Articles Posted in Foreclosure

Commercial real estate transactions can differ from residential real estate transactions in a variety of ways. For example, commercial lease tend to last longer than residential leases and multiple months of rent is often paid months in advance. While there are benefits to this method, this can also lead to complications later if a company were to go out of business or need to move before the lease has terminated. One way to alleviate this issue is to allow the party leasing to sublease or assign the contract to another party, giving the space and related responsibilities to someone else in a position to afford and maintain the property. This allows a tenant to be flexible in the case of a business change during the term of the lease. However, this option can complicate future issues because multiple subleases and assignments can run together.

Take for example, the California case of Vallely Investments v. BancAmerica Commercial Corporation. In this case, Vallely Investments (Vallely) sued for a declaration that BancAmerica Commercial Corporation (BACC), the assignee, was bound by the lease. Vallely owned a parcel of property, which it leased to Balboa Landing L.P. (Balboa). The lease allowed Balboa to transfer or assign its interest freely, or to get a mortgage. Any assignment had to be in writing, with notice to the Vallely. The person taking over contract was required to expressly accept and assume all of the terms and covenants of the lease. Balboa got a loan from BA Mortgage to develop the property using the deed of trust on the lease with Vallely as collateral, and then it defaulted on the loan. To avoid liability and to make sure the property was properly maintained, the lease was assigned to BACC, a wholly owned Bank of America subsidiary which would manage the property pending a nonjudicial foreclosure. BACC’s goal was to hold the property only for the short period before the foreclosure sale. At the foreclosure sale, BA Mortgage was the successful bidder and it managed the property until selling the lease to Edgewater Place, Incorporated (Edgewater). Eventually, the contract with Edgewater was terminated early because it failed to pay the rent. Vallely then sued BACC for the rent because BACC took the lease over from Balboa.

The main issue in this case is whether foreclosure of a leasehold mortgage extinguishes the duties owed to the lessor, in this case Vallely, by an assignee, BACC, who assumes the lease. While BACC intended to be liable for the property only until the foreclosure, the contract that it signed did not make that specification. When it took over the lease, BACC also assumed the obligations of the prime lease, with the consent of the landlord, and came into privity of contract with the landlord, which allowed Vallely to enforce the assumption agreement as a third party beneficiary. This means that while foreclosure extinguished BACC’s assignment, it did not have any impact on Vallely’s rights. Vallely’s right to enforce BACC’s assumption agreement, as a third party beneficiary, occurred due to the foreclosure. Thus, the foreclosure terminated the privity of estate and privity of contract between BACC and Balboa, but it did not reach the privity of contract between BACC and Vallely. BACC assumed the lease obligations without qualification, and those contractual duties did not end with the foreclosure. It could have structured the transaction so that it shed all liability with the foreclosure, by taking the assignment without assuming the lease. But that is not what occurred in this instance. Therefore, the court found that BACC was liable for the rent on the remainder of the lease.

Having a real estate agent can make transactions easier. People often use an agent to do the research for them. Agents can take your goals and limitations for a property and create a list of properties that you are likely to be interested in. This can save you a lot of time in your search for the perfect property. Unfortunately, a real estate agent, like anyone else, can also take advantage of you.

Jennifer and Guy Worthington found themselves in this situation and chose to sue their realtor, Thomas Polander (“Polander”). The Worthingtons sued their realtor for four real estate transactions, in which they believe their realtor intentionally gave them incorrect information so he would receive a commission. In the first and second transactions, the Worthingtons bought two investment homes from Polander and trusted him to find a tenant for each home. In both transactions, the tenants Polander chose ultimately could not make the monthly payments and had to be evicted from the properties. In the third property transaction, the Worthingtons bought property through Polander which they could not afford to maintain, under the promise that Polander would find a tenant to rent it out and take over the payments. Polander was unable to find a tenant which caused the Worthingtons to lose the property through foreclosure. In the final property sale, Polander claimed he was selling the Worthington property but after the paperwork was signed the Worthingtons were not given the title to the property; instead it went to a nonprofit, Fresh Start Foundation, which was controlled by Polander. In each transaction the Worthingtons lost money due to their trust in Polander as a real estate agent.

At first the case was brought to arbitration. The arbitrator found for the Worthingtons on all four transactions. The arbitrator found that Polander was in a position where his opinion was trusted and taken at face value and that he did not maintain expectations. After winning the case, the Worthingtons found out that Polander was unable to pay the damages.

Sacramento foreclosures drop from a year ago

An article in the Sacramento Business Journal last month reported an encouraging trend: the foreclosure rate in the greater Sacramento area dropped 8.8 percent from last year’s figure, according to the online foreclosure tracking service, RealtyTrac.

The figure accounts for three types of foreclosure indicators: 1) notices of default, 2) notices of foreclosure sales, and 3) lender repossessions. The total number of foreclosures, according to RealtyTrac was 4,145 during the one year period across the four-county Sacramento area. Stated another way, approximately 1 in every 210 properties in the greater Sacramento area was in foreclosure during that period.