Author: ft Editorial Staff

Tenant estoppel certificates

This article explains the benefits landlords receive by including and using a Tenant Estoppel Certificate clause in lease agreements. Protection for buyers and lenders A real estate broker representing a landlord who wants to sell or refinance his income-producing property customarily prepares an annual property operating data (APOD) form. The completed APOD will be handed to prospective buyers and lenders to induce them to enter into a transaction with the landlord. [See first tuesday Form 352] A thoughtfully prepared APOD provides buyers and lenders with a summary of financial information on the operating income and expenses generated by a property, as well as loans encumbering the property. Buyers and lenders who rely on APOD figures should confirm the income and other leasing arrangements by conditioning the closing on their receipt and further approval of a signed Tenant Estoppel Certificate (TEC) from each occupant of the property. The TEC details the financial and possessory terms of the lease, and whether the landlord and tenant have fully performed their obligations. However, before the landlord can require a TEC to be signed and returned by the tenants to confirm the leasing arrangements, the lease must contain a Tenant Estoppel Certificate clause. Figure 1 Excerpt from first tuesday Form 552 — Nonresidential Lease Agreement 18. Tenant Estoppel Certificates: 18.1 Within 10 days after notice, the Tenant will execute a certificate stating the existing...

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Preliminary title reports

This article examines the usefulness of a preliminary title report. Know the condition of title An EP investor enters into an agreement with a financially distressed homeowner to purchase his one-to-four unit residential property in foreclosure at a “rock bottom” cash price for the equity. Performance of the purchase agreement is contingent on the EP investor’s receipt and review of a preliminary title report to confirm that the property is subject only to the loans and other liens disclosed by the seller-in-foreclosure. Any taxes or liens of record which are not disclosed in the purchase agreement are to remain of record. However, the amount of any such undisclosed lien will be deducted from the cash down payment. [See first tuesday Form 165 §6] Escrow is opened with instructions to close when, among other conditions, the preliminary title report (prelim) prepared by the title insurance company is approved by the EP investor. To confirm the condition of title and keep acquisition costs to a minimum, the EP investor instructs escrow to order the prelim, and then cancel it on closing and pay charges for it without obtaining a policy of title insurance. The prelim received by escrow indicates the title is clear of all liens, except those disclosed by the seller-in-foreclosure. Convinced the title condition is as represented by the seller, the EP investor waives the further-approval contingency regarding the...

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Penalties for misuse of trust funds

This article examines the penalties which may be incurred by brokers and their agents for the mishandling of trust funds. Commingling, conversion and restitution A California real estate broker who handles funds entrusted to him by others must deposit the trust funds as instructed by the person handing the funds to the broker. Above all, a broker must not convert to his personal use any funds entrusted to him. The trust fund handling requirements are backed up by a variety of penalties and consequences which apply when a broker misuses trust funds, including: civil liability for money wrongfully converted; disciplinary action by the Department of Real Estate (DRE); income tax liability; and criminal sanctions for embezzlement. The penalties depend partly on the nature of the funds which the broker misuses. For example, penalties for a broker’s misuse of advance fees held in trust accounts are specifically fixed by statute. The advance fees statute allows a client to recover treble damages plus attorney fees from a broker who mishandles advance fees. Also, a broker who fails to account for advance fees is presumed to be guilty of embezzlement. [Calif. Business and Professions Code §10146] However, the existence of specific statutory provisions relating to the misuse of advance fees does not mean the misuse of other types of trust funds will go unpunished. Penalties for the misuse of trust funds for...

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Guarantees: recourse on nonrecourse paper

This article reviews the defenses and liability imposed on third-party guarantors of trust deed notes. first tuesday Form 439 accompanies this article. To follow along with the article, Form 439 is available for download here.           Lenders and carryback sellers reduce the risks A seller lists his residence for sale. Under the terms of the listing agreement, the seller indicates he is willing to carry back a note secured by a first trust deed or an all-inclusive trust deed (AITD) on the property sold. The seller’s broker locates a young couple interested in purchasing the residence. The couple’s income is sufficient to make monthly payments on a carryback note based on the terms sought by the seller. However, the couple has not accumulated enough savings to make a significant down payment. The seller is willing to sell the property to the couple with little or no down payment, but he wants additional protection against the risk of the couple defaulting on note payments. Both spouses’ parents are willing to assist the couple by assuming liability for payment of the carryback note. The question for the seller and the seller’s broker becomes one of how to document the parents’ liability for the couple’s debt. The seller has three basic choices for documenting the promises of someone other than the actual buyer. The buyers’ parents can be...

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Slander of title

This article reviews the events which allow a property owner to recover for the slander of his title.   Real estate interests Slander of title applies to any marketable interest in real estate which is assignable, transferable or capable of being sold. A real estate interest includes the fee simple, a leasehold, an easement and covenants, conditions and restrictions (CC&Rs) – not just the vested title. [Rest.2d Torts §624] For example, an owner and his neighbor have owned adjacent parcels for over 20 years. A previous owner of the two adjacent parcels reserved the rear 43 feet of both parcels for road and utility purposes when he sold the properties. The portion reserved was never used by the seller or for purposes as stated in the reservation. Both the current owner and his neighbor have always believed their actual boundaries included the reserved roadway parcels. The owner builds his personal residence on his parcel, encroaching on the roadway parcel to the rear of his parcel. The neighbor initially uses his parcel and the roadway parcel to the rear of his parcel openly, and even pays the property taxes on the roadway parcel reserved from his title. However, the neighbor does not file a judicial action to establish record title to the rear roadway parcel. The owner whose residence encroaches on the roadway parcel lists his parcel for sale. The...

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