Affordable housing

Affordable housing fees must reflect project’s impact

Reported by Nick Love

A developer contracted with a city to develop residential subdivisions. The development contract required the developer to pay a fee to subsidize affordable housing based on the proposed development’s impact on affordable housing needs. The development agreement permitted the city to modify the affordable housing fee periodically if reasonably justified. Three years into development, the city employed a new method of calculating the affordable housing fee based on the estimated city-wide need for affordable housing, which led the city to raise the fee on the development. The developer sought to avoid the higher fee, claiming the fee violated the development contract since the raised fee was not justified by the specific development’s impact on affordable housing needs. The city claimed the higher fee did not violate the contract since reasonable adjustments to the affordable housing fee were allowed by the development contract. A California appeals court held the city’s raised fee was unjustified and invalid since it had no relationship to the development’s impact on affordable housing needs. [Building Industry Assn. of Central California v. City of Patterson (January 30, 2009) __CA4th___]

Equity purchase

Criminal action on home equity purchase (EP) sales fraud to be filed within four years of fraud

Reported by Nick Love

A homeowner in danger of defaulting on his mortgage agreed to execute a second mortgage for a loan from an equity purchase (EP) investor. The investor instead provided the homeowner with documents transferring ownership of the property, and subsequently demanded that the homeowner sign a lease, threatening him with eviction. Three and a half years later the state of California filed a criminal complaint against the EP investor for his attempt to defraud the owner of his property. The EP investor claimed the state’s prosecution was barred since the three-year statute of limitations for offenses punishable by imprisonment in a state prison had passed. The state claimed the criminal action against the EP investor was timely since the statute of limitations for prosecution of an offence punishable by state prison is four years when the offence involves fraud. A California court of appeals held the filing of the criminal complaint in the prosecution of the EP investor for his misrepresentation of the legal consequences of the documentation in the equity purchase transaction was timely since the offense involved fraud, and thus a four-year statute of limitations applied. [The People v. Shetty (June 18, 2009) __CA4th___]


Buyer’s listing enforced without a specific expiration date when broker has fully performed

Reported by Bradley Markano

A buyer entered into an exclusive buyer’s listing agreement with a broker to locate property for purchase. The expiration date for the listing was stated as the close of a purchase escrow. Suitable property was located by the listing agent, and an offer was submitted. Upon the seller’s acceptance of the offer, escrow was opened, but the buyer breached the purchase agreement and cancelled the purchase escrow. The broker made a demand on the buyer for his broker fee which had been earned and was now due under the buyer’s listing agreement, but the buyer refused to pay any fee. The buyer claimed the listing agreement he entered into was unenforceable since it did not have a specific expiration date and payment was not due until the close of escrow, which did not occur.  The buyer’s broker claimed the fee agreement was enforceable even though it did not contain a specific expiration date, since his fee had been earned by locating a property, as called for in the listing agreement, which the buyer agreed to purchase and the escrow failed to close due to wrongful interference by the buyer. A California appeals court held the buyer owed his broker a fee for his services rendered in successfully locating property for purchase since the nonspecific expiration date for a listing agreement cannot be used to circumvent the broker’s collection of his earned fee.

Also at issue in this case:


Sales agent enforces listing agreement against buyer on an assignment of the Broker’s right to collect the fee

A buyer entered into an exclusive listing agreement with a broker to locate property for purchase. An agent of the broker located a suitable property, and the buyer entered into a purchase contract. Later, the buyer defaulted on the purchase agreement and refused to pay the commission owed the broker. The broker assigned the agent his right to the broker fee due under the exclusive listing agreement. The agent filed an action, in his own name, against the buyer to recover the unpaid fee. The buyer claimed the agent was barred from any action to collect a broker fee for services he was unauthorized to perform without a broker, since licensed real estate agents are ineligible to receive payment from anyone other than a broker. The agent claimed he was permitted to file an action to recover fees earned by his broker under a written listing agreement since the fee had already been earned and the broker had assigned his right to enforce collection of the fee. A California appeals court held the real estate agent was permitted to pursue enforcement of the broker fee earned under an employment agreement—the buyer’s listing—since the broker had assigned the agent his right to the already-earned fee. [Schaffter v. Creative Capital Leasing Group 166 CA4th 745]


Rent-controlled landlord may not evict Section 8 tenant to raise rent

Reported by Amanda Ripley

A residential landlord of a unit subject to rent control served a notice to vacate on a tenant whose rent was subsidized by the Section 8 program of the Department of Housing and Urban Development (HUD). HUD permits landlords to evict tenants for “good cause,” including the desire to lease a unit at higher rent.  However, a local rent control ordinance prohibited evictions solely for the purpose of raising rents. The tenant claimed the eviction was unlawful since the landlord’s reason for evicting the tenant was to obtain higher rent, a violation of the local rent control ordinance. The landlord sought to evict the tenant, claiming his eviction for the purpose of obtaining higher rent available in the market was permissible since HUD allows landlords to evict rent-subsidized tenants to increase rental income, and the local rent control ordinance is preempted by the HUD regulation. A California appeals court held the landlord could not evict the tenant in order to obtain higher rent, even though HUD permits “good cause” evictions, since the more restrictive local rent control ordinance controls the eviction process for HUD-subsidized Section 8 tenants and does not permit eviction of tenants solely for the economic benefit of landlords. [Barrientos v. Morton LLC (October 9, 2009) __CA4th__]


RHS loan reconveyance restrictions enforced after principal fully paid as scheduled

Reported by Nick Love

An owner’s apartment building was encumbered by a federal Rural Housing Service (RHS) loan.  The loan agreement and trust deed required the owner to rent to elderly and low-income tenants.  The interest paid on the loan under the note was variable, and depended on the rent the owner received.  Consistent payments by tenants lead to the repayment of the entire principal prior to the initial term for full amortization in 2034. On submission of the final  payment, the owner demanded a reconveyance of the trust deed since the principal had been fully satisfied. On a demand for early reconveyance, the loan agreement required the owner to respond to further government incentives or sell the property at an RHS-appraised value to someone willing to comply with the tenant requirements until the expiration of the initial term of the loan in 2034, in order to keep the property as housing for elderly and low-income tenants. The RHS refused to reconvey the trust deed unless prepayment procedures designed to keep the property in the intended use were followed. The owner refused and demanded a sale’s price in excess of the RSH valuation. The owner sought a court-ordered reconveyance of the trust deed claiming the debt had been fully satisfied as amortized and thus no prepayment of the loan has occurred. A U.S. appeals court held the final amortized payment and any demand for reconveyance was subject to loan prepayment restrictions under the Housing Act since the original date for final payment in the loan documents was the definitive maturity date of the loan and any reconveyance of the trust deed before that date is considered a prepayment covered by the loan agreement. [Schroeder v. United States of America (June 22, 2009) __F3d___]