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 :

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.

Full newsletter available here.

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:




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

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.


More in this newsletter, please download the PDF version for the full release.


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Branch Manager Liability – Governor Signs SB510


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.

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 or (951) 244-1856.

Courtside Newsletter September 2011

The Giardinelli Law Group has released their September 2011 Courside Newsletter which is available for you to download. Below is one of the articles in this release.

Please click on the image below for the Courtside Newsletter Spet. 2011

MARS Enforcement Stayed Against Short Sale Listing Agents -REVISIONS TO C.A.R.’s MARS RULE Q&A


The California Association of REALTORS® revised its Q & A on the MARS rule in late August 2011 to reflect the announcement by the Federal Trade Commission (FTC) of its current position regarding enforcing the rule against REALTORS®. As of July 15, 2011, the FTC is generally not seeking enforcement of the Mortgage Assistance Relief Services (MARS) rules against REALTORS® who are simply trying to help their clients complete a short sale.

Short sale listing agents must meet three criteria:

  1. Be licensed and maintain good standing under state law;
  2. Be acting in compliance with state law governing the practices of brokers and agents; and
  3. Be assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.

Agents who do not meet these requirements must:

  • Provide the C.A.R. form MARSSN when they take short sale listings
  • Provide the C.A.R. form MARSSN when they obtain a lender approval letter
  • Include general commercial notice in advertisements marketing properties
  • Comply with MARS’ other record keeping and monitoring requirements

The following agents must comply with the MARS rules:

  • Agents who are pure short sale negotiators
  • Agents who promote their services as a way to avoid foreclosure
  • Agents who offer various foreclosure and loan related services

Of course, the FTC will enforce the MARS rules against any REALTOR® who engages in unfair or deceptive practices in the handling of a short sale. At this time, the Consumer Financial Protection Bureau (CFPB) is responsible for the rule-making functions of the FTC. The two agencies are required by federal law to coordinate their activities for consistent regulations. Therefore, the CFPB will follow the FTC policy, but the enforcement approach may change in the future.

For the complete MARS rule Q & A, contact the California Association of REALTORS®, or visit their website at For in-depth legal advice regarding the MARS rule or other real estate matters, feel free to contact The Giardinelli Law Group, APC.



Courtside Newsletter: New Protections for Short-Sale Sellers – August 2011

By: J Niswonger, Riverside County Office

There is some good news for homeowners who have to sell their properties for less than they owe (known in the industry as short sales).  The California Legislature has passed Senate Bill 458, which mortgage holders from seeking to recover additional money from the seller after approving a short sale.  This month’s newsletter addresses the effects of Senate Bill 458 and the benefits to homeowners of this change to an existing statute.

Senate Bill 458 was signed by Governor Brown on July 11, 2011 and filed with the Secretary of State on July 15, 2011.  The Bill modifies Code of Civil Procedure Section 580e and, by its terms, takes effect immediately.  The most significant effect of this new law is that now any bank or other lender that holds a note secured by real property (i.e., a mortgage) may not seek to recover a deficiency on that note after a short sale.  That is, lenders who approve a short sale are entitled to receive only the money received through the sale of the property and may not collect any remaining balance from the seller.  Previously, only the holder of the first mortgage was prohibited from recovering a deficiency.  Thus, before this law recently changed, second mortgage holders (and other junior lenders) commonly approved short sales on the condition that they retain the right to recover from the seller any balance owed after the sale.  This practice is now illegal.

To illustrate, assume that a seller owes $350,000.00 on a first mortgage, and $60,000.00 on a home equity line of credit (HELOC).  Assume also that a buyer offers to purchase the property for $200,000.00, and the first mortgage holder offers to pay the HELOC lender $10,000.00 to approve the sale.  Before the law was amended, only the first mortgage holder was prohibited from recovering additional money from the seller (i.e., it could only receive the proceeds from the short sale, which, in this example would be $200,000.00 minus $10,000.00 to the HELOC lender minus costs and real estate commissions).  A HELOC lender in this situation, however, would often include a provision in the short-sale approval that gave it the right to recover from the seller the remaining amount owed ($50,000.00 in this example).  Junior lenders, such as the HELOC lender in this example, can no longer recover any money outside of the short sale.  Like first mortgage holders, a junior lender that approves a short sale now receives only the money it agreed to receive under the terms of the short sale.

Under the law as amended, junior lenders cannot even ask sellers to contribute additional funds as a condition of approving the short sale.  Thus, in the example above, the HELOC lender may not ask that the seller agree to contribute any additional funds as a condition of approving the short sale.  Previously, junior lenders often negotiated with sellers to receive an additional lump sum payment to satisfy the obligation in full.  For example, lenders like the HELOC lender above regularly negotiated an additional $5,000.00 or $10,000.00 from the seller with the promise that the loan would be treated as paid-in-full.  This practice is no longer allowed.

Like the original, the modified law continues to apply only to dwellings of four units or less.  Unlike the original statute, however, the new law distinguishes between loans that are secured “solely” by the property subject to the short sale and those that are secured by additional collateral (either other real property or personal property).  If the loan is secured “solely” by the property subject to the short sale, the lender may not recover any deficiency.  If the loan is secured by other property as well, then a lender may recover a deficiency only to the extent that a deficiency would have been available if the property had been sold through non-judicial foreclosure (see our September 2009 Courtside Newsletter for a discussion of judicial and non-judicial foreclosures).

The amended statute retains the exceptions for fraud and waste that were in the original version.  This allows lenders to recover compensation from sellers who try to defraud lenders or who damage the property.  An example of fraud would be if the seller received money from the buyer outside of escrow.  The amended law also retains exceptions for sellers that are corporations or “political subdivisions of the state,” and adds exceptions for limited liability companies and limited partnerships.  The result of these exceptions is to make the law applicable only to sellers who are natural persons.


Senate Bill 458 officially became law on July 15, 2011 when it was filed with the Secretary of State, and applies to all short sales after that date.  Questions arise regarding whether the amended statute provides any protection for sellers who completed short sales before July 15, 2011, or for sellers who entered into short-sale agreements before July 15, 2011 with escrow closing after that date.  The analysis of whether a law is retroactive is complex, and involves a number of considerations beyond the scope of this newsletter.  It appears, however, that the revised law will protect many sellers who closed escrow before July 15, 2011 or who entered into contracts before that date.

The precise wording of the amended statute states, “No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency. . . .”  Based upon this wording, a reasonable argument may be made that a lender who has not yet obtained a deficiency judgment will be prohibited from recovering any deficiency from a seller.  This analysis is consistent with current California court determinations regarding whether and to what extent a statute is retroactive.  It is possible that the words “no deficiency shall be owed or collected,” may even prevent lenders from collecting existing deficiency judgments.  How the courts will determine these issues, however, remains to be seen.  The legislative history of this amendment strongly suggests that the lawmakers intended immediate protection for all sellers, including those who do not yet have judgments against them.  The Giardinelli Law Group is currently vigorously defending deficiency claims based on the interpretation that such claims are absolutely barred as of July 15, 2011.



Nothing in the amended law requires junior lenders to agree to a short sale.  Thus, it will likely likely be more difficult in the future to convince junior lenders to approve a short-sale offer.  Instead of accepting a fraction of the amount owed by approving a short sale, junior lenders may prefer to allow the property to go into foreclosure and pursue a deficiency judgment after the foreclosure sale (see our September 2009 Courtside Newsletter for a discussion of when a junior lender may seek a deficiency after a foreclosure sale).

Also, junior lenders may initially withhold approval of a short sale in the hope that the seller may offer additional compensation as an incentive for the lender to sign the short-sale approval.  While the law specifically states that junior lenders “shall not require” the seller to pay additional compensation, nothing in the law prohibits sellers from voluntarily offering additional compensation.  Whether such a tactic is permissible will likely be the subject of future court decisions.

Senate Bill 458 closed a large loophole in short-sale law, but while it provides important protections for sellers, it creates a likely cost that fewer short sales will be approved by junior lenders.  Only time will tell whether this law will have a positive impact on the current mortgage crisis.

 *              *              *


J Niswonger is the senior litigation attorney at The Giardinelli Law Group, APC.  Mr. Niswonger has been a general civil litigator for more than 18 years, and has litigated real estate matters for more than 16 years.  In addition to his litigation experience, Mr. Niswonger has successfully mediated a significant number of real estate cases.  Mr. Niswonger may be reached at or (951) 244.1856.

This Newsletter is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission.  This article does not necessarily reflect the point of view of the Giardinelli Law Group, APC, or other person or entity who publishes it.  This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers.  Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances.  Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation. To request further information or to comment on this newsletter, contact us at (951) 244-1856 and visit our website at



Courtside Newsletter: Of MARS and Short-Sales

According to statistics compiled by the California Association of REALTORS® (C.A.R.), short sales comprised 23 percent of all California home sales in February 2011; that number was 20 percent in March 2011 (see Because of the high percentage of short sales, almost every REALTOR® in California will participate in a short sale transaction at some point. This month’s newsletter addresses what every REALTOR® should know about a new Federal Regulation applicable to REALTORS® involved with short sales.

Effective January 31, 2011, a new Federal Law (Title 16, Code of Federal Regulations, Part 322) imposes certain requirements on anyone who provides Mortgage Assistance Relief Services (MARS). Many REALTORS® may incorrectly assume from the title that this new regulation applies only to those who assist homeowners with loan modifications. As written, however, this regulation also applies to REALTORS® involved in short sales. This new law defines Mortgage Assistance Relief Service to include any service “to assist or attempt to assist” a person with “Negotiating, obtaining or arranging: (i) A short sale of a dwelling, (ii) A deed-in-lieu of foreclosure, or (iii) Any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder.”

By this definition, any REALTOR® who lists a short sale property is a provider of Mortgage Assistance Relief Services and must comply with the MARS rule. Further, under a strict reading of the MARS rule, even a REALTOR® who represents a buyer of a short sale property may be required to comply with the rule. For example, a REALTOR® who makes a phone call to the seller’s lender in order to provide information to assist the lender in approving the short sale has arguably assisted the seller with obtaining the short sale. Thus, a buyer’s agent who actively participates in the short sale approval process should be aware of and consider complying with the MARS rule. In general, REALTORS® need to be aware of three primary provisions of the MARS rule: 1) Prohibition Against Advance Payments; 2) Prohibited Representations; and, 3) Required Disclosures.

Prohibition Against Advance Payments

The MARS rule prohibits anyone who performs covered services from receiving any advance fee for the services. This does not usually apply to a REALTOR® who agrees to a commission, since commissions are generally not paid until escrow closes, when most services have already been performed. This may be a problem, however, for any REALTOR® who retains a short sale negotiator. Requiring the short sale negotiator’s fee up front probably violates the MARS rule. Further, the MARS rule prohibits a person from assisting or facilitating someone who violates the rule. Thus, a REALTOR® could be held in violation of the MARS rule if he or she sends a client to a short sale negotiator who collects an up-front fee. Of course, as reported in our June 2010 and July 2010 Courtside Newsletters, there are other potential serious issues related to the use of short sale negotiators (past issues of our Courtside Newsletter may be found on our website at

Prohibited Representations

Any REALTORS® who provide services covered by the MARS rule are prohibited from making certain representations. First, REALTORS® may not tell the sellers to avoid contact or communication with the lender or servicer. Second, REALTORS® may not represent to sellers any specific benefits or anticipated results of a short sale negotiation unless the REALTOR® is able to support the representations with reliable information. Finally, REALTORS® may not make any misrepresentations related to the short sale. The MARS rule lists 12 categories of misrepresentations, but makes it clear that misrepresentations which fall outside of these categories are also prohibited. Included in these categories are statements regarding the likelihood of success, time estimates for accomplishing results, affiliation or compliance with government programs, whether or not the seller should continue making payments, the possibility of refunds, the conditions that create the right to compensation for the service, and whether the seller is obligated to accept the relief offered.

Thus, for example, unless statements are true and can be supported by reliable documentation, REALTORS® should not tell sellers that they are likely to get an answer in three to four weeks, or that the lender is likely to approve a particular purchase offer from a buyer. REALTORS® should not tell sellers that a particular transaction complies with government regulations, or is part of any government program designed to help homeowners. REALTORS® should not tell sellers that they are required to pay for the services of a short-sale negotiator, or that the REALTOR® is entitled to a commission even if the sale does not close. This last issue is problematic for REALTORS® who use the standard C.A.R. Listing Agreement, which entitles the Broker to damages if the seller terminates the agreement early. The Federal Trade Commission (FTC) is currently reviewing this and other REALTOR® specific issues. According to the National Association of REALTORS® (N.A.R.), the FTC is not likely to strictly enforce some of these provisions against real estate practitioners until such conflicts are addressed and resolved. The MARS rule is essentially designed to protect homeowners from any sharp sales tactics.

Required Disclosures

Probably the biggest trap for the unwary REALTOR® arises from the disclosure requirements. A REALTOR® who advertises short sale services must make specific disclosures, as does a REALTOR® who assists a single client in a short sale transaction. The MARS rule sets forth what disclosures must be made, and under what circumstances.

1. General Commercial Communications.

If a REALTOR® represents to the general public that he or she can help short sell a residential property, disclosures are required to be part of every communication. All written communications, such as advertisements, flyers, brochures, newsletters, and even business cards, (if they identify the REALTOR® as knowledgeable in short sales), must contain the following disclosures:

IMPORTANT NOTICE (in bold-face type that is two points larger than the font size of the disclosure) (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.

If the REALTOR® orally communicates his or her ability to assist with short sales, these same disclosures must be made, and must be preceded by the statement “Before using this service, consider the following information.” In any telephone communication, this wording must be used at the beginning of the call.

If the REALTOR® makes any statement regarding whether a seller should stop making mortgage payments, the following disclosure must be added:

If you stop paying your mortgage, you could lose your home and damage your credit rating.

2. Specific Commercial Communications.

REALTORS® who handle short sales without generally advertising this fact are also required to comply with the MARS rule disclosures. In such cases, the following disclosures must be made at the moment the REALTOR® becomes aware that the transaction will be a short sale:

IMPORTANT NOTICE (in bold-face type that is two points larger than the font size of the disclosure) You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender or servicer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.

If the REALTOR® makes any statement regarding whether a seller should stop making mortgage payments, the following disclosure must be added:

If you stop paying your mortgage, you could lose your home and damage your credit rating.

As noted above, the part of the required disclosure stating, “If you reject the offer you do not have to pay us,” causes a conflict with the standard C.A.R. Listing Agreement. Both C.A.R. and N.A.R. are awaiting clarification from the FTC on this and other issues unique to REALTORS®.

3. Fee Disclosures.

As stated above, the MARS rule prohibits all up-front fees. It also requires that fees be disclosed before the seller signs the listing agreement (if it is a known short sale at that time). More importantly, the fee must be disclosed once again before the seller completes a transaction. The MARS rule requires that the stated fees be the same on both disclosures.

This creates a problem when, as commonly occurs, lenders reduce the amount of commissions that will be paid to listing agents before closing. In such a situation, it may be impossible for REALTORS® to comply with the requirement that the fee disclosed to consumers be the same on the two required disclosures. This is another of the issues that N.A.R. has addressed with the FTC, and for which a resolution is expected.

C.A.R. Forms

The California Association of REALTORS® has created two forms to help REALTORS® comply with the MARS rule. If the REALTOR® knows at the time the listing is taken that the transaction will be a short sale, the REALTOR® should use form MARSSN. This form should be part of the Listing Agreement. If the REALTOR® later learns that the sale proceeds will not cover the amount owed on the property, the REALTOR® should immediately present form MARSMRN to the seller. These forms contain the required language set forth above.

It is important to be aware of two potential pit falls. First, these forms are specifically drafted for listing agents. As stated above, circumstances may arise where the buyer’s agent contacts the seller’s lender in an effort to facilitate negotiation of the short sale. Under a strict reading of the MARS rule, the buyer’s agent in such a situation would also be providing Mortgage Assistance Relief Services, and therefore would be required to make disclosures to the seller. If that occurs, it is recommended that the buyer’s agent modify form MARSMRN and provide it to the seller’s agent for the seller’s signature. This matter has been discussed with the C.A.R. legal department, which is likely to review it further depending on how the FTC clarifies the MARS rule as it applies to REALTORS®.

The second and more important pit fall arises for REALTORS® who think that using the standard C.A.R. forms will assure that they have complied with all of the requirements of the MARS rule. This is not true for any REALTOR® who publicizes the fact that he or she can handle short sales. If the words “short sale” occur in any communication to the general public (such as advertisements, flyers, brochures, newsletters, business cards, or even conversations), that communication must contain the required disclosures for General Commercial Communications (above). Simply using the standard C.A.R. forms does not fulfill the disclosure requirements for commercial communications.

This article has discussed the MARS rule only in the context of short sale services. There are many other provisions of the MARS rule that could create exposure for a REALTOR®. For example, if a REALTOR® gives any general advice about loan modifications or foreclosures, or advises clients regarding whether or not to continue making mortgage payments, that REALTOR® could be found to violate the MARS rule. As with any legal issue, it is important to receive guidance from qualified legal professionals.

This Newsletter is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission. This article does not necessarily reflect the point of view of the Giardinelli Law Group, APC, or other person or entity who publishes it. This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers. Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances. Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation. To request further information or to comment on this newsletter, contact us at (951) 244-1856 and visit our website at


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Tender Rule in California May Stop a Homeowner From Fighting Against Foreclosure

By: Ryan D. Miller
Riverside County Office

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Last July, our newsletter article focused on the Garcia case, where a lender promised not to foreclose, but did anyway.  The borrower was able to maintain a lawsuit against the lender because as the borrowers relied upon the lender’s promise, to their detriment.  In January of this year, our newsletter article focused on the landmark case in the Massachusetts Supreme Court, also related to overcoming foreclosure.  Recently there was another case in the California Courts of Appeal, 2nd District, Aceves v. U.S. Bank, N.A., Cal. App. 2d Dist. Jan. 27, 2011, where another homeowner was successful at maintaining a lawsuit against a lender for allegations of fraud and promissory estoppel.

While the cases illustrate that lenders often violate laws in pursuing non-judicial foreclosures, many do not know that in order to even bring a wrongful foreclosure case, the borrower likely must first offer to tender the full amount of the loan, where the trustee’s sale already occurred, or cure any default, where the trustee’s sale has not yet occurred, in order to get a court to set aside a foreclosure sale.  This “tender rule” is not limited to cases where the homeowner seeks to set aside a foreclosure sale, cancellation of a trustee’s deed or quiet title.  It is also applied to causes of action related to a foreclosure, including negligence and fraud.

The tender rule was set forth in Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575,579-580.  It is based on the notion that one who seeks to set aside the foreclosure sale must first comply with any requirements they are obligated to first.  This rule tends to be the biggest hurdle for the wrongfully foreclosed to fight against wrongful foreclosures, and it is a big hurdle.  If borrowers had the money to tender to the lender, they would not need a loan in the first place.  Additionally, if a borrower could get a loan through another lender, they could use that money to tender.  However, once a borrower is in default, their credit is such that they can no longer obtain additional financing.

There are ways around the tender rule.  One of the most successful ways to avoid having to tender the entire amount of the loan is to show that because the lender lacked the authority to foreclose, the sale was void.  Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 876.  That means the trustee’s sale was a complete nullity with no force or effect as opposed to one which may be set aside.  Indeed some cases have held that it is not “equitable” nor does it make sense to require a homeowner to tender the amounts owing because of a lender’s actions.  One can certainly see the problems that could arise with a rogue lender wrongfully foreclosing, where the borrowers were helpless to fight the foreclosure because they could not tender the full amount of the loan.

Other cases have held that notice defects void a trustee’s sale so tender would not be required.   Bank of America, N.A. v. La Jolla Group II (2005) 129 Cal.App.4th 706, 715-716 and Little v. CFS Service Corp. (1987) 188 Cal.App.3d

However, despite these decisions, local courts have sometimes been reluctant to entertain these arguments.  I speculate that the reason for this reluctance is that many homeowners filed wrongful foreclosure actions against the lender, when they had no basis for doing so, simply to stay in the home one more month.  It is possible that the courts want to discourage this type of behavior, and therefore require tender.

Additionally, I have seen that where a homeowner has the ability to pay all arrears, the court seems more likely to allow a wrongful foreclosure action.  And usually, it is more persuasive to the court if a homeowner can provide proof of their ability to pay all arrears, fees, etc.  Additionally, when an unlawful detainer is also pending, the court may ask that the homeowner provide a bond, in the event the homeowner loses and must pay the fair rental value of the foreclosed-upon home.

When a lender’s actions are egregious and fraudulent activity is apparent, a court may not focus so much on the tender rule.  However, when the facts come short of showing fraud, the tender rule may bar the average homeowner from pursuing a wrongful foreclosure case.

A foreclosed upon homeowner should consider the tender rule before committing to the time and expense associated with a lawsuit.  Additionally, if a lender is engaged in conduct that is obviously fraudulent, a foreclosed upon homeowner should know they should not have to tender the full amount of the loan.

New Rulings in Massachusetts Could Impact Foreclosure Cases in California

By: Kelly A. Neavel
Orange County Office

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Two new, pivotal foreclosure cases were decided this month by the Massachusetts Supreme Court that could have an impact on foreclosure cases here in California.

In U.S. Bank N.A. v. Ibanez and Wells Fargo Bank NA v. LaRace, the lenders foreclosed on the mortgages secured by the properties owned by Ibanez and the LaRaces.  Both properties reverted back to the lenders.  The lenders brought an action to perfect title in order to sell the properties.  Both Ibanez and the LaRaces argued that the lenders did not have the authority to foreclose.  Under Massachusetts foreclosure law (as in most states, including California) only the present holder of the mortgage is authorized to foreclose, and the statutory law must be strictly followed because there is no judicial oversight.  If the Notice of Sale does not identify the current holder of the note at the time of the notice and sale, the Notice of Sale is void.  In Ibanez and LaRace, the Court noted that this often occurs when the party is identified as the “beneficiary” in the Notice of Default or the Notice of Sale, but later it is learned through Fannie Mae and Freddie Mac that the beneficiary as stated is not the real owner of the loan.

The Massachusetts Supreme Court held that the lender must prove that it has authority to foreclose.  In both Ibanez and LaRace, U.S. Bank and Wells Fargo Bank were assignees of the original mortgages only.  Therefore, they had authority to exercise the power of sale contained in the original mortgages if they were the assignees at the time of the Notice of Sale and foreclosure sale.  The court went on to discuss what is required to prove ownership of securitized loans (loans that are pooled with other loans and assigned to a securitized trust), as was the case in Ibanez.  The court held that an executed agreement that assigns the pool of mortgages, and contains a schedule of the loans clearly identifying the mortgage at issue may be sufficient.  However, the court stressed that there must be proof that the assignment was made by a party that itself held the mortgage.  U.S. Bank and Wells Fargo argued that because they held the notes, they had sufficient financial interest in the mortgages to allow them to foreclose.  The Massachusetts Supreme Court rejected this argument stating, “Where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment.”  The court went onto note that in most cases there is never any proof that the securitized loan trustee ever has the original note properly endorsed and assigned.

Ultimately, in Ibanez and LaRace, the court held that, “the Plaintiffs (U.S. Bank and Wells Fargo Bank) did not demonstrate that they were the holders of the mortgages at the time they foreclosed on the properties and therefore, failed to demonstrate that they acquired fee simple title to these properties by purchasing them at a foreclosure sale.”  The court also held that the foreclosure sales were void.  To add insult to injury, the court further held that because U.S. Bank and Wells Fargo Bank failed to abide by well-established case law and statutes, this holding would apply retroactively to all previous foreclosures conducted by both banks.  This ruling could affect to thousands of properties foreclosed upon by U.S. Bank and Wells Fargo Bank.

Even though Massachusetts law is not controlling in California, California courts can look to this ruling when addressing similar issues, which may impact California foreclosure cases.  Here is the Massachusetts Supreme Court standard that may impact California law in the future:

  1. Foreclosures must be done by the real party in interest;
  2. Chain of title must be perfected, meaning all assignments of the mortgage must be in order;
  3. All documents have to be proper at the time of the foreclosure proceedings or the foreclosure can be deemed improper, and
  4. Mere possession of the Note is not enough – lenders must demonstrate that they have proper standing to foreclose.

It should be noted that currently in California, the courts have rejected the argument raised by borrowers that lenders have to produce the original note in order to have standing to foreclose.  However, it will be interesting to see how this new ruling by the Massachusetts Supreme Court, will affect future foreclosure cases in California and other states.

Application to REALTORS®:

  1. If this ruling is applied here in California, foreclosures will be harder to complete, which will impact the REO market with less inventory;
  2. REALTORS® may see an increase in short sales and loan modifications; and
  3. REALTORS® should always advise their buyers to obtain their own owner’s title insurance policy to protect themselves in the event it is later proven that the property had defective title at the time of the foreclosure sale.