REPORT/ REALTOR® Risk Management and Consumer Protection Forum
Marquis Ballroom – Northeast
Anaheim Marriott Hotel
Anaheim, California
Friday, January 27, 2006
8:00 a.m. -11:00 a.m. Presiding: Lewis Cantrell, Chairman
Irene Reinsdorf, Vice Chairman South
Ilse Cordoni, Vice Chairman North
Jeanne Garde, Committee LiasonC.A.R. Staff: Gov Hutchinson, Assistant General Counsel, Staff CoordinatorRegional Representatives’ Reports
Rindy Merrifield from Region 3 discussed the movement in her area supporting local disclosures and also reported that local REALTORS® were looking for informational help from C.A.R. concerning the new requirements for duct sealing and more energy efficient central air conditioning units. Sandra Vollmer from Region 4 suggested that C.A.R. should advocate for stricter rules on continuing education requirements as well as a requirement that real estate brokers should have to do a minimum number of transactions before being able to be an independent broker. It was also reported that REALTORS® in the Napa area were complaining about out of area agents representing buyers inthat region without understanding the area and the special considerations that come into play when selling property in wine country, with the result that the local REALTORS® would end up doing all the work in the transaction. Carol Yeater from Region 2 and Robert Martin from Region 5 echoed Regions 1’s request to know more information about the new requirements relating to heating, ventilation and air conditioning contractors. Ronnie Trubek from Region 10 reported that the city of Pacific Grove was proposing a mandatory sewer lateral inspection requirement which could lead to expensive replacement work. Mindy Hart from Region 6 reported that Allstate Insurance has revised its property insurance requirements, insisting that homeowners install natural gas shut off valves that can be easily turned off. Another REALTOR® commented that these are typically referred to as automatic shut off valves. Dana Ray from Region 15 echoed the complaint that outside agents come intoan area and cause difficulties, such as the fact that working with an out of the area agent may adversely impact the local REALTOR’s® errors and omissions insurance. It was also reported that the Ventura County Supervisors are looking into predatory lending issues. Sheran Voigt from Region 14 reported that her region is experiencing problems associated with many new agents not being properly trained and encouraged brokers to train their new agents and perhaps provide each new agentwith a mentor. Anthony Gamber from Region 12 in Fresno reported that local builders are being required to install fire sprinklers in kitchens in new homes and that Fresno is also adding $21,000 in new development fees. Melinda Moulder from Region 16 commented that with all the forms and information involved in a real estate transaction agents need a lot of training, including for example the requirements for multiple agency forms. Olga Moretti from Region 18 reported that the Los Angelesreal estate market is strong and also reported on a point of sale issue; homeowners must now do sidewalk repairs in front of their property before closing. Dave Walsh from Region 19 reported on several issues: 1) some agents are making multiple offers and misrepresenting that fact; 2) some agents are advertising properties that they do not have listed, and 3) the DRE test should have some more practical questions. Dave also reported on the automatic shut off valve issue. REALTOR® Steve Drust reported on some additional Los Angeles area issues. Regarding seismic gas shut off valves he recommended looking first on the internet and he also reported that all of the lawsuits concerning expansion of Los Angeles International Airporthave been dropped. Joyce Ricard from Region 21 reported that the demand for more education for licensees is widespread. Maria Larkin from Region 22 reported on a possible new building moratorium in Downey and reported that the local REALTORS® are opposing it. Veronica Telmosse from Region 24 reported that San Diego might issue a mandatory point of sale lead inspection requirement, which would be the first of its kind. Jody Shepherd from Region 27 in the Antelope Valley reported housing inspection ordinances are being prepared in that area that would charge $48 per unit per year. Kevin Burke from Region 29 in North San Diego discussed issues concerning the new mandatory disclosure of supplemental property taxes and continuing problems with the FIRPTA form. He also noted continuing traffic problems in north San Diego County and encouraged all REALTORS® to get involved in the political process. Pamela Bedego from Region 32 raised some questions concerningFIRPTA as well as the proposed new agent visual inspection form. REALTOR® Larry Azine reported from Burbank that there is a new requirement for a million dollar liability policy for brokers if they are putting up open house signs in public areas. It was also reported that brokers must get “tags” for their signs. Another REALTOR® reported that the city of Palmdale has a similar sign ordinance. Affiliate ReportsRay Adams from the Home Warranty Association of California first gave a brief review of the origins of the REALTOR® Risk Management and Consumer Protection Forum. Ray was the founding member when the forum began back in 1974. At the time it was known as the Home Warranty Committee, and theimpetus for its creation was the case entitled Green vs. City of San Francisco, which created an implied warranty of habitability for California homes. Ray also noted that all of the various coverage in standard home warranty contacts originated out of this forum. Presently, the average premium for a home warranty in California is $330, there are an average of 1.9 service calls per home warranty contract, the average invoice is $104, and last year there were 1.5 million claims in California. Ray recommended that REALTORS® deliver a sample home warranty contract to the buyer before the transaction closes, pointing out that 20% of the claims are made in the first 100 days. Finally, Ray reported that 90% of resale homes in California have a home warranty. Dan Rutherford from the Pest Control Operators of California addressed the issue of pest control operators being paid by commission and whether that should be disclosed. He said that the Structural Pest Control Boardis not currently working on drafting regulations on this issue, as far as he knows. Dan noted that in his industry some inspectors get paid salaries, some get commissions and some get a combination. A REALTOR® questioned whether the amount of commission is based on the amount of corrective work recommended. Dan replied that pest control operators are not allowed to “make stuff up”. In other words, pest control operators are not allowed to recommend work and pointout problems that do not exist and if they do it would be considered fraud. If anyone has a complaint that a particular pest control report is inaccurate it can always be reported to the Structural Pest Control Board. In response to another question, Dan said that most pest control operators are not required to point out rodent problems, because most of the pest control operators used in the average transaction only have a Branch 3 license, which authorizes them to inspect for termites or other wood destroying organisms. Branch 1 licensees are authorized to fumigate properties and Branch 2 licensees are the ones that look for other types of infestations, such as rodents. In response to the question “why do pest control reports on the same property vary?” Dan replied that a report from one company might have a price tag that is different from the price on a report from a different company because some operators charge different fees for the same service. Danadmitted, however, that occasionally a pest control operator will miss a problem and that some pest control operators do in fact act negligently. George Harper, representing the California Real Estate Inspection Association, reported that his association has 25 chapters in California, with approximately 1200 member inspectors. George reported that his is the oldest inspection association in the country and encouraged REALTORS® to visit the website at
http://www.creia.org to find a CREIA inspector. Once one enters the website, just type in the zip code to get a list of CREIA inspectors in that area. He noted that all CREIA inspectors have passed exams and taken 30 hours of continuing educationclasses each year. George was asked if there was any movement toward a requirement for home inspectors to be licensed and he replied that there does not seem to be any movement in that direction at this time. He was then asked whether there are minimum liability or errors and omissions insurance requirements for home inspectors, or CREIA inspectors, and George replied that the answer is no. He recommended that consumers should ask their own inspector about his/her insurance.George alsosuggested that it might be a good practice to get home inspections completed before the property is even listed and he also recommended that when REALTORS® report on their own inspections, they should simply describe what they see rather than diagnosing, evaluating a speculating on what it means.Presentation on the Impact on Risk Management of the RELAY™ Transaction Management System and Electronic Signatures.Josh Sharfman, Chief Executive Officer of Real Estate Business Technologies, LLC (REBT, LLC) and C.A.R.’s Chief Technology Officer gave a brief presentation demonstrating how the RELAY™ Transaction Management System can assist REALTORS® in mitigating their lawsuit liability risks. Josh noted that consumers are learning more and more and that it is important to have good security procedures protecting their data and contacts and important to have more than one factor for identification and authentication of who they are. In other words, consumers are expecting tighter security from those to whom they are surrendering their personal information. He reported that in California there is a new law requiring companies to report to all of their clients if there is a security breach in any of their data. Josh suggested that it might be a good idea to encrypt all personal information kept on a laptop. He also noted that NAR has on its website “best practices” guidelines for keeping data secure. He also said that he was happy to reportthat the RELAY™ Transaction Management System has received a very high security designation. In other words, there is little risk, when uploading new items, to get a file compromised with a virus or some other problem. Josh recommendedthat when dealing with outside vendors it is a good idea to ask if their security procedures have been looked at by independent third parties. Josh noted that an advantage of RELAY™ is that it can enable REALTORS® to prove when and how many times a client looked at a particular document, which prevents complaints from clients claiming that they never saw something. He also demonstrated the communication log or “notes” feature, where REALTORS® can summarize conversations with clients, for example, and then upload them easily to the transaction file that only the clients and REALTORS® have access to. This would show exactly when the REALTOR® put the note into the file and also immediately notify the client that the note is there. This would prevent a client from falsely accusing a REALTOR® of, for example, promising to do or not do some task, etc. The RELAY™ system also permits REALTORS® to maintain their files electronicallyin compliance with DRE rules, and all of the files in a RELAY™ transaction can be downloaded on to a CD Rom. The RELAY™ system also can be used as a teaching tool for brokers to use to teach best practices to their agents. In the future, it might even be possible after having done a lot of transactions to be able to look across the spectrum of escrows that a company has worked on and see which characteristics made some successful and which characteristics were shared by transactions that “went bad”. It might also be possible for C.A.R. to create an index or risk profile for a particular REALTOR® that would not be disclosed to anyone else. The point is that when there are a lot of transactions on RELAY™ the data that has been aggregated can help reduce the liability of brokers. Josh concluded with some brief comments on electronic signatures, noting that, above all, they are legal, and he demonstrated how the electronic signature process works using WINForms® and RELAY™. He also noted that some counties are experimenting with the idea of using electronic signatures for documents that are recorded. Legal UpdateC.A.R. Assistant General Counsel Gov Hutchinson then gave hislegal update. Gov first listed the new legal Q & A’s that have been released and put on the C.A.R. legal website since the last set of meetings. The new legal Q & A’s are as follows: “Legal Update”, “New Laws Passed by the California/Federal Legislature Affecting REALTORS®”, “Real Estate Disclosure Chart”, “Real Estate Disclosure Summary Chart”, “Real Estate Disclosure Chart for Lease and Rental Transactions”, “Landlord/Tenant Guide for REALTORS®”, “Procuring Cause Guidelines”, “Antitrust Compliance and California REALTORS®”, “Designated REALTORS®/MLS Participants as a Respondent in a Ethics/MLS Rules Violation Complaint”, “Double-Whammy: Due on Sale with Pre-payment Penalty Prohibition”, “Landlords must Give Notice to Tenants When Reporting Defaults To Credit Agencies”, “Option To Purchase Agreements”, “Community Property With Right of Survivorship”, “Federal Lead Based Paint Hazard Disclosures”, and “Federal Flood Insurance Disclosure”.Gov then described several new laws passed by the California Legislature that recently took effect. Effective January 1, 2006, SB 422 provides that the small claims court jurisdiction has been increased from $5,000 to $7,500. This increase does not affect lawsuits by or against “non natural persons”, however, suchas corporations, partnerships or governmental entities. Therefore, if you want to sue a corporation or partnership for more than $5,000, you must go to Municipal or Superior Court. SB 422 also provides that effective July 1, 2006, all temporary judges working in small claims courts must take classes on ethics and substantive law prior to serving and every three years thereafter. Pursuant to AB 1322 and AB 437, effective April 1, 2006, there will be a mandatory change to the statutory notice language regarding registered sex offenders (Megan’s Law) that appears on residential 1 to 4 unit purchase contracts and residential lease forms in California. The existing language refers buyers or tenants to the availability of information regarding registered sex offenders on a database located at certain police departments, sheriff departments or a Department of Justice 900 phone number. In contrast, the new language says, “Notice: pursuant to section 290.46 of the Penal Code, information about specified registered sex offenders is made available to the public via an internet website maintained by the Department of Justice at
http://www.meganslaw.ca.gov. Depending on an offender’s criminal history, this information will include either the address at which the offender resides or the community of residence and zip code where he or she resides.” Gov noted that what this means is “serious” registeredsex offenders will have their actual address displayed but “non serious” sex offenders will only be required to reveal their zip code and county or city of residence. This new legislation also provides that subject to sufficient fundingbeing available for this purpose, the Department of Justice will include on the website dates of conviction of the crimes in question and dates of release from incarceration. The Department of Justice does not have to operate the 900 number any more, but must now operate a service permitting the public to make an inquiry regarding at least six individuals and to charge a fee for these requests which will be deposited into the Sexual Predatory Public Information Account. In addition, the law now provides that local law enforcement may disclose information not included on the website about a sex offender but may do so only if there is an outstanding arrest warrant or if disclosure is necessary to ensure public safety. In addition, local law enforcement may not under any circumstances release a registered sex offender’s home address unless that address is also on the website. Gov noted that all WINForms® users who have updated their software since January 1, 2006 now havethe updated mandatory Megan’s Law language on their purchase contracts. Those REALTORS® who use paper forms must make sure that they throw away all old versions prior to April 1, 2006. Gov also reported that a second change to the purchase contract can be found in the signature box for REALTORS®: effective in 2006 when real estate agents sign a CAR purchase agreement they will be asked to include both their own DRE license number and their broker’s DRE license number. According to AB 1078, effective January 1, 2006 a property owner who receives an order from local health officials informing them that the property was contaminated by methamphetamine laboratory activity must immediately vacate the unit, along with the other occupants. The owner is then required to have an authorized methamphetamine laboratory site remediation contractor begin remediation of the contamination. After the work is completed, a local health officer will issue a “no furtheraction determination” if the local health officer determines that no more remediation is required on the property. In addition, all property owners who have received an order but have not received a “no further action determination” must notify any prospective buyer of the property in writing of the pending order, and must provide the prospective buyer with a copy of the order. In addition, the owner must notify all prospective tenants, in writing, that their application to rent is subject to the remediation order and must provide a copy of the order. Prospective tenants must acknowledge in writing the receipt of the notice and the pending order before signing the rental agreement and the notice must be attached to therental agreement, or the tenants may void the rental agreement. C.A.R. has released a new form, the Methamphetamine Contamination Notice or MCN, that qualifies as the required notice. Language has been added to all C.A.R. lease forms to notifytenants in the event that methamphetamine has been released onto the property. Gov noted that under previous law homeowners were required to disclose contamination, while now the requirement is to disclose an order that the property has been contaminated. If a property owner is aware of contamination, however, it must always be disclosed as a material fact even if there is no order. This new law applies not just to 1 to 4 unit residential property, but to all types of residentialproperty except mobilehomes listed in a park and mobilehome parks themselves. There are also exemptions for probate sales, trust sales, foreclosure sales and bankruptcy sales. Following receipt of this disclosure buyers will have a 3 day rightof recision.On a related note, SB 536 requires the California Toxic Substances Control Board to develop methods for collecting methamphetamine residue and, by October 1, 2009, to establish investigation and clean up procedures for use in the remediationof contaminated sites.Moving to the topic of property taxes, Gov reported that effective January 1, 2006, there is a new disclosure requirement. He explained that as everyone knows changes in ownership of California real estate triggers a county’s right to reassess the value of the property. The difference between the property taxes that the seller owed and the increased taxes that the buyer will have to pay if the property has increased in value, based on the price the buyer paid, is known as the “supplemental property tax” and it is sometimes assessed and made due and payable that same year. In fact, sometimes buyers receive two supplemental property tax bills in the year of purchase. Apparently, some buyers arenot aware of this and are unpleasantly surprised when they receive the bill. Therefore, new legislation requires sellers or their agents on all residential 1 to 4 unit property to disclose to prospective buyers the fact that the buyer may owe supplemental tax bills. C.A.R. has released a new standard form called “Notice of Your Supplemental Property Tax Bill” (form SPT), which satisfies this disclosure requirement. When CAR standard forms are next updated in April 2006, thisdisclosure language concerning supplemental property taxes will be included in the Statewide Buyer and Seller Advisory form (SBSA). Therefore, once that form is updated in April, sellers and listing agents who provide that form to buyers will no longer have to provide the SPT form.Also on the topic of property taxes Gov next reported that SB 565 provides that beginning in the 2006 – 2007 fiscal year, a California Registered Domestic Partner may transfer real property to the other Registered Domestic Partner without triggering a reassessment.Gov then described a series of new homeowners association regulation statutes. First, AB 1098 requires a 67% vote of the separate interests in a homeowners association in order to allow exclusive useof any portion of the common area by any individual member or members. This became effective January 1, 2006. Effective July 1, 2006, AB 1098 requires homeowners associations to make their accounting books and records and meeting minutes forthe current fiscal year and the previous two fiscal years available for inspection and copying within ten business days of receipt of a request for current records, and within thirty calendar days of receipt of a request for records for an earlier year. Also effective July 1, 2006, SB 61 requires homeowners associations to use secret ballots for elections regarding assessments, electing Boards of Director or granting exclusive use of common area property to individual unit owners. Effective January 1, 2006, SB 173 provides that when a homeowners association seeks to collect delinquent assessments of less than $1,800, not including late charges, fees, costs of collection, attorneys fees or interest, the HOA must either file a small claims courtaction or record a lien, but may not foreclose on the lien until the amount owed does exceed $1,800 or is more than 12 months delinquent. In addition, to record a lien the homeowners association needs a majority vote from the members of the Board of Directors present at an open Board of Directors meeting. To go to the next step and actually initiate a foreclosure on the lien a majority vote of the entire Board of Directors in executive session would be required. Following a vote to foreclose the Board of Directors must notify the unit owner by personal service if the unit owner lives on the property or by first class mail if the unit owner in question is not a resident. Finally, the owner has the right to regain his/her separate interest after a foreclosure sale within 90 days of that sale. Gov then reported on AB 1400. Businesses in California, under the Unruh Civil Rights Act, may not discriminate on the basis of sex, race, color, religion, ancestry, national origin,disability or medical condition. This bill adds marital status and sexual orientation as characteristics that cannot be used as a basis for discrimination. The law also states that it is the intent of the legislature that these enumerated bases continue to be construed as “illustrative rather than restrictive”. Gov explained that what this means is that California law prohibits any arbitrary discrimination against someone even if that person is not a member of one of the above described “protected classes”.SB 326 expands a C.A.R. sponsored piece of legislation from two years ago which provided that low and moderate rental housing developments of 100 units or less cannot be denied a permit if they comply with localgovernment development standards and receive a negative declaration or mitigated declaration under the California Environmental Quality Act. This new law expands the previous legislation to include duplexes, triplexes and fourplexes. Gov noted that C.A.R. always favors policies that allow property owners to develop their property with the certainty that the local government may not change the rules in the middle of the process. On a related issue, SB 435, another C.A.R. sponsored bill,amends the density bonus law sponsored by C.A.R. last year to make the language more easily understood and to make the rules applicable to all forms of common interest developments. It also provides that the special density bonus to senior developments applies to senior mobilehome parks as well. Gov then discussed another piece of legislation that modifies an earlier C.A.R. sponsored bill, namely the one that prohibits predatory lending. Under existing law, consumers may not be charged anannual percentage rate in excess of 8 percentage points above the yield on treasury securities having comparable periods of maturity, and may not be charged total points and fees in excess of 6 percent of the total amount. This law originally was limited to loans with an original principal balance of $250,000 or less. Effective January 1, 2006, AB 901 raises that limit to the current conforming loan limit for single family first trust deed loans established by Fannie Mae. AB 1640 provides that effective July 1, 2006, any property insurer who issues a policy of insurance covering residential property and who reports claims history or loss experience to an insurance support organization (such as CLUE) must provide the insured with a specified disclosure regarding contacting the claims information database and include the disclosure in the California Residential Property Insurance Bill of Rights. AB 1099 provides that construction or addition of an active solar energy system is excluded from property tax reassessment. The California Franchise Tax Board recently issued a publication entitled “1099 Recording for Real Estate Brokers”. According to this publication, a real estate broker’s 1099 – MISC form filing requirement applies whenever the broker has paid a commission of $600 or more to an agent in his/her office or when a commission of $600 or more has been paid to a cooperating broker, if the cooperating broker is not a corporation. In otherwords, if a seller lists his home with XYZ Realty, which a buyer eventually purchases while represented by ABC Realty, the broker of XYZ Realty must file a 1099 for the commissions paid to the agent at XYZ Realty as well as for the commission paid to ABCRealty. Of course the broker from ABC Realty must also file a 1099 for the agent in that office who represented the buyer. The buyer and seller have no reporting obligations because they are not acting in the course of a trade or business. Once again, a 1099-MISC is not required if the buyer’s broker is a corporation.Turning to federal law Gov briefly discussed the impact on real estate of the new Federal Bankruptcy Law, USPO 109-8, which became effective October 17, 2005. He noted that under the new law if a landlord has obtained an order for possession of the property prior to the date of the filing of the bankruptcy petition by the tenant, any eviction or unlawful detainer proceeding against a residential tenant may continue, which is contrary to prior law. In addition a landlord may evict any tenant who has filed bankruptcy if the landlord certifies that a dangerous activity is occurring on the premises or if it is shown that an illegal drug activity is occurring on the premises. If the tenant objects the bankruptcy court will hold a hearing within ten (10) days. The new bankruptcy law also affects foreclosures. In most cases, under the new law, prior to filing bankruptcy a homeowner must receivecredit counseling from an approved non profit credit counseling agency for 180 days and provide proof of finishing it. During this period creditors may continue with collection efforts. This affects foreclosures in the following way: borrowersfacing default sometimes wait until a notice of default has been recorded against the property before they initiate a bankruptcy to stop the foreclosure. The non judicial foreclosure process in California can take as a little as 111 days. Therefore, if property owners wait until they have actually received a foreclosure notice before initiating bankruptcy, they may find that their property is already foreclosed upon by the time they finish their mandatory 180 days of credit counseling. Homeowners might want to file a bankruptcy two or three months before they think the lender might start a foreclosure. Gov noted that to be eligible to file a Chapter 7 bankruptcy (where all debts are erased) as a family, under the new law, the family’s income must be at or below the state’s median income, except under limited circumstances. Otherwise the family must file a Chapter 13 bankruptcy, which still requires partial payments, including mortgage payments. The new bankruptcy law also provides that the property owner’s homestead exemption may be capped at $125,000, even if the owner of the property is over 65 or 55 with low income, in which case under California law the owner’s homestead exemption would be $150,000. Gov then discussed some cases of interest. The first decision was Behniwal v. Superior Court. The facts of this case were that the buyers (Behniwals) made an offer on a C.A.R. Purchase Agreement for a condominium in Irvine for $520,000. Another buyer made a $500,000 offer. The listing agent, with what he claims was the sellers’ verbal authorization, forged the sellers’ name on both purchase contracts, a counter form to both prospective buyers and an addendum to the counter offer to the first buyer (the Behniwals). The “multiple counter offer” box on each counter offer form was checked. The counter offer to the Behniwals increased the price to $540,000. The Behniwals accepted the counter offer by signing it. The other buyers did not. Neither the sellers nor the listing agent signed the multiple counter offer acceptance, but the listing agent forged the sellers’ signature on the addendum to the counter offer, which modified the loan contingency. The buyers signed that addendum as well. Subsequently, escrow was opened by the listing agent and the sellers signed the transfer disclosure statement, the natural hazard disclosure statement, the Seller’s Affidavit of Non Foreign Status, and the water heater and smoke detector statement of compliance. Five days later the sellers decided to cancel the sale for health reasons. The buyers proceeded to sue the sellers for specific performance and thesellers’ agent for fraud (for the forgeries) and the seller sued the listing agent for indemnification. (The sellers were bringing suit to ensure that if they were held liable to the buyer, their agent should compensate them). After a trial, the judge held that the buyer was not entitled to specific performance because there was no valid purchase contract. According to the court, since the sellers never signed the contract and since the listing agent who forged the sellers’name had no written authorization from the sellers to sign the contract, the contract was void. In addition, the court noted that even if it had been signed, the multiple offer acceptance on the counter offer form was never signed, and there was nowritten “ratification” of the transaction by the sellers. Since the buyers lost their specific performance lawsuit against the sellers, the sellers’ lawsuit against their own agent for damages was dismissed. However, the court ruled that since the listing agents’ forgery was what led the buyers to sue for specific performance in the first place, the listing agent should pay the buyers’ attorney fees in that lawsuit, and should return their deposit and escrow expenses. The listing agent also was required to pay the sellers’ attorneys fees in the lawsuit filed by the buyer, based on the reasoning that since the buyer lost that lawsuit the buyer was responsible for the seller’s fees, but that lawsuit never would have been filed if the agent had not committed fraud so it would only be fair to make the seller’s agent pay those fees. Ultimately the total attorneys fees that the listing agent owed was $169,000. The listing agent and the buyer then appealed the decision. The Court of Appeal reversed the decision of the lower court. According to the appellate court there were two questions to be answered. First, was there an agreement between the buyers and sellers? Second, if there was an agreement was it ratified so as to become a valid contract? The court first held that there was in fact an agreement, even though the multiple counter offer acceptance was never signed, because the addendum to the counter offer was signed and this addendum referenced the counter offer. The court reasoned that if the sellers/listing agent were not accepting the counter offer why would they have signed the addendum? In other words, by signing the addendum the sellers were designating that the counter offer was accepted. As the court put it, the addendum signature took the place of the missing multiple counter offer acceptance signature. The sellers argued that even if the addendum was signed, however, it wasthe listing agent who signed it by forging their names without authorization in writing. Therefore, according to the seller, the statute of frauds was not satisfied unless the lack of a signature was ratified. The court replied to this argument by holding that there was in fact ratification. According to the opinion, the sellers’ conduct constituted their adoption “in some manner as their own an act which was purportedly done on his behalf by another person”. Theconduct that constituted ratification here was the signing of the disclosure forms, which referenced the purchase agreement. In other words, the court held that even though the contract was never signed by the seller but only signed by a listing agent committing forgery, since the sellers themselves signed the disclosure forms and acquiesced to the opening of escrow the sellers ratified the agreement and the buyers were entitled to the property. Since the court held that the buyers should winthe lawsuit for specific performance, the buyer would no longer owe the sellers’ attorney fees of $63,000 because the buyer now won the lawsuit. In fact, since they lost the sellers would have to pay their own attorneys fees of $63,000, as well as the buyer’s attorney fees. In addition, the court held that now the listing agent did not owe anyone any money because since it was a legitimate sale they did not commit fraud. Instead, according to the court, the listing agent was just implementing and assisting a deal that the parties had agreed to. Furthermore, the sellers not only owed the buyers money for attorney fees, they also owed the listing agent compensation for the agent’s attorney fees and a commission. Govnoted that although in this case the disposition favored the agent, the agent was actually just lucky; i.e., if the sellers had not signed the disclosure forms the agent’s would have had to pay $169,000 in attorney fees. Gov noted that if agents want to sign a contract on behalf of their principals they should first obtain a written power of attorney and when they have a written power of attorney they should not forge their clients signatures but should instead sign their own names as “attorney-in-fact” for their clients. The next case discussed was Yalnezian vs. Glendale AOR. This decision was unpublished, so it can not be cited as a precedent, but it was binding on the parties and it is interesting to note. In this case a REALTOR® failed to disclose a “dual or variable rate commission”. After a disciplinary hearing at the Glendale AOR that was conducted in accordance with the Association’s bylaws, the MLS rules and the Code of Ethicsand Arbitration Manual, he was fined $500. He sued the association for allegedly failing to conduct a fair hearing. The court ruled that the disciplinary hearings, which followed all of the C.A.R. rules, were in fact fair. In Schaffter vs. Creative Capital Leasing Group an investor buyer entered into an “Exclusive Authorization To Acquire Property” with an agent. This was a name of C.A.R.’s exclusive buyer broker agreement at that time. The buyer was obligated to pay commissions upon entering into any contract to buy property in certain condominium developments. The buyer ultimately entered into sixteen contracts to buy condominium units, after which eight of the transactions closed and the buyer defaulted on the other eight . He refused to pay a commission on any of them. The agent sued and the buyer was required to pay commissions on all sixteen. In other words, the good news is that the courts once again enforced a C.A.R. form. The case entitled MW Erectors Inc. vs. Niederhauser Ornamental and Metal Works Co., Inc. provides a cautionary tale for contractors. The ruling of the California Supreme Court was that a contractor must be licensed at all times while performing work in order to recover compensation under a contract. In other words, even if the contractor acquires the license after the work begins the contractor is not entitled to compensation for any of the work, even if it was done after that date. Inthis case, a subcontractor who put a million dollars worth of structural steel in the Disneyland Grand California Hotel will not get paid anything because it was not licensed for the first 18 of the project’s 268 work days. There is an exception to the rule if there is “substantial compliance” with the contractors’ license rules, but this is not applicable to a contractor who had not been duly licensed at some time before beginning performance under the contract. The court did note that a contractor only has to be licensed when he/she starts work, not when he/she signs the contract. In 250 LLC vs. Photopoint Corp a commercial tenant breached a five (5) year lease by stopping payments. The landlord filed an unlawful detainer action, recovered possession and kept the entire security deposit. The tenant argued that after deducting for the rent owed the landlord must return the balance of the security deposit. The landlord argued that it should be able to keep the entire security deposit to offset against future damages for non payment of rent that will be due in the future if the landlord is unable to re-rent the property. The Court of Appeal sided with the tenant, holding that after deductingthe rent due at that time the landlord had to return the balance of the security deposit. If it turned out in the future that the tenant owed more money the landlord would have to proceed against the tenant at that time. In the case of Tilleyvs. CZ Master Association the facts were as follows: a homeowners association hired a security guard who was an employee of the security company. When the guard responded to a loud party on the premises, he was assaulted and he sued the associationfor not providing a safe premises for him to guard. The Court of Appeal held that since the guard was an employee of the security company rather than the association there was no liability. Enea vs. Superior Court arose out of a partnership. In this case three persons formed a partnership whose sole asset was a building. Two of the partners rented space, separately, at various times, in the building. The partnership agreement contained no provision that the property would be leased for fair market value. After the partnership dissolved, the third partner, who never rented space, sued the other two, claiming that they breached their fiduciary duties to the partnership by renting partnership property to themselves at lessthan fair market value. The trial court held that there was no such fiduciary duty, but the Court of Appeal reversed, holding that a partnership is a fiduciary relationship in which partners are held to the standards and duties of a trustee in theirdealings with one another, so that a partner may not take advantage for himself at the expense of the partnership. To occupy partnership property at less than the price that the property was worth, without an explicit agreement allowing a partner to do so, would constitute a partner taking personal advantage at the expense of the partnership. The case of Villacreses vs. Molinari illustrates the perils of drafting one’s own contract. The plaintiffs purchased the house from the defendant on a one page document that they drafted themselves. It did not mention arbitration. They then signed escrow instructions in which the parties agreed to have mutual binding arbitration of all disputes to which “it” applies. After close the buyer discovered defects, sought arbitration, was refused and filed a motion to compel arbitration. The superior court upheld the motion but the Court of Appeal reversed, holding that the language in the escrow papers only suggested a limitation on the scope of arbitration, limiting the agreement to disputes to which “it” applied. Unfortunately, there was no language defining what “it” referred to. In other words, there was no actual arbitration agreement. In fact, the parties merely reproduced in escrow the mandatory statutory warning language in the C.A.R. arbitration clause, not the clause itself. The moral of the story, according to Gov, was to use C.A.R. standard forms. The next case discussed was Castaneda vs. Olsher. In this case a mobilehome park owner was aware that he was renting spaces to gang members and there had been gang related criminal activity and other similar crimes occurring on and near the premises. The plaintiff was shot by a gang member outside his mobilehome. He sued for damages and won. The Court of Appeal upheld the verdict, holding that based on his knowledge, the park owner had a duty to undertake additional security measuresin the park to attempt to protect residents from potential violence occurring on the property. In the case of Donaldson vs. The Department of Real Estate the Court of Appeal held that the DRE lacks power under existing law to revoke a real estate license based on a licensee’s conviction of unlawful intercourse with a minor under the age of sixteen (16) where the evidence failed to establish that the minor participated unwillingly in the conduct underlying the conviction. Finally, Gov discussed the case of Strebel vs. Brenlar Investments. The plaintiff buyer in the case entered into a contract to buy a house in Sonoma County. Unknown to the buyer, who lived in San Bruno, but known to the dual agent that represented both him andthe Sonoma County seller, the Sonoma County house was encumbered with tax liens. The agent did not inform the buyer that the sellers were in negotiation with the IRS to reduce the tax liens and if the tax liens were not reduced the seller would notbe able to sell. In the meantime, plaintiff buyer was selling his current home, contingent on the Sonoma escrow. As the Sonoma escrow proceeded, the agent assured the plaintiff that it was “on track”, so in reliance on that assurance the plaintiff closed his own sale and put the $321,000 of proceeds in a bank account. It turned out that the IRS negotiations with the Sonoma sellers failed and the Sonoma sale did not close. The plaintiff tried to find another house in Sonoma but prices kept going up and he was unable to do so. Finally, he sued the agent two years later for fraud and won. The issue on appeal was what was the proper measure of damages. The agent argued that there were no damages because the client never actually brought the new house. The buyer argued that he would never have closed the sale of his San Bruno house had he known all the facts concerning the purchase of the Sonoma house, so he should be entitled to both the appreciation in the value of the San Bruno house during the four years between its sale and the trial and the value of the use of the property during that time, which was equal to a total of $247,000 minus the cost of selling. The court agreed. Gov completed his report by discussing some other issues. First, it was recently announced that the Department of Real Estate, the Office of Real Estate Appraisers, the Department of Corporations and the Department of Financial Institutions have gotten together to provide an integrated web page that will serve as a one stop resource for California real estate and financial services, license information, laws and regulations. The website is
http://www.search.dre.ca.gov/integrationaspcode/. On November 8, 2005, HUD announced a proposal, that, if adopted, will make it even easier to enforce the Real Estate Settlement Procedures Act (RESPA). The proposal is to have a website complaintquestionnaire where consumers and settlement service providers may easily submit complaints. Finally, Gov reported that the California Structural Pest Control Board recently adopted a regulation change. Title 16, California Code of RegulationsSection 1993.1 now requires a written statement to appear on a report which identifies the obligations of the pest control company wanting an original estimate before an authorization for making repairs is given. The statement is as follows: “This company will re-inspect repairs done by others within four months of the original inspection. A charge, if any, can be no greater than the original inspection fee for each re-inspection. The re-inspection must be done within ten working days of request. The re-inspection is a visual inspection and if the inspection of concealed areas is desired, the inspection of work in progress will be necessary. Any guarantee must be received from parties performing repairs.”Legislative UpdateC.A.R. Lobbyist Ron Kingston reported on developments in the California legislature. He said there will be many pieces of legislation coming up dealing with homeowners association elections, hopefully resolving many troublesome issues, such as proxies. Another issue that will be addressed legislatively is the lack of adequate reserve funds held by many homeowners associations. C.A.R., according to Ron, supports legislation to require information about reserve amounts to be available to homeowners. Specifically, HOA’s should inform homeowners how they intend to raise the money required to be put into reserve over the next thirty years in order to fund all necessary repairs and replacements. C.A.R. wants prospective homeowners to be able to know, for example, if they are going to face a $25,000 assessment in five years. In addition, C.A.R.’s legislation would require a vote of members to enact these plans, not just a vote of the Board of Directors. As a result, it is hoped that, owners of property in homeowner associations will be able to plan ahead so that these issues will not come up in and interfere with future transactions. Other issues that might be resolved are whether homeowners associations have the right or should be empowered to restrict the number or percentage of units that can be rented out. Perhaps such restrictions should be permissible only if they are reasonable. The next question would be, who would have the burden of proof as to whether a particular restriction was reasonable, the association or the homeowners seeking to rent their property? Finally, Ron predicted that the legislature may deal with the issue of HOA’s charging excessive fees.Ron then moved to the topic of property management, reporting that tenant associations will probably be supporting legislation in the upcoming year that would bring back the mandatory sixty day notice to evict requirement for property occupied by a tenant for more than a year. Another property management issue concerns Megan’s Law; the question is whether a landlord can refuse to rent to or evict a registered sex offender just because that person is a registered sex offender. The Attorney General might be issuing an opinion on this issue later this year. Finally, Ron raised the issue of what disclosures should be required for landlords who obtain credit information from tenants on a rental application.
