JUNE 2012: NEW REAL ESTATE CASES DECIDED BY THE CALIFORNIA COURTS OF APPEAL: PART TWO

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In May’s Courtside Newsletter, I discussed two recent cases decided by the California Courts of Appeal that will impact practices in the real estate field. This month will be a continuance of that theme.

The first case is Glen Oaks Estates Homeowners Association v. Re/Max Premier Properties, Inc., et al., which clarifies who has the ability to bring a lawsuit against REALTORS®. In 2005, Glen Oak Estates, located in Pasadena, experienced a landslide along its common slope area and common driveway. As a result of the landslide, in 2007 a lawsuit was filed against the HOA for negligence (DePaul v. Glenoaks Estates Homeowners Association). The HOA counter-sued the developers for indemnity and contribution. During this lawsuit, documents were produced by the developers, which lead to the instant action, Glen Oaks Estates HOA v. Re/Max. In the transactions with Glen Oaks Estates, the REALTORS® were acting as dual agents, both for the sellers/developers, and for the buyers/HOA members who purchased the parcels at Glen Oaks Estates. According to the HOA, the documents that were produced in the DePaul case indicated that the REALTORS® and agents were not acting in the best interests of both the sellers and the buyers. The HOA sued Re/Max Premier Properties, Inc., Dilbeck Realtors GMAC Real Estate, and the agents involved in the Glen Oaks Estates transactions for unfair business practices, breach of fiduciary duty, and intentional misrepresentation.

Based on the documents produced in the DePaul case, the HOA’s complaint alleges that the REALTORS® engaged in unfair business practices by violating the Subdivided Lands Act. The complaint alleged (1) that the REALTORS® failed to provide buyers with a public report regarding the property or other transactional documents prior to the execution of the sales contract; (2) that the REALTORS® engaged in false advertising by failing to disclose, through flyers or other publications, that Glen Oaks Estates was a common interest development subject to the requirements of the Subdivided Lands Act and the regulations of the DRE; and, (3) that Re/Max engaged in unfair business practices by falsely advising developers that the DRE did not require a homeowners association for the Estates and by collaborating with the developers to low-ball the budget.

The HOA further alleged that “the Realtors breached their fiduciary duties to the members of the HOA by failing to provide a final public report, a DRE-approved budget, and other required disclosures and transactional documents pursuant to the Subdivided Lands Act,” failed to investigate the legitimacy of soil reports provided by Pioneer Soils Engineering, Inc., and failed to warn HOA members that the soil reports might not be valid.

Based on these allegations, the HOA claimed that “the HOA members would not have purchased their homes in Glen Oaks Estates had the Realtors acted as proper fiduciaries, not concealed information relating to the budget, warned them about the alleged invalid soil reports and/or complied with the laws required of them to provide a final report and other transactional documents.” However, the reality was that the homes were purchased, a landslide occurred, allegedly due to the misrepresentations and illegitimate soil reports, and the HOA found itself embroiled in third party litigation with damages in excess of 3 million dollars.

When faced with this lawsuit, the REALTORS® demurred to the HOA’s complaint, stating that the HOA did not have grounds to bring the lawsuit since the claims belong to the individual homeowners who purchased the homes in Glen Oaks Estates. The trial court agreed with Defendants, stating that the HOA could not sue the REALTORS®. The HOA appealed, pointing out that under the Davis-Stirling Common Interest Development Act, Section 1368.3 allows for “[a]n association established to manage a common interest development…to institute, defend, settle, and intervene in litigation…in its own name.” The HOA was not alleging that the REALTORS® owed it any specific duties. Instead, the HOA had standing to bring a suit based on alleged breaches of duties that were owed to the Buyers. Since the area damaged by the landslide was “common area” under the Common Interest Development Act Section 1368.3 and the HOA incurred damages as a result thereof, the Court of Appeal found that the HOA did, in fact, have standing to bring a lawsuit against the REALTORS®.

Prior to this ruling, it was thought that homeowners associations could not bring a suit against REALTORS® or real estate agents. However, the court’s interpretation of Civil Code Section 1368.3 (the Davis-Stirling Common Interest Development Act), in this case, redefines the protection afforded to REALTORS® and agents and now enables HOAs to bring suit under certain conditions.

The next case is Lyon & Assoc. v. Superior Court, in which the court “illustrates the perils that real estate brokers and their agents assume when acting as a dual listing agent with duties to both the buyers and sellers of the same house.” The original proceeding arose out of the sale of a home in Rocklin, California. Robert and Denise Costa were the sellers, Ted and Patti Henley were the buyers, and Lyon & Associates (“Lyon”) represented both parties in the transaction. The Costas listed the home in early 2006 with an agent at Lyon. However, the agent became aware of defects and problems with the stucco and paint on the home. Instead of continuing with that agent, the Costas decided to use a different agent at Lyon, Gidal, who continued to list the property. Gidal was present when listing photographs were taken of the property that showed defects in the paint and stucco.

On May 2, 2006, the Henleys signed a buyer-broker agreement giving Lyon the exclusive right to represent them in the transaction. The Agreement affirmed that “a dual agent is obligated to disclose known facts materially affecting the value or desirability of the property to both parties.” Escrow closed on May 9, 2006 and, subsequently, the Henleys began to notice the defects in the property. Allegedly, the defects included water intrusion and efflorescence that extended from the decks to the exterior of the house, causing bubbling, blistering and cracking of the stucco and paint. When the Henleys filed their first amended complaint against the Costas and Lyon in May 2009, they alleged that the Costas knew about these defects but did not disclose them in the sale. Instead, they painted the house a dark brown prior to the Henleys’ inspection so the problems would go unnoticed. Gidel also knew about these problems and failed to disclose.

The buyer-broker agreement signed by the Henleys limits the time to bring an action for breach of the Agreement to two years. Since the Henleys’ action was filed almost three years after the close of escrow, Lyon claimed that they were barred from filing their suit for breach of contract, negligence, fraud, breach of fiduciary duty, and negligent misrepresentation. Lyon relied on California Civil Code Section 2079.4, which imposes the two-year statute of limitations written into the Agreement. However, the Court of Appeal found that section 2079.4 “specifies a statutory duty imposed on seller’s brokers to buyers of residential property.” The Henleys were the buyers of the property; therefore their complaint does not assert claims under section 2079. Further, the Henleys believed that the statute of limitations should be extended by the discovery rule, which begins tolling when the breach was discovered or should have been discovered. According to the complaint, the Henleys began to notice paint blisters at the end of 2006, but only started suspecting the Costas and Lyon in mid-2007. The court agreed with the Henleys, stating that the claim was filed in a timely manner as to all causes of action. “In sum, the buyer-broker agreement’s limitation period is subject to the discovery rule for a breach of contract action alleging active concealment of the breach by the broker.”

As a result of this decision, the California Association of REALTORS® has amended the Buyer Representation Agreements (Exclusive, Non-Exclusive, and Non-Exclusive/Not for Compensation). These forms have been slated for release this month, amongst others.

As a real estate practitioner, it is important to be aware of the duties that are owed and to whom they are owed. Otherwise, one could end up in a situation such as the brokers above. As the court pointed out in Lyon, it is especially harrowing to be a dual agent, thus extra precautions should be taken. As a buyer or seller, it is also important to be aware of your rights and the duties owed to you by your agent or broker. However, whether you are an agent, broker, buyer, or seller, always review the contracts you sign. If you have any questions, seek the advice of qualified legal counsel.

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MAY 2012 NEW REAL ESTATE CASES DECIDED BY THE CALIFORNIA COURTS OF APPEAL: PART ONE

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BY: KELLY A. NEAVEL, ATTORNEY CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.

There have been four recent cases decided by the California Courts of Appeal that will have an effect on how real estate brokers and agents conduct business. This article will will discuss two of those cases.

In RealPro, Inc. v. Smith, the court took a closer look at the standard Listing Agreement used in the sale of real property. In September 2005, Sellers/Defendants Smith Residual Company, LLC and J&A Gonzales, LLC retained real estate broker MGR Services, Inc. to act as their agent for the sale of real property in Riverside County. A “Standard Owner-Agency Agreement for Sale or Lease of Real Property” was executed, setting forth the sale price and terms of “$17,000,000 cash or such other price and terms agreeable to [Sellers]…” In November 2005, RealPro, Inc., broker for the buyer, submitted a written offer to MGR for the full asking price of $17,000,000 cash. In December, MGR countered that offer, stating that the listing price was being increased to $19,500,000. Both MGR and the Sellers (Defendants) confirmed a brokerage fee of 4% split equally between MGR and RealPro. However, the Counteroffer was rejected by RealPro.

In March 2006, RealPro demanded its 2% brokerage fee for producing a ready, willing, and able buyer. When Sellers refused to pay the brokerage fee, RealPro filed the instant action, wherein the trial “court found that RealPro had ‘failed to allege facts giving rise to the existence of an enforceable written contract for the payment of a real estate commission.’” RealPro appealed the trial court’s decision. The Court of Appeal ultimately agreed with the trial court. According to the Court of Appeal, the confusion centers on the word “or” at Paragraph 1.4(a) of the Listing Agreement. Plaintiff RealPro interpreted the “or” to act as a means of separating the $17,000,000 cash offer from the phrase “such other price and terms acceptable to [Sellers].” Defendants interpreted the “or” to include the phrase “such other price.” With this interpretation, the emphasis is on the “and,” not the “or”: “$17,000,000 cash or such other price and terms agreeable to [Sellers].” The court agreed with Defendants’ interpretation, stating that the presentation of a $17 million cash offer did not obligate the Sellers to enter into a purchase and sales agreement. Further language in the Listing Agreement indicates that Sellers are allowed “to specify price and terms, even outside of the four corners of [the Agreement].” The Court of Appeal concluded that the $17 million was merely an invitation to submit offers. It is an asking price to “guide negotiations.”

RealPro argued that the Listing Agreement contains “language that allows for payment of any commissions simply upon receipt of a full price offer.” The Court disagreed. Sellers pointed out that such language would create a conflict that is not to the mutual benefit of the parties who entered into the Listing Agreement to begin with. “Mutual benefit” is the purpose of a contract. Having to pay a commission for any full price offer that is submitted would create a myriad of problems for the Seller, including: (1) preventing a Seller from accepting any higher offers without still owing a commission to the first broker, (2) creating an obligation for the Seller to pay multiple commissions on multiple offers, and, (3) prospective buyer’s brokers would have no incentive to obtain purchase prices below the listing price because it would jeopardize their commission.

This case reminds real estate agents and brokers to look carefully at the documents they are signing and the contracts they are entering into. From the start of representation, real estate contracts are laced with subtle nuances that often escape many agents’ notice. As a result of this case, the California Association of REALTORS® is considering changing the language of the Listing Agreement in order to make it less ambiguous.

Bank of America, N.A. v. Mitchell addresses California’s antideficiency statutes as a matter of law and how they are affected by the structure of certain loans. In this case, in 2006 GreenPoint Mortgage loaned Defendant Michael Mitchell $315,000 to purchase real property located in Lancaster. The loan was secured by two notes with a first deed of trust and a second deed of trust, both held by GreenPoint. In 2008, Mitchell defaulted on both notes. In 2009, GreenPoint foreclosed on the first deed of trust. Thereafter, GreenPoint assigned the second deed of trust to Bank of America. Bank of America attempted to collect the debt owed under the second deed of trust. However, Mitchell refused to pay, arguing that the second loan was “wiped out” at the foreclosure sale of the first loan. Bank of America initiated this lawsuit for breach of contract based on the second promissory note. The trial court agreed with Mitchell and stated, “the Bank’s…claims seek recovery of the balance owed on the obligation secured by the second deed of trust and, thus, are barred by the antideficiency statutes…” Bank of America appealed, yet the Court of Appeal affirmed the decision of the trial court.

In California, Code of Civil Procedure §580d is part of the antideficiency statutes. It prohibits a creditor from seeking a judgment for a deficiency on all notes “secured by a deed of trust or mortgage upon real property…in any case in which the real property…has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.” This means that the beneficiary of a deed of trust cannot go after the debtor for the deficiency (unless he uses judicial foreclosure).

In its discussion in the Mitchell case, the Court of Appeal analyzed decisions reached in two separate, similar cases, both interpreting Code of Civil Procedure §580d. The Court of Appeal reasoned that GreenPoint would not have been a “sold-out junior lienor” after the foreclosure sale of the first deed of trust because it held both the first and the second deeds of trust at the time of the foreclosure sale. Therefore, it was not entitled to obtain a deficiency judgment. The fact that the junior note was thereafter transferred to Bank of America does not change the fact that a deficiency judgment cannot be obtained. The Bank merely “‘stands in the shoes’ of the assignor, assuming the assignor’s rights and remedies.” Essentially, because GreenPoint was precluded from obtaining the deficiency judgment, Bank of America was also precluded.

What can be taken away from this case is that the structure of the loans at the time of the foreclosure sale will determine whether a second lien holder can pursue a deficiency judgment.

Many homeowners who have been foreclosed upon may find themselves in similar situations where California’s antideficiency statutes can be interpreted in a different way than what they may believe to be true. Here at The Giardinelli Law Group, APC, we find that many people come in, both before and after a foreclosure sale, with knowledge that they have either heard through the rumor mill or read on the internet, which may not be completely correct. If you or someone you know are going through a foreclosure, this case demonstrates the fact that not every situation is cut and dry and each foreclosure or short sale deserves special attention and, potentially, legal expertise.

Look for Part Two of this series in next month’s Courtside Newsletter!

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APRIL 2012 C.A.R. FORMS RELEASE – WHAT TO EXPECT FROM C.A.R. IN THE APRIL AND MAY RELEASES

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BY: JOHN V. GIARDINELLI, ATTORNEY,
CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.

The California Association of REALTORS® has finalized the forms currently set for release on April 30, 2012, as well as those that will be released in late May.

April Releases
Carbon Monoxide Detector Notice (New)

The Carbon Monoxide Detector Notice is a new disclosure form reflecting California Law that requires that all existing single-family homes have carbon monoxide detectors installed by July 1, 2011. All other dwellings intended for occupancy are to have carbon monoxide detectors installed by January 1, 2013. The latter deadline is intended for duplexes, lodging homes, dormitories, hotels, condos, time-shares, and apartments, among others. The purpose of the new form is to provide the buyer and seller with notice of the new requirements, exceptions to the requirements, and the penalties of non-compliance. It does not disclose if the requirements have been met by the sellers. The form states that sellers of residential 1-4 properties who are required to complete a Transfer Disclosure Statement (TDS), or a Manufactured Home and Mobile home TDS must use section II A of the forms to disclose whether the dwelling has a carbon monoxide detector. Failure to disclose or comply can result in a fine of up to $200. The form should be used as a rick management protection, although it is not mandatory.

Short Sale Addendum (Revised)
The Short Sale Addendum form has been revised to include language regarding cancellation of the California Residential Purchase Agreement, Counter Offer, or other agreement to sell a property via short sale. Pursuant to the existing form, the Short Sale Addendum is contingent upon the Seller’s receipt of and delivery to the Buyer of a Short Sale Lenders’ Consent no later than a the “Short Sale Contingency Date.” The revisions to this section of the form (1A) state that any cancellation of the Agreement prior to the Short Sale Contingency Date “must be pursuant to a right to cancel by the party in the Agreement notwithstanding that time periods in the Agreement have not commenced.” The rest of the form remains the same.

Homeowner Association Information Request:
The Homeowner Association Information Request has been revised from the November 2011 form to now include additional lines for the delivery of CC&Rs and notices of owner violations. The purpose of the Homeowner Association Information Request is to allow the parties to obtain documents from the HOA, (if available), pursuant to California Civil Code Section 1368. After the request is submitted, the HOA, usually through escrow, must provide an estimate of the fees that will be assessed for providing the documents and, within 10 calendar days, provide the requesting party with the items or information requested. The revision to the form now allows the parties to obtain information of CC&Rs and notices of owner violations, in addition to information regarding rentals, insurance, and defects, to name a few. Some of the information is mandated by statute. The form is an excellent and useful worksheet for the members working with properties in HOAs and Planned Unit Developments.

Commercial, Residential Income and Vacant Land Listing Agreement (Revised)
A new Section 6 has been added to the Commercial, Residential Income and Vacant Land Listing Agreement. This section applies specifically to properties listed in the Multiple Listing Service and states that all terms of the transaction will be provided to the MLS for “publication, dissemination and use by persons and entities on terms approved by the MLS.” However, there are also subsections that allow the seller to opt out of internet display of the property or the property address. Should the seller want to display the property on the internet, he or she also has the option to opt out of linking with other MLS Participant and Subscriber websites. What this means is that while the property will show up with on those sites, people searching the internet will not be able to link back to where the property is originally listed and will not be able to see comments or reviews. It is important to note, however, that the seller must opt out using a separate form (C.A.R. form Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet).

Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet (Revised)
The Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet has also been modified. The amount of time to submit an exclusive right to sell and exclusive agency listing for real property or a vacant lot is not longer listed in hours, but has been changed to two (2) days. For those members who are in CRMLS, these are two (2) business days. Under most rule sets weekends and holidays are generally excluded. While the section dealing with the exclusion of a property from the MLS not been changed, it is important to take note that this form has a secondary purpose and can be used by sellers to make sure their property either does not appear on the internet or is not hyperlinked to reviews and comments.

Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption (Revised)
The November 2006 revision of the Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption clarifies that a tax identification number (TIN) is necessary, as well as a California Corporation number for those corporations qualified to do business in California. The remainder of the form is the same.

Septic Inspection, Well Inspection, Property Monument and Allocation of Costs Addendum (Revised)
The Septic Inspection, Well Inspection, Property Monument and Allocation of Costs Addendum has been modified to more accurately reflect whether the buyer or the seller will be paying for the costs related inspection and/or repairs to septic tanks, wells, and property monuments. It is anticipated that these revisions will provide for more accuracy as to who is doing what and will hopefully prevent any confusion or future issues.

Addendum (Revised)
The last revised form to be released on April 30, 2012 will be the Addendum. C.A.R. has simply removed the broker signature line. If the broker wishes to sign, he or she may use the prior form or insert his or her signature.

May Releases
The following revised forms will be issued in late May 2012. However, at the time this article was published, C.A.R. has not released a specific date.

Office Management Agreement (New)
The Office Management Agreement is a new form that reflects changes to California Business and Professions Section 10164 that become effective on July 1, 2012. Pursuant to the changes to the Code, (also discussed in our October Courtside Newsletter, “New Laws That May Affect Your Real Estate Business,” which can be found on our website), a broker who appoints a branch manager must do so pursuant to a written contract defining the responsibilities of that manager. There are further requirements, of course, as well as anticipated DRE regulation, but the purpose of C.A.R.’s new form is to provide a basic written contract according to the law. The Agreement contains language defining what offices the manager will oversee, his or her responsibilities, his or her salary, and other topics directly related to employment. It is to be used in conjunction with exhibits relating to internal office policies.

Broker/Associate-Licensee/Assistants Three-Party Agreement (Revised)
Section 5 of the Broker/Associate-Licensee/Assistants Three-Party Agreement has been revised to reflect recent changes in employment classifications. Now entitled “Employee Classification Advisory,” this section addresses the misclassification of independent contractors, stating “the classification of persons as employees or independent contractors is one the areas of the law that is complicated and risky.” The new law on this issue was addressed in our December Courtside Newsletter, “Warning to Employers: New 2012 Employment Laws,” which can be found on our website, www.glawgroupapc.com. The revisions to the Broker/Associate-Licensee/Assistants Three-Party Agreement serve as a warning to signees, letting them know that “independent contractor” has different definitions for different entities and the severe penalties of willful or unintended misclassification. The form also mentions the need to carry workers’ compensation insurance for an assistant.

Personal Assistant Contract (Revised)
The Personal Assistant Contract contains the same language with as the Broker/Associate-Licensee/Assistants Three-Party Agreement with regards to an “Employee Classification Advisory.”

It is important to seek the advice of competent legal counsel if any of the new forms are confusing or you have any questions whatsoever. It is always better to be safe than sorry.

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Courtside Newsletter March 2012: COURT DECISIONS COULD HELP OR HINDER HOMEOWNERS IN DISTRESS

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HOW RECENT COURT DECISIONS MAY EFFECT FORECLOSURES

Two recent court decisions may affect the way foreclosures, and loan modifications are conducted in the future. One case brings hope for California homeowners who are victims of predatory stated income loans. The other case clarifies that acceptance of trial period payments by homeowners does not create a loan modify agreement or prevent the lender from foreclosing.

The Lona v. Citibank, N.A. ruling was favorable to homeowners in distress. Mr. Lona was a mushroom farm mechanic, had limited English fluency, had an 8th grade education, and earned $3,333.00 a month. He responded to a “marketing enticement” by First Net Mortgage and refinanced his home in January 2007 with a “stated income loan” (the borrower states his gross monthly income, which is sometimes unscrupulously increased by the loan broker). The new loan raised his mortgage debt from $1.24 million to $1.5 million, and his new monthly payment was $12,381.36. The home was sold at a nonjudicial foreclosure sale in August 2008. The case did not discuss how Lona originally acquired the property.

Lona sued Citibank (the lender), EMC (the loan servicer) and the mortgage broker to set aside the trustee’s sale claiming that he was a victim of predatory lending. Lona alleged the transaction was invalid because the loan broker ignored his inability to repay the loan and he did not understand the transaction, which was entirely in English and he had limited English fluency, little education, and modest income. The Superior Court granted Citibank and EMC’s summary judgment motion which argued no triable issues of material fact existed for setting aside the trustee’s sale because (1) Lona failed to meet the tender requirements (offer to pay the full amount of the debt which would have postponed the trustee’s sale); (2) Lona voluntarily entered into the loan; and (3) Lona failed to demonstrate any irregularity in connection with the trustee’s sale. Lona appealed.

The Appellate Court found that Lona was exempt from the tender requirement, no irregularities existed in the foreclosure sale, and Lona had presented evidence that was not addressed by Citibank and EMC of unconscionability (unequal bargaining power, overly harsh, one-sided results). The loan documents were standard forms drafted by the lender and presented to Lona for signature and he had no role in negotiating the terms, which included potential increased interest rates and a balloon payment that were not explained to Lona and which he would not be able to pay. The extreme disparity between the monthly loan payment and Lona’s income created a triable issue whether the loans were overly harsh and one sided.

This ruling indicates that courts are taking a closer look at the way refinancing is was conducted, rather than merely at whether the lender and/or loan servicer conducted the foreclosure lawfully.

In Nungaray v. Litton Loan Servicing, LP, the ruling was not favorable to homeowners in distress. The Nungarays refinanced their home in Simi Valley in March 2006 through Bank of America (Bank). Litton Loan Servicing (Litton) serviced the loan. In January 2009, the Nungarays were delinquent and the Bank recorded a notice of default. The Notice of Trustee’s Sale was recorded and sale was set for April 29, 2009. In May 2009, the Nungarays employed a business entity to negotiate and obtain a loan modification. On July 3, 2009, the Nungarays executed a document titled “Loan Workout Plan (Step One of Two-Step Documentation Process)” for the Bank’s review. Although the Bank accepted reduced mortgage payments under the Plan, the Bank and Litton never executed the Plan.

The requirements of the Plan included the Nungarays make four “Trial Period Payments” and provide documentation of their income, financial information, and a hardship affidavit. If the Nungarays were in compliance with the Plan, the Bank would provide them a Loan Modification Agreement to sign and return two copies. If they qualified for the “Offer,” the Bank would send them a signed copy of the Plan. If they did not qualify for the Offer, the Bank would send them a written notice of disqualification. The Plan would not take effect until both the Nungarays and the Bank signed it and the Bank provided them with a copy signed by the Bank. The Bank would suspend, but not dismiss, the foreclosure action so long as the Nungarays continued to meet all the Plan obligations. If the Bank did not provide them the fully executed copy of the Plan and the Modification Agreement before the Modification Effective Date, the loan documents would not be modified; the Plan would terminate; and the foreclosure would immediately resume at the point it was suspended. The Plan included the following statements: “I understand that the Plan is not a modification of the Loan Documents …” and “I … agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Plan.”

The Nungarays provided financial information through their attorney in response to three letters requesting specific documents and in a telephone call. The Nungarays made four payments; however, Litton returned two of them, the first for failure to include required financial information. The Nungarays failed to provide the Bank with all of the required financial information. The Nungarays claimed they did not receive notice that information was missing. On November 1, 2009, the Bank gave notice that the Plan was terminated. On November 10, 2009, the Bank purchased the home at a non-judicial foreclosure sale.

In January 2012, the Nungarays brought an action against Litton and the Bank alleging breach of contract, negligence and quiet title. They claimed that the foreclosure sale and eviction were improper, because they had entered into a loan modification agreement. The Court granted the defendants’ Motion for Summary Judgment stating, “[T]he Plan was not an enforceable agreement requiring defendants to enter into a loan modification because it ‘was expressly contingent upon a number of factors which never came to fruition.’”

On appeal, the Nungarays made two arguments: They contended the Plan was an enforceable loan modification, because the Bank and Litton partly performed by accepting the trial period payments and acknowledged the existence of the Plan in their court pleadings; therefore principles of equitable estoppel apply (a legal principle that bars a party from denying or alleging a certain fact due to that party’s conduct, allegation, or denial). The Court disagreed finding there was plain and clear language in the Plan that it was not a loan modification; the Plan was not executed by the Bank or Litton; and equitable estoppel does not apply because the Nungarays were not led to believe that a permanent loan modification was forthcoming.

The Nungarays also contended that Litton and the Bank violated the “one-form-of-action rule” by retaining and applying the Nungarays’ payments against the mortgage. California Code of Civil Procedure, Section 726, provides there can only be one form of action for the recovery of a debt or the enforcement of any right secured by a mortgage upon real property. Those seeking to collect a debt must select one collection method against a delinquent owner. If a creditor forecloses on an owner and discovers there is no equity in the property, the creditor cannot then bring a lawsuit to recover the deficiency. Again, the Court disagreed and found that the rule did not apply to the circumstances in the case, that the Bank did not pursue the Nungarays’ assets prior to the foreclosure. “We do not consider the payments a setoff manifesting an election to not foreclose pursuant to the one-form-of-action rule…” and that money paid as part of a forbearance agreement did not invoke the rule.

This ruling emphasizes the importance of reading a document and obtaining legal advice from a reputable attorney to ensure a clear understanding of the terms before you rely on it or sign it.

BY: SYLVIA J. SIMMONS, ATTORNEY
CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.


Courtside Newsletter February 2012: A CLOSER LOOK AT DRE AND LICENSE REGULATIONS AFFECTED BY SENATE BILL 53

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January 18-21, 2012 the California Association of REALTORS® held its annual Winter Business Meetings in Indian Wells. During the Legal Affairs Forum, numerous new laws discussed, including some that have been discussed in past articles of the Courtside Newsletter. One Senate Bill that seemed particularly important is Senate Bill 53, which discusses, in detail, California Department of Real Estate and License Regulations.

It is important to recognize the implications behind the Real Estate Law that SB 53 addresses. The Real Estate Law provides for the regulation and licensure of real estate brokers and salespersons by the Real Estate Commissioner. Any person who willfully violates or knowingly participates in a violation of the Law’s provisions may be guilty of a crime.

As it currently stands, the law allows the Commissioner—either by his or her own motion or upon the submission of a verified Complaint—to investigate the actions of a licensee who has engaged in specified acts. Those acts are listed in Business and Professions Code Section 10176 (a-n) and include such things as making substantial concealment or misrepresentations of material facts; making false promises of a character that is likely to induce, influence or persuade; unlawful discrimination; acting for more than one party in a transaction without the knowledge or consent of all parties; and conduct that constitutes fraud or dishonest dealing. If the licensee is found to have committed the actions outlined in Business and Professions Code Section 10176, the Commissioner can revoke or suspend the licensee’s license or impose a monetary penalty.

The current language of Business and Professions Code Section 10177 will become inoperative as of July 1, 2012 and repealed as of January 1, 2013. Instead, new language will be added under Business and Professions Code Section 10177, effective July 1, 2012, to allow the Commissioner to suspend or revoke the license of a real estate licensee, delay the renewal of a license, or deny the issuance of a license to an applicant pursuant to the terms outlined in Business and Professions Code Section 10177 (a-q). Some of the conditions listed in Section 10177 include but are not limited to whether a licensee or applicant has entered a plea of guilty or nolo contendere (no contest) to, been found guilty of, or been convicted of a felony or a crime substantially related to the duties of a real estate licensee; whether the licensee willfully used the term “realtor” or a trade name or insignia of a membership in a real estate organization of which the licensee is not a member; whether a licensee has demonstrated negligence or incompetence in performing an act for which he or she is required to have a license; and whether the licensee engaged in any conduct that constitutes fraud or dishonest dealing. If a corporation’s officer, director, or person owning or controlling 10 percent of the corporation’s stock has violated any of the aforementioned conditions, the Real Estate Commissioner may suspend or revoke the license of the corporation, delay the renewal of a license of the corporation, or deny the issuance of a license to the corporation. These conditions will become effective on July 1, 2012.

SB 53 will also amend Business and Professions Code Section 10080.9. The amended Code will allow the Commissioner to issue citations to unlicensed persons that he or she believes to be performing acts for which a license would be required, as well as against licensees who are in violation of the Real Estate Law or any of its rules. The citations would include an order to correct the violation and could impose an administrative fine of up to $2,500. Any money collected from the citations would be placed into the Recovery Account of the Real Estate Fund. If the licensee or unlicensed person wants to contest the citation, they must inform the Commissioner within thirty days of the date of the citation. After that time has passed, the citation or citation and fine becomes final.

Additionally, should a licensee fail to obey a subpoena issued for the production of documents, SB 53, through changes to Business and Professions Code Section 10079, will allow the Real Estate Commissioner to apply to the Superior Court, (through a noticed motion), for an Order requiring the licensee or a designated representative of the licensee to appear at Court with the requested documents. Failure to obey this Order would be considered contempt of Court.

Effective July 1, 2012, the current Business and Professions Code Section 10156.2 will become inoperative. A “new” Section 10156.2 will be added in its stead, which will be effective beginning July 1, 2012. Currently, the Code Section addresses a licensee’s application for renewal of his or her license. If the application is filed before midnight of the last day of the period for which the license was issued, along with the fee and good faith evidence of compliance with Article 2.5, then the applicant can continue to operate under his or her existing license (so long as it wasn’t previously suspended or revoked). The language of this portion of Section 10156.2 does not change, nor does the language with regards to the Commissioner’s ability to advise or reprimand those licensees who are not in compliance with the education requirements. The only language that does change, in fact, is that the Section now states “nothing in this section shall prevent the Commissioner from delaying the renewal of the license of a licensee pursuant to Section 10177.”

Currently, real estate brokers are required to indicate in their transaction files the provisions of law pertaining to securities qualifications or exemption from securities qualifications under which their transactions are being conducted. Real estate brokers are also required to file certain information with the Real Estate Commissioner relative to conducting those transactions that are exempt from qualification. Through changes to Business and Professions Code Sections 10236.7, 10237, and 10238, real estate brokers will now be required to submit a copy of the information in their transaction files to any investors from whom the brokers obtain funds in connection with the transaction within 10 days of receipt of those funds. Further, a form notice will need to be filed with the Real Estate Commissioner within 30 days after the first transaction and within 30 days of any material change in any information that is required in the notice. That form can be found in Section 10238. Any willful violation of the provisions in these Code Sections will be considered a crime.

Lastly, Senate Bill 53 provides the Real Estate Commissioner with access to a person’s records and the Department of Motor Vehicles for the purpose of enforcing specific provisions of the Real Estate Law or Subdivided Lands Law (Vehicle Code Section 1808.51).

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Courtside Newsletter January 2012: N.A.R. MAKES CHANGES TO THE CODE OF ETHICS AND MODEL MLS RULES AND REGULATIONS – A BRIEF SUMMARY OF SOME ANNUAL MODIFICATIONS

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CODE OF ETHICS

As with any new year, there are always changes. This year is no different. Some important changes to the National Association of REALTORS®Code of Ethics and Standards of Practice should be noted. This guide outlines REALTORS®’ revised duties to their clients, customers, the public, and other REALTORS®.

Changes were made throughout the Code to eliminate the term “competitor” and instead replace it with the broader term “real estate professionals.” Specifically, this change is reflected in Article 15, Standard of Practice 15-2, and Standard of Practice 15-3. Article 15 now states, “REALTORS® shall not know knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses or their business practices.” Standard of Practice 15-2 states:

“The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means.”

Lastly, Standard of Practice 15-3 is amended to state, “The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the REALTOR® controls once the REALTOR® knows the statement is false or misleading.”

Further changes were made to Article 17 regarding mediation of disputes. In contractual (as well as certain non-contractual) disputes, the Association governing those disputes can require the disputing parties to mediate prior to submitting the matter to arbitration. The Article goes on to afford the clients of REALTORS® the opportunity to mediate in accordance with the Association’s legal policies. In the past, NAR required the boards and associations to offer mediation to the members, but participation remained voluntary. With the amendment to Article 17, local boards and associations would be able to require mediation prior to arbitration, if the Board of Directors and/or the membership authorizes it.

However, a provision has been added to Standard of Practice 17-2 to state that “Article 17-2 does not require REALTORS® to mediate…when all parties to the dispute advise the Board in writing that they choose not to mediate through the Board’s facilities.” The new language does not relieve REALTORS® of their duty to arbitrate but rather correlates with the already existing language in 17-2. Standard of Practice 17-2 continues to state that Article 17 does not require parties to arbitrate when all parties advise the Board (in writing) that they choose not to arbitrate before the Board.

Lastly, a new Standard of Practice has been added to Article 1 of the Code of Ethics. Standard of Practice 1-16 outlines, in no unspecific terms, that REALTORS® are not to access or use, or permit others to access or use, a listed or managed property on any terms or conditions that are not authorized by the owner or seller. This authorization should be in writing.

Any questions regarding the changes to the Code of Ethics or with compliance in general should be directed to the appropriate Board or to qualified legal counsel.

MODEL MLS RULES AND REGULATIONS

In November 2011, the National Association of REALTORS® Board of Directors met at the REALTOR® Conference and Expo in Anaheim to discuss changes to the Model MLS Rules and Regulations. As of the first of this year, those changes came into effect, many of which are mandatory on the local MLS in order to maintain compliance with existing, already-mandatory policies and to ensure coverage under the National Association master professional liability insurance policy.

One of the more controversial changes, it seems, is the deletion of Section 18.2.10, as well as the deletion of language in Policy Statement 7.58. Both regard Internet Data Exchange (IDX) listings on franchisor’s websites, which gave further rise to questions about social media and IDX. The Board of Directors opted to rescind the language about IDX and franchisors and, according to Robert Freedman at REALTOR.org, “a work group has been tasked to broaden the policy to address listing displays over mobile device and via social media.

Other changes to the MLS Rules and Regulations include an increase in the maximum security deposit that Associations and MLSs can require for lockboxes. Previously, Policy Statement 7.31 stated “the initial deposit shall not be less than $25 nor more than $200.” The maximum figure has now gone up to $300 in order to continue to “establish an awareness of personal liability for such key.” This change in the lockbox deposit amount is also one of the mandatory changes implemented by the National Association of REALTORS®.

Section 2.5, Report Sales to the Service, was amended to include sale prices as part of the status changes that are reported to the multiple listing service by either the listing or cooperating broker. Additional “notes” were added to the section to address the differences in disclosure states and indicates where sale prices of completed transactions are not accessible. In states where complete transactions are not accessible, failure to report sales or sale prices is subject to disciplinary action if the MLS (1) categorizes the sale price information as confidential, and (2) limits the use of sale price information to specific subscribers, participants, customers, clients and governmental bodies (as detailed in Section 2.5). Further, with regards to Virtual Office Websites (VOWs), sale prices are considered confidential in states where actual sale prices of completed transactions are not a part of public records.

Policy Statement 7.75, Reporting Sales to the MLS, follows the same vein as Section 2.5 by including sale prices in the information that must be reported. The notes regarding “disclosure” and “nondisclosure” states also contain the same language as that in Section 2.5.

Policy Statement 7.97 was also adopted by the directors. This section give MLSs discretion to requires participants to disclose if a listed property is bank-owned, real estate owned, or a foreclosure.

It is important to be aware of these changes and be on the lookout for any changes in any local MLS Rules and Regulations. Each Association and/or MLS will announce the specific changes to its MLS. All Associations within CARETS affiliated MLS’ utilize a uniform set of rules. Keep an eye on future Courtside Newsletters or check out our Facebook for updates.

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Courtside Newsletter December 2011: WARNING TO EMPLOYERS: NEW 2012 EMPLOYMENT LAWS

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SB 459: Misclassification of Independent Contractors

Senate Bill 459 amends the California Labor Code, Section 226.8, to prohibit the willful misclassification of an individual as an independent contractor. “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The bill prohibits charging individuals who have been mischaracterized as independent contractors a fee or making deductions from compensation that would have violated the law if the individuals had not been misclassified.

To reflect the seriousness of willfully misclassifying an employee, if the Labor and Workforce Development Agency or a court determines that a violation has taken place, the penalty is $5,000 per incident. If the violator has a pattern or practice of willfully misclassifying employees, the penalty will be no less than $10,000 and could go up to $25,000. The violator will also be ordered to post a notice signed by an officer for one year that states: (1) what the violation was, (2) that their business practices have been changed to avoid committing further violations, (3) that employees who believe they are misclassified may contact the Labor and Workforce Development Agency, and (4) that the notice is posted pursuant to State order. A licensed contractor who is found to have violated Section 226.8 will be reported to the Contractors’ State License Board for disciplinary action.

Additionally, any person who knowingly advises an employer to treat an individual as an independent contractor to avoid employee status may be jointly and severally liable with the employer if the individual is found not to be an independent contractor.

AB 469: Wage Theft Protection Act of 2011

Effective January 1, 2012, Assembly Bill 469 added Section 2810.5 to the California Labor Code, Wage Theft Prevention Act of 2011. Employers are now required to provide non-exempt employees with written notice at the time of hire containing the following specific wage-related and employer information:

  1. The rate or rates of pay, the basis for the rate, and whether it is paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
  2. Any allowances claimed as part of the minimum wage, including meal or lodging allowances.
  3. The regular payday.
  4. The name of the employer, including any “doing business as” names used by the employer.
  5. The physical address of the employer’s main office or principal place of business and a mailing address, if different.
  6. The telephone number of the employer.
  7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
  8. Any other information the Labor Commissioner deems material and necessary.

If any changes are made to this information non-exempt employees must be notified in writing within seven calendar days of change.

The Act also increasess civil penalties for wage violations, such as employers paying less than minimum wage, and increases the statute of limitations. The full text of the Act can be found on the Department of Industrial Relations’ website. The Labor Commissioner is developing a guide/FAQ for employer compliance that should be available this month. It will be found at : http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html

SB 272: Leaves of Absence for Organ and Bone Marrow Donation

Senate Bill 272 amends Labor Code Section 1510 current law regarding leaves of absence for employees who donate an organ or bone marrow to another person. Current law provides a leave of absence for an organ donor of 30 days within a one-year period and a leave of absence for a bone marrow donor of five days within a one-year period. SB 272 clarifies that those are “calendar days” not “business days” and that the one-year time period will begin on the first day of the employee’s leave. The leave of absence will not be considered a break in the employee’s continuous service for the purposes of the right to time off. The employee will still be entitled to coverage under a group health plan. The employer retains its right to negotiate an employee benefit plan that will be better than an existing plan and no rights provided under Section 1510 will be diminished by an employee benefit plan entered into on or after January 1, 2011. The employer may require the employee take up to five days of earned but unused sick leave, vacation, or paid time off for bone marrow donation, or up to two-weeks of earned but unused sick leave, vacation, or paid time off for organ donation. The employee’s leave for donation cannot be taken concurrently with any other leave taken pursuant to the federal Family and Medical Leave Act of 1993 or the Moore-Brown-Roberti Family Rights Act. The leave can, however, be taken in one or more periods, but still cannot exceed the time allotted.

SB 299: Pregnancy Disability Leave

Under current law, it is unlawful for employers to discriminate based on sex or disability or to refuse to allow a female employee disabled by pregnancy, childbirth, or a related medical condition to take a reasonable leave of absence for said conditions. SB 299 amends California Government Code Section 12945 to include that it is also unlawful for an employer to refuse to maintain and pay for coverage under a group health plan for eligible female employees who take leave. However, the premium paid by the employer can be recovered from the employee if: (1) the employee fails to return to work after the term of the leave that the employee is entitled to expires; or (2) the employee fails to return from leave for a reason other than they are on leave under the Moore-Brown-Roberti Family Rights Act; or (3) if the employee is entitled to additional leave due to continuation, recurrence, or onset of a health condition. The amendment makes it unlawful to refuse to accommodate an employee for a condition related to pregnancy, childbirth, or a related condition if she requests the accommodation based on the advice of her healthcare provider.

AB 551: Penalties for Contractor’s Violation of Labor Code

Assembly Bill 551 amends several sections of the Labor Code to increase penalties for violations of various Labor Code provisions regulating contractors and subcontractors on public works contracts.

Section 1775 is amended regarding failure to pay minimum wages: The penalties are increased for contractors and subcontractors who pay less than the minimum per diem wage to their employees. Under existing law, the penalty is $10 to $50 per calendar day. Effective January 1, 2012, the penalty will be $40 to $200 per calendar day. The penalty is determined by the Labor Commissioner based on: (1) whether the employer intended not to pay per diem wage or whether it was a good faith mistake that was promptly rectified, and (2) whether the employer has a prior record of failing to meet prevailing wage obligations. If the employee was employed by a subcontractor, the prime contractor will not be liable for the penalties if the prime contractor: (1) had no knowledge of the subcontractor’s failure to pay prevailing wages; and (2) attempted to take corrective action once becoming aware of the subcontractor’s discrepancy.

Section 1776 is amended regarding contractor and subcontractor payroll records and the inspection of said records. The penalty for not complying with a written request for payroll records within 10 days is $100 each calendar day the contractor or subcontractor is delinquent.

Section 1777.1 is amended to provide that a contractor or subcontractor who is in violation will be unable to bid or perform work on a public works project for a minimum of one year or a maximum of three years. If payroll records are not produced within 30 days of a written request, in addition to the per diem fine, the contractor or subcontractor may be subject to debarment.

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Courtside Newsletter November 2011

This month, The Giardinelli Law Group, APC summarizes the recently released new and updated C.A.R. Forms.  To read the most recent Courtside Newsletter, click here now.  You can also find copies of previous Courtside Newsletters under the “NEWS/BLOGS” tab of THE GIARDINELLI GROUP, APC website: www.glawgroupapc.com


Courtside Newsletter: NEW LAWS THAT MAY AFFECT YOUR REAL ESTATE BUSINESS & More!

WHAT THESE NEW LAWS MEAN FOR PRACTITIONERS

BY: CASEY MCINTOSH, PARALEGAL

The current session of the California State Legislature recently passed a number of Bills that will affect REALTORS®, real estate agents, and their clients in numerous ways. As these new laws will come into effect in 2012, it is important to be informed now in order to make implementation as easy as possible. The following are simply a few of the new laws and how they will pertain to real estate practitioners when they become effective.

Senate Bill 510: Branch Offices

This piece of legislature will become effective July 1, 2012 and will amend Section 10164 of the Business and Professions Code as it applies to the management of branch offices. Pursuant to existing law, a real estate broker is required to procure a separate license for each branch office maintained by the broker. SB 510 will authorize an employing broker to appoint a branch manager, pursuant to a written contract, and delegate responsibility to oversee and supervise operations and activities of that branch, as specified in the employment contract. The employing broker will also be required to send a written notice to the Department of Real Estate identifying the appointed manager and, should the broker-manager relationship be changed or terminated, the broker will be required to notify the Commissioner of those changes as well. SB 510 also outlines that the appointed manager must have at least two years of full-time real estate experience in the five years prior to appointment, and must not hold a restricted license or be subject to debarment. The Commissioner is authorized to suspend or suspend revoke the license of the appointed licensee for failure to properly oversee and supervise operations.

What This Means for Real Estate Practitioners
This Bill will be of interest to employing/designating brokers in that they now must notify the Department of Real Estate of their designations. However, it is also important to note the higher standard to which the appointed branch manager will be held. SB 510 will create accountability that will extend beyond the employing broker and to the manager of the branch. It is anticipated that Regulations will follow to detail the criteria for this statute.

Senate Bull 53: Escrow Transactions

As of now, real estate brokers engaging in certain escrow activities are required to make certain disclosures and recordings regarding those activities. Beginning on July 1, 2012, Business and Professions Code Section 10141.6, et seq., will be amended regarding real estate brokers who, pursuant to the exemption from the Escrow Law contained in Section 17006 of the Financial Code, engage in escrow activities for five or more transactions in a calendar year or whose escrow activities equal or exceed one million dollars in a calendar year. Within 60 days of the completion of the calendar year, those brokers subject to this section will be required to file a report with the Department of Real Estate documenting the number of escrows conducted and the dollar volume escrow was during the calendar year in which the threshold was met. Those brokers who fail to submit the required documentation will be assessed per diem penalties that will continue to increase until the Department receives the report. Further, if those penalties are not paid, the Commissioner may suspend or revoke the license of the offending broker.

What This Means for Real Estate Practitioners
SB 53 is important as it applies to brokers who may find themselves reaching the statutory limits outlined in B&P Section 10141.6, et seq. It is essential to keep track of any amendments in legislation that may change the way a real estate practitioner conducts business. SB 53 is a bill that goes on to amend other sections of the Business and Professions Code with regards to the Real Estate Law and will thereby interest agents and brokers alike. It can be found in its entirety at www.leginfo.ca.gov.

Senate Bill 837: Changes to Transfer Disclosure Statement

Existing law requires that, “on or before January 1, 2017, a single-family residential property built on or before January 1, 1994, be equipped with water-conserving features…” Such features include low-flow toilets, showerheads, and faucets (pursuant to Civil Code § 1101.3). Beginning January 1, 2012, SB 837 will make amendments to the Transfer Disclosure Statement (TDS) to disclose whether the property is equipped with these water-conserving plumbing features. (CAR will publish a new TDS form in November, 2011 that will contain this disclosure.)

What This Means for Real Estate Practioners
The amendment of Civil Code Section 1102.6 to include the disclosure of water-conserving features is one more item for real estate practitioners to look out for when assisting their clients with the TDS. Whether filling out the form or reviewing it, it is important to note whether these items are checked, so your client either knows what they need to do to the property in the future (as buyers), or, if they are already installed, what is increasing the value of the home (for sellers).

Senate Bill 4: Changes to Notice of Sale

Current law requires lenders to file Notices of Default in the case of nonjudicial foreclosure prior to enforcing the power of sale as a result of a default on an obligation secured by real property. Further, a Notice of Sale is to be given and recorded prior to exercising the power of sale. Effective April 1, 2012, SB 4 will now require additional language on the Notice of Sale notifying potential bidders of the risks and liabilities of bidding at the auction, as well as where they can find additional information regarding these risks. The Notice of Sale will also contain language for the property owner regarding how to obtain information about sale dates and postponements. This information is required to be provided by any means that provides continuous access.

What This Means for Real Estate Practitioners.
The changes in the Notice of Sale do not necessarily affect the salesperson, broker or their business directly, but keeping up with the changes will also help you to keep up with current trends in real estate and potentially the market.

These four bills are not the only new legislature that may affect a REALTOR®, real estate agent, or his or her client. As was aforementioned, it is important to keep track of the new laws and changes to existing laws—even those that do not seem pertinent at this exact moment. As an agent or broker, it is essential to be as informed and well-rounded as possible. Keeping up-to-date on the law will better ensure that this is the case.

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Courtside Newsflash: GOVERNOR SIGNS NEW LAW CREATING LIABILITY FOR MANAGERS OF REAL ESTATE BRANCH OFFICES

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Branch Manager Liability – Governor Signs SB510

BY: SYLVIA J. SIMMONS, ATTORNEY AT LAW
THE GIARDINELLI LAW GROUP, APC
31594 RAILROAD CANYON ROAD
CANYON LAKE, CA
(951) 244-1856 WWW.GLAWGROUPAPC.COM

Existing Real Estate Law requires a real estate broker to obtain a license for each branch office and be liable for supervising the sales agents in that office. If the Department of Real Estate (DRE) requirements are not met, the designated broker risks license suspension or revocation. It is common practice for a broker to employ an office manager to supervise the operations of a branch office. Before passage of Senate Bill 510, a branch office manager did not share the designated broker’s responsibility for violating Real Estate Law if the real estate agents within the branch office were not properly supervised.

Under the new law, to be effective on July 1, 2012, the employing broker or corporate designated broker officer is permitted to contract with an eligible real estate broker or licensed salesperson (manager) to operate a branch office. The manager will be subject to disciplinary action for failure to properly supervise licensed activity of the sales agents and may have her/his license temporarily suspended or permanently revoked for failure to properly oversee and supervise operations of the branch office.

The new law includes the following requirements:

  •  The manager must:
    • Hold an unrestricted license,
    • Not be or have been subject to an order of debarment, and
    • If a salesperson, have at least 2 years full-time real estate experience within the preceding 5 years
  • There must be a written contract between the designated broker and the manager
  • The designated broker must give written notice to the DRE, in a form approved by the commissioner, identifying the manager and branch office or division
  • The designated broker must give immediate written notice to the DRE if the manager is changed or terminated

Senate Bill 510 was supported by the California Association of REALTORS®. The law was enacted to make office managers accountable if they fail to properly supervise their sales agents and is expected to ensure that consumers in California are afforded the best practices and highest quality of service from the real estate industry.

Designated brokers who have branch offices should review the qualifications of their branch managers and the provisions of their agreements and policies for compliance with the new requirements, and seek competent legal assistance to revise or create policies and employment contracts that meet the new legal requirements.

Biography
The Giardinelli Law Group, APC, Sylvia J. Simmons, Attorney.
Sylvia J Simmons is a business and transaction attorney at The Giardinelli Law Group, APC. Ms. Simmons has been providing legal services to businesses and REALTOR® Associations, brokers, residential, commercial and vacant land buyers and sellers for more than 14 years. The services she provides include business entity formation, corporate maintenance, buy-ins and buy-outs, succession planning, director disagreements, leases, contracts, employment policies and handbooks, hiring, discipline and termination. Ms. Simmons may be reached atsylvia@glawgroupapc.com or (951) 244-1856.