28th Annual Real Property Law Retreat

May 1, 2010

Silverado, California




Roger Bernhardt, Golden Gate University

Dorothy J. Glancy, Santa Clara University School of Law

John G. Sprankling, University of the Pacific

The Speakers

Roger Bernhardt is Professor of Law at Golden Gate University in San Francisco. He is the Editor of the California Real Property Law Reporter and author of:  California Mortgage and Deed of Trust Practice, and Bernhardt’s California Real Estate Codes.  He has also written, for law students: Cases and Statutes on Real Property, Real Property in a Nutshell, The Black Letter Law of Real Property, and Cases on California Real Estate Finance. Bernhardt is past chair of the Legal Education Committee of the American Bar Association’s Real Property Probate and Trust Section and former member of the Executive Committee of the Real Property Section of the California State Bar. He is a member of the American Law Institute, the American College of Real Estate Lawyers, and the American College of Mortgage Attorneys.  He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Dorothy J. Glancy is Professor of Law at Santa Clara University School of Law. Admitted to the bar in California and in the District of Columbia, Professor Glancy practiced law in Washington, D.C. and served as Assistant General Counsel in the United States Department of Agriculture as well as Counsel to the United States Senate Judiciary Subcommittee on Constitutional Rights during the Watergate investigations.  A life member of the American Law Institute, Professor Glancy was an adviser to the Restatement, Third, of Property: Servitudes.  She is a member of the Court Technology Advisory Committee to the Judicial Council of California and chairs its e-Practices Subcommittee.  Her publications cover a wide range of topics, including historic preservation, co-ownership, the judicial work of Justice William O. Douglas, privacy and intellectual property.  She teaches law school courses in Property Law, Land Use Law, Natural Resources Law, Administrative Law, Intellectual Property Law, Copyright Law, Trademark Law, and Privacy Law.

John G. Sprankling is a Distinguished Professor and Scholar at the University of the Pacific, McGeorge School of Law, where he teaches Property, Land Use Planning, Environmental Law, and Copyright Law. He is the author or coauthor of four books, including Understanding Property Law, a student-oriented treatise published by Lexis, and Property: A Contemporary Approach, a casebook published by West.  He began his legal career with Miller, Starr & Regalia, and later became a partner with the firm.  After teaching at Stanford Law School and Santa Clara University School of Law, he joined the Pacific McGeorge faculty.  At Pacific McGeorge, he has served as Interim Dean and as Associate Dean for Academic Affairs.  He has also served as the Chair of the Property Law Section of the Association of American Law Schools.

The Cases

Birke v. Oakwood Worldwide, 169 Cal.App.4th 1540 (2009).

Tenant’s allegation that management company failed to limit secondhand smoke in outdoor common areas of apartment complex stated cause of action for public nuisance.

Birke, a five-year-old with asthma and chronic allergies, sued Oakwood Worldwide, which managed the apartment complex where she lived.   She alleged that Oakwood’s failure to limit secondhand smoke in the outdoor common areas of the complex (1) constituted a public nuisance and (2) violated the Americans with Disabilities Act (ADA).  Oakwood prohibited smoking in indoor units and in the indoor common areas, but permitted smoking in the outdoor common areas; as a result, Birke could not use the outdoor common areas, which included swimming pools and playground areas.  The trial court sustained Oakwood’s demurrer to Birke’s first amended complaint without leave to amend.  The Court of Appeal held that Birke had stated a cause of action on the public nuisance claim, but not on the ADA claim.

The trial court sustained the demurrer to the public nuisance claim because: (1) Birke’s physical complaints were not sufficiently different in kind from those of the general public; and (2) there was insufficient evidence that Oakwood created or assisted in creating a nuisance.  As to injury, the Court of Appeal reasoned that Birke’s asthma and allergies were not similar to the increased risks of heart disease and cancer that the similarly situated general public might suffer.  Moreover, when the alleged nuisance causes personal injury to the plaintiff, the harm is normally different from that suffered by the public.  Finally, when the nuisance is private as well as public (as Birke alleged), there is no requirement for damage that is different in kind.

As to creation of the nuisance, the court noted that a nuisance can be created by omission as well as by affirmative actions.  It also identified several actions Oakwood had taken which allegedly encouraged outdoor smoking, including providing ashtrays for use by tenants and permitting its own employees to smoke outdoors.  In addition, it emphasized that Oakwood had an affirmative duty to maintain the complex in a reasonably safe condition, so the question was not one of duty, but rather of breach, which could not be resolved on demurrer.

However, the Court of Appeal agreed with Oakwood’s contention that the ADA applies only to hotels, motels, and other similar places of transient lodging, not to “residential facilities” such as apartments and condominiums.

Building Industry Assn v. City of Patterson, 171 Cal. App.4th 886 (2009).

“In lieu” fees, not based on impacts attributable to development for which assessed, are not “reasonably justified” as required by development agreement.

A developer entered into a development agreement with the City of Patterson and obtained tentative subdivision maps for the construction of two subdivisions.  The development agreement provided that the developer would pay an “in-lieu fee in an as-yet undetermined amount [per house for low and moderate income housing] but in no event less than the current fee of $734.00.”  In the agreement, the developer acknowledged that the city was in the process of analyzing its affordable housing fee and “agreed to be bound by the revised fee schedule…providing the same is reasonably justified.”  Three years later, the city increased the fee to $20,946 per house.   The developer’s successor challenged the fee as a violation of its vested rights, the terms of the development agreement, and various statutory and constitutional provisions.  The trial court found that the increased fee was justified, but the Court of Appeal reversed.

The original fee was based on the “leverage” analysis approach, which assumed that state and federal funding would provide 91% of the amount need to build each affordable house.  The increased fee was based on “bridging the affordability gap” between the cost of a market rate house and the cost that was affordable by very low, low, and moderate income homebuyers, respectively, multiplied by the number of units needed for each category.  The total number of needed units (642) was based on the city’s “Regional Housing Needs Assessment” target.  The total fee was then spread over the number of unentitled units (3,507) remaining to be built in the city’s general plan area.

The Court of Appeal decided that the pivotal question was whether, under the development agreement, the fee was “reasonably justified,” which it interpreted to mean as whether the “increase in the…fee would conform to existing law.”  It cited San Remo Hotel v. City & County of San Francisco, 27 Cal.4th 643, 671 (2002) for the proposition that:  “Legislatively imposed development mitigation fees…must bear a reasonable relationship, in both intended use and amount, to the deleterious public impact of the development.”  Here, the evidence showed no connection between the city’s determination of a need for 642 units of affordable housing and “the need for affordable housing associated with new market rate development” attributable to the housing in the two new subdivisions at issue or the estimated total of unentitled lots in the city’s general plan area.  Thus, no evidence supported a funding that the new development fees “to be borne by Developer’s project bore any reasonable relationship to any deleterious impact associated with the project.”  The case was remanded to the trial court to craft an appropriate remedy.

Burlage v Superior Court (Spencer) (2009) 178 CA4th 524, ___ CR3d ___.

Arbitrator reversed for error that led to exclusion of vital evidence.

After discovering that the swimming pool and fence encroached on their neighbor’s property, the purchasers sued the seller for nondisclosure.  The arbitrator awarded them $1.5 million in compensatory and punitive damages, costs, and attorney fees, even though the title company had already negotiated - for less than $11,000 - a lot line adjustment that had eliminated the encroachment before the hearing was held. The trial court concluded that the arbitrator had improperly refused to consider material evidence despite the mandate of CCP §1286.2(a)(5) and vacated the award. The court of appeal affirmed.

An arbitrator’s decision is rarely subject to judicial review, even when an error of law appears on the face of the  award but The arbitrator’s exclusion of evidence of the financial effect of the lot line adjustment on their damages (based upon his conclusion that damages should be calculated as of the close of escrow) substantially prejudiced the seller. The arbitrator’s decision as to the proper date for calculating damages may or may not be subject to judicial review, but there was no question that the seller was substantially prejudiced by the arbitrator’s ruling to disallow evidence that a modest payment to the country club by the title company had eliminated any encroachment. Such evidence would have undercut plaintiffs’ expert testimony regarding reduction in value. The opportunity to present material and relevant evidence is an essential part of the arbitration contract.

Committee for Green Foothills v. Santa Clara Cnty, --Cal.Rptr.3d -- (2010) and Sunset Sky Ranch Pilots Assn v. Cnty of Sacramento, 47 Cal.4th 902 (2009).

CEQA 30-day statute of limitation applies to challenges to a Notice of Determination (NOD); denials of conditional use permit renewals are exempt from CEQA.

Over the past year the California Supreme Court has clarified, and at the same time narrowed the reviewability of local agency decisions under CEQA. Two unanimous decisions, both characteristically pragmatic opinions written by Justice Corrigan illustrate this trend.  In Committee for Green Foothills, the California Supreme Court explained that “a bright-line rule that the filing of an NOD triggers a 30-day statute of limitations promotes certainty, allowing local governments and developers to proceed with projects without the threat of potential future litigation.”  The court decided that CEQA's 30-day statute of limitations on challenges to decisions for lack of environmental review applies to a Notice of Determination in a complicated tiered environmental review of the locations of trail easements.  Earlier, in Sunset Sky Ranch Pilots Association the Supreme Court held that a decision to deny the renewal of a conditional use permit for an airport was statutorily exempt from environmental impact analysis.

In Committee for Green Foothills written by Justice Corrigan, the Supreme Court unanimously ruled that challenges to CEQA Notices of Determination (posted within 5 days for 30 days) are subject to a standard 30-day statute of limitations, rather than the longer 180-day statute of limitation on filing challenges to agency approval of a project without having first determined the project's potential environmental effects.  Santa Clara County posted a NOD regarding approval of a trails agreement as a follow-on activity encompassed within an earlier-adopted Permit EIR, and a Trails Master Plan Supplemental EIR.  Announcing in a NOD a decision not to engage in further environmental review at that time triggered the standard 30-day statute of limitations.  The merits of whether or not the County's determination not to engage in further environmental review was legitimate must be challenged within CEQA's standard 30-day period after the NOD is posted.

The California Supreme Court's earlier unanimous decision in Sunset Sky Ranch Pilots Association considered the old issue of what is a project subject to CEQA. This case involved denial of an application to renew a conditional use permit for a privately owned airport.  Although the Court of Appeal had determined that the County's decision was to close down the airport and was therefore a project subject to CEQA review, the Supreme Court held that closure would be a consequence of the decision not to renew the conditional use permit, not the decision itself.  The decision to be evaluated as a project or not was the denial of the conditional use permit, an action that is statutorily exempt from CEQA review under Pub. Res. C §21080(b)(5).  The opinion notes that those who fail to obtain a CUP renewal should not be required to pay for environmental review of that “undesired outcome.”

First American Title Ins. Co. v XWarehouse Lending Corp., 177 CA4th 106 (2009).

Title insurance does not protect successor loan owners against fraudulent mortgage loans.

Access Lending Corporation warehoused real estate mortgage loans between the time of their origination and their later  sale in the secondary mortgage market.  Its agreement with CHL provided for the loans to be assigned to it and later repurchased by CHL when a secondary market sale was ready to close. Funds were to be transmitted from Access directly to the closing agent on behalf of CHL after Access had verified possession of the closing documents by the closing agent and the mortgage documents were to be sent to Access within 3 business days of closing. The funds were thereafter often released directly to CHL, for it to refinance the borrowers’ existing loans. First American issued title policies on these loans, naming CHL as insured.  Because many of these loans were entirely fraudulent – CHL  having forged the borrowers’ names and pocketed the funds itself, the ostensible borrowers refused to pay and challenged Access’ foreclosure proceedings against them. Access tendered its defense of these claims to First American, who refused to accept it, which led to this litigation. The trial court granted summary judgment for First American, holding that Access was not an insured and thus was not entitled to coverage under the policies. The court of appeal affirmed.

The policies named CHL as the insured but also defined the insured (and its successors) as the owner of the indebtedness secured by the mortgage. Access argued that this definition covered the fund transfers made by it through escrow to CHL but the court rejected that concept. The term “indebtedness” reasonably can only refer to the obligation reflected in the “insured mortgage”, defined in the deed of trust as the indebtedness from the borrower to CHL, which in these cases did not exist. Access could not claim to be a successor to CHL under the policy is no was no valid underlying indebtedness. Access’s losses were not sustained or incurred by reason of the invalidity or unenforceability of the lien, but  rather by the absence of any existing indebtedness between CHL and the borrowers.  Access’s losses were not recoverable under the policies because they were not caused by any defect in the title or in the mortgage liens. The losses were rather due to the failure of the indebtedness between the named borrowers caused by CHL.

In a related case, decided by a different district of the court of appeal (but unpublished),  another lender defrauded by CHL failed, for similar reasons, to recover from either its title insurer or the escrow agents who hand handled the transactions.  Gateway Bank v Ticor Title Company, 2009 WL 4190455.


Guggenheim v city of Goleta, 582 F3d 996, (2009).

Mobilehome park rent control ordinance constitutes a facial taking of park owner’s property, requiring just compensation.

Plaintiff mobile Park home owners brought this action challenging the city's rent control ordinance on the ground that it constituted a facial taking of property under the Fifth Amendment.  After several trials the District Court ultimately upheld the ordinance but the Ninth Circuit Court of Appeals reversed.

Initially the court held that the plaintiff's deed have standing to bring this action because their loss of approximately $10,000 of rent each year that they could otherwise have collected constituted a sufficient injury in fact.  Furthermore their action was filed in a timely fashion and they were not required to have first filed a formal inverse condemnation proceeding in state court.

On the merits this action was to be tested as an ad hoc factual inquiry under Penn Central transportation Company versus New York City, 438 US 104, since it was not alleged that there had been a permanent physical innovation of the property or that the owners had been deprived of all economically beneficial use.  Making an ad hoc factual inquiry is difficult when the constitutional challenge is facial rather than "as applied", but is not therefore impossible.  The plaintiffs must show that the mere enactment of the regulation has a significant economic impact upon the owners, and they are not required to show that it constitutes a complete deprivation of their property, as is the case when the action is brought under Lucas versus South Carolina coastal Council 505 US 1003. Here the owners showed that the cause mobile home park tenants were able to reduce their rental liability by approximately $10,000 a year, that savings could be capitalized and would enable them to sell their mobile homes for over $100,000 more than they would otherwise be worth.  This constituted a straightforward wealth transfer from landlords and tenants, resulting from the mere enactment of the ordinance.  In light of that affect it was not conclusive that the owners were still able to earn a return on their investment of roughly 10% annually.

Second the ordinance did interfere with distinct investment backed expectations, even though it had first been an active (by the County before the city was incorporated) over 18 years ago, substantially before the owners had purchased their property, especially since the ordinance had been newly reenacted more recently.

Finally, considering the character of the governmental action, a high burden was imposed upon a few private property owners that showed more fairly have been apportioned more broadly than it was.  The rent control ordinance applied only to mobile home park owners and not on other property owners in the city.  On balance the ordinance goes too far and constitutes a regulatory taking under the fifth and 14th amendments, for which just compensation must be paid.

The opinion was written by Judge Bybee, who was joined by Judge Goodwin. A dissenting opinion was filed by Judge Kleinfeld.

Junkin v. Golden West Foreclosure Service, Inc., 180 Cal.App.4th 1150 (2010).

Wrongful foreclosure action is subject to the joint venture exception to California usury laws.

In another decision arising out of a failed real estate transaction, an experienced real estate agent sought to defend against foreclosure of his interest in commercial property based on California usury laws. The real estate agent had borrowed money from the foreclosing individual lender many times in the past.  The two also had invested in property jointly on many occasions.  Distressed commercial property was purchased by the two for $1.975 million in 2004.  Both names were placed on the title and the two considered themselves to be partners in a venture in which the real estate agent owned 90% and the individual lender owned 10%.  The real estate agent agreed to make all payments on the $1.185 million loan (first note) from an institutional lender on which both the real estate agent and the  individual lender were jointly obligated, as well as to pay property taxes and insurance on the purchased property. The individual lender contributed $856,000 for which the real estate agent prepared and signed a promissory note secured by a second deed of trust in favor of the individual lender. The note was for $960,000, including points on the loan, with an interest rate of 12% and monthly payments of $9,600.

The real estate agent made no payments on either the first or second notes nor with regard to the taxes or insurance on the property. Realizing that foreclosure of the first note would wipe out his second note, the individual lender made payments on the first note and paid the property taxes. Eventually, the individual lender quitclaimed his 10% interest back to the real estate agent who refinanced the property with another lender.  When the second note from the real estate agent to the individual lender went unpaid, the individual lender retained Golden West Foreclosure Service to conduct a nonjudicial foreclosure sale, with bidding to open at $700,000.  The real estate agent sought to enjoin the foreclosure sale; but the trustee sale eventually went forward and resulted in the individual lender purchasing the property for $700,000.

The real estate agent sought damages for wrongful foreclosure on the grounds that the $960,000 loan from the individual lender was usurious.  The individual lender defended based on the joint venture exception arising out of California decisional law.  The Court of Appeal found that the joint venture exception was properly applied based on a number of factors: The real estate agent and individual lender considered themselves to be partners.  Both were jointly obligated on the first note. Both faced a risk of loss of capital. The foreclosed second note between the two was part of a larger transaction in which the property was purchased by the two investors from third parties.  The trial court properly balanced these factors in finding that the joint venture exception to the usury rules applied.

In a falling real estate market, the number of such failed real estate investments is expected to rise, along with a wide variety of defenses to foreclosure, including usury.

Kelly v. CB & I Constructors, Inc.,  179 Cal.App.4th 442 (2009).

Contractor who negligently sparked brush fire liable for $2.6 million in costs to restore 34-acre ranch, plus $750,000 for injury to trees, and $757,000 in attorneys fees.

Kelly owned a 34-acre ranch in oak woodlands in Los Angeles County, which included three homes, outbuildings, and about 150 oak trees.  He lived on the ranch until about 1994, and then rented it out to tenants; but he “always planned to return to the ranch. ”  In 2002, CB & I Constructors (CBI) accidentally ignited a brush fire while installing a municipal water tank.  The fire burned the brush on the hillsides surrounding the ranch, destroyed a number of oak trees, destroyed a  “vintage wooden barn,” and damaged other structures.  After the fire, heavy rains resulted in mudslides that caused more damage.  Plaintiff’s appraisal expert testified that the land was worth $1.6 to $1.8 million before the damage, but was now worth “little or nothing.”  She also estimated that the cost of restoring the land and structures would be $2.8 million; this included $437,000 to rebuild the barn; $590,375 to build an erosion and flood control system; $477,641 to restore a stream to its prior course; and $423,168 to remove silt and sand from pastures.  Plaintiff’s expert arborist valued the 103 oak trees injured by the fire or mudslides at $544,534.

Finding that the plaintiff had a “genuine desire to rebuild and repair his property for personal reasons,” the jury awarded him $2.6 in restoration costs, plus $375,000 for tree damage.  The trial court doubled the tree damages pursuant to Civil Code section 3346 for a total award of $750,000.  Because plaintiff intended to raise livestock on the land, the trial court awarded him $757,000 in attorneys fees pursuant to Code of Civil Procedure section 1021.9.  The Court of Appeal affirmed.

The first issue was the appropriate measure of damages for injury to the property.  The court noted that such damages are generally limited to the fair market value of the property before the injury occurred.  However, under the “personal reason exception,” if a person has a personal reason to restore the property to its former condition, he may recover restoration costs even if they exceed the diminution in value---as long as these costs are “reasonable in light of the value of the real property before the injury and the actual damage sustained.”  CBIC argued that the damages were unreasonable because, when stated as a percentage of the property’s value, they far exceeded any other award approved by a California court.  Here, the restoration costs exceeded the property value by 67%, while the court in Heninger v. Dunn, 101 Cal.App.3d 858 (1980) reasoned that restoration costs which exceeded value by 35% were “manifestly unreasonable.”  However, the court found substantial evidence that a person in plaintiff’s position “reasonably could choose to restore the property to its prefire condition and that the damages awarded by the jury reasonably were necessary for such restoration.”

The second issue was whether Civil Code section 3346, which authorizes an award of double damages for wrongful injuries to trees caused by an involuntary trespass, was applicable on the facts of the case.  In Gould v. Madonna , 5 Cal.App.3d 404 (1970), the court held that this section did not apply to negligently caused fires.  The Kelly court rejected the Gould approach, based on the plain language of the statute:  fire damage is an “injury” to a tree, the fire was a “trespass,” and the trespass here was “involuntary.”

Kush v. Smith , -- Cal.Rptr.3d -- (2010) and Sharabianlou v. Karp, -- Cal.Rptr.3d --  (2010).

The consequences of failed real estate transactions may include both rescission and consequential damages, but not forfeiture.

Two recent Court of Appeal decisions deal with the rights of purchasers under land purchase agreements that fall through.  One decision from the Fourth District, considered the consequences for the purchaser of a residence when the purchaser cancelled escrow.  The other decision, which was from the First District, concerned an action for rescission of a purchase contract regarding commercial property.

Kush v. Smith involved a 2005 residential property purchase agreement.  The purchaser, after twice extending the close of escrow, cancelled escrow on an agreement to purchase a residence for $14 million.  The sellers refused to permit return of escrowed deposit payments made by purchaser, even after the property was sold to a back-up purchaser for $15 million within two months.  In an opinion by Justice Fybel, the Fourth District Court of Appeal held that in a rising market, the seller of real property is limited to recovery of consequential damages and interest against a breaching purchaser, in the absence of a liquidated damage clause in the purchase and sale agreement. Even though sellers argued that the deposit was consideration for extending the close of escrow, retention of purchaser's deposit in such a rising market would constitute an invalid forfeiture.

Sharabianlou v. Karp involved a failed commercial real estate transaction.  The litigation arose out of the purchase of commercial property that had previously been used as a dry cleaning facility and was contaminated.  The date on which escrow was to close was repeatedly extended because of environmental and financing contingencies. Writing for the First District Court of Appeal, Justice Needham approved the trial court's ruling that purchasers were entitled to equitable rescission of the purchase and sale agreement based on mutual mistake of fact.  However, although damages are not inconsistent with relief based on rescission under CC §1692, the damages awarded by the trial court in this case improperly awarded the seller benefit-of-the-bargain damages.  Since rescission disaffirms the contract's bargain, benefit-of-the-bargain damages are not permitted.  Although sellers were not entitled to the difference between the rescinded contract price and the price for which the property later sold, they could be awarded costs for environmental reports to the extent that these expenses have been proved.

These two Court of Appeal decisions from different parts of California illustrate some of the perhaps unexpected consequences that can arise from the increasing numbers of failed real estate transactions.

Millennium Rock Mortgage v TD Services, 179 CalApp 4th 804 (2009).

Auctioneer’s use of wrong street address of property being sold at trustee sale invalidates sale, despite his inclusioin of correct legal description.

When undertaking to sell one property in Sacramento (the 13th Ave property) the auctioneer inadvertently described another parcel (the Arcola Avenue property) instead and accepted Millennium’s bid of $51,000 for it (Arcola), although the beneficiary of the Arcola deed of trust had instructed the auctioneer to bid $380,000 for it.

Later that day, the auctioneer discovered his error and notified Millennium that the sale was invalid.  Millennium disputed that contention and filed this complaint to compel issuance of a trustee deed to it.  The trial court enjoined the auctioneer from reselling the property, and held that his mistake at the sale did not constitute an irregularity sufficient to invalidate it.

The court of appeal reversed.  Although a sale is deemed complete for most purposes when the auctioneer accepts the final bid, the presumption of validity created by the recitals in the trustee deed does not arise until that deed has been delivered, and in this case the auctioneer discovered his mistake prior to delivery of the deed.  The inconsistency between the legal description and the street address called out by the auctioneer constituted a fatal ambiguity as to what property was being auctioned.  The situation was unlike that in 6 Angels v Stuart-Wright Mortgage, 85 Cal App 4th 1279, where a beneficiary who had mistakenly instructed the auctioneer to bid only 10% of what it was owed was unable to undo the sale because that error was external to the sale proceedings.  The beneficiary in this case was blameless and should not lots the property for one seventh of what it should have sold for.

Nielsen v. Gibson,178 Cal.App4th 318, 2009.

Adverse Possession was successful against overseas record owners, who were presumed to be on notice of adverse possessors' open presence on the land.

Justice Sims' classic opinion nicely explains the current law of adverse possession in California, particularly with regard to “notice” of adverse claims to property owned by record title holders who are living abroad.  The facts of the case involve three lots in Granite Bay conveyed to the Nielsens in 1997.  The three lots had been owned by Mr. and Mrs. Bender.  However, in 1993 the Benders gave one of the lots to their daughter, to whom they gave an executed a deed of gift.  The daughter built a cabin on this lot; but she soon left California to live in Ireland, where she died in 2003.  Gibson was the executor of the daughter's estate.

In 1997, after the daughter had moved to Ireland, the Nielsens sought to purchase the three lots, including a residence on one of the lots and the daughter's lot with its cabin.  In the meantime, the daughter had experienced mental difficulties in Ireland.  An Irish solicitor was appointed as the daughter's conservator after Irish courts had determined that the daughter was incapable of managing her property or making legally binding decisions.  The Benders did not have their daughter's power of attorney, but believed that she was mentally competent.  Mrs. Bender had by then gone to Ireland to be with her daughter; Mr. Bender also sought to join them.

In 1998, Mr. Bender executed two deeds to the Nielsens - one a grant deed to the residence lots, and the other a quitclaim deed to the daughter's lot.  The Nielsens had already moved into the residence at the end of 1997 and actively used the daughter's lot and the cabin, blocked access to the lot from the public road, irrigated it and used it for a variety of purposes, including a go-cart track.

The principle issues on appeal were whether the five-years necessary to establish adverse possession should have been tolled under CCP §328, because of the daughter's incompetence and whether the adverse possession was sufficiently open and notorious.  In an unreported part of its decision, the Court of Appeal found no reason to overturn the trial court's ruling that Gibson failed to meet the necessary burden of proof to show that the daughter was “insane” within the meaning of the statute of limitations.  With regard to the character and elements of adverse possession, CC §1007 requires “actual occupation under such circumstances as to constitute reasonable notice to the owner.”  The Court of Appeal decided that reasonable notice to the owner includes should-have-known, presumed notice.  Presumed notice is sufficient when adverse claims are sufficiently open and notorious.  Actual notice to an absentee record title holder who fails to notice notorious acts of possession is not required. Interpreting CC §1007 in light of common law principles of adverse possession that pre-dated California's adverse possession statutes, the Court of Appeals ruled that a title holder who fails to look after land owned in California is at fault for remaining in ignorance of actual occupation and use of that land by others. She is “on notice” of openly adverse claims to her land, even if she is many thousands of miles away in a different country.

It is noteworthy that absentee landowners can now protect their titles against adverse possession in situations where adverse possession claimants pay property taxes (as required by CCP §325) on top of taxes paid by the record owner of the property.  In 2009 AB 143 added Rev & T C §2781.5, which authorizes an owner of record title to instruct a tax collector to return a payment on a current tax assessment to a tendering party who is not the owner of record.

Park 100 v. Ryan, 180 Cal.App.4th 795 (2009).

Servient estate attorneys' properly filed a lis pendens on the dominant property during litigation over an easement.

In a dispute over an easement for use of an alley located on the servient tenement, it is proper for attorneys representing the servient estate to file a lis pendens on the dominant estate.  Attorneys for the servient estate were sued by the dominant estate for interference with prospective economic advantage and slander of title.  The servient estate attorneys successfully raised the propriety of filing lis pendens in the context of easement disputes, under a successful motion to strike pursuant to CCP §425.16, known as an anti-SLAPP motion against a  “strategic lawsuit against public participation.”

The published portions of the decision of the Court of Appeal for the Second District focus on the underlying easement dispute and the privileged status of filing lis pendens.  The court's opinion relies extensively on s lengthy study and proposals made by the Real Property Law Section of the State Bar of California in connection with 1992 amendments to CCP § 405.4.  An easement dispute involves a real property claim. Filing lis pendens on the dominant estate is appropriate because such an easement dispute affects the use of an easement upon or appurtenant to that property.  As a result, for the purposes of an anti-SLAPP motion, the attorneys for the servient estate were privileged to make such a filing, which was not actionable in later tort litigation against the attorneys for negligent and intentional interference with prospective economic advantage and slander of title.

The easement dispute involved an historic building in downtown Los Angeles (dominant estate) that, for removal of trash and waste, needed to use an alley located entirely on an adjacent property where another building is located (servient estate). After an easement contract expired, the dominant tenement continued to use the easement for a decade; but the parties could not agree about a new easement agreement.  Attorneys for the servient tenement demanded payment of past usage charges of $116,000 and $1000 per month going forward.  Attorneys for the dominant estate claimed a prescriptive easement and use of the alley based on a 1985 covenant running with the servient estate. When in 2006, the dominant estate historic building was marketed for sale, a buyer agreed to a purchase the property for $ 16.9 million.  At that time, attorneys for the servient estate filed a quiet title action against the dominant estate and filed a lis pendens on both properties.  The prospective buyer of the dominant estate withdrew from the 2006 purchase and sale agreement because of the litigation. Within two months, owners of the dominant estate filed a cross-complaint to expunge the lis pendens on that property.  The cross-complaint was later amended to seek to quiet title to what was claimed to be a prescriptive easement to use the alley, as well as to allege interference with economic advantage and slander of title and, later, for sanctions against attorneys for the servient estate. About a year and a half later, in October 2007, the dominant estate was sold for $13.5 million.  After the trial court denied the servient estate's motion for summary judgment, the dominant estate abandoned its claim to quiet title and filed a complaint against the servient estate's attorneys on the grounds that recording lis pendens on the dominant tenement was improper and either negligently or intentionally interfered with prospective economic advantage and constituted slander of title.  It is within this latter tort litigation that the propriety of filing lis pendens in the context of an easement dispute was affirmed.

RC Royal Development & Realty. v. Standard Pacific Corp., 177 Cal. App. 4th 1410 (2009)

Buyer obligated to pay broker’s commission when purchase agreement was signed because agreement gave buyer equitable title, which was a “beneficial interest” in the property.

RC Royal Development and Realty Corporation (RC), a licensed California real estate broker, entered into an agency agreement with Standard Pacific Corporation (Standard) regarding information or offers for property that Standard might purchase.  Standard agreed to pay RC a broker’s commission equal to 1.5% of the gross sales price on the purchase of property that RC brought to Standard.  The agreement provided that a commission was due only if such property was actually “purchased” by Standard within one year; and it specifically defined “purchase” to mean “any and all acquisitions of any direct or indirect beneficial interest in the Property.”

RC located property in downtown Los Angeles owned by LPC Union Apartments, L.P. (Lincoln) that Standard decided to buy.  Standard and Lincoln entered into a purchase agreement on August 19, 2005, by which Lincoln would build two condominium buildings on the land with a total of 278 units and related facilities, and Standard would purchase the property for $116 million.  The agreement provided for closing within 5 days of issuance of a temporary certificate of occupancy, but no earlier than January 4, 2006.  The agreement included a number of conditions precedent to Standard’s obligation to purchase, including the issuance of a temporary certificate of occupancy.

The project encountered delays in permitting, inspection, and construction, while the condominium market in downtown Los Angeles declined.  By August, 2006, no temporary certificate of occupancy had been obtained, and there was no certainty about when the project would be completed.  Standard and Lincoln accordingly entered into a settlement agreement which terminated the purchase agreement, and Standard forfeited the $4 million in earnest money it had deposited into escrow.

RC then sued Standard, inter alia, for breach of contract.  The trial court granted summary adjudication in favor of Standard, ruling that the close of escrow was a condition precedent to Standard’s obligation to pay a commission.  The Court of Appeal reversed.

In the published portion of the opinion, the court held that Standard became obligated to pay a commission to RC when it entered into the purchase agreement.  The court first noted the general rule that the broker earns a commission when his principal enters into a binding contract for a purchase regardless of whether the sale is consummated, unless the brokerage agreement provides otherwise.  It then reasoned that a purchaser of real property acquires “a conditional equitable title to the property in fee simple” upon the execution of a purchase agreement.  Thus, Standard acquired equitable title in August, 2005, which constituted a “beneficial interest” in the land, thereby entitling RC to a commission.   Although the purchase agreement specified that any commission to RC was to be paid “through escrow at closing,” the court interpreted this as setting the time for payment, not imposing a condition precedent to payment.

Ricketts v. McCormack, 177 Cal.App.4th 1324 (2009).

County Recorder’s office is not required to index reconveyance of deed of trust within time limits of CC 2941

Civil Code section 2941 requires the beneficiary of a deed of trust, upon being paid off, to send it to the trustee with a request for reconveyance within 30 days thereafter, and for the trustee to then cause the reconveyance to be recorded within the next 21 days (which may be done by way of certified mail to the county recorder’s office.   Finally, the code section then requires the recorder to “stamp and record” the document within twp business days thereafter.

This action was brought as a class action on behalf of property owners whose reconveyances were stamped and recorded by the county of Los Angeles within the statutory time period but were not also entered into thea  proper indexes. The trial court refused to issue a writ of mandate compelling the county to comply with this demand, and the court of appeal affirmed that decision.

The statute is clear, and the statutory mandate to “stamp and record” does not mean “stamp, record, and index”.  The legislature was aware of the distinction between recording and indexing when it set out these timelines while amending the section in 1989.

It is true that an instrument generally fails to give constructive notice to the public until it has been properly indexed, but the plain language of the statute demonstrates that timely indexing is not a required component of the mortgage cancellation process. 

Wells Fargo Bank v. Neilsen, 178 Cal.App.4th 602 (2009 )

“Partial subordination” resolves inconsistency of priorities created by successive deeds of trust with intervening agreement to subordinate among fewer than all parties.

In this case, Neilsen contested the trustee’s distribution of the proceeds from the nonjudicial foreclosure sale of Neilsen’s home in March, 2007.  At that time, the property was encumbered by three consecutively-recorded deeds of trust securing repayment of the following obligations:  (1) $28,726 owed to American Express Centurion Bank (AMEX); (2) $78,433 owed to Wells Fargo Bank (WFB); and (3) $322,000 owed to PHH Mortgage Corporation (PHH).  Based on the time of recordation, the respective priority of these deeds of trust was first, second, and third.  However, as part of the PHH transaction, AMEX subordinated its lien to the PHH deed of trust, but did not subordinate to the WFB deed of trust.

AMEX foreclosed on its deed of trust, and WFB purchased the property for $400,000.  The sales proceeds were first applied to repay the debt owed to AMEX, leaving $368,000 in net proceeds after expenses.  Neilsen argued that because the PHH lien was senior to the AMEX lien, then WFB took title subject to the PHH lien.  Accordingly, he claimed that the sale proceeds remaining after payment of the AMEX and WFB liens and sales expenses should go to him.  The foreclosure trustee petitioned the trial court for instructions, which held that PHH was entitled to the remaining funds under Bratcher v. Buckner, 90 Cal.App.4th 1177 (2001).  The Court of Appeal agreed and affirmed.

The court acknowledged the inconsistency regarding priorities caused by an intervening and incomplete subordination agreement among successive deeds of trust, a situation which the Bratcher court called a “circuity of liens.”  This partial subordination results because the prior lien is displaced by the subordinating lien while retaining its priority over the intervening lien.  The court rejected Neilsen’s argument that Bratcher applied only to enforcement of the type of involuntary liens at issue in that case, or that any difference should be made between liens on real property and those on personal property.  Advising that the confusing term “subordination” should be avoided in favor of more descriptive terms such as “assignment” or “intercreditor agreement,” the court ruled that the obvious intent of the lenders should not be disregarded, even if the drafting of their agreement was imperfect.