REALTOR® Risk Management and Consumer Protection Forum
Room 314/315
Convention Center
Sacramento, California
Friday,June 8, 2007
8:00 a.m. - 11:00 a.m.Presiding: Irene Reinsdorf, Chairman
Wes Seastrom, ViceChairman South
Jeff Sposito, Vice Chairman North
Tom Carnahan, Committee Liaison C.A.R. Staff: Gov Hutchinson, Assistant General Counsel, Staff CoordinatorPresentation on Pest Control Enforcement Issues
Kelly Okuma, Executive Officer of the Structural Pest Control Board, made a presentation on pest control enforcement issues.
She began by explaining that the Structural Pest Control Board licenses individual pest control operators and registers structural pest control companies.
There are threeseparate licenses issued: a Branch 1 license entitles the individual to do fumigation, a Branch 2 license enables the person to do general pest control (rodents, etc) and a Branch 3 license authorizes a pest control operator to locate and eradicate termites and wood destroying pests.
Their website is
http://www.pestboard.ca.gov and consumers can now call the Board before an inspection is performed.Pest control companies are required to be bonded and insured in order to be permitted to practice in California.
The amount of the bond is $4,000 and the minimum amount of general liability insurance is $25,000.
Kelly noted that most of the companies are insured up to at least one million dollars.
There is a complaint mediation unit at the DRE which is composed of two technicians and two customer service representatives. There are also a total of seven investigators to whom complaints canbe assigned.
The phone number at the Structural Pest Control Board to register a complaint is 1-800-737-8188.
Complaints can be filed by a homeowner or a REALTOR® on behalf of a homeowner.
Theactual homeowner has to sign the complaint.
There is a two year statute of limitations to complain about a defective structural pest control report and a four year statute of limitations for fraud claims.
Kelly then discussed the complaint process at the Structural Pest Control Board.
An important issue is that of prior knowledge; that is, if the consumer closes escrow before resolving the pest control issues the Structural Pest Control Board cannot compel the company to fix the problem.
This is the most frustrating issue for consumers to understand.
If they are closing escrow pending resolution of a pest control issue they should try to arrange to have funds held in escrow to pay for a future problem.
Of course, if one does close escrow before resolving the problem, even though the Structural Pest Control Board cannot compel the pest control operator to fix the problem, the consumer can still file a lawsuit against the structural pest control operator.
When a complaint is filed the Structural Pest Control Board looks at all the relevant inspection reports and completion notices, including prior records on the property.
It also examines related home inspection reports.
Kelly noted that there were three basic types of pest control inspection reports: a complete report is an investigation of all usual and accessible areas and it isonly effective for that day.
There is also a supplemental report and a re-inspection report.
A supplemental report investigates inaccessible areas that have been recommended to be inspected on a complete report, suchas a shower stall.
A supplemental report can also correct, modify or add to a previous complete report. A re-inspection report is a report on an inspection or item completed as recommended in an original or supplemental report.
Kelly noted that if the homeowners decide to do the work themselves they should not “close it up” before the re-inspection.
The next question of what do inspectors look for.
The answer is that they look for infestations by wood destroying pests or organisms or evidence thereof.
There are three types of wood destroying pests: dry wood termites, subterranean termites, and wood boring beetles.
Termite inspectors also look for damaged wood members, especially in the substructure area, attic area, exterior wood parts and interior construction elements.
Termite inspectors also look for conditions that are likely to lead to future infestation, such as “earth to wood” contact, faulty grade levels, cellulous debris (wood underneath a house), inaccessible substructure (areas you cannot crawl under) and commonly controllable moisture conditions, such as leaks in a shower stall or sprinklers that splash water onto wood surfaces.
Kelly also explained that pest control inspectors must ask the consumer if they want a separated report, which is a report divided into Section One items (current infestations) and Section Two items (conditions deemed likely to lead to future infestation).
Companies are required to provide an inspection report within 24 hours, upon request.
Kelly next discussed certification statements.
One type of certification statements is provided if the termite inspector does not find any evidence of infestation.
This statement certifies that on the day of the inspection there is no infestation by wood destroying pests or organisms.
A second type of certification statement is one that is issued after compliance work has been done to indicate that there previously had been pest control infestation but that it has since been eradicated.
Athird type of certification statement, which typically does not occur during a sales transaction because lenders do not like them, states that not all of the recommended work has been completed.
This is known as an exceptional certification.
Kelly then discussed different treatment methods.
She noted that the only real alternative to fumigation is a process called “whole house heat”.
According to Kelly, all other typesof alternative treatments are considered to be “spot” treatments.
For example, orange oil treatments do kill termites but are not considered an alternative to fumigation.Kelly then discussed a sample case that the Board processed in the recent past.
This case involved egregious behavior that was so bad it was turned over to the attorney general.
The attorney general’s office conducted a hearing after which the pest control operator’s license was revoked, although the revocation was stayed while he was put on probation.
Unfortunately, since being placed on probation, two more consumer complaints have been filed against him, so once again the case was turned over to the Attorney General, who conducted another hearing, which resulted in a judge revoking the pest control operator’s license.
Kelly noted that the Structural Pest Control Board’s website will list all actions filed by the Attorney General over the last 20 years.
The Board will also provide verbally to consumers a complaint history about a particular operator, which includes all complaints filed, over the last two years, regardless of the resolution.
In response to a question as to how to handle a situation where a consumer hires two pest control companies to inspect the same property and receives dramatically different reports from each inspector, Kelly recommended first encouraging the companies to work together to resolve their differences by telling them that the Structural Pest Control Board has been asked to become “involved”.
When the Structural Pest Control Board does get involved it is usually able to mediate disputes between different pest control companies.
In response to another question Kelly noted that second stories of homes are required to be inspected by pest control operators.
In responseto another question she said that a Branch 3 termite license allows an inspector to do wood repairs even though they do not have a contractor’s license.
Kelly noted that many pest control operators do have contractor’s licenses anyway.
On the other hand, Branch 3 license termite inspectors still have to obtain permits to do any work that does require a permit.
Finally, Kelly noted that while certification statements for actual termite infestation are only valid for the day issued, for dry wood fungus the certification statement is valid for a longer period of time.
Affiliate Reports
Ray Adams from the Home Warranty Association of California gave a brief report.
He noted that in the last quarter of 2006 the number of home warranties issued in California has declined, which reflects a decline in the real estate market.
He said that the number of home warranty contracts issuedwere down 13% in October, 3% in November and 15% in December.
Peter Boyd from the California Real Estate Inspection Association (CREIA) noted that home inspectors are not licensed in California so that in order to be assured that you have hired a competent inspector REALTORS® and consumers should hire as home inspectors only members of his association.
He informed the group that CREIA now has 24 chapters and has received certification from the DRE for a 1 hour class, with continuing education credit for REALTORS®, regarding home inspections.
The name of the class is “What Everyone Needs to Know About Home Inspections” and it is designed to help REALTORS® understand disclosures in real estate transactions and how to secure qualified inspectors.
In the class REALTORS® are educated as to what home inspections are and it covers professional and legal terms, provides practical answers as to what a home inspection includes and reviews legislative and professional codes that apply to a home inspector.
To order the class REALTORS® can contact CREIA at 1-800-848-7342.
In addition, Peter distributed a fact sheetproduced by CREIA explaining what that association is, how many members it has, the fact that inspectors must adhere to CREIA’s code of ethics and the fact that CREIA requires members to pass successfully a written test of property systems and complete 30 hours of education each year.
The fact sheet also notes that a professional home inspection consists of a visual inspection of the property’s accessible areas, including roof coverings, attic and roof framing, foundation and under floor support systems, walls, ceilings, floors, windows and doors, fireplaces, chimneys, water heaters, plumbing, electrical, central heating and air conditioning systems.
In addition, a professional inspection includes a written report and, when warranted, a recommendation for repairs or further evaluation by a specialist such as a structural engineer.
Dan Rutherford from the Pest Control Operators of California made a brief report.
He notedthat in addition to filing a complaint with the Structural Pest Control Board consumers who have a complaint about a structural pest control operator can file a complaint with his association and the association will perform an arbitration to resolve thedispute.
Regional ReportsRegion 4’s representative reported on an unwelcome environmental recommendation in Mendocino County that would limit the amount of square footage in new construction.
She also discussed problems with exclusionary zoning in Solano County.
Region 5’s representative reported that her association has put together a task force regarding predatory lending.
Region 7 reported on the continuing problem of unqualified loan officers writing offers after a real estate agent has showed the property to the same buyer.
It was also reported that in Stanislaus county a mobilehome rent control law was defeated and that an affordable housing problem has been resolved as well.
Region 12 reported on predatory lending problems in Fresno and requested that a list of phone numbers where complaints can be filed be provided and Gov Hutchinson promised to do so.
Region 9 reported on a point of sale “greening” requirement that has been discussed in that area.
Region 14 reported on the problem of untrained lenders doing real estate deals that were initiated by a real estate agent.
There were also reports about “rent a brokers” who do not really supervise their salespersons, as well as lender inconsistencies and rent control issues in the southern part of the region.
Region 3 reportedon its support for AB 1356 which requires separate licenses for lenders, noting that that region is experiencing the same problems with lenders and loan brokers doing real estate deals as other areas, and also discussed the private transfer tax issue.
Region 13 reported that the city of Pasadena is attempting to expand the scope of its occupancy regulations.
Region 16 reported on the problems of inexperienced brokers supervising inexperienced agents, noting that this was the case of “the blind leading the blind”.
Region 18 reported on ongoing efforts by REALTORS® to oppose the new city of Los Angeles rent control measures that would increase tenant relocation fees in condominiumconversions.
It was also noted that in general transactions have become more difficult, because as it is much harder to qualify buyers.
Region 19 reported on a subprime predatory lending problems with a broker who also owns a termite inspection company who in all of his deals insists on all of his affiliated companies being used.
There was also a discussion of the general problem of too many “stated income” loans.
Region 18 reported on an agent taking listings right off the “Craig’s List” website and then calling those individuals directly.
Region 23 reported on the problem of real estate salespersons not disclosing that they are also doing the loan in a transaction.
It was also recommended by this region that uniform standards for E & O insurers be required.
It was also noted in this buyers’ market that REALTORS® in this area are running into situations where buyers simply ignore requests or demands to remove contingencies in their purchase contract.
Region 24 reported that the San Diego Association and local builders are working together to educate buyers andto encourage home ownership.
Region 29 reported on a proposal in Escondido to prohibit all street hiring of day laborers.
This apparently is that city’s solution to the problem of illegal immigration.
It was noted that a previous ordinance that was proposed in Escondido that would have made it illegal for landlords to rent to illegal alien tenants did not get passed.
Another problem that was identified is that “reviewappraisals” have been coming in on transactions very late and very low.
Region 21 recommended that the starting time for the meeting of the REALTOR®/ Risk Management and Consumer Protection Forum should be 9:00 rather than 8:00.Region 30 reported on problems with short sales, inexperienced agents and lack of disclosures to buyers.
Region 32 reported on improvements being done to homes without permits.
Region 6 reported on mobilehomeparks being converted to planned unit developments.
Tracy Saizan from Region 3 reported that the Professional Standards Committee was now examining Craig’s List listing ads and then checking to see who has the listing on the MLS.
She noted that it is a violation of the MLS rules to advertise another agent’s listings.
Region 5 reported that the new professional standards rules will address web related issues.
Finally, Steve Drust from Region 17 registered a complaint about the new city of Los Angeles revenue enhancement programs.
He also reported on an unfriendly ordinance in West Hollywood, a possible building moratorium in Los Angeles, increased relocation costs when evicting tenant’s, and a minimum wage increase at LAX.
Legal Update
C.A.R.’s Assistant General Counsel Gov Hutchinson gave his legal update. He began by listing the new Legal Q & A’s that were released and put on the C.A.R. legal website since the last set of meetings. The new Q & A’s are: “Licensing Chart for REALTORS®”, “Contract Law and Real Estate Transactions”, “Deficiency Judgment Chart”, “ Errors and Omissions (E & O) Insurance for REALTORS®”, “Exceptions from the Transfer Disclosure Statement (TDS and MHTDS) Law”, and “Abandoned Rental Real Property”. The revised Q & A’s are: “Referral Arrangements”, “ Continuing Education Chart for REALTORS®”, “Use of the Term ‘Sold’”, “Landlord/Tenant Guide for REALTORS®”, “C.A.R. Interboard Arbitration”, “Mortgage Fraud: Avoiding Price Inflation Schemes”, “License Application and Renewal for REALTORS®”, “Agency Disclosure and Confirmation”,“Limited Liability Companies in California”, and “Homeowners Associations: A Guide for REALTORS®”. In addition, Gov reported that a “Chart of Signatories to the C.A.R. Master MLS Reciprocal Agreement” has been produced and added to the website, the “Legal Quiz” portion of the legal website has been changed to “Commonly Asked Legal Questions”, and the “Real Estate Law and Resources Section” now includes a link to the Consumer Product Safety Commission as well as links to recent information about recalled products affecting real property and homeowners. Finally, the Legal Department has added to the website information on underground storage tanks from the California Water Resources Control Board and the Environmental Protection Agency. Two recent C.A.R. publications from the Legal Department have also been added (or will be added) to the website including a “CRE Special Report” entitled “Legal Guide to Foreclosure Related Transactions” and a booklet prepared at the behest of the Common Interest Subdivision Committee entitled “Common Interest Subdivision Guide for REALTORS®”.Gov then discussed recent changes to the C.A.R. standard forms library. He noted that for the first time in memory as a result of the April standard forms release there has actually been a net reduction in the total number of C.A.R. standard forms: The Standard Forms Committee added three new forms but eliminated four. The three new forms are: “Agents Visual Inspection Disclosure” (AVID), “Manufactured Home Advisory Addendum” (MHA) and“Manufactured Home Dealer Addendum” (MHDA). The AVID, which was discussed at a previous meeting, is designed to be a supplement to the Transfer Disclosure Statement (TDS). It is recommended that both the listing agent and the selling agent in every residential one to four unit sales transaction complete the AVID form and attach it to the TDS. Gov noted that the third page of the TDS currently has a section for each licensee in the transaction to make written disclosures based on their reasonably diligent inspection. Gov recommended that in this section of the TDS the agent simply write the words “see attached” and then physically fasten the AVID to the TDS. The benefits of the AVID, as compared to the third page of the TDS, are that agents have more room to write the results of their disclosures, the disclosures are divided into subsections, such as “bedroom”, “family room”, etc, so agents can identify material facts about a particular portion of a house on the section of the form that relates to that portion, and the form contains disclaimer language explaining to consumers what the limitations are of the REALTOR’S® reasonably diligent visual inspection so that consumers do not expect the REALTOR® to perform activities that the REALTOR® is not expected to or required to perform.The MHA is an addendum to the Manufactured Home Purchase Contract. This form informs the buyer that although a manufactured home may be sold “as is”, occupancy by the buyer may be restricted if the property is not in compliance with certain government standards. In addition, on this form the buyer agrees to release the seller and any real estate broker from any claims if the buyer does occupy the property in violation of such requirements. The MHDA is also an addendum to the Manufactured Home Purchase Contract but it is only required when either the buyer or the seller is represented by a mobilehome or manufactured home dealer in the transaction. The added contract terms satisfy the dealer’s obligations to make certain disclosures.Gov then discussed certain C.A.R. standard forms that have been revised as of April. First, the three C.A.R. buyer broker contracts have been renamed as “Buyer Representation” forms. That is, the BRE is now the Buyer Representation Agreement Exclusive (Right to Represent), the BRNE is the Buyer Representation Agreement Non-Exclusive, and the BRNN is the Buyer Representation Agreement Non-Exclusive/Not for Compensation.Gov then reported that the C.A.R. Residential Listing Agreement – Exclusive (RLA), now contains slightly modified language concerning the disclosure to the seller by the listing broker of the amount of compensation that the listing broker is offering cooperating brokers through the MLS. It now provides that the broker will always disclose the actual amount being offered. The VP or Verification of Property Condition form, intended to be completed by a buyer after doing a “walk-through” inspection toward the end of escrow, now has a section to be completed by buyers who waive their right to conduct a walk-through inspection. This section of the form, when completed, discloses that the buyer has neglected to perform a walk-through against the recommendation of the brokers. The SBSA or Statewide Buyer and Seller Advisory now references the possibility that the property may be subject to a privatetransfer tax and it also references possible limitations on the use of the property if it is subject to a Williamson Act contract. (When a property is subject to the Williamson Act it means that the property is subject to a contract limiting use of the property to open land or agriculture use. The Williamson Act enables governments to enter into contracts with private landowners for the purpose of restricting specific parcels to agricultural or related open space use. In return, landowners receive property tax assessments which are lower than normal, because they are based upon farming and open space uses as opposed to full market value). The Water Heater Statement ofCompliance and Smoke Detector Statement of Compliance forms have also been modified in the sense that they have now combined into one form (WHSD). Finally, the Independent Contractor Agreement (ICA) now has a reminder that salespersons or broker associates who perform loan broker services maybe treated as employees rather than independent contractors even though they have signed this form.Gov then reported on the four C.A.R. forms that have been eliminated as of April. First, as noted, the Smoke Detector and Water Heater Compliance forms were combined, which obviously eliminates one form. Second, the new Agent Visual Inspection Disclosure form (AVID) replaces the former (AID)Agent Inspection Disclosure, which had been used by REALTORS® engaged in selling residential one to four unit property where a TDS was not required, such as a probate, foreclosure, bankruptcy or REO sale. Thus, in these types of transactions agents should now simply complete an Agent Visual Inspection Disclosure form. Third, the Database Disclosure (DBD), which disclosed to residential buyers and tenants that there is a database that they can access in order to discover the location of registered sex offenders, has been eliminated, because the mandatory language appears on all C.A.R. residential purchase agreements and residential lease agreements, and if the information is in the body of the purchase contract orlease form it is not required to be on a separate form as well. Finally, the C.A.R. Release of Contract (RC) form has been eliminated, because the Cancellation of Contract, Release of Deposit and Joint Escrow Instructions (CC) form canbe used to serve the same function.Gov then discussed other legal developments. First, the Franchise Tax Board (FTC) announced that effective January 1, 2007 registered domestic partners are required, pursuant to SB 1827, to use the same filing status as married couples when filing tax returns. In addition, registered domestic partners who sell or transfer jointly owned California real estate will be treated as spouses for purposes of completing the593 series of forms. Therefore, escrow persons should now provide registered domestic partners with the combined form 593b, listing both partners.California Attorney General Opinion 06-109 concluded that the Department ofFish and Game may not prohibit persons employed by a homeowners association from using air powered pellet projectiles to kill cottontail rabbits that are materially harming landscaping, ornamental plants or gardens on the association’s property. In addition, this rabbit killing can even be performed at night (between ½ hour after sunset and ½ hour before sunrise), without a hunting license, if such use is in conformity with applicable local ordinances. In other words, these rabbits have been determined to be “pests” rather than “game,” and restrictions on hunting, such as the need for a license, or no night hunting, do not apply.Regarding lead based paint, Govnoted that vigorous enforcement is still taking place. As an example HUD and the EPA recently reached a settlement with 12 Los Angeles property owners for failing to inform tenants that their homes might have potentially dangerouslevels of lead. In other words, the owners neglected to provide tenants with the mandatory Lead Based Paint disclosure form (FLD). As a result the companies will have to pay $125,000 in fines. Gov then reported on the latest developments concerning legislation that would eliminate the requirement of the seller putting their social security number on the Seller’s Affidavit of Nonforeign Status (AS) (the FIRPTA form). In April the US House of Representatives passed a tax bill by a vote of 407 to 7 that included an important change to FIRPTA. The current AS form required by the IRS to demonstrate an exemption from the withholding rule requires sellers to provide a social security number or taxpayer ID number. This form must be provided to buyers, buyers’ agents and sellers’ agents. Not surprisingly, some sellers are reluctant to provide this number. The bill that was passed provides that the form with the social security number does not have to be provided to the buyer. Unfortunately, it is not clear in the legislation whether it is sufficient to provide the form to the escrow holder only or must it be provided to the escrow and to the buyer’s agent. C.A.R. and NAR would of course prefer that the form not have to be provided to the buyer’s agent, but the fact that it does nothave to be provided to the buyer is still good news. What is next is for this bill to be considered by the United States Senate. Gov noted that we hope that it does pass, and then a conference committee of the Houseand Senate resolves any confusion about who actually must receive the form and then the bill is signed by the President.Gov then discussed a number of recent cases of interest. A couple of the cases concerned interpretations of C.A.R. contracts. Manderville v. PCG & S Group involved an interpretation of C.A.R.’s Vacant Land Purchase Agreement (VLPA). This case arose after the sale of a piece of vacant land. The listing in the MLS said that, “county states 1 acre…could be split”. In other words, the MLS listing indicated that the property listed could be subdivided. The total size of the property was 2.62 acres and the buyers purchased it with the intention of subdividing into two lots in order to build two homes. The sales contract used in the transaction was the C.A.R.’s Vacant Land Purchase Agreement, which provides that“buyer and seller are aware that brokers do not guarantee and in no way assume responsibility for the property”. In addition, it provides that “buyers should investigate past, present or proposed laws and ordinances affecting the current or intended or proposed use of the property, future developments, zoning” etc. During escrow sellers gave buyers some disclosure documents, including one that revealed that the property’s general plan designator number was “24”. The Buyers then did some investigating. It was not until after the close of escrow, however, that they realized that a “24” designation means that it could not be subdivided, because such properties are “impact sensitive” and must be at least 4 acres in size in order to be subdivided. The buyers sued the listing broker for intentional misrepresentation. The trial court ruled for the broker, based on the exculpatory language in the purchase contract, but the Court of Appeal reversed. The broker’s first defense was that the language in the contract held them harmless. The court held that disclaimer language does not protect you if you commit fraud. The brokers also argued that in order to be liable for intentional misrepresentation the plaintiff must have justifiably relied on the misrepresentation and these plaintiffs did not, because the buyers did in fact try to investigate the broker’s representations and had they been more diligent and competent in their investigation they would have realized that the property could not be subdivided. The court’s reply was that “negligence on the part of the plaintiff in failing to discover the falsity of the defendant’s statement is no defense when the representation was intentional.” Thecourt pointed out that the contract provided that the buyers had the right to investigate, rather than the obligation to do so. Gov concluded that the bottom line is that listing brokers will be held liable for their misrepresentationsin the MLS regardless of any exculpatory language or buyer investigation of the property.Van Slyke v. Gibson was another case where language in a C.A.R. standard form was at issue. C.A.R. purchase agreements have a mediation clause which provides that the prevailing party in a dispute is entitled to attorney fees, except when that party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made. In this case the buyer made an offer, the seller countered requiring the buyer to provide a pre-qualification letter and the buyer accepted the counter. However, the buyer never provided the letterand their deposit check bounced. As a result the sellers sold the property to someone else. At this point the buyer sued the seller for breach of contract. The seller responded with a cross complaint against the buyer alleging wrongful interference with an economic relationship, but before filing this complaint the seller’s attorney allegedly requested mediation the buyer allegedly refused to mediate. The seller later dismissed the buyer from the cross-complaint. A lawsuit preceded and the sellers won. The trial court awarded the sellers $95,000 in attorney fees. The buyers appealed, arguing that the sellers had a contractual duty to request mediation in order to be eligible for the attorney fees. The sellers argued that they did request mediation, and even if they had not the attorneys fees were incurred for the defense of the claim from the plaintiffs. In other words, the sellers argued that since they dropped the cross-complaint, none of the attorneys fees were incurred as a result of that part of the litigation. The Court of Appeal agreed with the sellers, noting that the mediation clause requires seeking mediation as a prerequisite to the recovery of attorney fees by the party who commences the action. In this case, since the buyers commenced the action, they were the party who had the duty to request mediation. The sellers, who were merely defending the action, had no such obligation. Gov next discussed the case of You v. Jho. As a preliminary matter Gov noted thatcontracts are unenforceable if the object of the contract is illegal. For example, a contract to purchase illegal narcotics would not be enforceable in court. The issue in this case is what happens if a business is sold where some of the products sold by the business are counterfeit. In this situation the plaintiff purchased a clothing business knowing that the business sold, in part, counterfeit items. All along the buyer intended to continued to sell these goods, and after closing did continue to sell these items. Two years after close the buyer sued the seller for breach of contract and fraud, alleging that the defendant had falsely represented the store’s annual gross sales and annual net income at the time of the sale of the business. The plaintiff won at trial and the court awarded him $103,000 worth of damages. The Court of Appeal reversed the decision, however,holding that since a portion of the inventory of the store that was sold was counterfeit, the “object” of the contract was illegal and the entire contract was unenforceable. Therefore, there would be no recovery. In other words, the court held that even if only part of the contract’s consideration is illegal the entire contract is void. The court reasoned that parties will be less likely to enter into illegal contracts if they know they will get no assistance in the enforcement of these contracts by the Courts. The moral of the story obviously is that if any part of a transaction seems to violate the law the entire deal might be held invalid. In Stone v. Center Trust Retail Properties Inc. the issue was the liability of the landlord for a dangerous condition on the property. Normally a landlord is not responsible to a tenant’s guest for dangerous conditions that arise while the tenant occupies the property. If a landlord has a court order to evict the tenant, however, the landlord now has a duty to inspect the property, and to continue to do so periodically, because after obtaining anotice of eviction the tenant has no incentive or duty to maintain the property. In this particular case, after receiving a judgment for possession but before physically removing the tenant from the property a visitor to the property slipped and fell on water on the floor caused by a leak. The court held that in this situation the landlord was responsible for the injury caused by the dangerous condition. Dyer v. Martinez was another contract case. C.A.R. attorneys are often asked about the remedies for a buyer when the seller refuses to sell. We inform our members that one option for a buyer is to sue for specific performance. We also advise our callers that once the buyer files such a lawsuit the buyer should record a notice of pending action, or lis pendens, against the property. This notice usually prevents the seller from selling the property to a different buyer because any buyer who purchases a property with a lis pendens recorded against it is buying it subject to the outcome of the lawsuit referred to in the lis pendens. In other words, the buyer would be purchasing it subject to the previous buyer’s rights. Buyers who are willing to purchase under that stipulation are hard to find. In this particular case the buyer placed a lis pendens against the property after the sellerrefused to sell but the buyer waited to record the lis pendens until the day before close of escrow with the second buyer. Although the lis pendens was recorded in a timely manner it was not indexed until four days later. Therefore, at the time the second escrow closed a “diligent” title search would not have discovered the lis pendens. In this case, the first buyer filed a quiet title action and sought to continue the specific performance lawsuit. The trial court ruled for the seller and expunged the lis pendens. The Court of Appeal affirmed, concluding that the second buyer was in fact a bona fide purchaser with neither actual knowledge nor constructive knowledge of the first buyer’s claim. The court reasoned that a recorded document provides no constructive notice unless it can be located by a title search and since it was not indexed it could not be located by a title search. The moral of this case is obviously “don’t wait till the last minute to record a lis pendens”.The federal case entitled Swift v. Realty Executives Nevada’s Choice provides a caution for real estate brokers. The plaintiff in this case was an independent contract or salesperson who worked for the defendant brokerage. After working there for three year she was fired for refusing to pay her REALTOR® dues. She filed a complaint with the Equal Employment Opportunity Commission (EEOC) contending that she had been subject to sexual harassment in the form of inappropriate comments made by another salesperson at the office. The EEOC denied her claim, because since she was an independent contractor there was no employer\\employee relationship and such a relationship is required in order to maintain an action for sexual harassment in the workplace. Afterhaving her claim denied by the EEOC the plaintiff filed suit in federal court alleging a violation of Title VII of the Federal Fair Housing Law, which prohibits workplace discrimination based on gender. The defendant filed a motion todismiss, arguing that the law did not apply because she was an independent contractor. The trial court rejected the motion, however, ruling that the facts in evidence suggested that the plaintiff in this case was in fact an employee. The facts that the trial court based this conclusion on were that the salesperson was required to display the broker’s logo in her ads, that she was required to use certain contract forms in her transactions, that she was required to join certain organizations, that the broker had to approve her contracts and that the broker could assign her clients to other agents in the office. The case proceeded to trial and the defendant lost. The Court of Appeal affirmed the decision, agreeing with the trial court that since the broker controlled the most important aspects of her work, sufficient evidence supported the finding that she was an employee rather than an independent contractor and she could therefore bring an action under Title VII. Gov noted that this case reaffirms the fact that even though California REALTORS® sign independent contractor contracts with their brokers this only establishes an independent contractor relationship for income tax purposes. In other areas of the law, such as employer supervision, workers’ compensation, and sexual harassment, the relationship between a broker and a salesperson is considered to be employer\\employee, with all of the resulting rights and duties. Sterling v. Taylor was a case where C.A.R. participated as an amicus curiae. This was a California Supreme Court case involvingthe question of whether the Statute of Frauds was complied with. By way of introduction, Gov explained that a contract is simply an exchange of promises of value. Each promise to do something is called consideration. The Statute of Frauds requires that certain contracts “are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged”. (Civil Code § 1624.) Thus, certain contracts have to be both in writing and signed by the parties. One of the contracts listed in the Statute in Frauds is a contract to purchase real estate. In this particular case, the plaintiff was DonaldSterling, and the defendant was a partnership of which Taylor was the general partner. At a lunch meeting to discuss future transactions, including the purchase of the partnership’s three apartment buildings, the plaintiff and defendant drafted a memo entitled “Contract for Sale of Real Property” which briefly set out the terms for purchasing the buildings. Some of the terms jotted down were “approx. 10.468 x gross income estimated 1.6 millionprice $16,750,000 escrow 30 days Brentwood escrow”. The plaintiff signed this informal document, while the defendant did not. Later the plaintiff wrote a letter to the defendant to “confirm our contract of sale”. Both parties signed this letter. Later the defendant sent the plaintiff three formal purchase contracts. Plaintiff refused to sign these contracts because they contained a different price then had been agreed to in the early memorandum, at least according to the plaintiff. When the defendant refused to sell under the terms of the earlier memorandum the plaintiff sued. The defendant argued that nocontract existed because the memo and letter failed to establish an agreement on price, failed to sufficiently name each of the parties or the property and were not signed. The trial court agreed.The Court of Appeal reversed, holding that the defendant’s signature on the letter was sufficient, that identifying the properties by street address was sufficient in light of extrinsic evidence identifying the city and state where the properties were located, and that the price term in the memo, while ambiguous, could be clarified by examining extrinsic evidence. On appeal to the California Supreme Court the defendant argued that the Court of Appeal improperly considered extrinsic evidence to establish the essential contract terms. The plaintiff argued that extrinsic evidence was rightfully admitted for the purpose of defining whether the memorandum complied with the Statute of Frauds. C.A.R. supported the plaintiff’s argument. Our brief argued, and the Supreme Court agreed that, “ambiguities are not unusual in real estate transactions and resorting to extrinsic evidence is required to prevent parties who have second thoughts from escaping their contractual obligations.” C.A.R. believes that contracts should be enforced if possible and if a little extrinsic evidence would make it clear should be admitted. In this case, even though the Courtagreed with our conclusion, it concluded that even though the extrinsic evidence by the plaintiff could be admitted in order to establish the price, in this case the extrinsic evidence actually conflicted with the written memo, which stated a different price, and therefore, the extrinsic evidence could not be used to establish that there was a contract. In other words, according to the court, extrinsic evidence may be considered by a court, but it cannot contradict the written terms. Therefore, in this case the Statute of Frauds was violated. (The actual dispute over price in this case was that the plaintiff argued that the language in the informal memorandum created a formula that could be used tocalculate the purchase price, (i.e. “approx 10.468 x gross income”), while defendant argued that since the memo also included an actual price ($16,750,000) it was unclear what the parties were agreeing to. Gov noted that the obvious moral of this case is that when negotiating a $16 million transaction the parties should probably use REALTORS® and written agreements.Gov then discussed several other cases briefly. In Heiman v. WorkersCompensation Appeals Board the Court of Appeal held that if a property manager for a homeowners association hires an unlicensed and uninsured contractor to do a job and on the job an employee of the contractor gets injured, the contractor, the manager and the homeowners association are all responsible for paying the workers compensation. The moral of this case is when acting as a property manager do not engage unlicensed, uninsured contractors. In UnitedStates v. Niro a federal court held that defendants can be held guilty of violating 18 USC 0167§ 1014 (Mortgage Fraud) by overstating the contract price of a home to a federally insured lender despite the fact that the lender had knowledge thatthe price was over valued. In other words, if the parties to a contract deliberately overvalue the property for the purpose of influencing the lender to approve the loan, it is a violation even if the lender is aware of the property’s true value. In ReMax Ideal Properties Inc. v. Swanberg a federal district court ordered a Minnesota man to stop attempting to extract monetary settlements from real estate brokerages by threatening to sue for violations of the Do Not Call rules. Mr. Swanberg would call brokerages requesting copies of their written Do Not Call policies and if he did not receive them in the mail within five days would threaten to sue. He would offer to withdraw the suit if they settled for $5,000. Gov noted that C.A.R. has a Q & A on the website that contains a sample policy and that REALTORS® should always provide this policy, upon request, even though there is no specific federal five day rule.In Roberts v. Wachovia the United States Supreme Court held that a mortgage lending subsidiary of a federally chartered bank is subject to federal oversight, rather than state regulations. NAR was opposed to this position because it believes that a state should be able to regulate these lenders and other state chartered corporations whether or not they are wholly owned by national banks. In other words, we think all banksshould be subject to state consumer protection laws. In Department of Toxic Substances Control v. Burlington Northern & Santa Fe Railway Company a federal court held that the liability of “potentially responsible parties” for clean up costs under the Comprehensive Environmental Response Clean Up and Liability Act (CERCLA) may be apportioned rather than imposed jointly and severally if the party seeking apportionment can establish that is it responsible only for the harm on a distinct portion of the property and for a distinct portion of the clean up costs. Legislative UpdateGov briefly discussed the progress of C.A.R. sponsored legislation.
He noted that while the C.A.R. bill that would have prohibited private transfer taxes never got out of committee, the bill that would require specific disclosures of these transfer taxes is still proceeding throughthe legislature.
He also reported that two other bills of interest were still alive:
One is the bill that would require individuals seeking to obtain a real estate broker’s license who lacked two years of experience to demonstrate that their four year college degree included a major or minor in real estate.
The other bill would eliminate the requirement that real estate licensees who seek to represent investor buyers in the purchase of owner occupied residential one to four unit property against which a notice of default has been recorded must obtain a surety bond in the amount of twice the purchase price.
