A look at recent court cases affecting real estate.

Separate property reimbursement based on value of equity when transmuted

A husband deeded property he separately owned to himself and his wife as community property, a contribution called transmutation. The value of his equity in the property at the time of the conveyance was never determined. Later, the husband and wife filed for divorce and the property was sold. The net proceeds of the sale due to refinancing were less than the fair market value of the home when the property was conveyed to the community. The husband and wife initially agreed how they would divide the net sale proceeds. Later, the husband claimed he was entitled to all the net proceeds of the sale as reimbursement for his contribution of separate property since the net proceeds from the sale were less than the property’s fair market value at the time he contributed it to the community. The wife claimed the net proceeds should be divided as agreed since the husband was unable to show his equity in the property had any value at the time of his contribution. A California appeals court held the net proceeds of the sale were to be divided between the husband and wife as agreed since the husband was unable to show that his equity in the property had any value at the time of conveyance to the community as required for reimbursement for his contribution of separate property to the community. [In re Marriage of Geraci (2006) 144 CA4th 1278]

Contingency provision required in sale of lot in subdivided parcel

A buyer entered into a purchase agreement with a seller and made a deposit into a sales escrow to acquire a portion of land within the seller’s larger unsubdivided parcel. The purchase agreement contained a contingency provision calling for the seller to record a parcel map, but was worded to allow the seller to waive the recording of the map. The seller recorded the parcel map as agreed. The buyer then cancelled the purchase agreement and escrow instructions, demanding a return of his deposit by escrow. The buyer claimed the purchase agreement was never enforceable since it failed to comply with the Subdivision Map Act (SMA) by allowing the seller to close without recording a map. The seller claimed the purchase agreement was enforceable since it contained a contingency calling for the seller to record the parcel map. A California appeals court held the purchase agreement was never enforceable and the buyer was entitled to recover his deposit since provisions in the purchase agreement violated the SMA by allowing the seller to close without recording a map. [Black Hills Investments, Inc. v. Albertson’s, Inc. (2007) 146 CA4th 883]

HOA manager’s indemnity provision does not bar HOA’s lawsuit

A property manager was employed by a homeowners’ association (HOA) and given administrative oversight of the HOA’s checking account activity, requiring the manager to obtain two HOA board members’ signatures on all of the HOA’s expense checks. The employment contract contained an indemnity provision requiring the HOA to hold harmless the manager against claims by others arising from his misconduct. The manager allowed expenditures to be made out of the HOA’s checking account without obtaining two board members’ signatures. The HOA sought reimbursement of the funds from the manager, claiming the manager had been negligent in his duties under the property management employment agreement since he failed to obtain the required signatures. The manager claimed he was not liable for the unauthorized disbursement since the HOA indemnified him against all claims arising from his employment with the HOA. A California appeals court held the HOA was entitled to recovery of the funds disbursed from the HOA’s checking account without the required signatures since the property manager failed in his agency duty owed to the HOA under the employment agreement, and the indemnity provision applies only to third-party claims against the manager, not those brought by the HOA. [Queen Villas Homeowners Association v. TCB Property Management (February 28, 2007) __CA4th___]