Articles Posted in Real Estate

Ever since the Consumer Financial Protection Bureau (CFPB) took over the Department of Housing and Urban Development (HUD) in 2011, the CFPB has turned out to be progressively dynamic in bringing implementation activities claiming infringement of section 8 of the Real Estate Settlement Procedures Act (RESPA). The highlight of today’s article is two such enforcement actions, which also exhibit a troubling diversion from the earlier HUD precedents in this field.

According to Section 8(a) of the RESPA, it is forbidden to give or accept “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” At the same time, Section 8(c)(2) provides “[n]othing in this section [8] shall be construed as prohibiting the payment of bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”

Until recently, because of past HUD actions, the settlement administrations industry by and large comprehended Section 8(c)(2) as giving an exemption from liability under Section 8(a). The following two cases in question challenge this.

A federal judge here in California recently denied a mortgage company’s attempt to dismiss two counts of a class action suit against it. The company, Castle & Cooke Mortgage, argued that the consumers in those two counts had already obtained redress under a consent order the company entered into with the Consumer Financial Protection Bureau (CFPB) back in 2013. The consent order settled the CFPB’s charges that Castle had violated the Regulation Z loan originator compensation rule. The amended complaint in the class action alleged TILA violations, violations of various Utah laws including an unjust enrichment claim, and, with regards to the California subclass, violations of our Unfair Competition Law (UCL).

What the Class Action is About

The main allegation in the underlying lawsuit is that Castle broke the law by implementing a secret bonus program which gave its loan officers incentives to put borrowers in loans with higher interest rates. Castle sought to dismiss the unjust enrichment claims and the California UCL claims. The trial court denied that request. In 2013 the CFPB sued Castle for maintaining this bonus program, and later that year Castle entered into a consent agreement under which it agreed to pay millions of dollars in restitution and penalties. The named plaintiff in this lawsuit received a restitution check as a result of the consent agreement. However, the consent agreement did not limit or affect borrowers’ rights to pursue their own claims against Castle.

In California real estate brokers are usually allowed to share commission payments. Up until recently, however, it has been unclear whether real estate agents are allowed to share commissions. A California appellate court has finally decided this issue in a case called Sanowicz v. Bacal. The answer is yes, agents can share commissions, but only under limited circumstances.

What Happened in Sanowicz v. Bacal?

Sanowicz and Bacal are both licensed real estate salespersons. Sanowicz claimed that he and Bacal agreed to share commissions earned by either of them on sales of certain real estate, and that Bacal breached that agreement. Sanowicz sued over this alleged breach.

Commercial real estate transactions include negotiations based on various information about the land in question. One issue that may come up when you are buying or selling commercial real estate is whether there are any easements on the land, and if so, what they are. You need to understand exactly what an easement is and what effect it will have on your use and enjoyment of the land you are dealing with. Some easements are express, but others are implied.

What Are Easements?

In very basic terms, an easement is a right to use or cross the property of another. A classic example is where a parcel of land is not adjacent to any public roadways. The owner of this land may have an easement allowing them to drive across another person’s land in order to obtain access to their own land. Another common easement is the type often held by utility companies which allow them to come onto land in order to do certain tasks related to the upkeep of utility services. Usually easements are in writing so everyone involved can have a fair and clear understanding of what area is affected by the easement and what rights an easement holder has. These easements are called “express easements.” However, some easements are not express. Some easements are known as “implied easements.” These are easements that are inferred by courts based on principles of equity.

Sometimes projects fail. Its a reality of real estate. When lenders and borrowers are faced with a failing project and a loan in default, they have options. One is foreclosure. If the borrower and lender are in a contentious relationship, foreclosure may be the only option, and it can be a costly and lengthy process. If the relationship is more cooperative, however, under some circumstances, the parties may be able to negotiate a deed in lieu of foreclosure transaction. This involves a two step process where, first, there is a consensual transfer of the title from the borrower to the lender, which is followed by a non-judicial foreclosure. This can be beneficial to both parties. Unfortunately, during the recession, some title companies refused to insure sales following these transactions. A recent court decision reaffirms that these title companies’ decisions were based on faulty reasoning.

The Case of Deacon Group, Inc. v. Prudential Mortgage Capital Co. LLC

This important case, which the California Court of Appeal decided, is called Decon Group, Inc. V. Prudential Mortgage Capital Co. LLC. In the case, Wellesley owned real property in Los Angeles that was subject to a first deed of trust and a junior mechanic’s lien. Wellesley defaulted on the loan secured by the trust deed. Rather than going through a standard foreclosure, Wellesley and the trust deed beneficiary agreed to a deed in lieu. The beneficiary then foreclosed, eliminating all junior liens, and bought the property at the foreclosure sale and later sold it to a third party.

Late last year, we reported that starting on January 1, 2015, commercial real estate brokers and salespeople in California would have to comply with the agency disclosure requirements that previously only applied to residential brokers. This change in the law was caused by a bill called SB 1171 that changed the legal definition of “real property.” However, a recent court decision may affect how this new law is interpreted.

What Does this Recent Decision Mean?

As a part of the new law, commercial agents are required to check one of three possible boxes on the disclosure form. The three options are that:

Starting on January 1, 2015, commercial real estate brokers and salespeople in California will have to comply with the agency disclosure requirements that previously only residential brokers had to comply with. This is happening because the state legislature decided to change the legal definition of “real property.”

California Legislature Changed the Definition of Real Property

In August of this year the California legislature passed a bill called SB 1171. This bill changed the legal definition of “real property.” Under the new law the term “real property” as it is used in Civil Code sections 2079.13 through 2079.24 will now include “commercial property.”

The California Assembly has passed a law that will change the form and wording of certificates of acknowledgment, jurat and proof of execution. A jurat is the clause at the bottom of an affidavit that shows when, where, and before whom the affiant swore an oath or made an affirmation. These requirements will affect the format of documents used in real estate transactions as well as in some business transactions.

What is the New Law and What Does it Require?

The bill passed by the assembly is SB 1050 which will amend Sections 1189 and 1195 of the Civil Code and Section 8202 of the Government Code. It was approved by the governor back on August 15, 2014, and will take effect on January 1, 2015. California law allows authorized notaries public to execute acknowledgment or proof of execution of an instrument and jurats attached to sworn affidavits. Up until now the state required that the certificate of acknowledgment, proof of execution, or jurat be in a specific form. Under the new law, that form will change. Now a legible notice will have to be included in an enclosed box on those documents. That box will have to state that the acknowledgment, proof of execution, or jurat verifies only the identity of the individual who signed the document as opposed to verifying the truthfulness, accuracy, or validity of the document. The law also provides a sample of the required boxed notice. The sample is just an example and is not the only format of the boxed notice that would comply with the law.

Documentary transfer taxes are something any small business owner needs to consider when making real estate decisions for the business. A new California court decision shows that the state’s documentary transfer tax may be applied in situations where some people did not initially anticipate it would be applied.

What are Documentary Transfer Taxes?

Simplified, documentary transfer taxes are taxes levied on the documents related to real estate transfers. In California, the board of supervisors of any county or combination of a county and city can impose these taxes on deeds or other writings that transfer real estate so long as the value of the interest in the property being transferred is at least $100. The tax authorized by the state is 55 cents for each $500 of value.

Business defines a “right of first refusal” as a “contractual right under which a seller must give a party…an opportunity to match…a price at which a third party agrees to buy a specified asset…on the same terms offered to the third party. So in real estate, this sort of arrangement would require you to give the person with the right of first refusal an opportunity to match any offer you receive on your real property. Real estate agents sometimes encourage right of first refusal clauses for sellers. But you need to be aware of the possible complications arising from such arrangements.

How Rights of First Refusal Work in Real Estate

There are three people involved in a real estate right of first refusal: the owner of the property, the holder of the right of first refusal, and a third party. The owner gives the holder the right of first refusal which gives the holder the right to match any offer made by any third party.