The Public Trust Doctrine vs. Private Property Rights

In 1981 the California Supreme Court ruled that beach property owned by beachfront landowners on the California side of Lake Tahoe was subject to the public trust doctrine, and "would henceforth be open to the general public, at least up to the high water mark."  (Kim DeVincenzi, CFO of Pacific Legal Foundation, "Property rights wrangling could spark Supreme Court's interest", Special to the Tahoe Daily Tribune, August 15, 2010.)

In 2009, the California State Lands Commission "voted to start enforcing an expanded public trust doctrine on private landowners", thereby setting up a potential challenge to the public trust doctrine. In the words of Jim Burling, director of litigation at Pacific Legal Foundation, and Kim DeVincenzi:

“Redefining people's property rights out of existence.” That's what the California Supreme Court did when it announced — suddenly, jarringly, and, frankly, arrogantly — that Tahoe private beaches aren't private anymore. If bureaucrats now insist on enforcing that judicial decree, look for a lawsuit that could end up at the nation's highest court. And don't be surprised if the state loses — and the state's highest court is declared in violation of the nation's highest law.

(DeVincenzi, above.)

If appears that public vs. private rights may be the order of the day on the U.S. Supreme Court's docket for some years to come.

 

Avoiding short-sale fraud

The National Association of REALTORS might be accused of confirming the obvious when it reports that banks keep an eye out for short-sales fraud:

Short-sale fraud totals $310 million annually and the average amount of fraud is $41,000 per transaction, according to real estate research firm CoreLogic’s 2010 short-sale research study.

But avoiding short-sale fraud requires the diligent attention of all brokers and agents and parties in every short sale transaction.  

California real estate broker and risk-management specialist Kathy Mehringer reminds us that

Short sales have unleashed a fury of creative practices many of which are harmful to all parties involved in the transaction. Whether you are a real estate licensee or homeowner or a prospective purchaser you must be ever alert to "Red Flags." (Emphasis added.)

Kathy lists three such "Red Flags" on her Real Estate Risk Management blog.  

Spending some time at Kathy's blog could be worth your license!

 

NSDCAR Members Reject Merger with SDAR

The results of the NSDCAR and SDAR merger votes have been posted on the now aptly-named Saved NSDCAR website.  

33% of the eligible NSDCAR members voted "no", and 22% of the SDAR members voted "yes".

The attempted merger has been rejected by the NSDCAR members.

Conversation between Glen Brush and Carolyn D'Agosta on the proposed merger between NSDCAR and SDAR:

Save NSDCAR from Kevin Forrester on Vimeo.

Echoes of Freeman and antitrust in the proposed NSDCAR and SDAR merger

Open letter to NSDCAR members:

George Santayana famously said that "Those who cannot remember the past are condemned to repeat it."

In the matter of proposing a merger of the San Diego Association of REALTORS with the North San Diego County Association of REALTORS, to create, in the words of San Diego Daily Transcript reporter Jen Lebron Kuhney, "one of the largest REALTOR organizations in the country", the relevant past is remembered, by some, simply as: "Freeman.”

“Freeman” refers to a series of lawsuits filed between 1997 and 2003 against (collectively) the San Diego Association of REALTORS (“SDAR”), the North San Diego County Association of REALTORS (“NSDCAR”), the then other three local Associations of REALTORS, the California Association of REALTORS, and many other individuals and firms.

Let’s take a moment to remember Freeman before casting our merger vote.

The Procedural Past:

Before 1992 there were three separate Multiple Listing Services (MLS’s) in San Diego County. Sandicor, the current MLS, was formed in 1991 to own and operate a single, countywide MLS to list all properties for sale throughout San Diego County. When there were five local Associations in San Diego County, all five were shareholders of Sandicor.

The first Freeman lawsuit was filed April 16, 1997 in San Diego County Superior Court alleging, among other things, that Sandicor, the five Associations, and others, violated California’s antitrust law by charging excessive fees for access to MLS data. This lawsuit was dismissed before trial, “on the pleadings”, when the trial court sustained the defendants’ demurrers to the complaint. This dismissal was upheld on appeal in December 1999, and again in April 2000 when the California Supreme Court declined to review the case.

While all of this was going on, the Freeman plaintiffs filed another suit, this time in Federal Court, against NSDCAR, the other four local Associations, the California Association of REALTORS, the National Association of REALTORS, and many others, alleging that the same actions complained of in their state-court action as having violated state antitrust law, also violated federal antitrust law. The Federal district court, in July 2001, entered summary judgment in the defendants’ favor.

So far, so good, for defendants: two lawsuits resulting in one dismissal and one summary judgment.

Thereafter, however, the Freeman plaintiffs appealed the Federal district court’s summary judgment to the U.S. Court of Appeals for the Ninth Circuit where, on March 10, 2003, the plaintiffs obtained a decision favorable to their cause. Within one month of the Ninth Circuit’s favorable (to the plaintiffs) decision, the Freeman plaintiffs filed yet another lawsuit based upon the same set of facts, again in Federal Court. This - their third - lawsuit was filed as a class action and named as parties most, if not all, of the attorneys who represented parties in the previous Federal district court lawsuit, and the Association Executives of the five local associations, and the California Association of REALTORS. (Many of the parties named in the third Freeman lawsuit were being sued for the second or third time.)

This third Freeman lawsuit sought damages in the approximate amount of $24 million dollars, and treble (punitive) damages of approximately $72 million dollars.

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Proposed Realtor organization merger finds more opposition

By JEN LEBRON KUHNEY, The Daily Transcript

Thursday, May 27, 2010

Bigger isn't always better for some San Diego County Realtors.

A member vote on June 30 will decide the fate of the proposed merger between two of the largest Realtor organizations in the county.

Board members of San Diego Association of Realtors (SDAR) and the North San Diego County Association of Realtors (NSDCAR) have hailed the organizations' merger as something that would "enhance both Associations' member's (sic) ability to succeed in our industry."

The merger would bring costs savings to members, increased member benefits and greater political input on local state and national levels, according to a joint e-mail statement from NSDCAR Chairman of the Board Jim Aldredge and SDAR President Mark Marquez.

According to SDAR's public relations firm, Bailey Gardner, Aldredge and Marquez would not make statements unless questions were e-mailed and sent back after being reviewed by the associations' legal team.

But not all the Realtor members are on board with the idea that a merger would be beneficial.

Kevin Forrester, a real estate attorney and former two-time NSDCAR president, launched SaveNSDCAR.org upon hearing about the merger.

The Save NSDCAR Facebook fan page had 331 members as of 5 p.m. May 27.

"In my view, it's a pure power grab at SDAR. They have 10,000 members. We have 5,000. If they can become 15,000 they'll swallow us up," he said.

Forrester said having a countywide Realtor association would "not be conducive to serving local needs" of members.

Currently, each Realtor organization is given a set number of representatives at the state and national level depending on how many members there are in each association.

Should SDAR and NSDCAR become one, Forrester said the local needs of North County Realtors would not be adequately represented.

"Smaller organizations have a voice right now; but if we merge, we'll only have San Diego's voice at the California and national levels," he said.

Marquez and Aldredge said in their statement that there would be equal representation for NSDCAR members on the new board of directors should the votes pass.

The two other Realtor organizations in the county stated they are against the merger.

Both the Pacific Southwest Association of Realtors (PSAR) and the East San Diego County Association of Realtors (ESDCAR) have open letters on the SaveNSDCAR.org site listing their reasons why they are against the merger.

One of the major reasons cited for members to vote "yes" for the merger are decreased costs.

However, at 5 p.m. Thursday, the official website promoting the merger, AssociationMerger.com, said the local dues for NSDCAR members is $25 for 2011 and 2012, but would be $65 in 2013.

Despite the information on the website, the Marquez and Aldredge statement said: "The local REALTOR dues for the Unified Association members, assuming the vote of each Association's members is to merge, will be dramatically lower than those currently charged by each of NSDCAR and SDAR. Any information to the contrary is absolutely false, misleading and incorrect."

An email from SDAR Director of Communications Molly Kirkland said NSDCAR dues are $95. No explanation was given about the discrepancy on the Web site.

A request through Bailey Gardner to clarify this information was not returned in time for publication.

Should the two associations merge, it would create one of the largest Realtor organizations in the country.

SDAR merged with the Coronado Association of Realtors in August 2009.

In 1994, NSDCAR was created through the merging of seven north county Realtor organizations.

Send your comments to Jennifer.Lebron@sddt.com

Source Code: 20100527czg

SAN DIEGO DAILY TRANSCRIPT. ONLINE Copyright 2010 by SAN DIEGO DAILY TRANSCRIPT. Reproduced with permission of SAN DIEGO DAILY TRANSCRIPT in the format Internet posting via Copyright Clearance Center.

Save NSDCAR

I have been absent from this site for the last couple of months while spending time over at the SaveNSDCAR.com site and blog, working against the attempted hostile takeover of the North San Diego County Association of REALTORS by the San Diego Association of REALTORS.

If you are a North San Diego County REALTOR, or if you'd just like to follow along, please visit the SaveNSDCAR.com site or SaveNSDCAR.com blog.

California Supreme Court reviews the necessary elements of an irrevocable option: bargaining and consideration

Nearly seven years after parties signed a non-form agreement entitled "Real Estate Purchase Agreement", the California Supreme Court has found that sufficient consideration supports this agreement to render it an irrevocable option. (Steiner v. Thexton (March 18, 2010) page 1 (PDF) 48 Cal.4th 411.)  This Steiner v. Thexton opinion presents a cautionary tale for those involved in preparing, interpreting or enforcing real estate agreements.

Paul Thexton, who resides on 12.29 acres of land in Sacramento County, California, had already rejected a $750,000 offer to purchase 10 of his 12.29 acres by a buyer who wanted Mr. Thexton to first obtain the necessary parcel split, when he was approached by Martin Steiner who wanted Mr. Thexton to sell him the 10 acres for $500,000.  Mr. Steiner, unlike the previous buyer, offered to obtain, at his own expense, all of the permits and authorizations necessary to split the parcel.  After the split and the purchase, Mr. Steiner would have approximately 10 acres to develop, and Mr. Thexton would have approximately 2 acres upon which to reside.

Mr. Thexton agreed, and paragraph 7 of the "Contingencies" section of the ensuing Steiner-Thexton Real Estate Purchase Agreement (the "Agreement") reads as follows:

"It is the intent of Buyer that the time period from execution of this contract until the closing of escrow is the time that will be needed in order to be successful in developing this project. It is expressly understood that the Buyer may, at its absolute and sole discretion during this period, elect not to continue in this transaction and this purchase contract will become null and void.

(Steiner, footnote 2, 48 Cal.4th 415, emphasis added.)  

The Agreement that was signed on September 4, 2003, gave Mr. Steiner up to September 1, 2006, to complete the parcel split, and specifically obligated Mr. Thexton to keep his offer open for up to three years. (Steiner, 48 Cal.4th 419.)

On its face, the Agreement appeared to place all of the obligations on Mr. Thexton and no obligations at all on Mr. Steiner.  The Agreement appeared to give Mr. Steiner the option of either diligently pursuing the proposed lot split and development project or doing nothing at all for a period of three years, while at the same time requiring Mr. Thexton to remain ready, willing and able to sell at the agreed price and terms.

In October, 2004, however, Mr. Thexton changed his mind. He asked the title company to cancel escrow and told Mr. Steiner he no longer wanted to sell. Steiner then sued for specific performanced and Thexton claimed, among other things, that the Agreement constituted an option unsupported by consideration.

The trial court agreed with Thexton, finding that the unilateral nature of the Agreement (the classic feature of an option) rendered it an option, that the option was not supported by any consideration because Mr. Thexton had received nothing of value in exchange for granting the option, and that the option was, therefore, not enforceable against Mr. Thexton.  The Court of Appeal agreed with the trial court, concluding that the Agreement was an "unsuccessful attempt to create an option and was therefore merely a revocable offer." Steiner v. Thexton (2008) 163 Cal.App.4th 359, 375, (superseded by Steiner v. Thexton, March 18, 2010).

The California Supreme Court did not agree that the Agreement was merely a revocable offer.

First, the court pointed out the difference between a unilateral contract and a bilateral contract by using the California Association of REALTORS' explanation that a common "form of real estate contract binds both parties at the outset (rendering the transaction a bilateral contract) while including a contingency, such as a loan or inspection contingency, that allows one or both parties to withdraw should the contingency fail . . . [and] only if the contingency fails.  (Steiner, 48 Cal.4th 419.) The Steiner-Thexton Agreement was, the court found, unilateral and an option because it placed no obligation whatsoever upon Steiner.

An option, though, can be either revocable or irrevocable.  In order to be irrevocable,  an option must be supported by consideration, and the consideration must be bargained-for.

"Civil Code section 1605 defines consideration as 'Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor . . . . '"

(Steiner, 48 Cal.4th 420)

In other words, Mr. Steiner's revocable option could be rendered irrevocable either by an agreed payment by Steiner to Thexton (a "purchase" of Steiner's option from Thexton) or by Steiner's suffering some agreed detriment (some "prejudice") as an inducement to Thexton's promise.

But, in this case, as pointed out by the trial and appellate courts, isn't it true that all we have is Mr. Steiner's promise to buy 10 acres of Mr. Thexton's land after three years and after a lot split, and only if Mr. Steiner doesn't change his mind?  

Yes.  

On the day the Agreement was signed, the court noted:

It is true that Steiner's promise to undertake the burden and expense of seeking a parcel split may have been illusory at the time the agreement was entered into, given the language of the escape clause.

(Steiner, 48 Cal.4th 422.)  Yet the court concluded that, nonetheless, once Martin Steiner incurred costs in pursuance of the lot split, the promise ceased to be illusory and the option became irrevocable.  

But, I thought that the "prejudice" to the "promisee" had to be "bargained for"?  

Yes; and in this case, it was.  The promise that Mr. Steiner would pursue a lot split (if at all) at his own expense was critical to Mr. Thexton's agreement to sell.  Mr. Thexton had already demonstrated, by rejecting a higher offer, that he would not sell without a lot split, and that he would himself not pursue a lot split.  Therefore Mr. Steiner's promise to suffer the expenses of a lot split was essential to Mr. Thexton's promise to sell the 10 acres. Although Mr. Steiner was not obligated to incur any expense at all (because of the Agreement's "escape clause") once he did incur expenses, Mr. Thexton's unilateral promise to sell became irrevocable.

"Thus, both elements of consideration were present.  First, the effort to obtain the parcel split clearly conferred a benefit on Thexton and constituted prejudice suffered by plaintiffs.  Second, the promise to pursue the split was plainly bargained-for and induced Thexton to grant the option.  Accordingly, plaintiffs' part performance cured the illusory nature of their promise."

(Steiner, 48 Cal.4th 422, emphasis in original.)

(The Supreme Court reversed the Court of Appeal and sent the case back to the Court of Appeal for further proceedings, specifically noting that not all of the available defenses to plaintiffs' claims were considered or resolved in this appeal.)

My Thoughts: 

Please note the Supreme Courts' reference to the California Association of REALTORS' explanation that a "common form of real estate contract" (i.e., the California Association of REALTORS ("CAR") standard Residential Purchase Agreement, RPA-CA) binds both the buyer and seller at the outset, rendering the transaction a bilateral contract, not an option.  

And the Supreme Court's reminder that an "'. . . option based on consideration contemplates two separate [contracts], i.e., the option contract itself, which for something of value gives the optionee the irrevocable right to buy under specified terms and conditions, and the mutually enforceable agreement to buy and sell into which the option ripens after it is exercised.'"  (Steiner, 48 Cal.4th 420, quoting Torlai v. Lee (1969) 270 Cal.App.2d 854, 858, emphasis added.) 

Accordingly, practitioners who are preparing an option to purchase or an option to lease should use both the CAR Option Agreement standard form (OA) in combination with a standard form purchase agreement or lease agreement.

Finally, brokers and agents, if your clients wish to venture outside the four corners of CAR's standard forms, please counsel them to seek the advice of an attorney. 

No nonrefundable deposits in California real estate contracts

Sometimes buyers and sellers agree in real estate purchase and sale contracts that the buyer's deposit will be "nonrefundable."  Or a point may be reached in a transaction where the seller's interest in consummating the deal seems to exceed the buyer's interest in completing their "due diligence".  In order to persuade the seller that the buyer is committed to the deal, the parties may then agree that some or all of the buyer's deposit will be "passed through" to the seller or retained in escrow on a nonrefundable basis.

Certainly the greater the buyer's "investment" in the deal, as represented by their releasing their deposit to the seller before close of escrow, the greater the likelihood the buyer will actually close the deal?

Perhaps. 

But the recent decision by the California 4th District Court of Appeal in Kuish v. Smith (PDF) (February 3, 2010) ---- Cal.Rptr.3d ----, 2010 WL 373225 serves as a reminder of the fact that under California law nonrefundable deposits are not nonrefundable.

The Kuish and Smith Agreement:

In January of 2006, Bradford Kuish agreed to purchase William W. Smith, Jr. and Rhonda Lynn Smith's Laguna Beach residence for the sum of $14 million.  Their agreement consisted of an offer, nine counteroffers, and escrow instructions that required Mr. Kuish to make a total of $620,000 in nonrefundable deposits to escrow.  (The agreement was not an option contract and contained no liquidated damages provisions.)  Escrow was to close on September 15.  Mr. Kuish completed his deposits by April 21, and requested escrow cancellation on September 18.

The Smiths agreed to cancel escrow in October, sold their Laguna Beach property for $15 million to a backup buyer in November, refused to return Mr. Kuish's $620,000 nonrefundable deposit ($400,000 of which had already been "passed through" escrow to them in accordance with the parties' agreement), and litigation commenced.

The Kuish v. Smith Decision:

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Loan Modification Step One: Do Your Homework

The California Department of Real Estate initiated over 2000 investigations involving loan modification complaints last year, record numbers of real estate licensees either surrendered their licenses or had their licenses revoked, and the worst part is, most of the people who received "Desist and Refrain" orders from the DRE were not even licensed.

The California State Legislature has, since October of last year, prohibited anyone providing any loan modification services from charging any kind of advance fee, yet the loan modification scams continue.

Borrowers who are in danger of default or foreclosure as a consequence of the public or their own private economic downturn should very carefully evaluate their financial options before seeking out any fee-based or nonprofit loan modification help.

Loan modification step one is, do your own homework.  An excellent starting point for your investigation is the DRE's comprehensive Consumer Alert, Fraud Warnings for California Homeowners (PDF) republished in November of last year (after California outlawed advance fees) and its consumer tips for working directly with your lender on loan modification (PDF).   These publications are loaded with good information and links to other resources without charge.