Author: ft Editorial Staff

April 2008 Supreme Court Watch

Supreme Court Watch This monthly update presents real estate related issues pending before the United States and California Supreme Courts. Cases are listed by subject matter. Cases with opinions issued by a lower court and accepted by the United States or California Supreme Court are located in the “Recent Case Decisions.” Cases currently under review and pending before the United States or California Supreme Court are not citable illustrations of law. An asterisk (*) indicates cases added since our prior issue. United States Supreme Court Government Property BP America Production Co. v. Watson (No. 05-669) – Whether a statute of limitations period applies to federal agency orders demanding the payment of money claimed by the agency under a lease agreement. California Supreme Court Construction Crawford v. Weather Shield Mfg., Inc. (S141541) – Whether a subcontractor can agree with a general contractor to defend the general contractor in lawsuits arising out of the negligence of others. Contracts Edwards v. Arthur Andersen LLP (S147190) – Whether all employee non-competition provisions in employment agreements are unenforceable or only those employee non-competition provisions which prevent an employee’s pursuit of a lawful trade or business on termination of the employee. Sterling v. Taylor (S121676) – Whether oral evidence can be used to clarify the ambiguities in a written agreement to provide the terms needed for an enforceable agreement. Conveyance Steinhart v. County of Los...

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Conflicts of interest in brokerage

This article examines the unlawful conduct and unprofessional behavior of real estate licensees when acting as an agent or as a principal in real estate related transactions. Defining unlawful conduct The Real Estate Commissioner is empowered by the state legislature to adopt regulations for the administration and enforcement of the Real Estate Law and Subdivided Lands Act. [Calif. Business and Professions Code §10080] Both the Real Estate Law (Business and Professions Code §§10000 et seq.) and the Department of Real Estate Regulations act to protect consumers of services rendered by real estate licensees. Thus, the public is assured real estate licensees will be honest, truthful and of good reputation, in a word, ethical. Webster’s Dictionary defines ethics as a “system or code of morals of a particular…group, profession, etc.” [Webster’s New World Dictionary, Third College Edition (1988)] Black’s Law Dictionary describes ethical conduct as “…professionally right or befitting; conforming to professional standards.” [Black’s Law Dictionary, Fifth Edition (1979)] Thus, ethics and professionalism are synonymous. The real estate profession should demand nothing less than completely ethical behavior from fellow licensees, whether dealing between themselves or with members of the public as principals or as agents. Peer pressure imposed by fellow licensees generally produces corrected conduct by the offending licensee at an early stage, before continuing and evolving bad conduct causes the Department of Real Estate (DRE) to become involved. Whenever...

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Carry back sellers, secured or unsecured?

This article examines a seller’s use of a recourse vendor’s lien in place of a non-recourse trust deed to recover on a carryback note. by Connor Wallmark Vendor’s lien as an alternative foreclosure Consider a seller whose equity in his income-producing real estate is less than 20% of the value of the property. Also, the rental income produced by the property is insufficient to pay its operating costs and the loan payments. Thus, a negative cash flow exists on the property. The seller wants to sell the property to rid himself of the carrying costs and avoid what he anticipates will be a further decline in its value under his ownership. A creditworthy buyer is located who sees potential in the property and has substantial net worth as reflected in to his financial statements. The buyer offers to buy the property for a price acceptable to the seller, on terms calling for: a 5% down payment; the assumption of the existing first trust deed loan equal to 80% of the price; and the seller carrying back a trust deed note for 15% of the purchase price. The seller and his broker know a carryback note secured by the property sold is nonrecourse paper. Thus, the carryback seller must look exclusively to the equity in the property he sold to recover on the note should the buyer default. A money...

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April 2008 Legislative Watch

Reported by Ai M. Kelley: Escrow Law changes to advertising, fees, violations, and surrender of license Statements required to be made by licensed escrow agents have been modified, escrow licensees on condition of disclosure may charge an administration fee for cancelled or postponed escrows, escrow licensee violation of the Real Estate Settlement Procedures Act (RESPA) is now a crime, and procedures have been established for the surrender of an escrow agent’s license. Amended by AB 804: Financial Code §17210.2 A licensed escrow agent must include, in any communication, the following statement: · “This escrow company holds California Department of Corporations Escrow License No. _____.” Amended by AB 804: Financial Code §17346 Any advertising referring to the Escrow Agents’ Fidelity Corporation must include the following statement in a “clear and conspicuous manner”: · “MEMBER OF ESCROW AGENTS’ FIDELITY CORPORATION (EAFC). EAFC POVIDES FIDELITY COVERAGE TO ITS MEMBERS. EAFC IS NOT A GOVERNMENT AGENCY, AND THERE IS NO GUARANTEE OF A PAYMENT OF ANY CLAIM BY THE STATE OF CALIFORNIA.” Amended by AB 804: Financial Code §17421.5 A licensed escrow agent may charge an administrative fee for handling monies held in an escrow that has been canceled or postponed for at least two months from the most recent closing date called for in mutual escrow instructions, if: · the cancellation or postponement was not due to any action of the escrow...

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April 2008 Recent Case Decisions

Reported by Ai M. Kelley: Pre-organization agreements assumed by LLC are enforceable A seller of a hotel entered into a purchase agreement with a buyer who was a syndicator. The syndicator then assigned his purchase rights to acquire the hotel to a limited liability company (LLC) he intended to form to fund the purchase. The LLC did not exist at the time of the assignment. Articles of organization were later filed with the California Secretary of State. The seller cancelled the purchase agreement on learning of the assignment to the LLC, claiming the assignment was unenforceable since the LLC did not exist when the assignment took place. The LLC claimed the assignment of the purchase agreement, and thus the purchase agreement, was enforceable by the LLC since an LLC can enforce pre-organization agreements made on their behalf. A California appeals court held the assignment, and therefore the purchase agreement rights assigned, were enforceable since entities are entitled to enforce pre-organization contracts made on their behalf. Editor’s note—The hornbook or blackletter law which establishes that corporations, and in this case, LLCs, can enforce pre-organization agreements made on their behalf also requires the corporation/LLC to adopt or ratify the agreements, called an assumption. Also at issue in this case: If challenged, buyer need only show financing would have been available to close A seller of a hotel entered into a purchase...

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