations. The Rule became effective on August 19, 2011. MAP generally applies to mortgage brokers. However, it does require real estate sales agents to maintain any records relating to loans, including rate sheets for a minimum of two (2) years. It also requires that disclaimer language be placed on the rate sheets. Therefore, if agents include rate sheets in their marketing materials or at open houses, they are required to include the disclaimers, statements and maintain copies of the rate sheets for a minimum of two (2) years.

The disclaimer language is as follows:

"This communication is provided to you for informational purposes only and should not be relied upon by you. [Name of Brokerage] is not a mortgage lender and so you should contact [mortgage product identified] directly to learn more about its mortgage products and your eligibility for such products."

This disclaimer needs to be in text at least as large as the text in the body of the document and placed in a location that the disclaimer is readily apparent. The documents must be kept for a minimum of two (2) years.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Allows Borrowers to Sue for Non-Disclosure Arising out of Adjustable Rate Loan - October 10, 2011

In Boschman v. Home Loan Center, Inc., August 10, 2011 Case No. G043716; 11 C.D.O.S. 10237, a California appellate court recently allowed borrowers to pursue a claim against the lender for misleading and confusing disclosures regarding an option adjustable rate mortgage.

In 2006, Plaintiffs obtained an option adjustable rate mortgage loan ("Option ARM"). In connection with the loan, plaintiffs executed various documents, including documents that stated the interest rate was adjustable and that the principal amount to be repaid could be greater than the original amount borrowed. Plaintiffs also received a disclosure that stated that the loan allows for "negative amortization." Plaintiffs also received a payment schedule disclosure, but it did not provide details regarding increases or calculation of the payment amounts.

After obtaining the loan, plaintiffs filed a complaint in California state court against the lender, arguing that the lender failed to disclose that the loans were designed to cause negative amortization to occur; that the monthly payment amounts listed in the loan documents were based on a low "teaser" interest rate that was significantly lower than the actual interest rate; and that when plaintiffs followed the contractual payment schedule in the loan documents, negative amortization was certain to occur. Plaintiffs claimed that had they known that the disclosed payment amounts were not sufficient to avoid negative amortization, they would not have entered into the loan. Plaintiffs claimed fraud and unfair business practices. The lender filed a demurrer to plaintiffs' complaint, claiming that plaintiffs could not state a cause of action against them; the lower court agreed, which would have resulted in a dismissal of plaintiffs' case.

Plaintiffs appealed, arguing that they should be able to proceed because of the disclosures were confusing and misleading. The appellate court evaluated plaintiffs' claims and concluded that there were "inaccurate representations and half-truths" related to the loan. The appellate court also concluded that plaintiffs had adequately stated an unfair business practices claim because the disclosures they received could be considered "unfair" under the law. This was sufficient to allow the case to proceed in the trial court.

In reaching its conclusion, the court made several policy-related remarks regarding this type of loan program. The court noted, "we see no...value in defendant's practice of providing general, byzantine descriptions of Option ARMs, with no clear disclosures explaining that...negative amortization would certainly occur if payments were made according to the payment schedule." It also noted that there was a "compelling argument" that lenders should be "discouraged from competing by offering misleading teaser rates and low scheduled initial payments." Future plaintiffs will certainly rely on these comments in subsequent suits and will utilize this case as support for lawsuits against lenders in connection with other non-traditional loan programs.

-Shannon B. Jones, Partner, sbj@sbj-law.com

San Francisco Eliminating Court Reporters in Civil Cases - October 6, 2011

Effective October 3, 2011, San Francisco Superior Court will no longer provide court reporters for matters heard in civil courtrooms. Civil litigants will now be expected to pay for court reporters, if they require them.

This is a serious consideration for our clients who have matters pending in San Francisco. Having court reporters will now be a consideration in defending litigation. If court reporters are necessary, our clients will be required by the court to pay for them.

We will be recommending that court reporters be retained for significant law and motion matters, such as motions and demurrers for summary judgment.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Appellate Court Upholds Foreclosure Proceedings Involving MERS - October 5, 2011

In Robinson v. Countrywide Homes Loans, Inc., a California Appellate Court recently upheld a foreclosure proceeding as being adequate even though a lender nominated MERS to act on its behalf. In Robinson, plaintiffs borrowed $380,000 from their lender SBMC Mortgage to finance the purchase of their property. They executed a promissory note and a deed of trust. The deed of trust identified the lender and T.D. Service Company as the trustee. It also identified the Mortgage Electronic Registration Systems, Inc. ("MERS"), as "acting solely as its nominee for Lender and Lender's successors and assigns." MERS was also the beneficiary under the deed of trust. A year later, Countrywide identified itself as the debt collector and servicer on the loan. The Robinson's loan became delinquent and they noticed a default was recorded and served. A notice of sale was subsequently served and the property sold. Plaintiffs' sued Countrywide, MERS and the beneficiary under the deed of trust for wrongful initiation of foreclosure. Robinsons argued that the lender had no authority to foreclose because it was not the current beneficiary under the deed of trust or the agent of the current beneficiary. Countrywide and MERS demurred. The trial court sustained the demurrer without leave to amend and dismissed the action. Plaintiffs appealed and the Appellate Court affirmed.

The Court held that the California Civil Code does not provide a legal basis to determine whether MERS had authority to initiate a foreclosure proceeding. The Civil Code does not provide for a preemptive challenge to standing simply because of MERS's involvement. The Court further commented that even if a statutory claim were available, plaintiffs' complaint did not state a cause of action as to MERS and Countrywide. The complaint alleged that the foreclosure proceedings were initiated by a different trustee, not Countrywide or MERS. They did not allege that the beneficiary purported to act as an agent for MERS or for Countrywide. Accordingly, even if there was a claim for damages under the Civil Code or for declaratory relief, the complaint did not allege sufficient facts upon which an action could be based with regard to Countrywide or MERS.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Appellate Court Allows An Action By A Seller of Real Property Against An Agent For Failing to Memorialize A Sell-Back Agreement - October 3, 2011

In Thomson v. Canyon, a California appellate court recently allowed a seller of real property to pursue a breach of fiduciary duty case against her agent for failing to prepare an appropriate sell-back agreement. In Thomson, plaintiff owned a single family home in San Francisco. She failed to pay the lender the amounts due under the promissory note and deed of trust and therefore, retained a real estate agent, defendant and his brokerage to market and sell her property. At the time, she owed approximately $383,000. The advertised sales price was $545,000, which was its established market value. An investor approached plaintiffs and offered to "salvage" her home from foreclosure and promised that if she sold her home to him, he would pay off the liens and reconvey the home back to her within six (6) months after the close of escrow in exchange for reimbursement of all costs, plus a $10,000 fee. Plaintiff accepted the offer.

Plaintiff advised her agent of the arrangement with the investor and requested that the appropriate paperwork be prepared. Despite her request, the agent never provided a writing memorializing the agreement by the investor to reconvey the home back to plaintiff. Instead, the agent prepared a purchase and sale agreement that the parties executed in May 2004. Escrow closed the following month. The purchase price was $440,000, which was significantly less than the property's market value.

Thereafter, the investor did not reconvey the house to the plaintiff, but instead discontinued all communications with her and resold it to a third-party in November 2005. Plaintiff sued the investor for fraud and related claims. In June 2008, the court found in favor of the investor finding that the alleged oral reconveyance agreement was inconsistent with the purchase agreement and barred by the parol evidence rule. One month later, plaintiff sued her agent for breach of fiduciary duty and negligence.

The trial court granted defendant's motion for judgment on the pleadings based on the statute of limitations and the parol evidence rule and dismissed the action. Plaintiff appealed and the appellate court reversed holding that the breach of fiduciary duty claim was timely filed and the parol evidence rule did not apply.

The court applied a four (4) year statute of limitations for breach of the fiduciary duty claim and held that it did not start accruing until the investor failed to honor the oral agreement to reconvey the property to the buyer. Therefore, the court held that the damage for the breach of fiduciary cause of action did not occur until Harris resold the property in November 2004. Therefore, the court held that the statute did not run until November 2008. The court also applied a two (2) year statute of limitations for professional negligence and found that it had run.

With regard to the parol evidence rule, the court held that it did not bar plaintiff from introducing evidence that the agent failed to prepare proper documentation of the agreement between the parties. The court held that the parol evidence rule limits the introduction of extrinsic evidence to vary, alter or add the terms of a written agreement. However, the parol evidence rule does not apply here because the plaintiff was not offering extrinsic evidence to reconstruct her obligations under the purchase and sale agreement. Instead, plaintiff was trying to show defendant's breach of his duties in the sales transaction. Therefore, the parol evidence rule did not apply.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Questions and Answers Regarding Arbitration Provisions - September 28, 2011

Question - Should I recommend that my client initial the arbitration provision of the residential purchase and sale agreement?

Answer - No. The decision of whether to initial the arbitration provision is one for your client. It is recommended that if your client has questions, your client should seek legal advice. Alternatively, you can provide a copy of the California Association Realtor's Question and Answer regarding the arbitration provisions, which should answer your client's questions.

Question - If one party does not initial the arbitration, is there a valid contact?

Answer - Initially no, but the parties may ratify the contract by their conduct. If arbitration is an important issue to the parties and one party does not initial it, the contract may not be binding. However, if the parties start honoring the provisions of the contract and working toward the purpose of the contract, the contract may become ratified by the parties' conduct. For example, if escrow is opened, inspections start and the parties cooperate, at some point, the contract will become binding.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Further Clarification of the MARS Rule Regarding Real Estate Agents - September 7, 2011

There has been a lot of information recently regarding the issue of whether MARS applies to real estate agents. Recently, the Federal Trade Commission ("FTC") advised that they do not intend to enforce MARS against real estate agents unless the licensees are doing loan modifications or involved in loan forebearances. agreements. However, on July 21, 2011, authority for enforcing MARS transferred to the Consumer Financial Protection Agency ("Agency"). Therefore, the FTC will lose all jurisdiction over enforcing MARS at that time.

The Agency has not yet issued any opinions as to whether they intend to enforce MARS against real estate licensees in a short sale capacity. Moreover, the California Attorney General also has the authority to enforce MARS, even if the FTC or Agency decline.

It is our opinion that agents need to comply with MARS until the Agency publishes an exemption for real estate agents. Our concerns are based on the following:

1. Since the FTC lost jurisdiction over enforcement on July 21, 2011, its statement that it will not enforce MARS against real estate agents will be irrelevant;
2. The California State Attorney General can still enforce the MARS rules if there is a complaint filed; and
3. If a complaint is filed before the California Department of Real Estate ("DRE") by a consumer, the DRE must enforce the laws and it could bring a licensing accusation against the agent or broker.
   
   -Shannon B. Jones, Partner, sbj@sbj-law.com

Law Group Obtains Dismissal of $3.1 million Non-Disclosure Action - August 2, 2011

The Law Group recently obtained a complete dismissal of a $3.1 million lawsuit pursuant to a motion for summary disposition. In this case, plaintiffs purchased a home in approximately 2004 in Belvedere, CA. The home was built on a cliff and overlooked the City of San Francisco. During escrow, the buyers' agent, our client, recommended that the buyers obtain a soils report located at the City of Belvedere and have the site inspected by a geotechnical engineer prior to the close of escrow. The buyers had the inspection, but did not obtain the report prior to the close of escrow. After the rains of 2005, part of the hill slid into the Bay and the plaintiffs file suit against the seller, as well as our clients. The same brokerage represented the buyer and seller, but with different agents.

For strategic purposes, the matter was referred to arbitration. On behalf of our clients, we filed a motion for summary disposition asking the arbitrator to find that our clients fulfilled all of their obligations to the plaintiffs. In August 2011, the arbitrator made that finding and dismissed the entire case with prejudice as to our clients.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Senate Bill 458 Is Enacted Which Prohibits Second Lien Holders From Collecting After An Approved Short Sale - July 27, 2011

On July 15, 2011, Governor Jerry Brown signed Senate Bill 458 into law. SB 458 prohibits junior lien holders who approve short sales on one to four unit properties from collecting after the close of escrow. Last year, Senate Bill 931 was approved, which prohibits senior lien holders from collecting after approved short sales. Pursuant to SB 458, those protections are now extended to junior lien holders. The law goes into effect immediately upon signing and therefore, was effective July 15, 2011.

There is a lot of discussion as to how this law will affect transactions moving forward. It is anticipated that in non-recourse loans, junior lien holders will likely continue to approve short sales since a foreclosure sale would not afford them any additional protections or benefits. However, with recourse loans, junior lien holders are likely to ask for greater contributions from sellers prior to the close of escrow or may not approve short sales and thereby, force a foreclosure sale. If a foreclosure sale takes place with a recourse loan and a second lender did not facilitate the foreclosure sale, the second lender retains all rights to proceed against a borrower on the promissory note. In other words, if a senior lien holder proceeds with a foreclosure sale and the junior lien holder is not paid in full, the junior lien holder has the right to proceed with a collection action against the borrower.

Agents need to be aware that if junior lien holders ask for greater contributions from borrowers pursuant to a short sale, the senior lien holder must approve of that contribution and it must be included on the settlement statement (HUD-1). It is also recommended that borrowers seek tax and legal advice before approving lender's short sale terms.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Denies a Party a Right to Exclusive Use of Water - July 26, 2011

In Thorstrom v. Thorstrom, a California appellate court denied an exclusive implied easement for the use of well water. In Thorstrom, Evelyn Sallinen owned a parcel of property, which she divided into two (2) parcels. She gave the larger parcel to her son, Wayne, and built a small house for herself on the smaller parcel. The larger parcel had a hand-dug well, which provided inadequate water. The son occasionally had to use his mother's well. To resolve the issue, Evelyn dug a new well on her son's property, but installed the controls for the well on her own property. She paid to run the pump. The water was never used by the mother, but was instead used solely by the son. Evelyn signed a document indicating that it was her intent that upon her death, certain items of personal property would be given to her son. In that document, she wrote that the well on the son's property was to be used for "emergency purposes in case of drought or pump breakdown." The document was not witnessed or notarized. She subsequently died and her property was left to her other son, Alan.

Alan moved into Evelyn's property. Alan then disconnected the valve used to run the water to Wayne's property. Alan diverted virtually all of the water to a storage tank and used that tank for his own purposes. Wayne sued his brother to quiet title for declaratory relief and for trespass.

The trial court found that Alan had an implied easement for the continued and unrestricted use of water from the well. The court also restricted Wayne's use of the water to "emergency purposes" only or in times of drought.

The court of appeal reversed holding that although there was some credible testimony to support the trial court's finding of an implied easement, there was no evidence to support the trial court's order denying Wayne the shared use of the water from the well. The court further held that for an easement to be implied, the following conditions need to be met at the time of conveyance of the property:

1. The owner of the property conveys or transfers a portion of that property to another;
2. The owner's prior existing use of the property was of a nature that the parties must have intended or believed that the use would continue; and
3. The easement is reasonably necessary to the use and benefit of the quasi-dominant tenement.

The court found that both brothers were entitled to reasonable use of the water. Neither party had a right to excessive use of the water, which would impede on the other.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Crisis in the San Francisco Civil Courts - July 25, 2011

The San Francisco Superior Court has recently announced that the Court plans on shutting down many, if not the majority of its civil courtrooms later in the year due to its budget crisis. It is planned that at least 11 court commissioners and a complex civil litigation judge are to be laid off. Because criminal cases take priority over civil cases due the constitutional right to a speedy trial, it appears that the crisis will seriously impact any civil cases currently pending before the court. This will clearly delay any cases currently pending before the San Francisco Superior Court. As this crisis unfolds and more information is available, we will continue to post it on our website.

-Shannon B. Jones, Partner, sbj@sbj-law.com

The 2011 Energy Services Booklet Has Been Updated - July 8, 2011

The California Energy Commission recently released an updated 2011 Home Energy Rating Services booklet, containing the following changes: updated cover page; and information on 2011 tax credit. The purpose of the booklet is to provide buyers, sellers and real estate professionals with information about the opportunity to invest in energy efficient improvements at the time of sale. It is recommended that real estate agents provide the booklet to buyers and sellers in any transaction. Booklets can be obtained through the California Association of Realtors.

-Shannon B. Jones, Partner, sbj@sbj-law.com

How to Save in Attorney's Fees - July 5, 2011

In today's difficult times, real estate brokerages are looking for ways to cut costs and save expenses. One cost which is an aggravation for clients is attorney's fees and related litigation costs. The following are recommendations for minimizing attorney's fees and costs:

1. Organize the Transaction File - If a matter arises involving an attorney, before a file is sent to an attorney, the file should include all documents relative to the transaction. Those documents should include, at a minimum, all of the transaction documents, including contracts, disclosures, correspondence and emails involving the agent or broker. Matters become unnecessarily expensive if agents provide documents in a "piecemeal" manner to attorneys;

2. Organize Fax Cover Sheets and Emails - Ensure that files are kept with fax cover sheets attached to the faxes and that attachments are with the emails. If fax cover sheets are in a different section of the file than the actual documents, attorneys are forced to spend the time to reassemble the file. This is not only time consuming and expensive, but it may be impossible to recreate the exact faxes which were sent, which could be detrimental to a defense;

3. Prepare a Chronology - Prepare a chronology for the benefit of the attorney. Most attorneys handling claims for real estate agents prepare their own chronologies, which can be time consuming. If a client prepares a chronology based on all of the transaction events, it could save thousands of dollars in the attorney's time. Clients should label the chronology "Subject to Attorney-Client Privilege" to ensure it is kept private;

4. Calls - When contacting an attorney, have the topics which are the purpose of the call well organized, so you can ask the attorney your questions and receive succinct answers. If the calls are not well organized, they take too long and remember that attorneys charge by the hour;

5. Status Reports - Attorneys should provide status reports on a monthly basis to clients. Clients should read thestatus reports upon receipt, which should answer most of the client's questions regarding the status. A lot of time is wasted if clients do not review status reports and then contact attorneys to ask questions, which are answered in the status reports;

6. Response to Attorney's Requests - It is important to timely respond to attorneys' questions. If an attorney asks for information, has questions or requests documents, timely respond to those requests. If an attorney has to continue to follow up with a client, the attorney will likely charge for that time, which can become unnecessarily expensive; and

7. Preparation for an Interview - If a claim is asserted against an agent or a broker, the attorney will most likely want to review the file and then interview the agent or the broker. The agent or broker should review the file before the meeting, so that they are prepared to answer any questions. Meetings can be a waste of time if the agent or broker are not prepared and cannot answer the questions. These meetings generally last longer or have to be continued to allow for appropriate preparation.

We hope that our clients will consider these tips, so that we can help them save attorney's fees and costs. If anyone has any questions or additional suggestions, please let us know.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Bankruptcy Court Allows Dischargeability of Claim Against a Real Estate Agent For Breach of Fiduciary Duty - June 21, 2011

In In Re Honkanen, a Bankruptcy Appellate Panel recently held that claims against a real estate agent for breach of fiduciary duty do not rise to the level of intentional fraud without a finding of an intentional tort. As a result, the panel, allowed claims against a real estate agent to be discharged pursuant to a bankruptcy.

In Honkanen, a real estate agent was sued in state court for negligence and breach of fiduciary duty. The matter proceeded to trial and the jury found the agent liable and awarded $356,000 to plaintiffs against the agent. The agent subsequently filed bankruptcy. The claimants filed a complaint alleging non-dichargeability. The Trustee took over the handling of the complaint for the claimants and took the case to trial. The bankruptcy court found that the claim was non-dischargeable because of the finding by the jury that there was a breach of fiduciary duty.

The agent appealed the decision.
The Bankruptcy Appellate Panel reversed the decision finding that a breach of fiduciary duty in and of itself is not sufficient to create a claim for fraud without a showing of intent. The Panel indicated that in order to obtain an order of dischargeability, a claimant must show actual fraud.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Court Holds That Except in Extraordinary Circumstances Defendants Cannot Recover Attorney's Fees and Costs From the Department of Fair Employment and Housing - June 21, 2011

In Department of Fair Employment and Housing v. Mayr, a California appellate court recently held that except in extraordinary circumstances, a defendant in a discrimination matter cannot recover attorney's fees or costs after successfully defending a claim against the Department of Fair Employment and Housing ("DFEH"). In Mayr, the DFEH filed a housing discrimination claim against Mayr. The underlying claimants alleged that they were discriminated against based on their hispanic background by the owners of an apartment and the manager. They also claimed they were coerced, intimidated and harassed. The DFEH undertook an investigation and subsequently, filed a claim against the defendants. At trial, the defendants were found not liable. The defendants then sought reimbursement of their attorney's fees and costs from the DFEH. The court awarded attorney's fees in the amounts of $7,500, $4,000, and $7,500, respectively. The DFEH appealed. The appellate court reversed finding that the awards were not available in a housing discrimination case..

-Shannon B. Jones, Partner, sbj@sbj-law.com

Carbon Monoxide Detectors to be Installed in Dwellings by July 1, 2011 - June 16, 2011

In 2010, the California legislature passed the Carbon Monoxide Poisoning Prevention Act of 2010. The law is found in California Health and Safety Code sections 13260, et. seq.

Carbon monoxide is a gas produced when fuel is burned. That fuel can include gas, oil, kerosene, wood or charcoal. Carbon monoxide cannot be seen or smelled. At high levels, carbon monoxide can kill a person or animal within minutes.

The Act requires every owner of a "dwelling unit intended for human occupancy" to install an approved carbon monoxide device where there is a fossil fuel burning heater or appliance, fireplace, or an attached garage. The monoxide detectors must be installed in all single-family dwellings no later than July 1, 2011. For all other dwellings units, the detectors must be installed by January 1, 2013.

The law provides that the devices must be installed consistent with building standards applicable to new construction or in accordance with manufacturer's instructions. It is recommended that a device be placed outside each sleeping area in the entity of a bedroom, including basements and attached garages.

The violation for violating the act is a maximum fine of $200 and an award of actual damages not to exceed $100, plus court costs and attorney's fees. Owners who receive notices can be assessed additional fines by the local government.

Sellers are required to disclose on the Transfer Disclosure Statement whether the home complies with the Act. If a Transfer Disclosure Statement is not required, the law does not require any specific disclosures.

This law applies to homeowners, as well as landlords. It is recommended that landlords ensure the carbon monoxide devices are operable at the time a tenant takes possession.

-Shannon B. Jones, Partner, sbj@sbj-law.com

Read more >