California Real Estate Law Ninth Edition 2019 Unit 5-8

Gatto Act

The Gatto Act gives cities, counties, and housing authorities the authority to compel cleanup of contaminated properties by a nuisance action. They also have the right to require property owners to disclose environmental information

(U5-8, Q2) 26. Daenerys forms an LLC and wants to buy Westeros. Her friend Petyr suggests she will need to hold title in a trust since LLCs cannot be on title. Is he right or wrong?

Wrong LLC can hold title alone

executed contract

a contract that has been fully performed. Executory vs. Executed An executed contract is one in which everything that was required to be performed has been performed. After escrow closes on a sales agreement, the contract becomes an executed one. (Do not confuse an executed contract with the execution of a document, which is the signing of the document.)

valid contract

a contract which will be enforced by the court Essentials of a valid contract For a valid contract to exist, four elements are necessary: 1) competent parties 2) mutual consent 3) legal purpose 4) consideration Valid contracts generally are enforceable. Exceptions are contracts outlawed by the statute of limitations or discharged in bankruptcy, which, while valid agreements, are nevertheless unenforceable A contract is an agreement between two or more parties to do or not to do something. Valid contracts are generally enforceable under the law Competent Parties A minor is anyone under the age of 18. Contract for the purchase or sale of real property entered into by unemancipated minors are void. A void contract is the same as having no agreement at all because the agreement does not bind either of the parties to it. (For information about void contracts, refer to "Void and Voidable Contracts" later in this section.) A minor can contract only for necessities-items required for support, such as food and clothing. Most contracts by minors for other than necessities are subject to disaffirmance (annulment) by the minor within a reasonable time after reaching the age of 18. In California, only the former minor has this right to disaffirm and not the person with whom the minor contracted. A minor who claimed to be of contactual age is not prevented from disaffirming the contract. Therefor, parties who deal with individuals who could be minors have a duty to ascertain the status of the person they are dealing with. After reaching the age of 18, a person can ratify contracts made as a minor so that the contracts no longer can be disaffirmed. After the age of 18, any action indicating that the person intended to be bound-payment on a property, repairing, altering, renting, or offering the property for sale-would be a ratification. An emancipated minor is an exception to the general rule that minor cannot contract for other than necessities. Emancipated minors can contract as adults and cannot disaffirm their contracts. Minors can be emancipated if they -are married or unmarried (widowed or divorced) -enter military service on active duty -receive a declaration of emancipation for the court (Civil Code Section 62) If a broker arranges a sale to a minor and the minor later disaffirms the purchase agreement, the minor could be entitled to the consideration paid to the seller. The broker could be liable to the seller for the damage suffered. A person adjudged insane cannot contract. Any contract entered into would be void. The same holds true for people who are not adjudged insane but who are wholly without understanding. Both minor and incompetents can, however, convey, mortgage, lease, or acquire real property following a superior court order obtained through appropriate guardianship or conservatorship proceedings. People who are of unsound mind but not wholly without understanding and who have not been adjudged insane can void contracts they entered into. These contracts are valid unless voided. After regaining sanity, a person can ratify or disaffirm a contract made while of unsound mind. A person of unsound mind who has not been adjudged insane and who has lucid periods could enter into a binding contract during a lucid period. A person who is under the influence of alcohol and/or drugs and as a result is wholly without understanding cannot contract. However, merely being under the influence of alcohol and/or drugs generally is not sufficient by itself to void a contract. People sentenced to imprisonment in state prisons are deprived of their civil rights to the extent necessary for the security of the institution in which they are confined and for the reasonable protection of the public. Convicts do not forfeit their property. They may acquire property by gift, inheritance, or will under certain conditions, and they may convey their property or acquire property through conveyance. The Department of Corrections may restrict conveyance made for business purposes. Aliens have contractual capacity in California. The existence of a meeting of the minds is decided by the courts based on how a reasonable person would view the words and actions of the parties. Therefor, a secret intent of a different performance by a party would have no effect. Mutual Consent An offer and acceptance that indicate a meeting of the minds on a definite and certain agreement usually are considered evidence of mutual consent. The Offer The offer must be a clear and definite offer made with the intent that when it is accepted, there will be a binding agreement. A letter of intent is a nonbinding expression of interest. Even though definite terms may be expressed, it is not an offer. Breach of a letter of intent would not entitle the other party to damages. Acceptance A contract is formed when the offeree (the person to whom a definite offer is made) accepts the offer of the offeror (the person making the offer). An offer can specify the manner of acceptance, but if no form for acceptance is specified, the offer can be accepted in any reasonable manner. In the case of Hofer v. Young (1995) 38C.A.4th 52, the court held that a FAX is a "reasonable and increasingly common means of modern communication." While acceptance may be by FAX, unless the offer prescribes the means of acceptance, records should be kept to prove that the FAX was sent as well as the time it was received. Professional Publishing Corporation's Standard Residential Purchase Agreement provides that a document is to be considered delivered at the time the FAX is transmitted, provided a transmission report is generated reflecting the accurate transmission of the document. Acceptance is possible by email because email is "a reasonable and increasingly common means of modern communication." Pads are available that allow signatures to be electronically attached to documents. A person can scan documents and send them by email as long as that person can show the original signed document. California is one of 47 states that have passed the Uniform Electronic Transactions Act that gives legal recognition to electronic signatures in business transactions. At an auction, the people who are bidding are the offerors. They make their bids to the auctioneer, who is the offeree. The auctioneer does not have to accept any offer unless the auction is being conducted without reserve, which means the seller has agreed in advance that the highest bid will be accepted. A bidder at a real estate auction that is not held "without reserve" should realize that the high bid does not mean the bidder has made purchase until the bid has been accepted. Acceptance takes place when the offeree notifies the offeror or the offeror's agent of the acceptance. Communicating acceptance to a third party who is not an agent of the offeror is not an acceptance. At an auction, the fall of the auctioneer's hammer signifies acceptance and is considered notification to the bidder. The act of mailing a written acceptance constitutes notification (effective upon posting, Civil Code 1583), because it might become necessary to prove mailing, a postal receipt is desirable. In the case of Gibbs v. American Savings (1990) 217 C.A.3d 1372, the buyers gave their acceptance of a seller's counteroffer to a company mail clerk at 10 a.m. The mail clerk failed to take it promptly to the post office. At 11 a.m., the seller called to revoke the counteroffer. The buyers sued the seller for damages for specific performance. The court held that a contract would have been formed if the acceptance had been deposited in the U.S. Mail beyond the buyers' further control, but in this case, a contract had not been formed because the acceptance had not been mailed. The acceptance must be made by the offeree. A third person who has knowledge of an offer to sell cannot, by acceptance, form a binding contract because the offer was not made to that party. Silence to an offer generally is regarded as neither acceptance nor rejection. Even if an offer states, "Failure to reply within 10 days will be considered acceptance," failure to reply will not in fact be acceptance the offer. Only if the parties by their prior dealings have established silence as acceptance might silence be construed as acceptance. Intent to enter into a contract must be present. Acceptance of an offer obviously made in jest will not form a binding agreement. Newspaper advertisements of real estate are not offers to sell; they are merely invitations to negotiate. A buyer's acceptance does not form a binding contract because newspaper advertisements are really announcements that the property is being placed on the market. Therefor, a buyer cannot accept and "offer" made in an ad. Similarly, providing information to a multiple listing service is an invitation to negotiate only and not an offer to sell. If an offer fails to state how long it will remain open for acceptance, it can be accepted within a reasonable period of time. Even the offer does state a period for acceptance, courts often will allow acceptance after that period unless the offer indicates that time critical, usually accomplished by including the words "time is of the essence." Although several cases have held that a "times of the essence" clause does not always make time essential in a contract. (Nash v. Superior Court (1978) 86 C.A.3d 690), these decisions have applied to contractual performance and not to the period for acceptance an offer. Counteroffer An acceptance that varies form the offer is not an acceptance but a counteroffer. A counteroffer is, in fact, a rejection of the original offer. Assume an offer calls for a 90-day escrow. An acceptance that states, "Accepted provided the escrow period be 30 days," represents a material change in the offer. The offeror really is making a counteroffer and rejecting the original offer. After such rejection, the offeree no longer can form a binding contract by later accepting the original offer. In a counteroffer, the offeree becomes the new offeror. The original offeror is now the offeree and can accept the counteroffer and form a binding contract, reject it, or make a new counteroffer. A request for a change in the proposed contract that does not condition the acceptance is not a counteroffer. For example, in an accepted offer that has the notation, "It would be appreciated if escrow could be closed before December 30," the acceptance forms a binding contract because acceptance is not conditioned on this request. That is, the offeror os not bound to the December 30 date. The case of Roth v. Malson (1998) 67 C.A.4th 552 involved an acreage parcel that was listed for sale at $47,600. A buyer offered $41,650 cash and a close of escrow within 30 days of acceptance. The seller made a counteroffer of $44,000. The buyer signed and dated the counter-to-counteroffer portion of the counteroffer and wrote, "Price to be $44,000 as above. Escrow to close on or before December 6, 1995. All cash." Subsequently, the seller noted the buyer that the property was being withdrawn from the market. The buyer then sued for specific performance. The superior court granted judgment for the seller Malson, concluding that no sale contract was ever formed. The court of appeal affirmed because Roth, the buyer, failed to accept the counteroffer. Civil Code 1585 requires that an acceptance must be "absolute and unqualified." The buyer changed the close of escrow from "within 30 days of acceptance" to "on or before December 6th." This was a counter to the seller's counteroffer requiring the seller's acceptance. Revocation Before notification of acceptance, an offeror can withdraw the offer. This generally is true even if the offer promised to keep the offer open for a specified period. Unless consideration is given to keep an offer open (this would be an option), the offer generally can be revoked. One exception is that the offeror can no longer revoke the offer after performance has started on a unilateral contract. (a promise for an act) Revocation must be made to the offeree or the offeree's agent to be effective. Revocation takes place upon receipt, so contrary to an acceptance, mailing a revocation has no effect until it is received. Assume a revocation was mailed on the first of the month and the offeree mailed an acceptance on the third of the month. The revocation was received on the fourth of the month, and the acceptance was received on the fifth of the month. A valid contract would result because acceptance took place on the third (upon mailing), and the revocation had no effect because it was not effective (received) until after the offer was accepted. The case of Ersa Grae Corp v. Fluor Corp. (1991) 1 C.A.4th 613 involved a firm that had negotiated simultaneously with two different buyers. It communicated to its broker that it was withdrawing the counteroffer it had made to one of the buyers. However, the broker did not communicate the revocation to the buyer. The court found that while the property owner had communicated revocation of its counteroffer to the broker before the counteroffer was accepted, the broker was not acting as the buyer's agent and had not communicated the revocation to the buyer. Accordingly, the buyer's acceptance of the seller's counteroffer constituted a contract. The seller sold the same property twice and was liable to Ersa Grae Corporation for nondelivery damages. When an offeror dies or becomes mentally incapacitated before acceptance, the offer is dead, and a later acceptance will not form a binding contract. When the offeror is a corporation, the death of the officer making the offer will not affect the offer, because the corporation is a separate legal entity and does not die with the death of its officers. Unless a contract calls for personal services, death or mental incapacity after acceptance will not affect a contract. The contract will bind the heirs or estates. The destruction of the subject matter terminates an offer. If a house is destroyed by fire before acceptance of an offer, acceptance by the seller after the destruction will not form a binding contract. When the acceptor fails to fulfill a condition precedent to acceptance, such as verifying gross or net income within a stated period of time, the offer is revoked. Definiteness An agreement must be definite. An agreement to buy "the house on Third Street" probably would be definite enough if the seller owned only one house on Third Street. However, if the seller owned several houses on Third Street, the agreement may not be binding. In the case of Sterling v. Taylor (2007) 40 C.A. 4th 757, Sterling and Taylor drafted a handwritten memorandum entitled "Contract for Sale of Real Property." The contract stated, "approx. 10.468 4 gross income. Estimated income $1,600,000, Price is $16,750.00." While Sterling dated and initialed the memorandum as "buyer," the seller space was left blank. Later, Sterling wrote Taylor confirming the contract of sale and Taylor signed the letter "agreed, accepted, and approved." Sterling determined the actual income was $1,375,404, not $1,600,000 as estimated and wanted the sales price lowered to $14,404,841 based on actual rents and the 10.468 multiplier. Taylor refused and Sterling sued. The trial court granted the defendant's motion for summary judgment based on the fact that, under the statute of frauds, the terms were too uncertain to be enforced. The court of appeal reversed, ruling that while price was ambiguous, it could be clarified by extrinsic evidence. The Supreme Court reversed, ruling that the terms were unclear. While Sterling claimed that "approx." applied to the total price not the multiplier and the missing zero was a simple error, the extrinsic evidence was at odds with the memorandum. The memorandum did not indicate the parties contemplated any change to the price based on actual income. Note: While Sterling and Taylor are mega-real estate investors who are sophisticated as to contracts, it is unusual that a deal of this magnitude should be made without consultation with real estate attorneys. Agreement to buy a property at "a price agreed on" would not be binding because it would lack definitiveness. An agreement to buy real estate at a price to be determined by a definite formula would be binding, even though the exact price is not known at the time the agreement is entered into. For example, an agreement to buy at the average appraisal price of three named appraisers could be binding. The case of Goodyear Rubber Corporation v. Munoz (1985) 170 C.A.3d 919 held that an option to buy at "fair market value" was valid. However, the case of ETCO Corporation v. Hauer (19840) 161 C.A.3d 1154 held that a lease at a rent to be mutually agreed upon rendered the option unenforceable. When a purchase is subject to the purchaser's or seller's later decision about whether to complete the transaction, the contract is an illusory contract, and neither party is bound. "I will pay you $100,000 for the lot if I decide to buy it" is not an agreement. Prospective tenants often sign letters of intent that indicate they will seriously negotiate with the owner for space. While letters of intent from quality tenants might influence a construction lender, they are not valid contracts. Again, these are illusory contracts and are agreements only that the parties will attempt to agree. "Subject to" provisions do not make a contract illusory. Offers are frequently written subject to zoning changes, appraisals, financing, and other contingencies. Requirements that work is to be performed to a person's satisfaction have been held to mean that dissatisfaction must be exercised in good faith and not merely break the agreement. For a contract to be valid, the parties not only must be identified but also must exist. Parties may use fictitious names or pseudonyms, but they must be real people or business entities. An agreement by an entity that does not exist, such as a nonexistent corporation, would not be enforceable. However, the parties can agree that a party will be designated later to perform or to receive performance, as in naming a designee to receive the deed. The manner of time and payment do not have tobe specified in the contract. Payment in cash at the time if closing is implied unless specified otherwise. When a closing date is not specified in an agreement, a closing within a reasonable period is implied. Similarly, in the absence of a stated time for possession to be given to the buyer, it is implied that possession will transfer upon close of escrow. Also implied is that the seller will convey marketable title and that any work to be performed will be performed in a workman like manner. Mistakes A contract can be voided on the basis of mutual mistake as to fact. For example, , if both buyer and seller believed that a trust deed was assumable but discovered it was not after the sales agreement had been signed, the buyer would be able to void the agreement because of the mutual mistake. A unilateral mistake, in contrast, will not be the basis for voiding a contract. In the preceding example, if only the purchaser believed that the loan was assumable and the seller was unaware of the buyer's intent to assume the loan and had done nothing to warrant the buyers belief, the contract would be enforceable. In the case of Levy v. Wolff (1956) 46 C.2d 367, a buyer paid $16,500 for a parcel of land that both the buyer and the seller believed to be subject to a valid lease. Subsequent to the sale, the tenant brought an action that resulted in a court determination that the lease "had never been binding or in force." The court held that the mutual mistake as to fact would allow rescission. In this case, the purchaser wanted to keep the land, so the court allowed the purchaser to recover damages (the difference between the value of the land with the lease and the value without the lease). A party who realizes that the other party is mistaken cannot take advantage and hold the mistaken party to the agreement. This is an exception to the rule that a unilateral mistake is not grounds to void a contract. Legal Purpose If parties enter into a contract in violation of the law, they generally cannot ask for enforement of an agreement. A lease of premises for a specified illegal purpose, for example, could not be enforced by the lessor or the lessee. Neither party can enforce an illegal executory contract. If executed, either party can rescind the agreement because of its illegal purpose. A change in the law that results in the agreement becoming illegal voids a contract. It also revokes an unaccepted offer. If an illegality is minor or not related directly to the agreement, the courts ordinarily will allow enforcement. For example, a masonry contractor who builds a proper block wall with building permits and in accordance with the contractual specifications will not be barred from collecting the value of his work because a business permit in the community where the wall was constructed has expired or because he paid a laborer less than minimum wage. Where the law was intended to protect a party from a wrongdoer, the law cannot be used to protect the wrongdoer. A broker who sold an unregistered real property security would be liable to the purchaser for any misrepresentations even though the sale violated the law because the registration requirement was intended to protect purchasers of securities, not sellers. When one party is less guilty than the other, the less-guilty party might be able to recover. This is especially true if the other person has greater knowledge of the law and represents the agreement as being legal. If a contract is composed of several divisible contracts, the illegality of one part will not void the balance of the agreement. For example, assume a lease agreement covered several properties with separate rents. If one of the leases provided for a percentage of the gross from a specified illegal activity, that portion would be unenforceable, but the rest of the contract could be enforceable. When an agreement is subject to two interpretations, one that is lawful and another that is illegal, in the absence of other evidence as to intent, the court will determine that the agreement should be given the legal interpretation. Contracts that unreasonably restrain a person from engaging in business are against public policy and are unenforceable. In the sale of a barbershop, an agreement that the seller never will open another barbershop anywhere could be unenforceable because it is too severe a restraint. An agreement that the seller would not open another shop within a 5-mile radius of the shop for a period of three years, however, probably would be considered reasonable and therefor enforceable. An agreement between a real estate salesperson and a broker that the salesperson would never become a broker or work for any other broker would not only be against public policy but also would likely be in violation of antitrust legislation. Consideration Consideration is anything of value given in exchange for a promise or performance of another. Consideration could be forbearance from acting, as well as a promise to act. For example, a creditor's agreeing not to start foreclosure for 90 days, when the creditor was entitled to foreclose, would be consideration for the transfer of other property. A promise unsupported by consideration generally is considered unenforceable. It is merely a promise to make a gift. While an enforceable promise requires consideration, an executed transfer requires no consideration. Such a transfer is a completed gift. The reason that an offeror can withdraw an offer anytime before acceptance is that an offer is unsupported by consideration. On the other hand, the presence of consideration requires that the offeror keep the offer open. In an option, the optionor receives consideration from the optionee so that the offer cannot be withdrawn. Courts will not ordinarily get involved with evaluating the adequacy of consideration. The courts will, however, consider the amount of consideration when a party claims fraud, undue influence, or a mutual mistake as to material fact. If a court determines that a contract is so unfair as to be unconscionable, the court may refuse to enforce it and allow the injured party to rescind the agreement or provide the injured party with other appropriate relief. In cases involving specific performance, adequacy of consideration is essential. Without fair consideration, specific performance cannot be enforced (Civil Code Section 3391). (Specific performance, as stated in unit 1, is an equitable remedy. Therefor, unless the consideration is fair, this equitable remedy will be denied.) A third party can enforce a contract even when that third party did not pay consideration: "A contract made expressly for the benefit of a third party may be enforced by him at any time before the parties thereto rescind it" (Civil Code Section 1559). For example, Alfred agreed to build a shed for Baker. Assume that Alfred then paid Charley to build the shed. If Charley failed to perform, then Baker, who is a third party beneficiary of the contract between Alfred and Charley, could enforce the contract. Past consideration cannot be used as a consideration to enforce a present promise in excess of the promisor's duty. For example, a past gift given freely will not be consideration for a new promise, because the promisor was under no obligation or duty to act, forbear to act, or make any promise. The promise to honor an existing obligation or to pay a just debt also is not consideration for a new promise. However, an agreement to pay a debt before it is due or after it was uncollectible or discharged in bankruptcy will be consideration for a new promise. A contract does not need to cite the consideration. However, when a contract does recite a consideration, the consideration is presumed to have been given. This presumption can, however, be rebutted by evidence to the contrary. Interpretation of Contracts Courts will ordinarily will try to interpret contracts in accordance with the intent of the parties. Words will be given general meaning they hold within the trade or profession involved. In the event of an ambiguity, the courts generally will resolve the ambiguity against the party drafting the instrument if it was not drafted as a mutual effort. The case of Wilson v. Gentile (1992) 8 C.A. 4th 759 involved a lease option that provided for the exercise of the option "within 30 days before the expiration of this option." Seven days before the expiration of the option, the optionee notified the optionor in writing of the exercise of the option. The optionor claimed the language required that the option be exercised at least 30 days before the lease expiration. The Court of Appeal ruled that while the optionor may have had another intent, there was no ambiguity. The clause had to be interpreted in accordance with its plain meaning. The wording meant that there was a beginning date and an ending date to exercise the option. Note: The optionor sued the real estate broker who drafted the clause. If the owner intended that the option be exercised only up to a specified date (30 days before the expiration of the lease), that should have been stated clearly. Precise drafting of legal instruments can be critical. This case points out the need for legal review. If printed numerals differ from the words, the words generally will govern. So if a contract provided for monthly payments of "Four hundred dollars ($40)," the monthly payment will be $400. In an ambiguity involving something added in typewriting to a printed form, the typewritten addition governs. If the ambiguity involves a hand written portion, handwriting takes precedence over the printed or typed portions becasue it more clearly indicates intent. Typographical errors ordinarily can be disregarded. See the case of Gutzie Assoc. v. Switer (1989)215 C.A.3d 1636. If conflicting agreements are present, the last one in time generally governs because to indicates the final intent of the parties. For example, if a purchase agreement and later signed escrow instructions differ, the escrow instructions generally will govern. Becaseu they were signed later, they more clearly indicate the final intent of the parties. Discharge of Contracts Impossibility of performance. A party is excused from performance becasue of impossibility. For example, a property manager who has a long-term contract to manage a structure that is now being taken by the city under eminent domain will be excused from performing for the remainder of the term. Commercial Frustration Performance will be excused in cases where the court determines that commercial frustration is present. That is, performance is not impossible but has become impractical because of an unforeseen occurrence. The nonoccurence of the event or act actually was an implied condition of the contract. The doctrine of a commercial frustration does not apply to situations in which the event reasonably could have been foreseen. An example of commercial frustration would be a lease that allowed the premises to be used only for the sale of new automobiles. If a war resulted in new automobiles not being available, the courts probably would allow the lessee out of the lease because of commercial frustration. Unconscionable Contracts Courts will refuse to enforce contracts that are so grossly unfair that they offend public conscience. As an example, assume a property was in danger because of a flood and the person owning the only available pump wanted $1,000 per hour for the use of the pump when $50 a day was the normal rental. Even though a property owner agreed to the charge, a court would likely refuse to enforce the agreement as written. A contract that does not allow a person to modify the agreement (take it or leave it) is considered a contract of adhesion. An example of such a contract would be a standard loan agreement used by all banks. If such a contract takes unreasonable advantage of the party who did not prepare it, courts will refuse to enforce the provision against that party. The case of Higgins v. Superior Court (Disney/ABC) (2006) 140 C.A. 4th 1238 involved five orphaned Higgins siblings who were to appear on the ABC TV reality show "Extreme Makeover": Home Edition." They lived at the home of the Leomitis. The family was chosen to receive a renovated nine-bedroom house. and were given about 10 minutes to look over and sign an agreement prepared by the shows producers. Paragraph 69 contained a one sided arbitration clause. After the show aired, the Leomitis forced the Higgins' siblings to leave. The Higgins' siblings brought action against the TV producers for intentional representation breach of contract, unfair competition, and false advertising. The producers petitioned to compel arbitration. While the superior court ordered arbitration, the Court of Appeal reversed on the grounds that the arbitration clause was unconscionable and therefor unenforceable. The court pointed out that this was a "take it or leave it" contract of adhesion.

(U5-8, Q2) 27. Khai had given Daenerys a deed to WInterfell, Daenerys has not recorded the deed. Who owns Winterfell? If Khai then gave a deed to Sansa for WInterfell in exchange for coin from the Iron Bank, attempting to fool her into thinking she was getting something of value. If Sansa records the deed before Daenerys, does that make a difference? If Sansa found out that Daenerys recorded the deed prior to her recording, what is Sansa's recourse? Can she sue Daenerys to get the property?

a) Between Khai and Dany, dany owns the deed b)Sansa owns Winterfell It does not make a difference unless she had possession Sansa would have an action against Khai This is one F'd up, confusing question! :)

(8) 8. Thomas and Andrew own property in joint tenancy. Thomas put a $50,000 mortgage on his interest. A short time later Thomas died. Who owns the property and how? a. Andrew owns the property clear of the mortgage. b. Andrew owns the property with a mortgage against it. c. Because the mortgage destroyed the joint tenancy, Andrew and the heirs of Thomas own the property as tenants in common d. Andrew and the mortgage own the property as tenants in common

a. Andrew owns the property clear of the mortgage. Joint tenancy, like tenancy in common, is an undivided interest in either real or personal property (or both). Unlike tenancy in common, however, joint tenancy has the right of survivorship. Upon the death of a joint tenant, the interest the deceased joint tenant held ceases to exist. The interest is incapable of being transferred by will or by intestate succession. The surviving joint tenants receive the interest of the deceased joint tenant. Joint tenancy property does not need to be probated, because it could not be part of the estate of the deceased person. Because of survivorship, the property interest passes to the surviving joint tenants free of claims of the personal creditors of the deceased.

(7) 15. Which is a characteristic of an estate in real property? a. It can exist within another estate b. It will always run forever c. It requires possession d. It is a non freehold interest

a. It can exist within another estate Concurrent Estate - More than one estate interest in a property at the same time (such as a leasehold estate in a fee simple ownership). Concurrent estates - more than one ownership or estate at the same time- can exist in a property. For example, a tenant can have a leasehold estate while an owner has a fee simple interest. The fee simple owner would have reversionary interest of possession at the expiration if the leasehold interest. Air and mineral interests also can be conveyed, creating separate interests. Property can even be divided horizontally, with the mineral, oil, and gas rights being conveyed in layers.

(7) 12. Which is NOT a characteristic of a fee simple ownership? a. Nonfreehold interest b. No time limit c. Freely transferable by owner d. Inheritable

a. Nonfreehold interest Less-than-freehold interests; leasehold estates. Nonfreehold estates are leasehold interests (personal property). Freehold estates (fee simple) and life estates are real property. Nonfreehold estates are tenancies and are covered in detail in Unit 15.

Termination of Partnerships

{partnerships may be terminated by -agreement -bankruptcy of a partner or the partnership -court order that results when a partner petitions the court for a dissolution of the partnership -death of a general partner

contract of adhesion

A "take or leave it" contract that takes unreasonable advantage of the party who did not prepare the instrument A contract that does not allow a person to modify the agreement (take it or leave it) is considered a contract of adhesion. An example of such a contract would be a standard loan agreement used by all banks. If such a contract takes unreasonable advantage of the party who did not prepare it, courts will refuse to enforce the provision against that party. Jaramillo v. JH Real Estate Partners, Inc. (2003) 3 Cal. Rptr.3d 525 involved a residential lease clause that required binding arbitration of any disputes, with the parties equally sharing in the advance payment of arbitration fees for a three-arbitrator panel. The plaintiffs argued that the arbitration clause was unconscionable because it was an undue economic burden and that the clause was unenforceable because it was a contract of adhesion. The defendant appealed from a superior court ruling that the arbitrations clause was unenforceable. The court of appeal affirmed, ruling that the clause was unconscionable and lacked mutuality because this was a contract of adhesion where the tenant had no bargaining power. Note: See Flores v. Transamerica Home First, Inc. (2001) 93 C.A.4th 986. In this case, the court ruled that a mandatory arbitration clause in a reverse mortgage is unconscionable and unenforceable by the lender as a contract of adhesion due to lack of bilateralism.

vested remainder interest

A certain interest after a life tenant dies Life Estates If the remainder of the interest requires that the third party outlive the life tenant, the third party interest is a contingent remainder (contingent on the third party's being alive to receive the remainder interest) If, however, there are no contingencies, the remainder will, upon the death of the life tenant, pass to the remainder holder or the remainder holder's heirs. This type of estate is called a vested remainder interest because someday the life tenant must die, ensuring the remainder holder will receive the property.

safety clause

A clause in a listing contract that provides that should the seller sell to a person the agent negotiated with within a set period of time after the listing expires, and whose name the agent submitted to the owner in writing before expiration, the broker will be entitled to the sale commission. Exclusive right-to-sell listings frequently contain a safety clause. This clause customarily provides that the owner is obligated to pay a commission if a sale is made within a stated period after expiration fo the listing to any person the agent negotiated with and whose name was name was furnished in writing to the owner within three days after the expiration of the listing. Sometimes these clauses provide that in the event another listing is entered into, the owner is no longer obligated under the safety clause. Without such an exception, an owner could be obligated to pay more than one commission. Notice the safety clause , paragraph 4.a.2, in the listing agreement (figure 6.1). Often the rules of a local board of REALTORS have the effect of a safety clause on subsequent listings. The safety clause in a listing appears only to require that the agent introduced the buyers to the property. This is much less than the requirement under procuring cause. A broker could be in a better position claiming notification under the safety clause than making a claim as to procuring cause. A prior offer made by the ultimate purchaser has been held to satisfy the notification requirements of the safety clause.

limited liability company

A company of one or more principals without personal liability for company actions Relatively few limited partnerships are being formed today because of the advantages offered by another form of operation known as the limited liability company. LLCs provide the limited liability protection of corporations without the regulations associated with S corporations. The advantages offered by an LLC have resulted in fewer decisions to form S corporations or limited partnerships. LLCs have operating agreements that are similar to corporate bylaws, but unlike corporations, they do not have perpetual existence. One or more members can file articles of organization with the secretary of state to engage in any lawful business activity. They must also file annual statements. While it takes at lest two members to form a limited partnership, one person can form an LLC. In a limited partnership, a limited partner would lose the liability protection by actively engaging in business matters. In an LLC, member activity does not affect the protection from personal liability.

condition precedent

A condition that must take place before an estate is granted. Provisions in a title that, if breached, could result in forfeiture of interest A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest. Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a condition subsequent, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains reversionary interest. Grantors sometimes use grants with a condition subsequent to advance their personal convictions. For example, a common condition subsequent is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a condition subsequent was breached, the courts could determine that the grantor has waived the right to enforce the reversion. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in reversion of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest.

condition subsequent

A condition that, if it occurs, results in the reversion of an estate of another Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a condition subsequent, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains reversionary interest. Grantors sometimes use grants with a condition subsequent to advance their personal convictions. For example, a common condition subsequent is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a condition subsequent was breached, the courts could determine that the grantor has waived the right to enforce the reversion. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in reversion of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest. Life Estates Life estates can also be subject to a condition subsequent, such as a life estate that goes to a remainder interest holder should the life tenant remarry. This type of estate often is used when the grantor feels that a duty to support the life tenant only while the life tenant remains unmarried.

divisible contract

A contract consisting of separate agreements that are not dependent on each other If a contract is composed of several divisible contracts, the illegality of one part will not void the balance of the agreement. For example, assume a lease agreement covered several properties with separate rents. If one of the leases provided for a percentage of the gross from a specified illegal activity, that portion would be unenforceable, but the rest of the contract could be enforceable. When an agreement is subject to two interpretations, one that is lawful and another that is illegal, in the absence of other evidence as to intent, the court will determine that the agreement should be given the legal interpretation.

quasi contract

A contract implied by law, as a matter of equity, when no actual contractual agreement took place The law will often imply a contract when one party benefitted but did not really consent to any agreement In a quasi contract, no real contractual intent exists. The law implies the existence of a contract. The law will often imply a contract when one party benefitted but did not really consent to any agreement. For example, suppose by mistake your neighbor paid the real estate taxes on your property. You would be obligated, as a matter of equity or fairness, in a quasi contract to reimburse your neighbor for the amount if taxes paid for your benefit.

express contract

A contract in which the terms have been stated either verbally or in writing. An express contract is an agreement stated in words. The terms of the agreement may be set forth either orally or in writing Express vs. Implied Contracts are either express or implied. An express contract is an agreement stated in words. The terms of the agreement may be set forth either orally or in writing. An agreement whereby a buyer agrees to buy and a seller agrees to sell a property at an agreed-on price and terms would be an express contract. Later in this unit, you will learn why most real estate contracts must be express contracts.

implied contract

A contract not expressly agreed to but understood by the parties An implied contract is one, the existence and the terms of which are mandated by conduct. Express vs. Implied An implied contract is an agreement that, while not specifically stated, is understood by the parties. Section 1621 of the Civil Code states, "An implied contract is one, the existence and terms of which are manifested by conduct." For example, assume that you ask a pest control firm to make a termite inspection of a property. While you never agreed to pay a particular amount, or even any amount, for the termite inspection, a reasonable person would understand that the pest control firm will expect to be paid for its services. The party ordering the report should be expected to be charged for the work, and the party performing the work should expect to be paid. Therefor, an implied contract to pay the reasonable value of the services rendered exists.

executory contract

A contract that has yet to be performed fully Executory vs. Executed A contract is either executory or executed. An executory contract is one that has not yet been fully performed. An agreement between a buyer and a seller for the sale of land would be executory until escrow was closed. The agreement would be executory until title was transferred and the consideration was paid.

void contract

A contract whereby one party only can declare the contract void A void contract is one that never had any legal existence or effect. A void contract cannot be enforced. It is treated as if it were never made. A contract that lacks one of the four required contractual elements is void.

voidable contract

A contract whereby one party only can declare the contract void. A voidable contract is a valid contract unless or until voided. What this means is that a wronged party has the right or election to void the contract or let it stand as an enforceable agreement against the wrongdoer. Fraud Fraud is an intentional misrepresentation of fact by words, conduct, or concealment that is intended to deceive another to act to their detriment and that does in fact so deceive the other party. Making false statements without knowing whether they are true also could be considered fraud. To make a contract voidable, the fraud must have been material; that is, it must induce a party to contract. When one party knows the other party is lying, fraud does not exist because the party who was lied to did not rely on the false statement in contracting. A statement made in a contract that the parties are not relying on any oral statements or promises does not relieve the parties of responsibility for fraud. Only the injured party can cancel the contract for fraud. Failure to void the contract within a reasonable period after learning the fraud could be regarded as affirmation of the agreement. A seller can be liable for failure to disclose the buyer's fraud to a third party. The case of U.S. v. Cloud (1989) 872 F.2d 846 involved the sale of the Cal-Nevada Lodge by Cloud. The sales price was $17 million.At a preclosing conference, Cloud discovered that the escrow agreement indicated a $27.5 million price and showed $7.5 million had been paid outside of escrow. The figures had been inflated so that the buyer could obtain a $20 million loan. Cloud did not tell the escrow officers of the fraud but did insist that the escrow instruction reflect he was netting only $17 million from the loan. The lender eventually lost more than $24.5 million because of this loan. Cloud appealed his conviction for bank fraud and conspiracy. The Court of Appeal upheld the the conviction because Cloud knew that the sales price was inflated and that he had not received money outside of escrow. His amendment to the escrow instructions did not exonerate him. In fact, it indicated that he fully understood and knowingly agreed to be part of a fraudulent scheme that was a conspiracy. Misrepresentation Misrepresentation is a civil wrong that differs from fraud in that it is not intentional. While there is no criminal penalties for misrepresentation, it, like criminal fraud, makes a contract voidable and may include civil damages. People who honestly believed that their false assertions of fact were true but had no reasonable grounds for this belief will have committed the tort of negligent misrepresentation. Duress and Menace Duress is generally regarded as force. The wrongful confinement of a person or detention of property is duress Menace is the threat of (1) confinement of a person, (2) detention of property, or (3) injury to the person, property, or character of another. A contract made under duress or menace makes the contract voidable at the election of the injured party. Undue Influence Undue influence is improper persuasion based on the relationship of the parties whereby one party is really not acting with free will. An example might be a nephew's persuading an elderly uncle to transfer property to him for a token consideration. Contracts entered into because of undue influence are voidable.

undivided interest subdivision

A development where the entire subdivision is owned in common for use of all owners with no separate exclusive use rights An undivided interest is a development in which owners are tenants in common with all other owners without an exclusive right right of ownership of a particular lot or unit. An example would be many of the large, member owned recreational vehicle parks. Purchasers in an undivided interest subdivision have a three day of right of rescission. (The subdivision process and the Interest Land Sales Full Disclosure Act are covered in Unit 13) There are several types of ownership forms for common interest and undivided interest subdivisions

Foreign Corporations

A domestic corporation is a corporation organized in California. A corporation organized in any other state is a foreign corporation in California. To do business in California, a foreign corporation must get permission from the secretary of state; otherwise it cannot sue in California courts. The foreign corporation also must file, with the secretary of state, a consent to allow legal process to be served against the corporation by service on the secretary of state; this eliminates the need to go to the state of incorporation to bring the suit.

partition action

A legal action to break up a joint ownership Because of changing relationships, a person might no longer wish to remain a joint tenant or tenant in common. In that case, a PARTITION ACTION can be brought to break up the joint tenancy of tenancy common. (By agreement, the parties can give up their rights to a partition action.) If possible, the court will order the property divided among the co-owners. When division is not possible or practical, the property will be sold under judicial supervision and the sale proceeds divided among the co=-owners. Case study In the case of Formosa Corp v, Rogers (1952) 108 C.A.2d 397 the plaintiff sought a sale of a movie studio where Mary Pickford Rogers owned a 41/80 ownership. The court held that the party seeking partition by sale had the burden of proof that sale was necessary for equitable distribution. In this case, the court determined that the value of the separate properties was less than the value of the whole because the property as a whole added value resulting from its adaptation for use in making motion pictures.

Listings

A listing is an agency contract whereby a principal (usually the property owner) appoints an agent (a real estate broker) to perform some task. Customarily, the principal gives the agent a listing to procure a buyer or lessee for a specified property. Listings also can be created for the purpose of locating a property for a buyer or obtaining financing. A listing can also be for a loan modification. An agent who is to procure a buyer generally is not given the power to obligate the principal contractually. The agent solicits offers; the principal accepts or rejects them. A buyer's agent locates properties for the buyer's consideration. The buyer makes any purchase decision. To be enforceable, listing agreements for real estate must be in writing (Civil Code Section 1624(5)). The case of Franklin v. Hansen (1963) 59 C2d 570 makes it clear that a broker cannot enforce a verbal commission agreement. Because listings are contracts, they require all the elements of a valid contract to be enforceable: mutual consent, consideration, legal purpose, and competent parties. Listings must be specific about the subject matter of the agency. They also should be specific about price and terms, if any. If no price is specified, the principal will not be obligated to the agent if the principal refuses an offer at a fair price. If no terms are specified, the principal can refuse a full-price offer if not for cash, and the principal will not be obligated to any commission. Listings usually authorize an agent to place a For Sale sign on the property. Without such authorization, the agent does not have th right to place a sign. An agent is not entitled to compensation if not provided for in the listing agreement. Authorizing an agent to procure a buyer does not imply that the owner will pay a fee if the agent is successful. There can be a gratuitous agency. Unless the listing authorizes the agent to accept a deposit, the agent will have to take deposits as as the agent of the buyer. Hold-harmless clauses customarily are included in listings. The owner agrees to hold the agent harmless and indemnify the agent for losses in the event the owner fails to provide a disclosure or fails to supply correct information. Such a clause probably would not entitle brokers to recover a loss if they knew, or should have known, an owner was mistaken. Like most contracts, listings usually provide that, in the event of a legal action, the prevailing party will be entitled to legal fees. Unless a listing authorizes an agent to employ subagents, the agent has no authority to do so. An agency is a personal relationship that requires consent, and the principal is responsible for the acts of the agent within the scope of the agency. The agent therefor has no authority to expand the liability of the principal to acts of subagents without the express authority of the principal. The CAR listing form in figure 6.1 does not provide for subagency but provides for cooperation with other brokers. The listing agreement is between the principal and the agent and cannot be enforced by third parties. For example, a prospective buyer could not force an owner to accept an offer at a properties listed price because of privity of contract (contractual relationship) exists between the owner and the prospective buyer. The agent, however, might be entitled to a commission. An exception would be refusal the owner to accept an offer on the terms of the listing because of unlawful discrimination (see the discussion of fair housing in Unit 4) If the consummation of a sale is prevented by the default the agent's principal or by the principal's inability to convey marketable title, the sales agent will be entitled to a commission because the agent fully performed as required by the agency. The burden of proof of performance is on the agent. To collect a commission, the agent must show full compliance with the agent's obligations according to the contract or the principal's wrongful breach of obligations. The rate or amount of commission may not be preprinted in a listing contract for the sale of a building with one to four residential units. This includes mobile homes. The agreement also must contain the following statement in a 10-point boldface type: "Notice: The amount or rate of real estate commissions is not fixed by law. They are set by each Broker individually and may be negotiable between Seller and Broker." You will find this notice the sample listing agreement. A commission is customarily is earned under a valid listing upon the execution of a valid purchase agreement unless conditions remain to be fulfilled. The commissions normally paid upon closing of escrow, which could be sometime after the commission is earned. If a listing requires consummation of the sale, the sale must be consummated for the broker to earn a commission (no deal-no-commission). If in such a case the buyer breaches the contract and the owner does not pursue legal remedies for the breach, the broker gets nothing. If the owner breaches the agreement, the broker is entitled to a commission because the principal's action violated the implied condition of good-faith dealings. Similarly, if the buyer's obligation was conditional and the seller prevented the satisfaction of the conditions, the broker would be entitles to a commission. In the case of City of Turlock v. Paul M Zagaris Inc. (1989) 209 C.A.3d 189, a real estate contract signed only by the buyer and the seller acknowledged that the seller owed the broker a 6% sales commission to repaid as the price was received. This was the sole agreement on commission. Because the city acquired the property by condemnation, escrow never closed. The broker asserted his commission in the condemnation action, alleging "vested contractual rights." The Court of Appeal held that the broker's right was contingent on the escrow closing, so the broker lost his rights when the escrow failed to close. The case of R.J. Kuhl Corp. v. Sullivan (1993) 13 C.A4th 1589 involved a buyer's agent who entered into negotiations for a purchase. The buyer's agent contract called for a commission if a sale was consummated. The negotiations failed and a third party purchased the property. The third party gave the broker's client (Sullivan) an option to buy the property and also agreed to share in paying any commission that the buyer might owe. The broker sued Sullivan and the third party for breach of contract, failure to pay a commission, and interference and conspiring to interfere with a contractual relationship. The court held that Sullivan's obligation was subject to the covenant of good faith and fair dealing. The client benefited from the broker's services and profited unfairly. Even though the sale was never consummated, the breach of the covenant of good faith and fair dealing excused the consummation of the sale as a condition of payment.

no deal-no commission

A listing requiring that escrow actually be closed and title transferred before the agent is entitled to a commission. If a listing requires consummation of the sale, the sale must be consummated for the broker to earn a commission (no deal-no-commission). If in such a case the buyer breaches the contract and the owner does not pursue legal remedies for the breach, the broker gets nothing.

exclusive authorization and right to sell listing

A listing whereby the agent is entitled to a commission no matter who sells the property, including the owner The owner agrees to pay a commission to an agent of the agent, any other agent, or the owner procures a buyer in accordance with the price and terms of the listing, or for any other price or terms that the owner accepts. With an exclusive authorization and right-to-sell listing , the owner agrees to pay a commission to an agent if the agent, any other agent, or the owner procures a buyer accordance with the with the price and terms of the listing, or for any other price or terms the owner accepts. The broker will not be entitled to a commission if the buyer located lacks the financial ability to complete the purchase because the broker has failed to procure a ready, willing, and able buyer. Because the listing agent earns a commission no matter who sells the property, thesis the most desirable listing for brokers. Exclusive right-to-sell listings frequently contain a safety clause. This clause customarily provides that the owner is obligated to pay a commission if a sale is made within a stated period after expiration fo the listing to any person the agent negotiated with and whose name was name was furnished in writing to the owner within three days after the expiration of the listing. Sometimes these clauses provide that in the event another listing is entered into, the owner is no longer obligated under the safety clause. Without such an exception, an owner could be obligated to pay more than one commission. Notice the safety clause , paragraph 4.a.2, in the listing agreement (figure 6.1). Often the rules of a local board of REALTORS have the effect of a safety clause on subsequent listings. Paragraph 12 covers key box authorization, and the owner is advised to obtain appropriate insurance coverage. If an agent recommends a key box without warnings to the owner, the agent could conceivably be held liable for any resulting loss. Paragraph 14-b provides that by initialing, the parties agree to arbitration of any disputes arising from the agreement (mandatory arbitration).

exclusive agency listing

A listing whereby the owner can sell the property personally without paying a commission, but if it is sold by any agent, the listing agent is entitled to a commission. Under and exclusive agency listing, the named broker is the exclusive agent for the owner, and if the listing broker or any other agent procures a purchaser in accordance with the terms of the listing, or any other price and terms the owner might agree to, the agent has earned a commission. The owner can, however, sell the property without assistance of the agent and without any obligation to pay a commission. Exclusive agency listings usually are entered into when an owner might have one or more prospective buyers. A better arrangement, however, would be to write an exclusive right-to-sell that excludes names individuals for a set period. This would encourage the seller's prospects to buy if they are serious buyers. After the expiration of the stated period, the exception will be removed. Exclusive agency listings usually require that the owners notify the agent of any sale and identify the purchasers. They usually also prohibit the owner from offering the property at a lower price than offered by the agent. Under an exclusive agency listing, the owner might be encouraged to subvert the agent's efforts. Problems arise as to who really was the procuring cause of a sale when the agent had contract with the owner's buyer (procuring cause is discussed further in this unit). Because if the possible problems if exclusive agency listings, many brokers refuse to accept them.

loan broker listing

A loan broker's contract with a buyer to obtain a loan. Loan broker listing agreement A mortgage loan broker represents a borrower, as his or her agent, to obtain a loan. The agency agreement setting forth the rights and obligations of the parties is known as a loan broker listing agreement. Loan brokers' commissions and costs on regulated loans are limited by law (see unit 4) Loan brokers' listings cannot exceed 45 days when seeking a residential loan of $2,000 or less. A loan broker listing agreement generally allows the broker to work with other agents, provides a safety clause pertaining to loans made after the expiration of the listing, and contains other provisions that are similar to those found in exclusive right-to-sell listings.

seals

A mark or impression to attest to authenticity of a signature. Not required in California Seals - marks or impressions- were required on certain contracts in England to authenticate the execution of a document. Their use grew out of a period when most individuals were illiterate and had to make their "mark." States that require seals accept a simple "(Seal") or "L.S.," which stands for "Locus Sigilli" (the place of the seal). California does not require seals on any documents, but if a corporation that has a seal uses it on a document, it is presumed the the person(s) signing did so with corporate authority.

emancipated minor

A minor who is allowed to contract (in military service, declared emancipated by a court, married, or formerly married) An emancipated minor is an exception to the general rule that minor cannot contract for other than necessities. Emancipated minors can contract as adults and cannot disaffirm their contracts. Minors can be emancipated if they -are married or unmarried (widowed or divorced) -enter military service on active duty -receive a declaration of emancipation for the court (Civil Code Section 62)

fictitious name

A name that does not include the surname of every principal in an enterprise. A fictitious name is a name that does not include the surname of every partner. If a partnership fails to comply with the fictitious name statutes, the partnership cannot sue or defend a suit in the partnership name on contracts made using the fictitious name. To comply with the fictitious name statutes, the partnership must -file within 40 days of beginning business, a fictitious name statement with the county clerk that identifies principals, the business, and its fictitious name -publish, within 30 days of filing, the fictitious name statement in a newspaper of general circulation within the county where the principal place of business is located, one a week for four successive weeks. All fictitious name statements expire at the end of five years from December 31 of the year filed with the county clerk. Renewal statements again must be filed, but need not be advertised. A partnership can abandon a fictitious name by filing statement of abandonment.

lis pendens

A notice of a pending lawsuit in which an interest in real property is involved

general partner

A partner with management responsibility and unlimited liability A general partner is an active partner in the partnership who has unlimited personal liability for the debts of the partnership. A new general partner to an existing partnership would have unlimited liability for future debts of the partnership, but liability for the existing partnership debts would be limited to the extent of their contribution to capital (partner's investment) Under the Uniform Partnership Act (Corporation Code Sections 15001-15004), general partners: -have equal rights to use partnership property for partnership purposes -cannot transfer their interests to another without the consent of the other partners -the death or bankruptcy of a general partner dissolves the partnership Creditors of the partnership have the first claim on the assets of a partnership. Partnership assets are not subject to attachment or execution for the private debts of the partners. However, bankruptcy of a partner wold dissolve the partnership as it applies to the the bankrupt partner, which would allow the creditors to reach the bankrupt partner's share of partnership assets. Partners' interests are undivided. The interests need not be equal, but in the absence of any agreement, the partners have equal rights in the partnership. Spouses of partners do not have a direct community property interest in partnership property. Partnership property can be conveyed by the partnership without the signatures of the spouses of the partners. The heirs of a deceased partner have no right to the partnership business, because a partnership requires consent. The heirs are entitled only to the value of the deceased partner's share of the assets over the liabilities, or surplus, not to the continuing business. General partnership agreements need not be in writing to be valid. A partnership can acquire property in the name of the partnership. The recording of a statement of partnership that has been signed, acknowledged, and verified by two or more partners of proof of membership in the partnership. A bona fide purchaser for value from the partnership can rely on the statement about the identity of all partners and be protected against unnamed parties claiming a partnership interest. If a partner takes title to partnership property in their separate name, other partners can claim their interests by showing it to be the partnership property. While a partner is entitled to an accounting of cash or property from other partners, a partner cannot sue the partnership; in so doing, the partner in effect would be suing himself. A partner cannot compete with her partnership.

third-party beneficiary

A person, not a party to a contract, who was the intended beneficiary of the contract and therefor has a standing to sue if the contract is breached Often, parties will look for ways to get out of contracts that are disadvantageous. If they disavow the contract by treating an action of the other party as a contractual breach when it was not such a breach, they might be guilty of breaching the contract themselves. Generally, the only party with a standing to sue for damages would be the injured contracting party. There is an exception in that a third-party beneficiary can sue for equitable or monetary remedy. A third-party beneficiary, while not party to a contract, was intended to be the beneficiary of the contract. As an example, if a close friend paid a painter to paint your house and the painter decided he didn't have to do it because your friend had died, you could sure for damages, the cost of having the house painted, because you were the third-party beneficiary of the contract

chattels real

A personal property interest in real property, such as a leasehold interest, trust deed, or mortgage Chattels real are personal property interests that concern real property. Such as leasehold interests, mortgages, trust deeds, shares in real estate syndicates, and shares in housing cooperatives. While real property oriented, they are considered real property.

due diligence

A proper good faith effort to perform or to investigate Most listings are exclusive listings, in which the owner makes the agent the owner's exclusive agent to procure a buyer and agrees to pay a commission should the agent succeed. The agent promises to use due diligence in procuring a buyer. This mutual exchange of promises makes exclusive listings bilateral contracts.

wild document

A recorded instrument outside the chain of title that fails to give constructive notice. Wild and Forged Documents A wild document, one outside the chain of title, gives no constructive notice because it would not be discovered by a diligent search of the records. A recorded assignment or sublease of an unrecorded lease also would be outside the chain of title that therefore would not give constructive notice. A forged document is void and does not give constructive notice of any interest and has no effect. Knowingly recording a forged or false document is a felony (Peanl Code Section 115). Such an action would also be a tort (slander of title). There have been incidents in which unscrupulous individuals have forged deeds to themselves, using both forged owner signatures and forged notary seals. They have then borrowed on the property. Because a forged document does not transfer interest, the lenders did not obtain a valid lien interest in the property. Filing a false deed or deed of trust can result in criminal penalties.

contingent remainder

A remainder interest that is not certain but requires something to happen. Life Estates If the remainder of the interest requires that the third party outlive the life tenant, the third party interest is a contingent remainder (contingent on the third party's being alive to receive the remainder interest) If, however, there are no contingencies, the remainder will, upon the death of the life tenant, pass to the remainder holder or the remainder holder's heirs. This type of estate is called a vested remainder interest because someday the life tenant must die, ensuring the remainder holder will receive the property.

restraint against alienation

A restriction on the power to convey property. Restraints against alienation. A restraint in transfer that unreasonably restricts future alienation (the ability to grant, sell devise, lease, or encumber) is unenforceable and void because it is contrary to public policy. An example of such restraint against alienation would be conveyance on the condition that the grantee not convey to other than "heirs of my body"

chose in action

A right to demand money or personal property through legal action such as a promissory note. Chose in action refers to a right to demand money or other personal property through legal action. The claim is considered personal property

corporation

A separate legal entity established under state law. An artificial person. A corporation is a separate legal entity established under state law by filing of articles of incorporation with the secretary of state. It can own property in the corporate name. Shareholders of a corporation have limited liability and have no direct management of the corporation. A disadvantage of corporations is double taxation. The corporation pays income tax on its profits and dividends paid to stockholders from the profits are taxed to the stockholders. Shareholders elect the directors, who set up policy. The director appoint the corporate officers, who operate the corporation. The authority of the corporate officers is set forth in corporate bylaws, which are the rules of the corporation. Because a corporation is a separate legal entity, shareholders can sue the corporation. Also, because it is a legal entity, corporations have unlimited life and theoretically "live" forever. A corporate conveyance that involves the sale of all or a majority of the corporate assets must be approved by a majority of the stockholders. If a corporation exists in name only- that is, individuals funds are commingled with corporate funds- the courts will "pierce the corporate veil" and determine that the corporation is in fact a partnership or a sole proprietorship, and the limited liability protection of the corporation will be lost. A closely held, or close, corporation is one in which the stock is held by a few people who actively control the business. Closely held corporations often are able to avoid significant corporate taxation by not showing a profit, They accomplish this through salaries, benefits, and bonuses to the officers, who are also the stockholders.

time is of the essence

A statement in a contract that requires performance within the stated time period if the other party is to be bound by the agreement If an offer fails to state how long it will remain open for acceptance, it can be accepted within a reasonable period of time. Even the offer does state a period for acceptance, courts often will allow acceptance after that period unless the offer indicates that time critical, usually accomplished by including the words "time is of the essence." Although several cases have held that a "times of the essence" clause does not always make time essential in a contract. (Nash v. Superior Court (1978) 86 C.A.3d 690), these decisions have applied to contractual performance and not to the period for acceptance an offer.

acknowledgement

A statement made before a notary or court officer that the signing of a document was the signers own free act Before a document can be recorded, it must be acknowledged. Acknowledgement is made before a notary or other designated official by the person attesting to the document. That person acknowledges that she is the person claimed and is the one who has signed the instrument as her own free act. The maker of an instrument must appear personally before the notary, and the notary has a duty to ascertain identity by personal knowledge or by identification of a third person under oath. A notary can accept driver's licenses and passports as proof of identity. The notary does not verify the facts of the document. Notary public's who verify the acknowledgement of a deed or a deed trust must place in the notary's journal the right thumbprint of the person signing the document. The acknowledgement must include state and county where acknowledged and the name and capacity if the acknowledging party. When two or more people are executing a document requiring acknowledgement, each of their signatures must be acknowledged. Without acknowledgement, constructive notice (discussed in the next section) of that person's interest has not been given. A person who holds an instrument that otherwise could be recorded except for the lack acknowledgement can bring action against the other party to prove the instrument and can then record a certified copy of the judgement (Civil Code Section 1203). Excerpted from the requirement that instruments be acknowledged to be recorded or filed are: judgements authenticated by the clerk of the court notices of mining claims tax certificates of amount due leases from the federal government documents required to be signed by an attorney, such as lis pendens, which is a notice of a pending lawsuit involving a claim against real property

novation

A substitution of a party to a contract or the substitution of one agreement for another Novation A novation is an agreement to substitute. Usually, it is the substitution of one party for another party under the contract. The prior party, in that case, would be relieved of all obligations under the contract.

real estate investment trust (REIT)

A trust organized under federal law and having at least 100 investors. Ownership interest is in the form of certificates or shares that are freely transferable Real estate investment trusts allow smaller investors to pool their resources for quality investments with limited liability. Under federal law, a real estate investment trust (REIT) is an unincorporated trust or association managed by a trustee that meets the following criteria: - It cannot hold property for sale to customers in the ordinary cause of business -It must be owned by at lest 100 investors -Five people or fewer cannot hold more than a 50% interest -Interests must be in the form of transferable shares or certificates. California requires that each share carry with it an equivalent vote in determining trust policy -At least 75% of assets must be invested in real estate or cash. -Investments must account for at least 90% of the trusts gross income - Up to 75% if the trust's gross income may result from real estate related sources If the real estate investment trust distributes 90% or more of its ordinary earnings to shareholders, it is taxed only on its retained earnings at the corporate rate. The trustee in a real estate investment trust must have exclusive power to manage the trust. Trusts are either equity trusts (real estate), mortgage trusts (investments in mortgages and trust deeds), or hybrid trusts (investments in both real estate and mortgages). Unlike syndicate interests, which are often difficult to resell, many REITs are listed on major stock exchanges so that interests are more readily available.

(5) 16. The fact that every parcel of real estate is unique is the reason for the remedy of a. specific performance b. injunction c. reformation d. punitive damages

A. specific performance - Specific Performance forces a party to perform as agreed and is awarded only when compensating damages are inadequate.

anticipatory breach

Act of a party that can be treated as a breach of contract because it makes performance by that party impossible. A party does not have to wait to start legal action until an actual breach has occurred of there has been an anticipatory breach. Example: -renunciation of the agreement by the other party -an act that would make performance impossible, such as the seller conveying title to another before a scheduled close of escrow.

advanced costs

Advance payments made to an agent to cover expected cash outlays in carrying out the agency Advance costs differ from advance fees in that they are paid to the agent to cover cash outlays in carry out the agency. They are not intended to cover brokerage fees or general overhead expenses. As an example, if an owner wanted an expensive ad in the Wall Street Journal, the broker might require cost in advance. Monies collected to cover advance costs must be treated as trust money and must be placed in the broker's trust account. The trust fund remains the property of the principal until disbursed by the agent for the principal. The broker must provide the principal with a quarterly accounting of all disbursements, and any remaining funds must be returned to the principal at the expiration of the agreement along with final accounting.

cooperating broker fee agreement

Agreements between brokers as to the commission split should the cooperating broker sell a property listed by the listing broker. Not required by the statute of frauds to be in writing.

bundle of rights

All beneficial rights that go with ownership of real property The beneficial rights of ownership are called the bundle of rights, and they include the right to convey, lease, use, encumber, inherit, and exclude others. Ownership rights are not, however, absolute. Under the police power of the state, land use can be regulated (unit 13), and property can be taken, with compensation, for public purposes (eminent domain, Unit 9).

Taxation of Partnerships

An advantage that partnerships have over corporations is that partnerships do not pay income tax. Taxes are paid by the individual partners, while a corporation has double taxation: corporate profit is taxed, and then the stockholders also are taxed on their dividends.

advance fee addendum

An agreement specifying activities for which the agent is to be compensated. It would include a provision for an advance payment of fees The growth of professionalism in real estate has led to growing acceptance of advance fees. While more common in buyer listings, they also are gaining acceptance in seller listings, especially listings involving larger residential, commercial, or industrial property where a great deal of professional effort and expense will be required before a sale. The advance fee addendum usually sets forth specific activities that the agent is to be compensated for, as well as an hourly rate (or set rate) for the compensation. The agreement is very similar to an agreement that an attorney makes with his or her client. The Bureau of Real Estate requires approval of all advance fee forms (approval does not extend to photocopies of approved forms). Any additions or deletions to an approved form must be submitted to the Bureau of Real Estate at lest 10 days before entering onto an agreement. Failure to do so could result in disciplinary action. Advance fees must be placed in the broker's trust account until they are earned.

interim occupancy agreement

An agreement that allows the buyer to take possession as a tenant prior to the close of escrow.

accord and satisfaction

An agreement to accept a lesser consideration than bargained for based on disagreement over performance. An agreement to accept something different from (usually less than) what a contract provides for in satisfaction of the obligation. Accord and satisfaction is an agreement to accept something different from (usually less than) what a contract provides for in satisfaction of the obligation. When a debt is in dispute, based factors such as a condition of the property or the quality of repairs made, the parties can agree to accept a lesser sum. For example, if a debt is in dispute and a check is tendered with a statement that that it is in full satisfaction of the debt, endorsing and cashing the check will be considered full satisfaction of the debt. However, Civil Code Section 1526 says the creditor may cross out the words "payment in full" on a check and cash it without agreeing to accord and satisfaction of a disputed amount or debt.

buyer listing

An agreement whereby a buyer agrees to pay a commission if the broker locates a property the buyer purchases. As discussed earlier, the agent can represent the buyer only rather than the seller. A buyer listing, like a listing from owners, can be exclusive: the broker has the sole right to locate property for the buyers. In a buyer exclusive agency listing, the buyers can locate property for themselves, but the broker is the exclusive agent. In an open buyer listing, the broker is given nonexclusive authorization to locate property. Like a seller's listing, a buyer's listing, to be enforceable, must be in writing and signed to satisfy the statute of frauds. An oral agreement by a buyer to pay a commission is unenforceable. Like a seller's listing, a buyer's listing would authorize the broker to cooperate with other brokers. The terms in the buyer's listing are very similar to those found in the usual listings given by owners. One difference is the fee structure. Buyers' listings for residential property generally provide that the buyer will pay the agent's commission; however, any commission paid to the agent by third parties (commission splits) will be credited against the fee owed by the buyer. Buyers' listings frequently provide for a fee for obtaining an option to purchase and another fee when exercised. Buyers' listings sometimes include provisions for an hourly fee, as well as an advance against expenses. In the case of Schaffter v. Creative Capital Leasing Group LLC (2008) 166 C.A. 4th 745, a buyer agency listing provided for a 2.3% commission less fees paid to the broker by the developer. The buyer purchased 16 units, and the broker received $89,000 from the developer. He was still owed $38,400 when the buyer defaulted and refused to close on the remaining units. The agent sued the buyer. The trial court ruled that the commission was earned when the contract was entered into. Because the buyer defaulted, the broker was entitled to the full remaining commission on all units totaling $147,000, as well as attorney fees. The Court of Appeal affirmed. Note: The buyer expected the units to appreciate in value before closing and apparently intended to default on units that did not appreciate.

community apartment project

An apartment building owned by tenants in tenancy in common, with each owner having the right to occupy a unit. In a community apartment project, the owners purchase the property together as tenants in common with the right to exclusive occupancy of their units through a lease agreement Owners could have difficulty borrowing on their undivided interest. Because there is only one trust deed, the failure of one owner to pay could jeopardize all of the owners. Sale of owner's interest requires approval. Because of these problems, resale of an owners interest is often very difficult. Sale of developments if five or more units are under the jurisdiction of the real estate commissioner.

defeasible estate

An estate that can be defeated by some future happening (condition subsequent). Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a condition subsequent, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains reversionary interest. Grantors sometimes use grants with a condition subsequent to advance their personal convictions. For example, a common condition subsequent is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a condition subsequent was breached, the courts could determine that the grantor has waived the right to enforce the reversion. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in reversion of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest.

remainder interest

An interest that goes to other than the original grantor upon some event, generally the death of a life tenant. Life Estates When the life tenant dies, the property either reverts to the grantor or the grantor's heirs (a reversionary interest) or passes to a third party, who is said to have remainder interest. Upon the death of a life tenant, the reversionary or remainder interest holder customarily holds the title in fee simple.

reversionary interest

An interest that returns to the grantor, or her heirs upon some event, such as the death of a life tenant Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a condition subsequent, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains reversionary interest. Grantors sometimes use grants with a condition subsequent to advance their personal convictions. For example, a common condition subsequent is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a condition subsequent was breached, the courts could determine that the grantor has waived the right to enforce the reversion. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in reversion of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest. Life Estates When the life tenant dies, the property either reverts to the grantor or the grantor's heirs (a reversionary interest) or passes to a third party, who is said to have remainder interest. Upon the death of a life tenant, the reversionary or remainder interest holder customarily holds the title in fee simple. Concurrent estates - more than one ownership or estate at the same time- can exist in a property. For example, a tenant can have a leasehold estate while an owner has a fee simple interest. The fee simple owner would have reversionary interest of possession at the expiration if the leasehold interest. Air and mineral interests also can be conveyed, creating separate interests. Property can even be divided horizontally, with the mineral, oil, and gas rights being conveyed in layers.

option

An irrevocable right given to one party to bind another party to an agreement for another Options to Contract An option is a contract to make a contract. The optionor (the owner) gives the optionee (potential purchaser or lessee) the right to buy or lease the property during a stated period for a specified price and terms. An option is a contract and as such requires consideration be given to the optionor. The consideration must actually change hands. Reciting "in consideration of $1 and other good and valuable consideration" is not sufficient. The case of Steiner v. Thexton (2010) 48 C. 4th 411 involved a purchase contract providing that the contract was subject to a feasibility study to determine whether the land could be divided for multiple homesites. The contract also stated that the "buyer may, at its sole discretion during this period, elect not to continue in this transaction and this purchase contract will become null and void." While the buyer was seeking approval from the courts of the tentative parcel map, the seller cancelled escrow (approximately one year after the purchase contract was entered into). The buyer sued for specific performance. The trial court ruled that, because of the election to void the agreement, this was an option not a purchase contract. The option to buy was unenforceable because no consideration had been paid for it. The trial court awarded the seller $85,000 in attorney fees as the prevailing party. The Supreme Court reversed, ruling that there was consideration for the option to be enforced. The buyer took substantial steps involving considerable expense to obtain a parcel split. The superior court held that the otherwise illusory contract was cured by that performance. Note: The Supreme Court sent the matter back to the trial court to determine whether specific performance should be granted (could determine that money damages are adequate). If the option to buy is part of a else agreement, part of the rent would suffice as consideration for the option. Because consideration is present, the optionor cannot revoke the option after it has been given. However, if the purchase price was not adequate, a court would not grant the optionee the remedy of specific performance. (Further discussion of options included in Unit 6.)

attractive nuisance doctrine

An owner has a duty to reasonably protect children from injury when the premises are likely to attract children. California has abandoned the attractive nuisance doctrine that placed strict requirements on property owners to protect child trespassers from dangerous conditions on their property. In California, owners are generally not liable for natural dangers and are only liable if they create or maintain a specified dangerous situation where there would be a reasonable expectation that children would be attracted. The requirement of foreseeability has reduced owner liability. Owner liability for injuries to tenants and invitees is covered in Unit 15.

Owner Liability

An owner of real property is liable for injuries to other people and/or property caused by negligence in maintaining or operating the property. Civil Code Section 1365.9 has given individual owners in common interest subdivision some protection from liability resulting from injuries relating to the common areas. If the association carries a specified minimum liability coverage, then the individual owners will not be held liable. The coverage required is: - At least two million dollars ($2,000,000) if the common interest development consists of 100 or fewer separate interests. -At least three million dollars ($3,000,000) if the common interests development consists of more than 100 separate interests If dangerous conditions are obvious, an injured party might be denied relief if she could be said to have assumed the risk. The duty of care an owner of real property owes to others extends beyond tenants or invitees. An owner's liability could extend to trespassers, as well as to neighbors who are injured because of dangerous conditions on the property. An owner is not liable for "trivial" defects and need not maintain property in an absolutely perfect condition.

illusory contract

Apparent contract that is no contract at all because parties have not agreed to be bound When a purchase is subject to the purchaser's or seller's later decision about whether to complete the transaction, the contract is an illusory contract, and neither party is bound. "I will pay you $100,000 for the lot if I decide to buy it" is not an agreement. Prospective tenants often sign letters of intent that indicate they will seriously negotiate with the owner for space. While letters of intent from quality tenants might influence a construction lender, they are not valid contracts. Again, these are illusory contracts and are agreements only that the parties will attempt to agree. "Subject to" provisions do not make a contract illusory. Offers are frequently written subject to zoning changes, appraisals, financing, and other contingencies.

S Corporations

As mentioned earlier, corporations are subject to double taxation. To avoid this, a small corporation can elect to be taxed as a partnership by becoming an S corporation. An S corporation must meet the following criteria: -It must have fewer than 100 shareholders -Only one category of stock may be issued -All stockholders must be individuals, not corporations -The business cannot receive more than 20% of its income from interest, rents, dividends, and royalties. (This excludes many real estate-related businesses) -The corporation cannot be affiliated with any other corporation. It must be independent. - It must be incorporated in the United States

Options

As pointed out in unit 5, an option is a contract to make a contract. The option must clearly show the price if the option is exercised. (The price canoe determined by a formula; however, it cannot be ambiguous.) Time is considered to be of the essence in options in that the option MUS be exercised within the period provided. Generally, option-to-purchase forms provide for the method of exercising the option, include any agreed-on sales terms, and contain provisions for escrow and delivery of title, as well as for brokerage fees. The form in figure 6.2 protects the broker during any extensions to the option, as well as for a safety period of one year after the expiration of the option or extensions thereto. Some option forms provide for option extensions upon the payment of additional consideration. An owner cannot avoid a commission by giving an option during the listing period that is to be exercised after the listing expires. See Anthony v. Enzler (1976) 61 C.A3d 872

Change of Ownership

As provided in Proposition 13, real property is reassessed upon sale. Therefore, transferees of ownership interests are required to file a change of ownership statement with the county recorder or tax assessor within 45 days after receipt of request from the assessor. Failure to comply could result in a penalty if $100 or 10% if the current year's taxes, whichever is greater.

(5) 3. Mutuality in a contract would ordinarily be indicated by a. consideration b. offer and acceptance c. execution d. waiver

B. offer and acceptance - Meeting of the minds on definite and certain agreement

(5) 2. When a person, while not of sound mind but not declared insane or wholly without understanding, contracts to buy real property, the contract likely is a. void b. voidable c. illegal d. valid

B. voidable - These people can void contracts they entered into. These contracts are valid unless voided. After regaining sanity, a person can ratify or disaffirm a contract made while of unsound m ind. A person of unsound mind who has not been adjudged insane and who has lucid periods could enter into a binding contract during a lucid period.

Community Property Rules

Before January 1, 1975, the husband was by law the manger of the community property. Community property assets were subject to the premarital and postmarital debts of the husband, but only the postmarital debts of the wife. Since January 1, 1975, each spouse has had coequal management and control of the community property. Community property now is liable for the debts of wither spouse after marriage. The earnings of a spouse are not liable for the debts of the other spouse incurred before marriage. An exception to equal rights of management is that one spouse alone can have sole management of a business owned as community property. Neither spouse can make a gift of community property to a third person without the other spouse's permission, because their could defeat community property rights. A gift of one spouse to the other of property that would otherwise qualify as community property would become the separate property of the donee spouse. A married person cannot use community property funds to form a joint tenancy with a third person. Despite the language of the deed, a tenancy in common would be formed, with the married person and spouse owning their shares as community property. Community real property transfers, as well as leases for more than one year, require the signature of both spouses. Neither spouse alone can encumber or obligate community real property. Neither spouse can partition community real property by selling their one-half interest to another. Neither spouse can encumber or sell the furniture or furnishings of the home without the other spouse. Neither spouse can sell the clothes of the other spouse or of the minor children without the other's approval. Because community property actually is owned equally by both spouses, either spouse can transfer their one-half interest by will. If a spouse dies intestate (without a will), the community property interest will pass to the surviving spouse without probate. Community property is divided equally upon dissolution of marriage. For the purpose of division of property or separate maintenance only, joint tenancy property is presumed to be community property. To overcome this presumption, strong and persuasive evidence to the contrary must be present (Civil Code Section 4800.1). However, spouses are entitled to reimbursement for separate property contributions toward community property assets unless they have made a written waiver of that right (Civil Code Section 4800.2) If property acquired in other states by California residents would have been considered community property had it been in California, it will be treated as community property upon marriage dissolution or death (quasi-community property). New residents of California should understand that once they take California residency, property owned in other states by one or both spouses will be regarded as community property if that property would have been community property had it been acquired in California. A former advantage of community property over joint tenancy was that community property acquired a new cost basis stepped up to market value upon the death of a spouse, while only the deceased spouse's half interest in joint tenancy property acquired a new cost basis. This distinction has been removed by Revenue Ruling 87-98, which allows both joint tenancy and community property to acquire new cost basis upon the death of a spouse if the property was acknowledged as community property before the death of a spouse. For property that has appreciated on value, this reduces the taxable income upon a later sale to the difference between the new cost basis sale price.

Sale of Units

Before transfer of title, owners of condominiums, community apartment projects, cooperatives, and planned developments must provide purchasers with a copy of restrictions, bylaws, and articles of incorporation, plus an owners association financial statement including any delinquent assessments and costs. An owners association must furnish the owner with a copy of the latest version of documents within 10 days of request by an owner. A reasonable fee for doing this may be charged. A homeowners association cannot charge a transfer fee when units are sold that exceed their actual cost of changing their ownership records. If there is an age restriction, a statement must be included that it can only be enforced to the extent permitted by law. If there is a restriction on rentals, the existence of restrictions must be disclosed. Rental restrictions cannot be placed that effect existing owners. Restrictions added to the CC&Rs can apply only to subsequent buyers. Homeowner associations cannot prohibit an owner from keeping one pet subject to reasonable restrictions, nor can prohibit solar panels or enforce any prohibition on water-efficient landscaping. They cannot prohibit a tenant from reasonable agriculture in portable containers but can specify reasonable container requirements. If there is a drought state emergency declared by the governor or local government, a homeowners association may not fine a homeowner for reduced watering or ceasing to water plants. If recycled water is used, the association can still fine owners for failure to maintain landscaping, however HOA prohibition on replacing turf with low-water use plants are void and unenforceable. HOAs may not prohibit clotheslines or drying racks in areas designated for the exclusive use of homeowners; however, the HOA maya dot reasonable rules for their use.

hold-harmless clauses

Clauses that purport to relieve a person of liability for his actions. Generally included in listings. The owner agrees to hold the agent harmless and indemnify the agent for losses in the event the owner fails to provide a disclosure or fails to provide correct information. Hold-harmless clauses customarily are included in listings. The owner agrees to hold the agent harmless and indemnify the agent for losses in the event the owner fails to provide a disclosure or fails to supply correct information. Such a clause probably would not entitle brokers to recover a loss if they knew, or should have known, an owner was mistaken. Like most contracts, listings usually provide that, in the event of a legal action, the prevailing party will be entitled to legal fees.

limited common elements

Common areas in a common interest development that are designated for exclusive use of particular owners. Condominiums Areas for use of all the owners in a common interest development are known as common elements. Common areas for the exclusive use of designated owners (such as parking space or storage locker) are known as limited common elements

community property with right of survivorship (CPRS)

Community property where the spouses cannot separately will their portion of the community property to another This form of ownership applies only to real estate instruments created after July 2, 2001 (Civil Code 682.1). To be effective, the community property with right of survivorship (CPRS) ownership must be expressly declared on the deed. When one spouse dies, the surviving spouse, as in joint tenancy, takes title regardless of any will. CPRS, as in joint tenancy, avoids probate costs and delays. Before death, either or both spouses can terminate the tenancy by executing and recording a new deed to their interests. -The major reason for using the CPRS form of ownership rather than community property is that the CPRS property is not subject to the will of the deceased and must pass to the surviving spouse.

good faith

Conscientious and honest behavior If the owner breaches the agreement, the broker is entitled to a commission because the principal's action violated the implied condition good faith dealings. Similarly, if the buyer's obligations was conditional and the seller prevented the satisfaction of the conditions, the broker would be entitled to a commission

(U5-8, Q2) 3. Common contingencies to a real estate purchase contract include the following: a) obtaining financing b) inspecting the property c) making a good faith deposit d) liquidated damages e) arbitration

Contingencies (correct selections) a) obtaining financing b) inspecting the property Promises (incorrect selections) c) making a good faith deposit d) liquidated damages e) arbitration

stock cooperative

Corporate ownership of real property with each shareholder entitled to occupancy of a unit under a lease. A stock cooperative is a corporation formed for the purpose of holding title to an improved property. Each shareholder has the exclusive right to the occupancy of a unit through a proprietary lease with the elected governing body. The transfer of shares also transfers occupancy by a sublease. While condominium owners can freely transfer their unit, most cooperative associations have the right to approve the purchaser of stock before the stock seller can sublease to the stock purchaser. There are two basic disadvantages of cooperative - The stockholder does not have ownership of a unit, so borrowing on equity can be more difficult. - There could only be one tax bill. If tax payments are not made by all owners, a lien can be placed on the entire property. If there is only one deed of trust, the failure of one or more owners to make their share of the payment also could result in the entire cooperative's being foreclosed unless the other owners pay the defaulting owners share. Sale of developments of five or more cooperative units fall under jurisdiction of the real estate commissioner. Cooperatives with four or fewer units are under the jurisdiction of the corporation commissioner

Fructus Industriales (Emblements)

Crops produced by labor and industry Naturally growing uncultivated trees and crops are considered real property until severed or constructively severed (sold) Also known as emblements, fructus industriales are crops resulting from labor. While generally regarded as personal property, in the absence of any agreement between the buyer and the seller of real property, they transfer with the land. If the crops are the fruit of the labor of a tenant, they remain the goods or personal property of the tenant, even though the lease may expire before harvest. The former tenant has the right to return to the land to harvest the crops.

liquidated damages

Damages agreed to, before a contractual breach, as the remedy in the event of a default. Liquidated damages Liquidate damages are agreed to at the time of contracting. Typically, purchase agreements call for a forfeiture of the down payment as liquidated damages in the event the buyer defaults. Construction contracts often have a per-day charge as liquidated damages in the event of a delay in completion. Since July 1, 1978, liquidated damages on residential purchase agreements of one to four units where the buyer intends to occupy a unit have been limited by law. The liquidated damages to be forfeited if the buyer defaults cannot exceed 3% of the sales price or the actual deposit amount, whichever is less if both parties so agreed in the contract. The defaulting buyer is entitled to a further refund if the buyer proves that the retained amount is unreasonable, such as a sale at an equal or higher price to another party within six months. Liquidated damages for commercial property and for more than four residential units are not subject to these limitations. They are allowed so long as they are reasonable and reflect what possible damages could be anticipated if a breach of the contract were to occur. If, however, the damages are unreasonably high, the court will consider them a penalty and will not enforce the damages. In the case of Kuish v. Smith (2010) 181 C.A. 4th 1419, the purchase contract for $14 million provided that the $620,000 deposit was "nonrefundable." (There was no liquidated damages provision.) The buyer canceled and the seller resold the property for $15 million. The seller refused to return the original buyer's deposit. The trial court ruled that the seller could keep the deposit, which was not an unlawful forfeiture. The Court of Appeal reversed. The seller had not incurred damages because the property was resold at a higher price. In the absence of a liquidated damages provision, "nonrefundable" means the seller can retain the deposit only to the extent of actual damages incurred.

successive estates

Estates established to succeed other estates, such as a remainder estate to follow a life estate. Estates can be established to succeed existing estates. And example of successive estates is a remainder or a reversionary estate to follow a life estate.

(U5-8, Q2) 11. "Time is of the essence" in both CAR and PRDS contract generally means that a failure to meet the deadline in the contract automatically terminates the agreement. TorF

False

(U5-8, Q2) 17. An option contract is a unilateral contract. TorF

False

(U5-8, Q2) 5. A Real Estate Transfer Disclosure Statement is generally required on the sale of real property. TorF

False

(U5-8, Q2) 7. If the home is built previous to 1978, the lead based paint disclosure is required, but if the seller discloses on the form that there are no lead based paint hazards to her knowledge then the buy

False

(U5-8, Q2) 1. Assignment of contract transfers rights that the party may have but not the duties of that party. TorF

False Assignment of Contract Transfer of all rights under a contract to a third party. Assignor remains secondarily liability. In an assignment of contract, the assignor transfers the assignor's interest in the contract to a third-person assignee. In an assignment, the assignee becomes primarily liable under the contract, while the assignor retains secondary liability should the assignee default on required performance (to avoid contingent liability, see "Novation" earlier in the unit). The assignee takes all the rights and duties of the assignor. In the absence of an agreement to the contrary, all or part of the performance under a contract can be assigned to another. The nature of some contracts, however, precludes their assignment. When a person contracts for another person's skill, such as an architect's services, the architect generally cannot assign the contract to another. If an agreement require taking an unsecured personal note, there person giving the note would not be able to assign that function to another. Because an agency agreement is considered personal in nature, agencies generally cannot be assigned. Delegation of duties The obligations under a contract can be delegated to another when they are not personal services and are standardized in nature. Unlike an assignment, the person obligated under the contract retains liability for the performance of the duties, although the person to whom the duties have been delegated can also be held liable.

(U5-8, Q2) 2.In California, which is a community property state, both husband and wife must sign a purchase contract on the purchase of real property. TorF

False Exclusive listings must be signed by the owner. While the signature of one spouse alone on any listing is sufficient to obligate the community property to a commission, both spouses must sign the deed to sell community property. A spouse who has signed the listing will be less likely to refuse to convey; therefor, the signatures of both spouses are desirable.

(U5-8, Q2) 14. Mediation is not mandated for the parties by the CAR or PRDS contract. TorF

False Mediation is required, arbitration is optional

(U5-8, Q2) 15. If the contract is transmitted electronically but specifies that the delivery must be made unperson, then electronic delivery to that person would be effective delivery. TorF

False - Contract specified Must be made in person

CERCLA

Federal Comprehensive Environmental Response, Compensation and Liability Act dealing with liability of owners, prior owners, and polluters of property for cleanup costs Under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), owners, operators, and lessees of real property have cleanup liability for actual or threatened release of hazardous substances. Also liable are those who generated, transported, or disposed of the hazardous substances. Under federal law, landowners may raise the defense of innocence when they conducted appropriate inquiry before acquiring the property. Because California law requires prior owner and lessee disclosure, the defense of innocence will likelyy be removed if any disclosure was made. CERCLA is not absolved by an "as-is" clause. In several states, the hazardous substance removal liens take precedence over all other liens, which would effectively wipe out a lender's interests. While both California and federal laws set forth landowner liability for removing hazardous substances, neither California nor federal law provides for such super liens. In California, the Code of Civil Procedure, Section 726.5 allows a lender to waive its security interest (lien) on environmentally impaired property and to proceed directly against the borrower for the debt. In this way the lender is spared the possible liability of cleanup costs. Disclosures are also required for natural hazards. (See Unit 6)

freehold estates

Fee simple or life estates The degree of ownership a person has in property is known as an estate. Estates where the exact termination date is unknown are considered freehold estates. Fee simple estates (indefinite period) and life estates (end with death) are the two types of freehold estates and are considered to be real property. Nonfreehold estates are leasehold interests (personal property). Freehold estates (fee simple) and life estates are real property. Nonfreehold estates are tenancies and are covered in detail in Unit 15.

trade fixtures

Fixtures installed by a tenant for the purpose of conducting a business or trade. The trade fixture remains personal property and can be removed by the tenant Trade fixtures are installed for the purpose of trade or business. They remain the property of the tenant and may be removed at any time before the expiration of the lease. In California, a tenant may remove from the premises anything the tenant has affixed thereto for the purpose of trade, manufacture, ornament, or domestic use if the removal can be effected without substantial injury to the premises, and unless some agreement to the contrary has been made between the landlord and the tenant. Civil Code Section 1019 restricts tenants' rights to remove trade fixtures of the trade fixture becomes an internal part of the premises. For month-to-month leases, courts generally will allow a reasonable period after the end of the lease for removal of trade fixtures A "mistaken improver" is allowed to remove the improvements, even though they would otherwise be regarded as fixtures. The mistaken improver will, however, be liable for damages resulting from the removal.

duress

Force or confinement that makes a contract voidable Duress and Menace Duress is generally regarded as force. The wrongful confinement of a person or detention of property is duress Menace is the threat of (1) confinement of a person, (2) detention of property, or (3) injury to the person, property, or character of another. A contract made under duress or menace makes the contract voidable at the election of the injured party.

time-share

Fractionalized ownership whereby each owner has exclusive right of occupancy for an agreed upon period of time A time-share is an interval or fractionalized ownership whereby the owner gets the exclusive use of a unit annually for a set period of time. Time-share interests may be in perpetuity, for life, or for a stated number of years. Twelve or more time-share estates of five years or more are considered a subdivision and fall under jurisdiction if the real estate commissioner. A real estate license is required to sell any time-share interests in California. Because of abusive sale tactics of some time-share developers, purchasers have a recession right of seven days following their offer. Time-shares are often marketed based on exchange privileges with other time-share developments. The buyer must be informed that the purchase does not guarantee a right to use or occupancy accommodations other than the unit purchased. A resort vacation club is similar to a time-share, except the investor does not purchase an ownership interest. The investor has the right to rent a unit and use full club facilities. These developments are now under the control of the real estate commissioner and are classified as time-share projects.

Hazardous Substance Disclosure

Health and Safety Code Section 25359 (7a) requires that owners of nonresidential real property before they sell or lease give notice to buyers or lessees of the release of hazardous substances that they know of; they also must give notice when they have reasonable cause to believe hazardous substances are located on or beneath the property. Section 25359.(7b) requires that lessees (both nonresidential and residential) give written notice to owners regarding hazardous substances they know to have been released or believe to exist on or beneath the property. Failure to disclose constitutes a default by the tenant under the lease.

(U5-8, Q2) 25. Huey rents his condo to Lewey for one year. What is Huey's interest, and what is Lewey's?

Huey has a reversionary interest Lewey has an estate for years

bilateral contract

If the listing required the broker to use due diligence to seek a buyer, it would be a bilateral contract. A mutual exchange of promises; a promise given for a promise Bilateral vs. Unilateral Contracts may be bilateral or unilateral agreements. A bilateral contract is an agreement in which a mutual exchange of promises occurs - a promise for a promise. If a pest control firm offered to provide a terminate inspection for a property at a stated price and you agreed to have it performed at the price stated, you would have formed a bilateral contract. This is an example of an express (stated) bilateral contract. Offers to purchase real estate, when accepted, form bilateral contracts. The buyer, who is usually the offeror, agrees to buy at a specified price and terms, and the seller, usually the offeree, agrees to sell at that price and those terms Exclusive right-to-sell listings are bilateral contracts. The owners promise to to pay a fee to the broker if the broker obtains a ready, willing, and able buyer according to the terms of the listing or any other terms the sellers are willing to accept. In exchange, the broker promises to use diligence to obtain a buyer.

recreational user immunity

Immunity of owners for liability to injury to others who enter property for recreational use. It does not apply to failure to warn as to dangerous conditions. Under Civil Code Section 846, an owner of an interest in real property owes no duty of care to keep the premises safe for entry by others for recreational purposes or to give warning of hazardous conditions. This does not apply to willful or malicious failure to guard or warn against a known dangerous condition, use, structure, or activity that is not obvious. Recreational user immunity is not limited to rural property, as indicated in Ornelas v. Randolph (1993) 4 C.4th 1095. There are two exceptions to the recreational user immunity statute: - When considerations paid to the landowner for entrance - When the property owner knows of a dangerous condition that is not obvious, not clearly marked, or not disclosed

undue influence

Improper influence so that a person really is not acting under his own free will. Such influence makes a contract voidable. Undue Influence Undue influence is improper persuasion based on the relationship of the parties whereby one party is really not acting with free will. An example might be a nephew's persuading an elderly uncle to transfer property to him for a token consideration. Contracts entered into because of undue influence are voidable.

common elements

Jointly owned areas in a common interest development for use of all owners. Condominiums Areas for use of all the owners in a common interest development are known as common elements. Common areas for the exclusive use of designated owners (such as parking space or storage locker) are known as limited common elements

real property

Land and those appurtenances that go with the land Real property generally consists of: land what is affixed to land what is incidental, or an appurtenance, to land (appurtenance include rights, privileges, and improvements that transfer with the land) and What is immovable by law except that, for the purpose of sale, emblements, industrial growing crops, and things attached to or forming part of the land that are agreed to be severed before sale or under contract of sale are treated as goods (personal property)

nonfreehold estates

Less-than-freehold interests; leasehold estates. Nonfreehold estates are leasehold interests (personal property). Freehold estates (fee simple) and life estates are real property. Nonfreehold estates are tenancies and are covered in detail in Unit 15. Possession of the property but you do not own the property. There are 4 nonfreehold estates, 1.) Tenancy "Estate" for years; any fixed-term lease (week, month, years). There is no notice required to terminate. 2.) Tenancy from year to year, periodic tenancy; indefinite term. The lease automatically renews if notice is not given. 3.) Tenancy at Will; courtesy or house sitting. 4.) Tenancy at Sufferance; holdover tenant has not paid but will not leave. Eviction process must be initiated to remove tenant.

limited liability

Liability limited to the extent of a person's investment LLCs provide the limited liability protection of corporations without the regulations associated with S corporations. The advantages offered by an LLC have resulted in fewer decisions to form S corporations or limited partnerships. LLCs have operating agreements that are similar to corporate bylaws, but unlike corporations, they do not have perpetual existence. One or more members can file articles of organization with the secretary of state to engage in any lawful business activity. They must also file annual statements. While it takes at lest two members to form a limited partnership, one person can form an LLC. In a limited partnership, a limited partner would lose the liability protection by actively engaging in business matters. In an LLC, member activity does not affect the protection from personal liability.

laches

Loss of rights because the delay in enforcing them now makes enforcement inequitable Laches is preventing a person from asserting a right or claim when that person's delay in asserting that right causes or results in disadvantage, injury, injustice, detriment, or prejudice to the defendant in a lawsuit. For example, a person could be estopped by laches from having an encroachment removed if the person was aware of the construction and waited until is was completed to demand its removal. To grant the landowner rights would not be equitable, based on the delay in bringing action. (Unlike the statute of limitations, ;aches is considered an equitable defense)

pur autre vie

Measuring life - A life estate given for the life of someone other than the life tenant A life estate is generally granted to a person for the grantees own lifetime. although it is possible to grant a life estate for the life of another (pur autre vie) When it is based on the life of another, the death the life tenant does not affect the estate. The heirs of the deceased will have use of the property as long as that third party is alive. Normally, however, the life estate is based on the life of the tenant.

concurrent estates

More than one estate interest in a property at the same time (such as a leasehold estate in a fee simple ownership). Concurrent estates - more than one ownership or estate at the same time- can exist in a property. For example, a tenant can have a leasehold estate while an owner has a fee simple interest. The fee simple owner would have reversionary interest of possession at the expiration if the leasehold interest. Air and mineral interests also can be conveyed, creating separate interests. Property can even be divided horizontally, with the mineral, oil, and gas rights being conveyed in layers.

exclusive listings

Most listings are exclusive listings, in which the owner makes the agent the owner's exclusive agent to procure a buyer and agrees to pay a commission should the agent succeed. The agent promised to use due diligence in procuring a buyer. As mentioned in Unit 5, this mutual exchange of promises makes exclusive listings bilateral contracts. Exclusive listings must be signed by the owner. While the signature of one spouse alone on any listing is sufficient to obligate the community property to a commission, both spouses must sign the deed to sell community property. A spouse who has signed the listing will be less likely to refuse to convey; therefor, the signatures of both spouses are desirable. Agents are required to give a copy of an exclusive listing to the owners at the time they sign. Failure to do so does not void the listing, but it does subject the agent to disciplinary action. Listings normally include a statement above the principal's signature that the principal acknowledges having received a copy of the listing. This acknowledgment serves as protection against later claims by principals that they did not receive a copy as required. (Notice the statement above the signature space in figure 6.1) Exclusive listing must have a definite termination date. Stating that the listing will expire within a stated period after notice is given to terminate is not enough. In the absence of a definite termination date, the listing can be terminated by the owner without notice, provided the owner has not benefited from the listing by a sale. The absence of a termination date on an exclusive listing also subjects the agent to disciplinary action that could include suspension or revocation of the agent's license. In Nystrom v. First National Bank of Fresno (1978) 81 C.A.3d 759, a 90-day exclusive listing was not effective until a deed was acquired at a forthcoming trustee's sale. In an action to collect a commission where a sale was consummated by another broker, the court held that, while the beginning date was uncertain, the listing did not have a definite date for termination. Exclusive listings generally provide that if the seller cancels the listing, leases, or rents the property without the approval of the agent, or otherwise adversely affects its marketability, the agent is entitled to a commission. While owners usually cannot cancel an exclusive listing without obligation, courts have held that an owner may properly cancel an exclusive listing if the agent has failed in the duty to use good-faith efforts to procure a buyer. There are two types of exclusive sale listings: exclusive right-to-sell listings and exclusive agency listings

(U5-8, Q2) 16. The essential requirements to form a contract are: (circle all that apply) Mutual Consent Consideration Capacity Real Property A writing Parol Evidence Probate proceedings Legal Object Title and Escrow Delivery

Mutual Consent Consideration Capacity Legal Object The four essentials to a contract

tenancy by the entirety

NOT used in CALIFORNIA, it is a joint tenancy between spouses where neither spouse can separately convey his or her interest Note: A number of states, other than California, have a special form of joint tenancy for husband and wife known as TENANCY BY THE ENTIRETY. It differs from joint tenancy in that neither spouse can separately convey an interest during the lifetime of the other spouse.

net listings

Net listings refer to the commission payment only and provide that all money received over a stated or net amount will be the agent's commission. They are illegal in many states because they create a serious conflict of interest. The agent under a net listing really is dealing more as a principal than as an agent. The agent is closer to being an optionee (with an option to buy) than a representative of the owner. Even though net listings are legal in California, agents should be aware that the seller is likely to allege fraud or misrepresentation should the sales price result in a commission that is greater than customary. A net listing does not relieve the broker from informing the owner of offers at or less than the list price. When an owner accepts such an offer, the broker is not entitled to a commission. The agent must disclose the amount of the net commission before or at the time the principal commits to the transaction. Failure to do so could be grounds for disciplinary action. Because of the ethical problems involved with net listings, a net listing form has not been included in this unit.

(U5-8, Q2) 20. In his will, John gives a life estate to Yoko for the life of Paul, with a remainder to Ringo. What interest does Paul have?

None, Paul is the measuring life Ringo will have Fee Simple ownership

open listings

Nonexclusive-right-to-sell listings. The broker who earns the commission is the first agent to bring the owner an offer that meets the terms if the listing or that the owner accepts. A sale under an open listing automatically cancels all other open listings. The principal has no duty to notify the agents under the other open listings of the sale. The open listing is unilateral contract. The agent makes no promise to use diligence to obtain a buyer. By procuring a buyer, the agent accepts the owner's promise to pay a commission. Open listings are non-exclusive listings; they may be offered to one or more brokers. The broker who earns the commission is the first agent who brings the owner an offer that meets the terms of the listing or that the owner accepts. A sale under one open listing automatically cancels all other open listings. The principal has no duty to notify the agents under other open listings of the sale. AN open listing may be simply a note or a memorandum that describes the property and states the price wanted and that a stated commission will be paid. The agent need not sign the open listing, but it must be signed by the principal (property owner). The open listing is really a unilateral contract. The agent makes no promise to use diligence to obtain a buyer. By procuring a buyer, the agent accepts the owner's promise to pay a commission. Unlike exclusive listings, open listings need not have a definite termination date. An owner generally can cancel the open listing at any time without obligation but cannot cancel an open listing to avoid paying a commission and then accept the benefits of the agent's efforts by consummating a sale to a buyer procured by the agent. An owner who cancels an open listing in good faith is not obligated to the agent simply because a sale later was made to a buyer the agent had contacted. Open listings often lead to disagreements between owners and agents, as well as among agents over who was the procuring cause of sale. Several legal form providers offer open listing forms. An advantage of a formal listing is the broker protection of the safety clause.

constructive notice

Notice imputed by law, although not necessarily actually known (recording, as well as possession, by another provides constructive notice to a purchaser of other interests) Recording a document gives the whole world constructive notice of an interest in real property. If Al conveyed to Bert and Bert recorded the deed, subsequent grantees of the property from Al would get nothing because they would have had constructive notice that Al no longer owned the property. If a document is recorded with a defect, such as the absence of acknowledgement, the recording would not give constructive notice until one year after the recording. A defect, such as a document filed in the wrong county or with a name spelled incorrectly, so that a reasonable search of the records would not reveal the document, does not provide constructive notice. Possession also gives constructive notice. Assume Art deeded to Ben, who took possession, but did not record. If Art later conveyed the same property to Carl, who recorded, title would be with Ben. Carl had constructive notice by Ben's possession of Ben's interest. In failing to check with the party in possession to ascertain the possessor's interests, Carl did not act diligently. If a buyer checks with a party is possession and is not informed of an adverse claim, however, the possession does not provide constructive notice of the interests of the party possession. A plaintiff in an action involving real property may file a lis pendens with the county recorder to provide subsequent purchasers or emcumbrancers with constructive notice of the plaintiff's claim of interest. While the law is clear that recording gives constructive notice of the documents recorded, it is not clear whether recording gives constructive notice of all other documents referenced in the recorded document. The prevailing view is that a person should reasonable investigate the referenced document. An improper description of land being conveyed does not give constructive notice as to the land intended to be conveyed. Priority Besides providing constructive notice of an interest, recording determines priority of interests. Recording has often been called "the race of the diligent" because priority of interest in the absence of actual knowledge is determined by time and date of recording and not time and date of execution of an instrument (Civil Code Section 1214). (The first to record is the first in right) Assume that that Alvira conveyed to Bryan and Alvira later conveyed the same property to Cindy. If Cindy arrived at the recorders office ahead of Bryan, then Cindy's deed would be recorded first. As a general rule, Cindy would take the title and Bryan would have nothing (other than a claim against Alvira) If Cindy HAD diligently searched the records, Cindy would have found no evidence of Bryan's interest. If anyone should suffer, it should be the one who was negligent in failing to immediately make interest known as a matter of record rather than a diligent later purchaser, which would mean Cindy would have good title. Recording does not give priority over prior recorded conveyances if the person recording is not acting in good faith or has not paid a valuable consideration. For example, a recorded deed given without consideration (a gift deed) would not give the grantee priority over a prior unrecorded deed or trust deed that was given for valuable consideration. Therefore, for recording to give priority it must be done by a bona fide purchaser (or lender) for value without prior notice of other interests. The courts could consider the adequacy of consideration in determining whether a party is a bona fide purchaser. A person who receives notice of a prior interest at any time before paying the consideration would not be a bona fide purchaser. A purchase money trust deed (a trust deed given to finance the purchase) would take priority over liens against the grantee, even though those liens attach as soon as title is passed. Failure to Record The recording act does not require recording; it merely permits recording. Between a grantor and a grantee of an unrecorded deed, the grantee would have title. The grantee's title, however, would not take priority over a later recorded deed or trust deed given for value by the original grantor, provided the later grantee or beneficiary (lender) had no constructive or actual notice of the prior conveyance. Recording is required for homestead declarations, mechanics' liens, and judgment liens. Without recording, these instruments have no effect. Documents Recordable Without Owner's Consent Recording documents in proper form with the owner's notarized signature cannot be prohibited. But the following documents can be recorded without the owner's notarized signature: judgement liens, mining claims against the federal government, tax deeds, trustee's deeds, mechanics' liens, federal and state income tax liens, child support liens, homeowners association liens, and lis pendens. After-Acquired Title If a deed is given by a grantor who does not have title, no title would pass to the grantee. However, if the grantor later acquired title, the after-acquired title would then pass to the grantee. Similarly, a person who gave a deed of trust on property without owning it would find this lien against the property upon later acquiring title. This principle is called the doctrine of after-acquire title. But because a reasonable title search by a later lender would not reveal a lien placed before ownership, the earlier lien would not take priority over a purchase money lien.

seller's net

Often, sellers do not understand the effect of escrow costs, prorations, prepayment penalties, title insurance costs, seller's points, and other matters. Surprises can result when sellers refuse to sell, file a complaint against the agent, and even sue the agent. Estimated Seller's Net Sheet forms allow the agent to estimate the seller's actual net after loans, liens, costs, and fees are deducted from the sale price. An Estimated Sellers's Net Sheet form can be used at the time a listing is taken, when an offers received, or in preparing a counteroffer. The more open the agents are in their dealings, the less chance they have of creating animosity and/or being sued by a party to a transaction

joint ventures

Partnerships for particular ventures rather than continuing businesses Joint ventures are partnerships for a single undertaking rather than a continuing business. Because a joint venture is set up for a limited purpose, the implied authority of its members is more limited than in a general partnership. A joint venturer does not necessarily have the power to bind the other joint venturers. A joint venture is generally considered a partnership. A joint venture is taxed in the same way as a partnership (taxes are paid by the individual joint venturers), and joint venturers also have the joint and several liability of partners as to third parties. Unlike in a partnership, one joint venturer can sue the joint venture. The death of a partner automatically terminates a partnership, but the death of a joint venturer doesn't necessarily dissolve the joint venture. Control of the joint venture normally is given to the managing partner.

unilateral contract

Open Listing - An offer that is accepted through performance rather than a mutual promise. A promise for an act. Bilateral vs. Unilateral A unilateral contract is a promise for an act; one party makes a promise to induce another party to act. The second party (offeree) is not bound to act, but if the offeree accepts the offer by performing the requested act, a binding contract is formed. For example, suppose you offered to pay a painter $800 if he would repair the stucco on your garage and paint the exterior with two coats of paint. The painter would not be obligated to perform because you cannot bind another party to a contract without that party's assent. However, if the painter were to repair the stucco and paint the garage as requested, he would have accepted your offer by his performance and would be entitled to be paid as agreed. An open (nonexclusive listing) is a unilateral contract. Under an open listing, an owner promises to pay a broker should the broker succeed in procuring a buyer. The broker is under no obligation to use diligence to look for a buyer, but if the broker does procure a buyer, the broker would, by performance, be accepting the offer. If the listing required that the broker use due diligence to seek a buyer, it would be a bilateral contract ( promise for a promise) and not an open listing (promise for an act)

judgement

Order of a court as to amount due to plaintiff When a court adjudicates a dispute, the final order of the court is a judgement. Unless the order is appealed to a higher court, the judgment is enforceable. Most judgments are for a monetary payment. Recording an abstract of a monetary judgement creates a lien on all of the debtor's property in the county where it was recorded. A judgement lien is good for 10 years and may be renewed. Judgement liens for child or spousal support remain enforceable until paid in full without the necessity of renewal. If the debtor fails to pay after a judgement has been entered, the creditor can get a writ of execution whereby the sheriff seizes and sells assets of the debtor to satisfy the debt. (Judgements will be covered in greater detail in Unit 11) Attorneys often tell clients that there are three necessities for a successful lawsuit. There must be 1) a wrongful act or omission that 2) has resulted in a loss or injury to the plaintiff and 3) the defendant must have assets or insurance coverage. Without number 1, the defendant has no liability. Without number 2, there are no damages to be compensated. Without number 3, tie and money would be expended to gain an uncollectible judgement.

patents

Original conveyances of land from the government Grants of land from the government were known as patents. Today approximately 50% of California land is owned by private citizens or corporations; the balance is owned by federal, state, and local governments.

severalty

Ownership in severalty is ownership by one individual or corporation alone Ownership in severalty is ownership by one individual or corporation. (a corporation is a legal entity) It is singular ownership with no other parties having a common ownership interest. A city (municipal corporation) would own city property in severalty, as would an individual owning property by himself

planned unit development (PUD)

Ownership of the individual unit and land under it by the unit owner, plus common areas owned in common with others A planned development, better known as planned unit development (PUD) is a subdivision with the unit and the land under it owned by the individual unit. Areas for the use of all the owners, such as recreational facilities or common ares, are owned by all of the owners as tenants in common. The major difference between a planned development and a condominium is that in a planned development, owners actually own their own land and not just air space. Many California developments are PUDs

life estates

Ownership, possession and control for someone's lifetime Estates conveyed for the lifespans of particular people Life estates can be given to a grantee for life. Life tenants have exclusive and absolute use of the property for their lifetime, are entitled to the rents and profits from the property, and can even file a homestead declaration on their interest. A life estate is generally granted to a person for the grantor's own lifetime, although it is possible to grant a life estate for the life of another (pur autre vie). When it is based on the life of another, the death of the life tenant does not affect the estate. The heirs of the deceased will have use of the property as long as the third party is alive. Normally, however, the life estate is based on the life of the life tenant. When the life tenant dies, the property either reverts to the grantor or the grantor's heirs (a reversionary interest) or passes to a designated third party, who is said to have remainder interest. Upon the death of the life tenant, the reversionary or remainder interest holder customarily hold the title in fee simple. If the remainder interest requires that the third party outlive the life tenant, the third party interest is a contingent remainder (contingent on the third party's being alive to receive the remainder interest) . If, however, there are no contingencies, the remainder will, upon the death of the life tenant, pass to the remainder holder or the remainder holder's heirs. This type of estate is called a vested remainder interest because someday the life tenant must die, ensuring that the remainder holder will receive the property. Life estates might be granted to give the grantors a charitable tax deduction while they are alive and allow them to keep all the benefits of ownership. They often are used to care for spouses or others during their lifetime and then fo to others to fulfill the wishes of the grantor. Farmers often give their farmland to a child but retain a life estate. Knowing they will eventually get the farm, the grantee thus is more likely to stay, and the grantor retains control, along with income, for life. Life estates can slo be subject to a condition subsequent, such as the life estate that goes to a remainder interest holder should the life tenant remarry. This type of estate often is used when the grantor feels that a duty to support the life tenant only while the life tenant remains unmarried. Life estates can be granted to more than one life tenant. The interests if the joint life tenants would be much like joint tenancy (see unit 8), with the last survivor having sole possession (Green v Brown (1951) 37 C.2d 391) A life tenant cannot use the property in any way that would diminish its value. For example, of tearing down structures or clearing out timber would reduce the property's value, the life tenant would be prohibited from these acts. The life tenant may, however, cut timber as necessary for repairs and fuel. The life tenant also may mine the property, but only if it was mined before the life estate. Life tenants may not commit waste; that is, they must maintain the property, pay taxes, and protect the rights of reversionary or remainder interest holders. If a life tenant does commit waste, the court might appoint a receiver. For an extraordinary expense, such a a sewer hookup, the expense will be borne proportionately by the life tenant and the remainder or reversionary rights holders, based on the life of the improvement and the age of the life tenant. Courts prorate extraordinary costs uses on the benefits received. Life tenants can borrow against the property but cannot encumber the property beyond their lifetime without the concurrence of remainder or reversionary interest holders. Lenders might lend on a life tenant's interests alone if the loan is coupled with a policy of life insurance payable to the lender. Remainder and reversionary interest holders also can assign or encumber their interests, however, neither they nor their assignees or creditors will have any right to use the property or receive rents or profits until the life estate ends. Unless the life tenants use is restricted, the life tenant can lease the property, but the death of the life tenant will terminate the lease unless the reversionary or remainder interests holders also sign the lease as lessors and thus obligate their interests. Before signing a long term lease, a prospective tenant who will be making substantial improvements should have a title search conducted to be certain of the lessors interests. Unless restricted, life tenants can sell their interest, but a purchaser will receive no more than the life tenant possessed. Upon the death of the life tenant, the purchasers interest will cease. A life tenant has no duty to insure the property. If the life tenant does not insure and the property is destroyed, the prevailing view is that the life tenant is entitled to the insurance proceeds. Some courts have held that the insurance was taken out for the joint benefit of the life tenant and the remainder or reversionary interest holder. Remainder or reversionary interest holders who are not specifically named as an insured should obtain insurance to protect their interests. If a life tenant receives a property with a mortgage or trust deed against it, the principal payments on the mortgage or trust deed will be a charge against the remainder or reversionary holder, but the interest payments will be the responsibility of the life tenant. If a property taken by eminent domain (see unit 9) which requires the patent of "just compensation" by the government, the life tenant and the remainder interest owners will share the proceeds based on the benefits to which they are entitled. A deed transferring the interest of the remainder interest holders to a life tenant will merge the two interests into a fee simple estate owned by the former life tenant. Estates can be established to succeed existing estates. And example of successive estates is a remainder or a reversionary estate to follow a life estate.

limited partnerships

Partnerships having partners who are not active and whose liability is limited to the extent of their investment (limited partners). Limited partnerships are partnerships in which the limited partners have limited liability rather than the unlimited liability of a general partnership. Limited partners are liable only to the extent of their investment. However, a limited partnership must have at least one general partner who has unlimited liability. Limited partnership names must end with "A California Limited Partnership." The agreement must be in writing, and a formal certificate of limited partnership must be filed. A limited partner cannot allow her name to be used in a manner that would indicate she is a general partner. The 1983 Revised Limited Partnership Act (Corporation Code Sections 15611-15721) allows partners to contribute services, but not a promise concerning future services (formerly, a limited partner could not provide anything other than money). A limited partner can get an accounting from the general partner, and the limited partners can oust the general partner for a cause. Relatively few limited partnerships are being formed today because of the advantages offered by another form of operation known as the limited liability company

commercial frustration

Performance that is not impossible but is impractical because of an unforeseen occurrence. The nonoccurence of the act or event was considered an implied condition for the contract, which allows relief from the contractual obligations Commercial Frustration Performance will be excused in cases where the court determines that commercial frustration is present. That is, performance is not impossible but has become impractical because of an unforeseen occurrence. The nonoccurence of the event or act actually was an implied condition of the contract. The doctrine of a commercial frustration does not apply to situations in which the event reasonably could have been foreseen. An example of commercial frustration would be a lease that allowed the premises to be used only for the sale of new automobiles. If a war resulted in new automobiles not being available, the courts probably would allow the lessee out of the lease because of commercial frustration.

Premarital and Marital Agreements

Premarital agreements about property rights generally are valid. Agreements entered onto after marriage may be valid if undue influence is not a factor. Many unmarried people living together enter into contracts concerning their property rights. These agreements may provide community-property-like rights should the relationship terminate, or may otherwise specify property rights and/or division of property. California courts will enforce these non marital agreements unless they are based on the consideration of sexual services.

Trusts

Property may be held in the name a trust for a specific purpose, such as for a charitable purpose. Living trusts (revocable) are used for estate planning purposes, because probate can be avoided. Community property placed in a living trust would still entitle each spouse to community property interests.

Lead Paint

Purchasers and renters of one to four residential units built before 1978 must be given a WATCH OUT FOR LEAD-BASED PAINT booklet, and they have up to 10 days after signing the sales contract to have the residence inspected for lead-based paint. While sellers cannot refuse to allow this inspection, this right can be waived by the buyer. Foreclosed residences and housing designed for the elderly or disabled, where children under six years old are unlikely to reside, are exempt. Penalties include fines up to $10,000, criminal prosecution, and/or treble damages to the buyer and the renter When a landlord who receives federal subsidies or loans is confronted with deteriorating paint in a pre-1978 housing unit, the landlord must alert affected tenants to the possible health dangers and use government-certified workers and special containment practices to abate any risk of public exposure.

right of first refusal

Right given to a party to meet the price and terms of a third party if the owner decides to sell Right of First Refusal A right of first refusal differs from an option in that the prospective buyer is not given the absolute right to purchase but only the right to match an offer from a third party. A right generally is given to buy only if the owner decided to sell. Before the owner can sell, the owner must offer the property to the holder of the right of first refusal at the price and terms that the owner wishes to accept from a buyer. The holder of the right of first refusal loses that right if the holder does not meet the price and terms of the offer within a certain period. A tenant with a right of first refusal might have difficulty exercising that right when consideration offered by another buyer is other than cash. In the case of Ellis v. Chevron U.S.A., Inc. (1988) 201 C.A.3d 132, Chevron's lease gave it the right of first refusal as to lease proposals made by third parties when its own lease expired. Ellis, the owner, received a lease offer of $3,000 a month; the lessee was to construct a new building on the site, acquire the adjacent site, and give Ellis the right to buy the adjacent site at the end of the lease. Chevron offered to meet the rent but took the position that it had no need for a new building or the adjacent site, and so these provisions should not be included. The Court of Appeal held that Chevron's right of first refusal was set forth in a lease it had prepared, and therefor any ambiguities should be resolved against Chevron. Chevron claimed that an implied covenant of good faith and fair dealings restricted the term of offers that Ellis could entertain. The court, however, held that as long as a landlord solicited reasonable offers, the covenant ws not breached. The case of Hartzheim v. Valley Land & Cattle Co. (2007) 153 C.A. 4th 383, involved a lessor, Hartzheim, who leased a parcel of land from a partnership. The lease gave Hartzheim a right of first refusal to purchase if the lessor received a "bona fide offer from any third party." Because of tax concerns, the lessor partners transferred ownership to their grandchildren in exchange for their grandchildren interest in their home ranch. Hartzheim sued because he was not given an opportunity to purchase the property. The trial court determined that the transfer was part of estate planning and was not the result of a "bona fide" offer, so it did not trigger a right of first refusal. The Court of Appeal affirmed, ruling that a right of first refusal does not become an option until the owner decides to sell and receives a third party offer. The intent was to keep the property in the family. There was no evidence that a purpose of the transfer was to deprive Hartzheim of any rights he had. Note: Even if the sale was the result of a bona fide offer, Hartzheim could not make the purchase, because he could not transfer the home ranch interest in exchange.

condominium

Separate ownership of the airspace of a unit and common ownership of land and common areas A condominium is an interest in real property consisting of an undivided interest in common in a portion of a parcel, together with separate interest in space. The property can be residential, commercial, or industrial. Most condominium owners own their unit in fee simple. A condominium is really a vertical subdivision, with the unit owner having a separate deed showing ownership of the airspace in fee simple but owning the common areas, including the land, as a tenant in common with other owners. Individual unit owners can encumber their unit interest separately without affecting the interests of the other owners. Each unit owner pays separate real property taxes that include a share of the common areas. Condominium owners may not sell their unit without conveying the rights to the common areas.

Uniform Electronic Transaction Act (UETA)

Sets forth rules for entering into an enforceable contract using electronic means. California is one of 47 states that have passed the Uniform Electronic Transactions Act that gives legal recognition to electronic signatures in business transactions.

appurtenance

Something that belongs to and goes with property (examples: a structure and easement rights) appurtenance include rights, privileges, and improvements that transfer with the land

standard subdivision

Subdivision that does not contain any common areas. A standard subdivision is a land division with no common areas

common interest subdivision

Subdivision where areas are owned in common with other owners for mutual use. A common interest is a division whereby owners own their unit, separate interests, and an area in common with other owners. Common interests include condominiums, planned developments, stock cooperatives, community apartment projects, and time-share projects.

Syndicates

Syndicates are generally limited partnerships.. Real estate syndicates fall under the jurisdiction of the Division of Corporations. Real estate brokers are authorized by the Corporation Code to sell real estate security interests without having to obtain a broker/dealer license from the Division of Corporations. An investor in a real estate syndicate has the advantage of the limited liability of a corporation investor. That is, the investor's liability is limited to the amount invested. A major attraction of syndicates to investors formerly was their unlimited tax shelter aspect; losses from depreciation could be passed through to the investors. Current tax laws do not allow the use of losses on these passive investments. Consequently, interest in syndicates has greatly diminished.

(U5-8, Q2) 24. Instead of selling, Ginger gets Posh to buy her share. How much does each owner hold, and in what form of title

Tenancy in common 1/4, 1/4, 1/2

procuring cause

That cause that initiated an uninterrupted chain of events that led to a sale Under open listings and exclusive agency listings, an agent who was the procuring cause of the sale is entitled to a commission The agent who claims procuring cause has the burden of proof The agent who is the procuring cause of a sale is that agent who initiated an uninterrupted series of events that led to the sale. Under open listings and exclusive agency listings, an agent who was the procuring cause of the sale is entitled to a commission. If a break in the chain of events occurred, such as failure to contact a prospective buyer for several months or failure to obtain financing, the original agent who failed for lack of diligence or effort generally would not be considered the procuring cause. Simply telling a person about a property or giving a buyer a list in which property is included would not qualify an agent as a procuring cause. In the case of Caldwell Banker and Co. v. Pepper Tree Office Center Assoc. (1980) 106 C.A.3d 272, the plaintiff had an exclusive agency listing. The court held that submitting a one-page brochure and forwarding floor plans to the broker of a prospective tenant did not reasonably constitute procuring cause. The agent who claims to be the procuring cause has the burden of proof. When the broker's efforts led directly to the buyer and the seller getting together, the courts generally will consider the broker to have been the procuring cause. Procuring cause problems often arise when prospective buyers fail to inform the agent that they have already been exposed to a particular property by another agent. An agent who discovers after a sale that the buyers had previous contact with another agent should have the buyer make a written statement about the nature of the contact and the dates, as well as the reason the buyers did not continue to negotiate with the original agent. If this statement shows that another agent might have a reasonable claim to being the procuring cause, the selling agent should consider negotiating a fair settlement. An owner who has given multiple open listings may assume, unless notified otherwise, that the broker presenting the offer is the procuring cause. The safety clause in a listing appears only to require that the agent introduced the buyers to the property. This is much less than the requirement under procuring cause. Therefor, a broker could be in a better position claiming notification under the safety clause than making a claim as to procuring clause. A prior offer made by the ultimate purchaser has been held to satisfy the notification requirements of the safety clause.

parol evidence rule

The general rule that verbal evidence cannot be used to modify a clearly written contract The parol evidence rule provides that oral extrinsic evidence may not be introduced to modify a written document that is complete on its face. While parol evidence cannot be used to modify a clearly written contract, it is admissible to show a later oral modification of the written contract. Parol evidence also can be used to clarify an ambiguity; to show fraud, undue influence, or a mutual mistake of fact; or to show that the instrument was represented to be other than a contract. In Seck v. Foulks (1972) 25 C.A.3d 556, the memorandum in figure 5.1 was written the back of the broker's business card and was initialed by the owner. The court held that the memorandum need not be a complete contract, provided it showed authority to act. The other terms may be shown by parol (oral) evidence. In his case, parol evidence indicated the "Sitten" referred to the seller's attorney, to whom the offer ws to be presented. "310 M/L" referred to the parcel size, 310 acres, more or less. The agreement was entered not on 3/24/65 and was to terminate on 10/1/65. The court determined in this case that the writing was sufficient to satisfy the statute of frauds.

fee simple

The highest possible degree of ownership in real property The fee simple or fee simple absolute estate is the highest degree of ownership possible. Normal home ownership would be held in fee simple.. There are three characteristics of fee simple ownership 1) There is no time limit 2) Owners can transfer title freely 3) The estate may be inherited (an estate of inheritance) A grant that does not indicate the extent of the interest being conveyed is presumed to be made in fee simple. Nonfreehold estates are leasehold interests (personal property). Freehold estates (fee simple) and life estates are real property. Nonfreehold estates are tenancies and are covered in detail in Unit 15. Concurrent estates - more than one ownership or estate at the same time- can exist in a property. For example, a tenant can have a leasehold estate while an owner has a fee simple interest. The fee simple owner would have reversionary interest of possession at the expiration if the leasehold interest. Air and mineral interests also can be conveyed, creating separate interests. Property can even be divided horizontally, with the mineral, oil, and gas rights being conveyed in layers.

estoppel

The legal doctrine that people cannot raise a right or defense after their words or actions to the contrary led another party to act to that party's detriment The doctrine of estoppel or promissory estoppel means that a person may not assert a right when that person's previous statements, actions, or silence caused another party to act to their detriment. For example, assume that an oral agreement had been made for the sale of a lot, and the purchaser, with the knowledge of the seller, made extensive improvements to the lot. The seller would be estopped (prevented) from raising defense of the statute of frauds becasue the seller's statement caused the purchaser to act to his detriment (acceptance could be inferred by conduct). If the seller could have voided the sale, then the seller would have been unjustly enriched. The case of ARYA Group, Inc. v. Cher (2000) 77 C.A.4th 610 involved a partially completed oral construction contract. The entertainer Cher negotiated with the ARYA Group, Inc. to design and build a house on her Malibu property for $4,217,529 with progress payments. The contract was delivered to Cher and, despite her promise to do so, the contract was never signed by Cher and delivered to the contractor. The contractor was induced to begin work and did receive some progress payments. Cher requested that ARYA meet with Janet Bussell of Tuft Design Group, who had previously worked with Cher on a speculative residential project. It was alleged that the purpose of the meetings was to obtain proprietary information from ARYA. Cher then terminated the "oral" contract with ARYA and failed to pay $415,169.41 due to ARYA. Cher contacted ARYA's subcontractors to induce them to work directly with her and had ARYA's building permits transferred to her name. It was alleged that Cher never intended to sign the contract with ARYA. ARYA sued Cher for breach of contract. Cher demurred on the grounds that the statute of frauds (B&PC 7164) required a written contract. The Los Angeles Superior Court dismissed the lawsuit because ARYA did not have a signed contract. The Court of Appeal reversed, ruling that ARYA's allegations were sufficient to support a claim of unjust enrichment. While the court noted that "generally speaking" a contract made in violation of a regulatory statute is void, the rule is not inflexible. The court noted that Cher is a highly sophisticated homeowner with previous involvement in residential construction projects that legal representatives assisted Cher in negotiating the construction agreement. The court pointed out that substantial work had been completed ad Cher would be unjustly enriched if she were not required to pay ARYA. The court distinguished this case from Phillippe v. Shapell Indus. because construction is tangible and the benefit is apparent while a broker's services are intangible. The court noted that if failure to compensate the contractor would not have resulted in unjust enrichment, then the contractor would not have been entitled to collect. The case of Phillippe v. Shapell Indus., Inc. (1987) 43 C3d 1247 involved an oral promise to pay a commission. Prince, the director of land acquisitions for Shapell, orally agreed to pay Phillippe, a licensed real estate broker, a commission for land found by Phillippe that was acquired by Shapell. Phillippe showed a parcel of land to Shapell that was rejected becasue of zoning. When the zoning was amended a year later, Shapell purchased the parcel for $2.7 million. While the trial court awarded Phillippe $125,000 in commission, the California Supreme Court reversed the judgement. Civil Code Section 1624(d) requires that a broker employment agreement be in writing. The fact that Shapell was itself a broker does not alter the statute (this was not an agreement between brokers to split a commission). The court stated that, except for a few narrow exceptions, a broker may not assert estoppel as a defense against the statute of frauds. While the broker had been promised a commission, Phillippe knew the rules and was not entitled to any commission due to a lack of written sales commission agreement.

burden of proof

The party required to prove a fact when an issue is in dispute The burden of proof of performance is on the agent. To collect a commission, the agent must show a full compliance with the agent's obligations according to the contract or the principal's wrongful breach of obligations.

privity of contract

The relationship between contracting parties The listing agreement is between the principal and the agent and cannot be enforced by third parties. For example, a prospective buyer could not force an owner to accept an offer at a property's listed price because of privity of contract (contractual relationship) exists between the owner and the prospective buyer. The agent, however, might be entitled to a commission. An exception would be refusal the owner to accept an offer on the terms of th listing because of unlawful discrimination (see the discussion of fair housing in Unit 4)

statute of frauds

The requirement that certain agreements must be in writing to be enforceable. (adopted from the common law) The statute of frauds comes from English common law and was designed to prevent people from committing fraud by claiming to have orally agreed to purchase the land of another person. Because land was considered the basis of all wealth, it was determined that agreements concerning land were too important to be oral. The California Statue of Frauds (Civil Code Section 1624) requires the following to be in writing: - Contracts for the transfer of real property or any interest therein - Real property leases for more than one year (an oral lease for six months therefor could be valid) - Contracts that cannot be performed within one year (an agreement for a six-month lease starting in seven months would have to be in writing because it could not be performed within one year of the agreement) - Sales of personal property for more than $5,000 - Contracts by executors or administrators of estates - Listing agreements for the sale or lease of real property for more than one year (Civil Code Section 1624(5)) The statute of frauds apples significantly to executory contracts because contracts that fail to comply are unenforceable. After a contract has been fully performed (executed contract), however, the statute of frauds cannot be raised. The statute of frauds does not require a formal contract, but a note or letter memorandum or a series of notes and memorandums must show a complete agreement. A telegram, for example, can satisfy the statute of frauds. The agreement need not be signed by all the parties. It need be signed only by the party who is sought to be bound to the agreement or by that person's agent. The signature on the document need not be handwritten as long as it was intended as a signature. For example, if it could be shown that a person used a rubber stamp to sign an agreement, the rubber stamp signature would satisfy the statute of frauds. Foreign Language Negotiations If a contract is negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, a translation of the contract must be furnished before the execution in the language which it was negotiated. Parol Evidence Rule - see above Estoppel - See above Statute of Limitations If an action is not brought within a prescribed period, it becomes barred by the statute of limitations. Thus, a contract may be valid but unenforceable. People who ignore their rights can lose them through the passage of time. In California, various statutes of limitations provide the following time periods - Ninety days - actions by former tenants to recover belongings left in furnished quarters - Two years - personal injury - Two years - actions based on oral contracts - Three years - actions for damages due to trespass -Three years - attachment lien -Three years from date of discovery - actions for relief under a contract based on fraud or mistake -Three years - replevin actions (to recover goods wrongfully held by another -Three years - disciplinary actions against a real estate licensee (if the action is based on fraud, the time period is three years or one year after discovery of fraud, whichever is later) -Four years - most actions based on written contracts (the statute of limitations for contracts runs from the time the agreement was breached, not from the date of the agreement) -Five years - Actions for recovery of real property and the profits from the property -Five years - to challenge a void or voidable deed or other document (20 years if the claimant is a minor or insane) -Ten years - actions based on judgements and latent (hidden) defects in real property -Code of Civil Procedure 323 - unless otherwise stated, that statute of limitations is four years If a partial payment is made and accepted a debt, that statue of limitations period on the debt would start again from the date of partial payment.

emblements

The right of a tenant to harvest the annual crops that were the fruit of her labor. This right extends beyond the expiration of a lease. Also known as emblements, fructus industriales are crops resulting from labor. While generally regarded as personal property, in the absence of any agreement between the buyer and the seller of real property, they transfer with the land. If the crops are the fruit of the labor of a tenant, they remain the goods or personal property of the tenant, even though the lease may expire before harvest. The former tenant has the right to return to the land to harvest the crops.

rule against perpetuities (RAP)

The rule that an estate must vest in an owner within the life of a person in being plus 21 years and a gestation period The rule against perpetuities states that any non charitable interest must vest without limitations within the life of the last beneficiary in being at the time of the conveyance, plus 21 years. The interest is further restricted in that it must either vest with an owner or terminate within 90 days of it's creation. This rule would prohibit a perpetual trust to support the heirs of the grantor.

(U5-8, Q2) 22. Manny, Mo, and Jack own Winterfell in joint tenancy. Mo dies, but wills his interest in Winterfell to Jack. Who owns Winterfell on Mos death and how?

They're joint tenants. You cannot will a joint tenancy

menace

Threat of confinement of a person, detention of property, or injury to a person or property. Menace makes a contract voidable at the option of the injured party. Duress and Menace Duress is generally regarded as force. The wrongful confinement of a person or detention of property is duress Menace is the threat of (1) confinement of a person, (2) detention of property, or (3) injury to the person, property, or character of another. A contract made under duress or menace makes the contract voidable at the election of the injured party.

after-acquired title

Title or interest acquired by the grantor after property has been conveyed. After-Acquired Title If a deed is given by a grantor who does not have title, no title would pass to the grantee. However, if the grantor later acquired title, the after-acquired title would then pass to the grantee. Similarly, a person who gave a deed of trust on property without owning it would find this lien against the property upon later acquiring title. This principle is called the doctrine of after-acquired title. But because a reasonable title search by a later lender would not reveal a lien placed before ownership, the earlier lien would not take priority over a purchase money lien.

(U5-8, Q2) 12. A condition or contingency should state for whose benefit the condition or contingency is. Why?

To clarify who can accept or reject (waive) it.

assignment of contract

Transfer of all rights under a contract to a third party. Assignor remains secondarily liability. In an assignment of contract, the assignor transfers the assignor's interest in the contract to a third-person assignee. In an assignment, the assignee becomes primarily liable under the contract, while the assignor retains secondary liability should the assignee default on required performance (to avoid contingent liability, see "Novation" earlier in the unit). The assignee takes all the rights and duties of the assignor. In the absence of an agreement to the contrary, all or part of the performance under a contract can be assigned to another. The nature of some contracts, however, precludes their assignment. When a person contracts for another person's skill, such as an architect's services, the architect generally cannot assign the contract to another. If an agreement require taking an unsecured personal note, there person giving the note would not be able to assign that function to another. Because an agency agreement is considered personal in nature, agencies generally cannot be assigned. Delegation of duties The obligations under a contract can be delegated to another when they are not personal services and are standardized in nature. Unlike an assignment, the person obligated under the contract retains liability for the performance of the duties, although the person to whom the duties have been delegated can also be held liable.

(U5-8, Q2) 10. A sleep's remedy if they get a higher offer after they have signed a contract is to offer to cancel the initial contract. TorF

True

(U5-8, Q2) 13. A liquidated damages must be initialed by both buyer and seller prior to any deposit to be enforceable. TorF

True

(U5-8, Q2) 18. A listing is a bilateral contract

True

(U5-8, Q2) 21. Community property can only be held by a married couple TorF

True

(U5-8, Q2) 23. Posh, Sporty, Ginger, and Scary take title to Braavos as tenants in common. Ginger subsequently becomes disillusioned with the group and wants to sell. She cannot force theaters to sell except by partition action in superior court. TorF

True

(U5-8, Q2) 4. Real property is usually affixed to the land, personal property is unattached. TorF

True

(U5-8, Q2) 8. Sellers normally fulfill their duty to provide a statement of Natural Hazards by providing a third party report. TorF

True

(U5-8, Q2) 9. A buyer may waive all contingencies even though they have no funds to close. TorF

True

U5-8, Q2) 6. If the seller fails to complete the Transfer Disclosure Statement but has signed the PRDS purchase contract, the contract is then voidable. TorF

True

partnership

Two or more people associated to carry on a business and to share in the profits Two or more people associated to carry on a business to share in the profits compose a partnership. An agreement to share in the profits and losses would create a presumption of a partnership's existence.

tenancy in common

Undivided interest in property without the right of survivorship survivorship: right of surviving joint tenant(s) to interests of another joint tenant on the latter's death A tenancy in common is undivided ownership-of real or personal property-by more than one party without the right of survivorship. An undivided interest means that the tenant in common has a share in the whole and not ownership of a separate portion. For example, a tenant in common having a one -half interest in 10 acres of land would have a one-half interest in the entire 10 acres and not one-half of the land (5acres) The right of survivorship means the right if other co-owner's to receive one co-owner's interest upon his death. Upon the death if a tenant in common, his interest does not pay by survivorship to the other tenants in common. The interest passes by will or intestate succession to the heirs of the decedent. If the tenant in common dies intestate (without a will) and leaves no heirs, the interest will escheat (pass) to the state. (Unmarried partners who live together will ofter choose tenancy in common as their form of ownership when the survivorship feature is not desired) Interests of tenants in common do not have to be equal and can be created at different times by different instruments; however, each tenant in common has an equal right of possession. Therefore, if one tenant in common is in sole possession of the premises, that tenant in common will not be obligated to the other tenants in common for rent unless agreeing to it. A tenant in common cannot, in the absence of an agreement to the contrary, exclude other tenants in common from the property. One tenant in common cannot give an exclusive lease to a third party without the agreement of all the tenants in common because such a lease would be inconsistent with the other tenants' equal rights of possession. A tenant in common who farms the property does not have to share the crops with the other tenants in common. However, if a tenant in common receives rents or royalties from a third person, the other tenants in common have the right to share in the income based on their proportional ownership. See Black v Black (1949) 91 C.A.2d 328 for rights of a tenant in possession If one tenant in common pays reasonable and necessary property expenses or taxes, that tenant is entitled to recover proportional shares of the expenditures from the other tenants in common While a tenant in common can get contributions for repairs, one tenant in common cannot get contributions for improvements from the others if the others have not agreed to the improvements. Otherwise, it would be possible to make unauthorized improvements beyond the payment ability of another tenant in common. The result would be that tenants in common who could not pay their share of the cost could end up losing their interest. One tenant in common an get an injunction against another tenant in common to stop waste. One tenant in common also can force another to make an accounting for rents, royalties, expenses, and profits of a property held in common. Under extremely unusual circumstances, a tenant in common who has exclusive use may acquire title from the other tenants in common based in adverse possession. Should a tenant in common who has exclusive possession the jointly owned property clearly indicate that her possession is intended to preclude the possession by other tenants in common, that action could be considered an ouster. The tenant's use would be hostile and would enable her to obtain title by adverse possession by continuing the open, notorious, and hostile use continuously for a five-year period and paying the taxes for that period. (See unit 9) No consent of the other tenants in common is required to transfer an interest or even a portion of an interest to another Individual tenants in common can encumber their own undivided interest. Any subsequent foreclosure by a creditor would apply only to the interest of that tenant in common A conveyance to two or more people, other than spouses, that fails to indicate how title is to be held will pass the title as a tenancy in common

joint tenancy

Undivided ownership by two or more people with the right of survivorship Joint tenancy, like tenancy in common, is an undivided interest in either real or personal property (or both). Unlike tenancy in common, however, joint tenancy has the right of survivorship. Upon the death of a joint tenant, the interest the deceased joint tenant held ceases to exist. The interest is incapable of being transferred by will or by intestate succession. The surviving joint tenants receive the interest of the deceased joint tenant. Joint tenancy property does not need to be probated, because it could not be part of the estate of the deceased person. Because of survivorship, the property interest passes to the surviving joint tenants free of claims of the personal creditors of the deceased. Assume Annie, Brenda, and Connie are joint tenants. If Connie dies, Annie and Brenda will be joint tenants. If Brenda then dies, Annie will be an owner in severalty. Because corporations can live forever, which would defeat survivorship, corporations cannot hold title as joint tenants. Also, because of potential conflicts with community property laws, an unmarried person ordinarily should not own property in joint tenancy with a married person unless the spouse of the married person signs a quitclaim deed or otherwise consents to the joint tenancy. The legal principle that a murderer cannot inherit from the victim applies to joint tenancy. The courts will not allow the murderer to profit by survivorship. They will view the victim as being a tenant in common, and the interests will pass to heirs. In the event of the simultaneous deaths of all of the joint tenants, the Uniform Simultaneous Death Act will treat the interest of the individual joint tenants as if they had survived the other(s). This would result in separate probates of each of their interests. For title purposes, when a joint tenant dies, the survivor(s) should record, in the county where the property is located, either: -a certified copy of a court decree determining the fact if death and describing the property or -a certified copy of the death certificate (an affidavit identifying the deceased as one of the joint tenants in described property) and an affidavit of survivorship normally would be attached Creation of Joint Tenancy The conveying instrument must expressly state that the ownership will be held in joint tenancy; otherwise any conveyance to two or more people, other than spouses, will be considered a conveyance to tenants in common. Two couples could own property as tenants in common, with each couple's interest a joint tenancy. A deed could express this through language such as "Tom and Helen Smith (as joint tenants) as tenants in common with Frank and Ethyl Jones (as joint tenants)." Also required to create a joint tenancy are the unities of: 1) time 2)title 3)interest 4)possession Memory tool: TTIP TIME: Joint tenants must get their interests at the same time. Formerly, if a person who owned a property in severalty wished to create a joint tenancy with another, the grantor had to convey interest to a third party (a straw man), who would then convey the property back to the grantor and the other party(ies) as joint tenants. One problem with this procedure was that if any judgements against the straw man existed, they would become encumbrances on the property the instant the straw man took title. The property conveyed the joint tenancy thereby could be subject to liens. Now, Section 683 of the Civil Code makes it unnecessary to follow this procedure.A joint tenancy can be created by an owner simply deeding the property to himself and the other party (ies) as joint tenants. TITLE: Joint tenants must acquire their interests by the same document. INTEREST: Joint tenants, unlike tenants in common, must have equal interests. A grant that provides for unequal interest will create a tenancy in common even if it states that the property being conveyed will be owned in joint tenancy POSSESSION: Possession is the only one of the four unities that is also applicable to tenants in common. The joint tenants' rights as to use and contributions are identical with those of tenants in common Termination of Joint Tenancy The sale or transfer by a joint tenant of an interest terminates the joint tenancy as it applies to that interest Assume Art, Bart, and Curt are joint tenants. If Curt sells to Dirk, then Art and Bart will remain joint tenants, each with an undivided one-third interest, and Dirk will have an undivided one-third interest as a tenant in common. If Bart dies, Art will take Bart's interest by survivorship, and Art will be a tenant in common with Dirk. The joint tenancy cannot continue because no two owners have the four unities of joint tenancy. Art will have and undivided two-thirds interest as a tenant in common with Dirk, who will be a tenant in common with an undivided one-third interest. One of the problems with a joint tenancy is that joint tenants can convey their interest to another, and the other joint tenant(s) might be completely unaware that the survivorship rights have been defeated. The case of Riddle v Harmon (1980) 102 C.A.3d 524 held that one joint tenant can terminate the joint tenancy by a conveyance to herself as a tenant in common Bankruptcy of a joint tenant terminates the joint tenancy as it applies to the bankrupt party's interest. A judgment against one joint tenant does not sever the joint tenancy, but levying execution against the property and having a sale does end the joint tenancy. If the joint tenant dies before the execution of the judgment against the property, the property will pass free and clear of the debt to the surviving joint tenant(s) Individual joint tenants can borrow on their personal interest without destroying the joint tenancy. If the loan is foreclosed, the joint tenancy, of course, will be broken. However, if the borrower dies, the surviving joint tenant(s) will get the interest free and clear. In lending on a joint tenant's interests, a lender would want to couple the loan with a life insurance policy that would pay off the loan with a life insurance policy that would pay off the loan in the event of the borrower's death. Because of changing relationships, a person might no longer wish to remain a joint tenant or tenant in common. In that case, a PARTITION ACTION can be brought to break up the joint tenancy of tenancy common. (By agreement, the parties can give up their rights to a partition action.) If possible, the court will order the property divided among the co-owners. When division is not possible or practical, the property will be sold under judicial supervision and the sale proceeds divided among the co=-owners. Case study In the case of Formosa Corp v, Rogers (1952) 108 C.A.2d 397 the plaintiff sought a sale of a movie studio where Mary Pickford Rogers owned a 41/80 ownership. The court held that the party seeking partition by sale had the burden of proof that sale was necessary for equitable distribution. In this case, the court determined that the value of the separate properties was less than the value of the whole because the property as a whole added value resulting from its adaptation for use in making motion pictures. Note: A number of states, other than California, have a special form of joint tenancy for husband and wife known as TENANCY BY THE ENTIRETY. It differs from joint tenancy in that neither spouse can separately convey an interest during the lifetime of the other spouse.

(U5-8, Q2) 19. Bonus: Define an open listing contract

Unilateral

waste

Unreasonable and destructive use of property Life Estates Life tenants may not commit waste; that is, they must maintain the property, pay taxes, and protect the rights of reversionary interest holders. If a life tenant does commit waste, the court might appoint a receiver.

waiver

Voluntary relinquishment of a right. A person can waive rights that are for her sole benefit. Failure to insist on proper performance could be a waiver of the right to the required performance Waiver Waiver is the act of giving up a right. A party to a contract can waive a breach and accept the performance as received. A party can also waive any contractual condition that was for his sole benefit. For example, if a contract required a termite report before closing, the purchaser could waive the noncompliance because the report was for the purchasers sole benefit. Summary Unit 5 Contracts are either express (stated) or implied, bilateral (promise for a promise) or unilateral (promise for an act), or executory (not yet fully performed) or executed (fully performed). Contracts that meet all contractual requirements are valid contracts. ; contracts that do not are void. Voidable contracts are unless voided by the injured party. Most contracts can be disaffirmed by minors within a reasonable period after reaching the age of 18, or by people lacking mental capacities to contract but not declared incompetent. Other reasons for voiding a contract can include: -fraud -misrepresentation -duress or menace -undue influence Options to contract are agreements whereby one party has the right to contract. A right of first refusal is a first right to purchase should a seller decide to sell to another. Courts ordinarily will try to interpret contracts in accordance with the intent of the parties Excuses for nonperformance include impossibility of performance and commercial frustration. A breach contract is a failure to perform a contractual provision as agreed. A party can waive a breach by the other party or waive any contractual condition that is for the initial party's sole benefit. Parties can agree to accept something other than what was agreed to. This is known as accord and satisfaction. A novation is an agreement to substitute one party for another under the contract and relieves the original party of all obligations under the contract. A tender is an offer to perform a contract. The doctrine of substantial performance excuses a minor unintentional breach of a contract. While the breach would not be a basis for terminating the agreement, the contract price would be reduced to reflect the difference in performance. Contractual remedies for a breach of contract are monetary or equitable. Monetary remedies include compensatory damages, punitive or exemplary damages, and nominal damages, as well as liquidated damages. Equitable remedies include specific performance, reformation, injunction, declamatory relief, and rescission. Contracts that do not by their terms prohibit assignment and are not personal in nature can be assigned. Under an assignment, the assignee becomes primarily liable under the contract. Obligations under a contract can be delegated to another. Unlike an assignment, the person obligated retains primary liability for the contractual performance. The status of frauds requires certain contracts, including contract for the transfer of real property and leases for more than one year, to be in writing. Copies of contracts in the language used for negotiations must be provided for designated languages. Parol or oral evidence cannot be used to show that a contract that appears complete upon its face means other than what it says. Parol evidence can be used to show fraud to to clarify an ambiguity. People can be estopped from raising the defense of the statute of frauds if, by their words or actions, cause others to act to their detriment. The statute of limitations deals with statutory time limitations on bringing legal action. Laches is an equitable defense that prevent parties from asserting a claim if their unreasonable delay in bringing action worked to the prejudice of the other party. A judgement is the final order of a court. When recorded, an abstract of judgement becomes a judgement lien on all the debtor's property in the county where the judgment is recorded.

The Recording Process

While it is in the best interest of the a grantee to record a document as soon as possible, there is no time limit for recording (except in the case of mechanics' liens). A document is deemed recorded when it is deposited int the recorder's office and marked "filed for record" The recorder gives each document filing a number indicating the order in which the document was received and time-stamps the document The recorder transfers the document to the appropriate book of records. Documents are indexed alphabetically by grantor-grantee, showing the name, nature of the recording, date of recording, and reference where the document is filed. Ordinarily, the document is photographed and the original returned to the person indicated as the recipient in the heading of the document. If the recorder improperly indexes a document, the recording does not provide constructive notice. The duty to see that a document is recorded properly falls on the person recording. The name of the grantor and grantee must be signed legibly or printed for the recorder The recorder will not accept for recording a document that is not in English unless a certified English translation is attached to it. A document can be recorded in more than one county and would apply to the property within the counties where recorded. A certified copy can be used to record on more than one county. Counties may now allow electronic recording at county option. The recorder will not record until the recording fee is paid. The county recorder also will require that the documentary transfer tax (tax on seller's equity being conveyed) be paid before recording deeds. The county recorder will require that deeds contain the name and address to which tax statements are to be sent. Failure to comply, however, does not affect constructive notice. Any person has the right to check county records.

Listing modification

While it is possible for a broker and a principal to enter into a new listing agreement that by its terms supersedes and existing listing, it is far simpler to enter a simple modification. Brokers use an all purpose addendum form or a specific listing addendum form for this purpose.

Oral Listings

While listings of real property are required to be in writing to be enforceable, on exception may exist. If, after a listing expires, the owner's encourage the broker to continue to work on the sale of the property, the owners have waived their rights to claim the statute of frauds as a defense against paying a commission. The doctrine of estoppel might apply. See Filante v. Kikendall (1955) 134 C.A.2d 695

(8) 15. Which statement is TRUE of a joint venture? a. One joint venturer can sue the joint venture b. The death of a joint venturer automatically dissolves the joint venture c. Joint venturers have the same power to bind other joint ventures as partners. d. All of these are true

a. One joint venturer can sue the joint venture Partnerships for particular ventures rather than continuing businesses Joint ventures are partnerships for a single undertaking rather than a continuing business. Because a joint venture is set up for a limited purpose, the implied authority of its members is more limited than in a general partnership. A joint venturer does not necessarily have the power to bind the other joint venturers. A joint venture is generally considered a partnership. A joint venture is taxed in the same way as a partnership (taxes are paid by the individual joint venturers), and joint venturers also have the joint and several liability of partners as to third parties. Unlike in a partnership, one joint venturer can sue the joint venture. The death of a partner automatically terminates a partnership, but the death of a joint venturer doesn't necessarily dissolve the joint venture. Control of the joint venture normally is given to the managing partner.

(6) 12. Which provisions would LEAST likely be found in a real estate purchase contract a. Safety clause b. Occupancy intentions c. Financing contingency d. Provisions for physical inspection

a. Safety clause Exclusive right-to-sell listings frequently contain a safety clause

(6) 9. A broker's promise to use diligence makes a listing a. a bilateral contract b. an illusory contract c. a unilateral contract d. voidable

a. a bilateral contract A mutual exchange of promises; a promise given for a promise Most listings are exclusive listings, in which the owner makes the agent the owner's exclusive agent to procure a buyer and agrees to pay a commission should the agent succeed. The agent promises to use due diligence in procuring a buyer. This mutual exchange of promises makes exclusive listings a bilateral contract.

(8) 20. Rights of occupancy of owners in a cooperative are based on a. a proprietary lease b. the articles of incorporation c. the bylaws the association d. individual deeds to each unit

a. a proprietary lease

(8) 11. Without the consent of the other spouse, one spouse can: a. buy real estate using community property funds b. sell community real property c. give community real property away d. lease community real property for 18 months

a. buy real estate using community property funds Property that is acquired with community property funds is community property. Property that is acquired by one spouse using the credit of the other spouse is community property Separate property remains separate property unless it becomes commingled so as to be indistinguishable from community property, in which case it would become community property by the commingling. One spouse's use of community property to improve the separate property of the other spouse is considered a gift and is not commingling. One spouse's use of community property to improve their separate property could be commingling, which would convert the separate property into community property. However, the courts are more likely to give a community property interest proportionally based on the community property investment.

(7) 4. Which is NOT an important test of fixtures? a. Cost b. Intent c. Method of attachment d. Adaptability

a. cost Items of personal property that have become so attached to realty as to become real property Fixtures are formal items of personal property that have become affixed to realty so that they are now part of the property. For example, a household furnace is personal property before it is installed into a residence, but it becomes real property ( a fixture) after it is installed. Title to fixtures generally transfers with real property. There are five tests for determining whether or not an item is a fixture 1) Intent: This is the most important test. Did the improver intend to make a permanent improvement to the property? If so, it is likely to be a fixture 2) Method of attachment. Is the item attached in a permanent manner? Bolts, nails, concrete, and pipe are generally considered permanent, even though an item can be readily removed. If an item is attached by roots (a tree or a plant) it generally is regarded as a fixture A fixture could be attached by it's weight alone. An example would be a building that is not attached to a foundation. Personal property does not become a fixture the it has been wrongfully attached - when it is attached by a person who is not the owner of the real property - and who had no right or permission to make the attachment 3) Adaptability: Was the item specifically adaptable to the use of the real property? For adaptability, the item meed mot be custom made; it need only relate reasonably to the use. For example, an argument could be made that an odd-sized refrigerator placed in a specially built alcove is a fixture, even though its only connection to the real property is a plug in a wall socket All three of the preceding tests need not be met for the courts to determine that an item is a fixture. Civil Code Section 1019 added two additional tests for fixtures 4) Agreement: Parties are free to agree on whether an item is realer personal property, and their agreement will govern the nature of the property. 5) Relationship of the parties: When it is not clear of an item is a fixture or personal property, the issue will be determined in favor of the - tenant between landlord and tenant - buyer between seller and buyer - lender between borrower and lender

(7) 20. Priority of a trust deed can easily be ascertained by the a. date of recording b. date of instrument c. heading of the instrument d. date on the note

a. date of recording Besides providing constructive notice of an interest, recording determines priority of interest. Recording often has been called "the race of the diligent" because priority of interest in the absence of actual knowledge is determined by time and date of recording and not time and date of execution of an instrument (Civil Code Section 1214) (The first to record is the first in right)

(5) 1. A written contract whereby the seller agrees to convey at an agreed price at a definite time in the future, and the buyer agrees to buy at said time and price would b a(n) a. executory, express, bilateral contract b. executed, implied, unilateral contract c. valid, express, unilateral contract d. enforceable, bilateral, executed contract

a. executory, express, bilateral contract - An executory contract is one that has not yet been fully performed. - An express contract is and agreement stated in words. The terms of the agreement may be set forth either orally or in writing. - A bilateral contract is an agreement is which a mutual exchange of promises occurs. A promise for a promise

(7) 2. Which is NOT an example of chattels real? a. furniture b. Trust deeds c. Lease interests d. Shares in housing cooperative

a. furniture Chattels real is a personal property interest in real property, such as a leasehold interest, trust deed, or mortgage Chattels real are personal property interests that concern real property. Such as leasehold interests, mortgages, trust deeds, shares in real estate syndicates, and shares in housing cooperatives. While real property oriented, they are considered real property.

(7) 7. Which is a characteristic of an indefeasible estate? a. It cannot be cancelled b. It can be lost upon a happening c. It is voidable d. It is a reversionary interest

a. it cannot be cancelled A defeasable estate is an estate that can be lost. An indefeasible estate can not

(8) 21. Ownership as tenants in common with a right to occupy a unit describes a a. cooperative b. community apartment project c. planned development d. none of these

b. community apartment project

(6) 13. A termination date is required for all contacts below EXCEPT an a. open listing b. exclusive agency listing c. exclusive right to sell listing d. option

a. open listing An open listing is really a unilateral contract. The agent makes no promise to use diligence to obtain a buyer. By procuring a buyer, the agent accepts the owner's promise to pay a commission. Unlike exclusive listings, open listings need not have a definite termination date.

(7) 9. The future interest of a grantor of a life estate would likely be a a. reversionary interest b. contingent remainder interest c. vested remainder interest d. non freehold estate

a. reversionary interest An interest that returns to the grantor, or her heirs upon some event, such as the death of a life tenant Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a condition subsequent, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains REVERSIONARY INTEREST. Grantors sometimes use grants with a condition subsequent to advance their personal convictions. For example, a common condition subsequent is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a condition subsequent was breached, the courts could determine that the grantor has waived the right to enforce the REVERSION. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in REVERSION of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest. Life Estates When the life tenant dies, the property either reverts to the grantor or the grantor's heirs (a reversionary interest) or passes to a third party, who is said to have remainder interest. Upon the death of a life tenant, the REVERSIONARY or remainder interest holder customarily holds the title in fee simple. Concurrent estates - more than one ownership or estate at the same time- can exist in a property. For example, a tenant can have a leasehold estate while an owner has a fee simple interest. The fee simple owner would have REVERSIONARY INTEREST of possession at the expiration if the leasehold interest. Air and mineral interests also can be conveyed, creating separate interests. Property can even be divided horizontally, with the mineral, oil, and gas rights being conveyed in layers.

(5) 23. In California, the statute of limitations for verbal contracts is a. two years b. three years c. four years d. ten years

a. two years - Statute of limitations for oral contracts, or personal injury

(5) 20. An oral real estate lease for six months starting in six months is a. valid b. void c. voidable d. illegal

a. valid

(5) 15. Liquidated damages on a duplex that the buyer intended to occupy called for the forfeiture of a $10,000 deposit on a $100,000 purchase price. After the buyer's default, the seller must return a. the entire deposit b. $7,000 c. $23,000 d. nothing

b. $7,000 - Since July 1, 1978, liquidated damages on residential purchase agreements of one to four units where the buyer intends to occupy a unit have been limited by law. The liquidated damages to be forfeited if the buyer defaults cannot exceed 3% of the sales price or the actual deposit amount. $100,000 x 3% = $3,000. So $7000 must be returned out a $10,000 deposit. The defaulting buyer is entitled to a further refund if the buyer proves that the retained amount is unreasonable, such as a sale at an equal or higher price to another party within six months

(7) 8. Which statement BEST describes a fee on a condition subsequent? a. ownership interest that does not transfer to a grantee until something happens b. A qualified interest that may be lost should something happen c. A recording change that need not be paid until property is sold. d. A non freehold interest

b. A qualified interest that may be lost if something happens A condition that, if it occurs, results in the reversion of an estate of another Defeasible Estates A defeasible estate is an estate that can be lost. The fee interest is qualified. For example, with a fee on a CONDITION SUBSEQUENT, property is transferred to a grantee with with a condition. If the condition is breached, the estate can revert to the grantor by court action. The grantor must bring an action within five years of the breach (civil code section 784) The grantor therefor retains reversionary interest. Grantors sometimes use grants with a CONDITION SUBSEQUENT to advance their personal convictions. For example, a common CONDITION SUBSEQUENT is the prohibition of the sale of alcoholic beverages. The deed could provide that the property, if ever used for the sale of alcoholic beverages, will revert to the grantor or heirs. If a grantor failed to take action within five year period after a CONDITION SUBSEQUENT was breached, the courts could determine that the grantor has waived the right to enforce the reversion. Property also may be dedicated to a municipality or a charity with instructions for its specific use, the condition being that the abandonment of that use will result in reversion of the property to the grantor. Courts generally will interpret the specified use quite liberally to avoid forfeiture. A condition precedent precludes a grant from taking place until something happens, such as the grantee reaches age 21. Once the condition is met, the grantee has fee simple interest. Life Estates Life estates can also be subject to a CONDITION SUBSEQUENT, such as a life estate that goes to a remainder interest holder should the life tenant remarry. This type of estate often is used when the grantor feels that a duty to support the life tenant only while the life tenant remains unmarried

(5) 21. After Albert agreed orally to sell to Smith, Smith made extensive improvements to the property with the knowledge of Albert. Albert now refuses to sell because the sales agreement was oral. What will be the result a. Albert does not have to sell, based on the statute of frauds b. Albert must sell, because of the doctrine of estoppel c. Albert must sell, because of laches d. Albert's only remedy is compensatory damages

b. Albert must sell, because of the doctrine of estoppel. - Estoppel means that a person may not assert a right when that person's previous statements, actions, or silence caused another party to act to their detriment.

(8) 7. Albert, Baker, Charlie, and David are joint tenants. What form of ownership exists when David sells to Edith and Albert then dies? a. Baker, Charlie, and Edith are tenants in common. b. Baker and Charlie are joint tenants, and Edith is a tenant in common c. Albert's heirs, Baker, Charlie, and Edith, are tenants in common d. None of these describes the existing ownership

b. Baker and Charlie are joint tenants, and Edith is a tenant in common Joint tenancy, like tenancy in common, is an undivided interest in either real or personal property (or both). Unlike tenancy in common, however, joint tenancy has the right of survivorship. Upon the death of a joint tenant, the interest the deceased joint tenant held ceases to exist. The interest is incapable of being transferred by will or by intestate succession. The surviving joint tenants receive the interest of the deceased joint tenant. Joint tenancy property does not need to be probated, because it could not be part of the estate of the deceased person. Because of survivorship, the property interest passes to the surviving joint tenants free of claims of the personal creditors of the deceased. Assume Annie, Brenda, and Connie are joint tenants. If Connie dies, Annie and Brenda will be joint tenants. If Brenda then dies, Annie will be an owner in severalty. Assume Art, Bart, and Curt are joint tenants. If Curt sells to Dirk, then Art and Bart will remain joint tenants, each with an undivided one-third interest, and Dirk will have an undivided one-third interest as a tenant in common. If Bart dies, Art will take Bart's interest by survivorship, and Art will be a tenant in common with Dirk. The joint tenancy cannot continue because no two owners have the four unities of joint tenancy. Art will have and undivided two-thirds interest as a tenant in common with Dirk, who will be a tenant in common with an undivided one-third interest. One of the problems with a joint tenancy is that joint tenants can convey their interest to another, and the other joint tenant(s) might be completely unaware that the survivorship rights have been defeated.

(7) 23. What would result when Albert deeded to Henry, but Henry inadvertently recorded in the wrong county? a. Albert would retain title b. Between Henry and Albert, Henry would have his title c. The minor defect in recording would not affect the constructive notice d. The deed could be voided upon return of consideration.

b. Between Henry and Albert, Henry would have his title Between a grantor and grantee of an unrecorded deed, the grantee would have title.

(6) 11. The exclusive listing that broker Jones had on the Adams farm expired at noon on December 15. At 1 PM on December 15, Adams gave broker Riley an exclusive listing on the farm. At 2:30 PM on December 15, broker Jones procured a buyer at the price and terms of the listing. Who is legally entitled to the commission a. Broker Jones, because a buyer was procured within a reasonable period of time of the listing b. Broker Riley c. Brokers Riley and Jones, who must split the commission equally d. No one above is legally entitled to the commission

b. Broker Riley Broker Jones exclusive listing was expired, while broker Riley's listing was current Sometimes, a safety clause provide that in the event another listing is entered onto, the owner no longer is obligated under the safety clause. Without such an exception, an owner could be obliged to pay more than one commission.

(5) 13. Which is NOT an equitable remedy a. Reformation b. Compensatory damages c. Rescission d. Specific performance

b. Compensatory damages Equitable Remedies: -Remedies of Conscience These are the remedies available when judicial remedies are inadequate and equity or conscience demands them -Specific Performance The court can force a person to perform as agreed. Specific performance is an equitable remedy usually awarded where money damages are inadequate. Because every parcel of real property is considered unique, specified performance is a proper remedy for breach of a real property sales agreement. While the remedy of specific performance is readily available to purchasers, courts rarely force buyers to buy because money damages are ascertainable. A seller who consequently sells to another buyer for less money usually will receive damages amounting to the difference in the sales prices. Specific performance is not available for personal services. The court will not make one person work for another, because that would violate the Thirteenth Amendment. Specific performance will not be granted if the court does not deem the consideration adequate -Rescission The mutual release of parties to a contract. The contract is set aside, and the consideration that was given is returned. This equitable remedy would be used when promises were made because of a mutual mistake, when the contract became impossible to perform, or when performance of the contract, while legal when contract was made, became illegal because of a change in the law -Reformation A court rewrites a contract to read as it was intended to read. IE: A court would likely reform a lease that described the wrong property when it was clear which property was intended -Injunction Order a party to cease and desist from an activity, such as trespass or a nuisance. -Foreclosure An action against a property. Seeks to terminate a persons interest in property. -Quiet title A legal action to determine ownership or rights in real property. It can be used to wipe out claims against a property to provide the owner with a marketable title (such as a misspelled name on a deed) -Declaratory relief action Under common-law, a party had to wait until rights had been violated to obtain legal interpretation of rights involved. Now a unique equitable remedy is available, declaratory relief action. It can be brought to have a court determine rights BEFORE an invasion of right occurred. The purpose is to avoid a violation of law or contract.

(6) 24. A contract for the sale of a residence stated "as is." Which statement is TRUE relating to this provision a. It is void because a buyer has a right to a habitable dwelling b. It applies to visible conditions only c. It applies only to matters of title d. It is a valid disclaimer as to all defects

b. It applies to visible conditions only (patent defects) (p211)

(7) 19. Which is NOT true of a recording? a. It provides constructive notice of the recorded instrument b. It provides actual notice of an interest c. It determines the priority of liens d. It creates a presumption of delivery

b. It provides actual notice of an interest While recording and possession give constructive notice of an interest in real property, ACTUAL NOTICE is express knowledge of the prior interest. A person who has actual knowledge of a prior interest cannot claim priority of interest because they recorded first. Actual notice has the same effect as the constructive notice of recording.

(8) 13. Jim and Tom are general partners in a real estate office. Jim dies, leaving all his property to his wife, Lois, who is also a real estate broker. What is the result? a. Lois and Tom are general partners. b. Lois has an interest in the partnership assets but not the business. c. Lois becomes a limited partner. d. Lois has no interest in the business or the assets of the business.

b. Lois has an interest in the partnership assets but not the business The heirs of a deceased partner have no right to the partnership business, because a partnership requires consent. The heirs are entitled only to the value of the deceased partner's share of the assets over the liabilities, or surplus, not to the continuing business.

(8) 14. A partnership that has NOT complied with the fictitious name statute a. would be a legal partnership b. cannot sue in the partnership name c. is an unincorporated business d. is all of these

b. cannot sue in the partnership name A name that does not include the surname of every principal in an enterprise. A fictitious name is a name that does not include the surname of every partner. If a partnership fails to comply with the fictitious name statutes, the partnership cannot sue or defend a suit in the partnership name on contracts made using the fictitious name. To comply with the fictitious name statutes, the partnership must -file within 40 days of beginning business, a fictitious name statement with the county clerk that identifies principals, the business, and its fictitious name -publish, within 30 days of filing, the fictitious name statement in a newspaper of general circulation within the county where the principal place of business is located, one a week for four successive weeks. All fictitious name statements expire at the end of five years from December 31 of the year filed with the county clerk. Renewal statements again must be filed, but need not be advertised. A partnership can abandon a fictitious name by filing statement of abandonment.

(8) 2. Which ownership form is matched with an incorrect characteristic? a. Joint tenancy/undivided interest b. Tenancy in common/survivorship c. Community property/equal ownership d. Severalty/alone

b. Tenancy in common/survivorship - incorrect Correct: a. Joint tenancy/undivided interest c. Community property/equal ownership d. Severalty/alone Tenancy in common is Undivided interest in property without the right of survivorship survivorship: right of surviving joint tenant(s) to interests of another joint tenant on the latter's death A tenancy in common is undivided ownership-of real or personal property-by more than one party without the right of survivorship. An undivided interest means that the tenant in common has a share in the whole and not ownership of a separate portion. For example, a tenant in common having a one -half interest in 10 acres of land would have a one-half interest in the entire 10 acres and not one-half of the land (5acres) The right of survivorship means the right if other co-owner's to receive one co-owner's interest upon his death. Upon the death if a tenant in common, his interest does not pay by survivorship to the other tenants in common. The interest passes by will or intestate succession to the heirs of the decedent. If the tenant in common dies intestate (without a will) and leaves no heirs, the interest will escheat (pass) to the state. (Unmarried partners who live together will ofter choose tenancy in common as their form of ownership when the survivorship feature is not desired)

(6) 23. Which statement is TRUE about contingencies in purchase offers a. They must be reasonable to be enforceable b. The person benefiting by the contingency can waive it c. They make the contract illusory d. If one party can be relieved by the failure of a contingency, the other party can also be relieved from performance should the contingency fail

b. The person benefiting by the contingency can waive it The person who benefits from a contingency can always waive the contingency (p210)

(8) 6. Which statement accurately describes a tenancy in common? a. Interests must be equal b. There is an equal right of possession c. Interests must be acquired at the same time d. Interest must be acquired from the same documents

b. There is an equal right of possession One tenant in common cannot give an exclusive lease to a third party without the agreement of all the tenants in common because such a lease would be inconsistent with the other tenants' equal rights of possession.

(7) 11. Which is the right of a life tenant? a. To refuse to pay taxes b. To lease the property c. To convey interest by will d. To encumber the reversionary interest

b. To lease the property Unless the life tenants use is restricted, the life tenant can lease the property, but the death of the life tenant will terminate the lease unless the reversionary or remainder interests holders also sign the lease as lessors and thus obligate their interests. Before signing a long term lease, a prospective tenant who will be making substantial improvements should have a title search conducted to be certain of the lessors interests. Unless restricted, life tenants can sell their interest, but a purchaser will receive no more than the life tenant possessed. Upon the death of the life tenant, the purchasers interest will cease.

(7) 22. A recorded gift deed would NOT take priority over a. subsequent recorded deeds for value b. a prior unrecorded deed given for valuable consideration c. subsequent trust deeds d. prior unrecorded gift deeds

b. a prior unrecorded deed given for valuable consideration A recorded deed given without consideration (a gift deed) would not give the grantee priority over a prior unrecorded deed or trust deed that was given for valuable consideration. Therefore, for recording to give priority it must be done by a bona fide purchaser (or lender) for value without prior notice of other interests. The courts would consider the adequacy of consideration in determining whether a party is a bona fide purchaser. A person who receives a notice of a prior interest at any time before paying the consideration would not be a bona fide purchaser.

(6) 18. An oral agreement MOST likely to be enforceable would be an a. option to purchase b. agreement between broker's to split a commission c. open listing d. real estate purchase contract

b. agreement between broker's to split a commission

(7) 17. A person who states her signing is a free act would be making a. an affirmation b. an acknowledgement c. a notarization d. a verifiecation

b. an acknowledgement Before a document can be recorded, it must be acknowledged. Acknowledgment is made before a notary or other designated official by the person attesting to the document. That person acknowledges that she is the person claimed and is the one who has signed the instrument as her own free act. The maker of an instrument must appear personally before the notary, and the notary has a duty to ascertain identity by personal knowledge or by identification by a third person under oath. A notary can accept driver's licenses and passports as proof of identity. The notary does not verify the facts of the document.

(7) 6. A new mobile home located a rental park in 2015 was not attached to a foundation. It would be taxed a. as real property b. as personal property c. as a vehicle with fees to the Department of Motor Vehicles d. with fees paid to the Department of Housing and Community Development

b. as personal property Since July 1, 1980, mobile homes attached to a foundation have been taxable as real property. Besides placing the mobile home on a foundation, in order to have the home considered real property, the owner must: -obtain a building permit -obtain a certificate of occupancy -record a document reflecting that the mobile home has been affixed to a foundation A mobile home may not be removed from a foundation (real property) unless: -all people who have any interest in the real property consent to its removal -the Department of Housing and Community Development is notified 30 days before removal Mobile homes sold new after July 1, 1980, that are not attached to a foundation and mobile homes sold before that date whose vehicle license fees are 120 days or more delinquent are taxed as personal property. While the tax rate and procedure for personal property and real property are virtually indistinguishable, mobile homes attached to a permanent foundations have certain advantages over mobile homes that are taxed as personal property. Under proposition 13, the assessed value for mobile homes that are taxed as real property can increase only 2% each year. If taxed as personal property, the mobile home would be taxed at full market value. Mobile homes sold new on or before June 30, 1980 continue to be taxed as vehicles. The vehicle fees are now paid to the Department of Housing and Community Development, not the Department of Motor Vehicles

(6) 22. A real estate purchase offer fails to specify a time for acceptance. The offer a. must be accepted immediately b. can be accepted within a reasonable period of time c. cannot be withdrawn prior to acceptance d. is void

b. can be accepted within a reasonable period of time

(8) 24. An owner is likely to be liable to a recreational user of his property when a. he fails to post no trespassing signs b. he fails to warn against a dangerous condition c. the property is urban in nature d. all of these conditions exist

b. he fails to warn against a dangerous condition

(5) 24. Losing a right because of failure to assert it in a timely manner is known as a. rescission b. laches c. estoppel d. specific performance

b. laches - Laches is preventing a person from asserting a right or claim when that person's delay in asserting that right causes or results in disadvantage, injury, injustice, detriment, or prejudice to the defendant in a lawsuit.

(6) 25. "As is" would MOST likely protect a seller from hidden defects when the sale is a. to a buyer who does not intend to occupy the premises b. of a commercial property c. a single family residence only d. of one to four residential units

b. of a commercial property An "as is" clause in a purchase agreements can lead to problems. "as is" generally applies to patent defects (obvious) defects, and not latent (hidden) defects known by the seller and/or agent commercial property is treated differently. "As is" can protect a commercial seller who fails to disclose defects but is not guilty of fraud or concealment of the defects. See Shapiro v Hu (1986) 188 C.A.3d 324 for an example (p211)

(6) 8. A commission is ordinarily EARNED by a broker when a. escrow closes b. the broker procures a ready, willing, and able buyer c. escrow opens d. the purchaser deposits the full purchase money or liens in escrow

b. the broker procures a ready, willing, and able buyer A commissions customarily EARNED under a valid listing upon the execution of a valid purchase agreement unless conditions remain to be fulfilled. The commission normally is PAID upon close of escrow, which could be sometime after the commission is earned.

(7) 13. Henry willed his property in trust with the beneficiaries to be all future heirs of his body. His actions are prohibited by a. the statute of limitations b. the rule against perpetuities c. laches d. the recording statues

b. the rule against perpetuities The rule that an estate must vest in an owner within the life of a person in being plus 21 years and a gestation period The rule against perpetuities states that any non charitable interest must vest without limitations within the life of the last beneficiary in being at the time of the conveyance, plus 21 years. The interest is further restricted in that it must either vest with an owner or terminate within 90 days of it's creation. This rule would prohibit a perpetual trust to support the heirs of the grantor.

(6) 4. The effect of a hold harmless clause is that it a. warrants that the property presents no risk b. indicates the property is to be sold "as is" c. means the owner agrees to indemnify the agent for losses suffered because of the owner's failure to disclose or the owner's failure to disclose or the owner's incorrect disclosure d. does none of these

c. means the owner agrees to indemnify the agent for losses suffered because of the owner's failure to disclose or the owner's failure to disclose or the owner's incorrect disclosure Customarily are included in listings. The owner agrees to hold the agent harmless and indemnify the agent for losses in the event the owner fails to provide a disclosure or fails to provide incorrect information.

(8) 17. Under federal law, a real estate investment trust must have a. a corporate charter b. have a written agreement c. 100 or more investors d. 1,000 or more investors

c. 100 or more investors A trust organized under federal law and having at least 100 investors. Ownership interest is in the form of certificates or shares that are freely transferable Real estate investment trusts allow smaller investors to pool their resources for quality investments with limited liability. Under federal law, a real estate investment trust (REIT) is an unincorporated trust or association managed by a trustee that meets the following criteria: - It cannot hold property for sale to customers in the ordinary cause of business -It must be owned by at lest 100 investors -Five people or fewer cannot hold more than a 50% interest -Interests must be in the form of transferable shares or certificates. California requires that each share carry with it an equivalent vote in determining trust policy -At least 75% of assets must be invested in real estate or cash. -Investments must account for at least 90% of the trusts gross income - Up to 75% if the trust's gross income may result from real estate related sources If the real estate investment trust distributes 90% or more of its ordinary earnings to shareholders, it is taxed only on its retained earnings at the corporate rate. The trustee in a real estate investment trust must have exclusive power to manage the trust. Trusts are either equity trusts (real estate), mortgage trusts (investments in mortgages and trust deeds), or hybrid trusts (investments in both real estate and mortgages). Unlike syndicate interests, which are often difficult to resell, many REITs are listed on major stock exchanges so that interests are more readily available.

(8) 9. Which is an example of partition action? a. Dividing an apartment building into condominiums b. Any land subdivision c. A court proceeding to divide jointly owned property d. Breaking large apartments into smaller units

c. A court proceeding to divide jointly owned property (action=court proceeding) Because of changing relationships, a person might no longer wish to remain a joint tenant or tenant in common. In that case, a PARTITION ACTION can be brought to break up the joint tenancy of tenancy common. (By agreement, the parties can give up their rights to a partition action.) If possible, the court will order the property divided among the co-owners.

(7) 21. Adolph sold to Betty on January 1. Betty took possession on January 15 and recorded her deed on February 1. Adolph obtained a home equity loan on the same property on January 10. The lender, Clement, recorded the same day. On January 20, Adolph sold the same property to Don who recorded on January 21. What are the rights of the parties? a. Don has his title subject to Clement's lien b. Betty has title clear of any lien. c. Betty has title, but Clement has a valid lien against it d. None of these

c. Betty has title, but Clement has a valid lien against it Possession also gives constructive notice. Assume Art deeded to Ben, who took possession but did not record. If Art later conveyed the same property to Carl, who recorded, title would be with Ben. Carl had constructive notice by Ben's possession of Ben's interest. In failing to check with the party in possession to ascertain the possessor's interests, Carl did not act diligently. If a buyer checks with a party in possession and is not informed of an adverse claim, however, the possession does not provide constructive notice of the interests of the party in possession.

(7) 18. Anne sold property to Bob. Bob took possession but did not record his deed. Anne learned of this and sold to Claude. Claude recorded his deed. Which decision would a court of law MOST likely render? a. Claude wins because he did the proper thing by recording his deed. b. Claude wins because he had no notice c. Bob wins because he was in possession d. Bob wins because he purchased first

c. Bob wins because he was in possession Possession also gives constructive notice. Assume Art deeded to Ben, who took possession but did not record. If Art later conveyed the same property to Carl, who recorded, title would be with Ben. Carl had constructive notice by Ben's possession of Ben's interest. In failing to check with the party in possession to ascertain the possessor's interests, Carl did not act diligently. If a buyer checks with a party in possession and is not informed of an adverse claim, however, the possession does not provide constructive notice of the interests of the party possession.

(5) 6. Which is TRUE regarding acceptance and/or revocation of an offer a. Revocation takes place upon receipt b. Acceptance takes place upon mailing c. Both a and b are true d. Neither a nor b is true

c. Both a and b are true a. Revocation takes place upon receipt b. Acceptance takes place upon mailing

(5) 18. Which is TRUE regarding the differences between waiver and rescission a. Waiver leaves the parties as they are b. Rescission puts the parties back the way they were c. Both a and b are true d. Neither a nor b is true

c. Both a and b are true a. Waiver leaves the parties as they are b. Rescission puts the parties back the way they were

(6) 5. An exclusive right to sell listing provides for 20% down and owner financing at 13% interest. The owner received a full price offer that he does not wish to accept. Which is TRUE regarding the owner's rights a. He must pay the commission, but can reject the offer b. He must accept the offer and pay the commission c. He may reject the offer without obligation regarding commission d. He may accept the offer without obligation regarding commission

c. He may reject the offer without obligation regarding commission

(8) 10. After Albert and Helen were married, they purchased a home. The $40,000 down payment was the separate property of Helen. Payments on the home were made with community property funds. Upon marriage dissolution, what are the rights of the parties to the sale proceeds from the house? a. Albert and Helen share proceeds equally b. Albert gets one-half of the payments made, but Helen gets the remainder c. Helen is entitled to $40,000, plus one-half of the balance of the sale proceeds (if any) d. None of these is true.

c. Helen is entitled to $40,000, plus one-half of the balance of the sale proceeds (if any) Community property is divided equally upon dissolution of marriage. For the purpose of division of property or separate maintenance only, joint tenancy property is presumed to be community property. To overcome this presumption, strong and persuasive evidence to the contrary must be present (Civil Code Section 4800.1). However, spouses are entitled to reimbursement for separate property contributions toward community property assets unless they have made a written waiver of that right (Civil Code Section 4800.2)

(5) 12. An agreement whereby one party to a contract is discharged and another party becomes obligated is a(n) a. accord and satisfaction b. reformation c. novation d. rescission

c. novation

(6) 15. Procuring cause is of greatest significance in a. options b. oral listings c. open listings d. rights of first refusal

c. open listings

(8) 1. What would be the ownership form for property that is solely owned by a married woman? a. Community property b. Tenancy in common c. Ownership in severalty d. Ownership in partnership

c. Ownership in severalty Ownership in severalty is ownership by one individual or corporation alone Ownership in severalty is ownership by one individual or corporation. (a corporation is a legal entity) It is singular ownership with no other parties having a common ownership interest. A city (municipal corporation) would own city property in severalty, as would an individual owning property by himself Separate property remains separate property unless it becomes commingled so as to be indistinguishable from community property, in which case it would become community property by the commingling. One spouse's use of community property to improve the separate property of the other spouse is considered a gift and is not commingling. One spouse's use of community property to improve their separate property could be commingling, which would convert the separate property into community property. However, the courts are more likely to give a community property interest proportionally based on the community property investment. Exclusions In California, excluded from the equal ownership community property are - property separately owned by husband or wife before marriage -rents and profits from separate property -property acquired by either spouse by gift or inheritance -property acquired with separate property funds -damages received for personal injuries - earnings and accumulations of a spouse while living separate and apart (include legal separation)

(6) 3. A valid listing agreement MUST contain which stipulation a. The preprinted rate of commission b. A hold harmless clause c. Specific reference to the subject matter of the listing d. The right of either party to cancel upon notice

c. Specific reference to the subject matter of the listing

(7) 14. Albert received a life estate in property, but the property had a mortgage against it. Which statement is TRUE regarding this situation? a. Mortgage payments are the responsibility of the remainder interest holder b. The mortgage nullifies the life estate c. The life tenant pays the interest, but the remainder interest pays the principal d. The mortgage payment is split evenly between the life tenant and the remainder holder

c. The life tenant pays the interest, but the remainder interest pays the principal If a life tenant receives a property with a mortgage or trust deed against it, the principal payments on the mortgage or trust deed will be a charge against the remainder or reversionary holder, but the interest payments will be the responsibility of the life tenant.

(5) 10. Which statement is FALSE a. Consideration is necessary for a valid option b. The optionee has the option to exercise or refrain from exercising the option c. The optionor can revoke the option by returning the consideration d. Options can be assigned unless personal in nature or prohibited by the option terms

c. The optionor can revoke the option by returning the consideration

(6) 1. Which phrase BEST describes an owner's oral agreement to pay a real estate sales commission a. Enforceable if the seller benefited by the broker's efforts b. Enforceable for commercial property only c. Unenforceable d. Enforceable only for sales up to $1,000

c. Unenforceable While listings of real property are required to be in writing to be enforceable, one exception may exist. If, after the listing expires, the owners encourage the broker to continue to work on the sale of the property, the owners may have waived their rights to claim the statute of frauds as a defense against paying a commission. The doctrine of estoppel might apply. See Filante v Kikendall (1955) 134 C.A.2d 695 for an example

(5) 5. In which situation can an offer NOT be withdrawn a. When the seller has not yet had an opportunity to accept it b. When the stated period for which it would remain open has not expired c. When notification of acceptance has been made d. When the deposit has not been forfeited

c. When notification of acceptance has been made

(5) 19. Which is NOT a requirement of every valid contract a. Consideration b. Meeting of the minds c. Writing d. Legal purpose

c. Writing A valid contract requires: Competent parties Mutual consent Legal purpose Consideration

(7) 10. A future uncertain interest of possession would MOST likely be a a. personal property interest b. vested remainder interest c. contingent remainder interest d. life estate

c. contingent remainder interest A remainder interest that is not certain but requires something to happen. Life Estates If the remainder of the interest requires that the third party outlive the life tenant, the third party interest is a contingent remainder (contingent on the third party's being alive to receive the remainder interest) If, however, there are no contingencies, the remainder will, upon the death of the life tenant, pass to the remainder holder or the remainder holder's heirs. This type of estate is called a vested remainder interest because someday the life tenant must die, ensuring the remainder holder will receive the property.

(7) 3. Which would be classified as personal property? a. Mineral rights b. An oil lease for 10 years c. Fixtures d. Riparian rights

c. fixtures items of personal property Personal property, also known as chattels, is any property that is not real property. Personal property is generally considered movable. Title to personal property does not automatically pass with the transfer of title to the real property where it is located

(7) 24. The county recorder indexes deeds by a. time received b. location c. grantor's and grantee's names d. tax assessor's number

c. grantor's and grantee's names The recorder transfers the document to the appropriate book of records. Documents are indexed alphabetically by grantor-grantee, showing the name, nature of the recording, date of the recording, and reference to where the document is filed.

(6) 14. To be the procuring cause of a sale, the broker must have a. made the sale b. supplied the owner with the name of the purchaser c. initiated an uninterrupted chain of events that led to the sale d. made first contact with the buyer

c. initiated an uninterrupted chain of events that led to the sale The agent who is the procuring cause of a sale is that agent who initiated an uninterrupted series of events that led to the sale. Under open listings and exclusive agency listings, an agent who was procuring cause of the sale is entitled to a commission.

(5) 14. Forfeiture of agreed damages in a contract is known as a. mitigated damages b. subordination c. liquidated damages d. punitive damages

c. liquidated damages Damages agreed to, before a contractual breach, as the remedy in the event of a default

(5) 4. An offer would NOT be terminated by a. revocation by the offeror b. a counteroffer c. request for an extension for acceptance by the offeree d. the death of the offeror

c. request for an extension for acceptance by the offeree

(6) 19. A listing broker refuses to split a commission with a cooperating broker after agreeing orally to do so. To collect, the cooperating broker would likely a. notify the real estate commissioner b. file a complaint with the state labor commission c. start legal action against the other broker d. do nothing, because an oral agreement cannot be enforced

c. start legal action against the other broker

(8) 3. To convey your property to a son and a daughter on a one-third/two-thirds basis, you would want to convey title as: a. community property b. tenancy in severalty c. tenancy in common d. joint tenancy

c. tenancy in common Interests of tenants in common do not have to be equal and can be created at different times by different instruments; however, each tenant in common has an equal right of possession. Therefore, if one tenant in common is in sole possession of the premises, that tenant in common will not be obligated to the other tenants in common for rent unless agreeing to it. A tenant in common cannot, in the absence of an agreement to the contrary, exclude other tenants in common from the property.

(8) 4. Agnes and Alfred, who were recently married, want to purchase a house together. They each want their interest to pass to their individual children from previous marriages in the event of death. They should by the house: a. in partnership b. in severalty c. tenancy in common d. joint tenancy

c. tenancy in common right of surviving joint tenant(s) to interests of another joint tenant on the latter's death The right of survivorship means the right if other co-owner's to receive one co-owner's interest upon his death. Upon the death if a tenant in common, his interest does not pay by survivorship to the other tenants in common. The interest passes by will or intestate succession to the heirs of the decedent. If the tenant in common dies intestate (without a will) and leaves no heirs, the interest will escheat (pass) to the state. (Unmarried partners who live together will ofter choose tenancy in common as their form of ownership when the survivorship feature is not desired)

(6) 21. An offer to purchase stated that it would remain open for 48 hours. Which statement is TRUE regarding this offer a. the offer is really an option b. this offer is revocable for 48 hours c. this offer can be revoked by the offeror prior to the expiration of 48 hours without a penalty d. while the offer is revocable immediately, the offeror must forfeit the deposit

c. this offer can be revoked by the offeror prior to the expiration of 48 hours without a penalty

(5) 22. The passage of time can make a valid contract a. invalid b. illegal c. unenforceable d. voidable

c. unenforceable If an action is not brought within a prescribed period, it becomes barred by the statute of limitations. Thus, a contract may be valid, but unenforceable. People who ignore their rights can lose them through the passage of time. For a VALID CONTRACT to exist, four elements are necessary 1) competent parties 2) MUTUAL CONSENT 3) legal purpose 4) consideration

(8) 12. According to community property rules, one spouse alone may: a. sell community real property interest b. encumber community real property interest c. will community real property interest d. do none of these

c. will community real property interest Because community property actually is owned equally by both spouses, either spouse can transfer their one-half interest by will. If a spouse dies intestate (without a will), the community property interest will pass to the surviving spouse without probate.

(8) 23. The seller of a condominium property must provide the purchaser with a. a copy of the restrictions b. the association bylaws c. the owners association financial statement showing delinquent assessments d. All of these

d. All of these a. a copy of the restrictions b. the association bylaws c. the owners association financial statement showing delinquent assessments

(7) 25. Which is TRUE regarding recordation? a. A document can be recorded in more than one county b. To be recorded, deeds must include the name and address where tax statements are to be sent c. The duty to see that the instrument is properly recorded falls with the person recording the instrument d. All of these are true.

d. All of these are true. a. A document can be recorded in more than one county b. To be recorded, deeds must include the name and address where tax statements are to be sent c. The duty to see that the instrument is properly recorded falls with the person recording the instrument

(5) 11. Which statement describes how a court will interpret an ambiguous contract a. Words take precedence over numerals b. Parol evidence can be admitted to show intent c. Handwritten takes precedence over typed d. All of these describe how a court will interpret an ambiguous contract

d. All of these describe how a court will interpret an ambiguous contract a. Words take precedence over numerals b. Parol evidence can be admitted to show intent c. Handwritten takes precedence over typed

(5) 25. Which is a TRUE statement about judgments a. They are good for 10 years b. They can be renewed c. When recorded, they create a general lien in the county of recordation d. All of these statements are true

d. All of these statements are true a. They are good for 10 years b. They can be renewed c. When recorded, they create a general lien in the county of recordation

(5) 7. Albert gave his friend Baker a deed to a property, which Baker recorded. A year later, Albert and Baker had a dispute. Albert demanded the return of the property because Baker had not given any consideration for the property transfer. Assuming there was no consideration, which statement is correct a. Albert can obtain revocation because of lack of consideration b. The agreement is void because of lack of consideration c. Albert is entitled to the fair market value of the property conveyed d. Baker can keep the property, which was a completed gift

d. Baker can keep the property, which was a completed gift

(7) 16. What is the result when a grantee records a deed that states that it may NOT be recorded? a. The recordation does not give constructive notice b. The deed has been voided c. The title reverts to the grantor d. The recording gives constructive notice

d. The recording gives constructive notice Prohibition against recording contained in documents that could otherwise be recorded would be considered contrary to public policy, and the document could be recorded in spite of the attempted prohibition

(6) 2. A broker brought an offer to an owner. While the broker did not have a listing, the offer provided for a commission. The owner crossed out the provision for a commission above the signature block and signed the acceptance. Which is TRUE regarding the broker's rights a. By signing the acceptance, the owner made the broker his agent b. The broker is entitled to a reasonable commission c. The broker is entitled to a full commission if the sale is completed d. There was no listing, so no commission need be paid

d. There was no listing, so no commission need be paid For a VALID CONTRACT to exist, four elements are necessary 1) competent parties 2) MUTUAL CONSENT 3) legal purpose 4) consideration

(7) 5. Which is NOT an appurtenance? a. A right of egress b. Mineral rights c. Water rights d. Trade fixtures

d. Trade fixtures Appurtenance: Something that belongs to and goes with property (examples: a structure and easement rights) appurtenance include rights, privileges, and improvements that transfer with the land Fixtures installed by a tenant for the purpose of conducting a business or trade. The trade fixture remains personal property and can be removed by the tenant Trade fixtures are installed for the purpose of trade or business. They remain the property of the tenant and may be removed at any time before the expiration of the lease. In California, a tenant may remove from the premises anything the tenant has affixed thereto for the purpose of trade, manufacture, ornament, or domestic use if the removal can be effected without substantial injury to the premises, and unless some agreement to the contrary has been made between the landlord and the tenant. Civil Code Section 1019 restricts tenants' rights to remove trade fixtures of the trade fixture becomes an internal part of the premises. For month-to-month leases, courts generally will allow a reasonable period after the end of the lease for removal of trade fixtures A "mistaken improver" is allowed to remove the improvements, even though they would otherwise be regarded as fixtures. The mistaken improver will, however, be liable for damages resulting from the removal.

(8) 18. Two separate corporations could hold title together as a. tenants is severalty b. joint tenants c. community property d. a partnership

d. a partnership

(8) 22. Interval exclusive occupancy coupled with a joint ownership likely refers to a. cooperative b. a community apartment project c. an undivided interest subdivision d. a time-share

d. a time-share

(6) 7. The rate of commission for the sale of real property is set by a. the real estate law b. local real estate boards c. the real estate commissioner d. agreement between the parties

d. agreement between the parties The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between seller and broker

(5) 8. An example of fraud would be a. a promise made by one who did not intend to keep it b. a false statement of fact by one who does not know if it's a fact or not c. the act of hiding a defect so another party will not know of it d. all of these

d. all of these a. a promise made by one who did not intend to keep it b. a false statement of fact by one who does not know if it's a fact or not c. the act of hiding a defect so another party will not know of it

(8) 25. Notice of known hazardous substances on the premises must be given by a. owners to buyers b. owners to lessees c. lessees to owners d. all of these

d. all of these a. owners to buyers b. owners to lessees c. lessees to owners

(8) 19. Which is (are) true regarding income tax a. Partnerships do not pay income tax b. a disadvantage of corporations is double taxation c. An S corporation does not pay taxes d. all of these are true

d. all of these are true a. Partnerships do not pay income tax b. a disadvantage of corporations is double taxation c. An S corporation does not pay taxes

(6) 20. Liquidated damages can exceed 3% of the sales price when the subject property is a. five residential units b. residential property that the buyer did not intend to occupy c. a commercial building d. any of these

d. any of these a. five residential units b. residential property that the buyer did not intend to occupy c. a commercial building

(6) 10. On an exclusive listing of a single family home a broker can be disciplined for failure to a. include a definite termination date b. indicate that the commission is negotiable c. give a copy to the owner d. any of these

d. any of these a. include a definite termination date b. indicate that the commission is negotiable c. give a copy to the owner Agents are required to give a copy of an exclusive listing to the owners at the time they sign Exclusive listing must have a definite termination date

(6) 17. When a listing includes a purchase right and the broker informs the owner that the broker will buy the property, the broker must a. disclose all known facts to the seller b. present any offers received c. obtain the seller's written consent to exercise the option d. do all of these

d. do all of these a. disclose all known facts to the seller b. present any offers received c. obtain the seller's written consent to exercise the option

(8) 16. A new limited partnership must a. end its name with "A Limited Partnership" b. have a written agreement c. file a formal certificate of limited partnership d. do all of these

d. do all of these a. end its name with "A Limited Partnership" b. have a written agreement c. file a formal certificate of limited partnership Limited partnership names must end with "A California Limited Partnership." The agreement must be in writing, and a formal certificate of limited partnership must be filed. A limited partner cannot allow her name to be used in a manner that would indicate she is a general partner. Partnerships having partners who are not active and whose liability is limited to the extent of their investment (limited partners). Limited partnerships are partnerships in which the limited partners have limited liability rather than the unlimited liability of a general partnership. Limited partners are liable only to the extent of their investment. However, a limited partnership must have at least one general partner who has unlimited liability. Limited partnership names must end with "A California Limited Partnership." The agreement must be in writing, and a formal certificate of limited partnership must be filed. A limited partner cannot allow her name to be used in a manner that would indicate she is a general partner. The 1983 Revised Limited Partnership Act (Corporation Code Sections 15611-15721) allows partners to contribute services, but not a promise concerning future services (formerly, a limited partner could not provide anything other than money). A limited partner can get an accounting from the general partner, and the limited partners can oust the general partner for a cause. Relatively few limited partnerships are being formed today because of the advantages offered by another form of operation known as the limited liability company

(5) 17. When, after the close of escrow, the purchaser discovered that the seller's broker had materially misrepresented the income, the purchaser could a. sue for rescission b. accept the property as is c. sue the seller and the broker for damages d. do any of the above

d. do any of the above a. sue for rescission b. accept the property as is c. sue the seller and the broker for damages

(5) 9. Albert knew that Keith was lying about the property's income, but Albert nevertheless completed the purchase. When Albert changed his mind, Albert could a. void the contract b. collect damages for fraud c. do either a or b d. do neither a or b

d. do neither a or b a. void the contract b. collect damages for fraud

(8) 5. A single tenant in common may NOT a. sell her interest without approval of the other tenants in common. b. will her interest to her children c. use the property without compensating the other tenants in common d. give exclusive possession to another

d. give exclusive possession to another A tenant in common cannot, in the absence of an agreement to the contrary, exclude other tenants in common from the property. One tenant in common cannot give an exclusive lease to a third party without the agreement of all the tenants in common because such a lease would be inconsistent with the other tenants' equal rights of possession.

(6) 6. After signing an exclusive right to sell listing, an owner refuses to accept an offer that conforms exactly to the terms of the listing. In this case specific performance can be obtained by a. the broker b. the offeror c. either of these d. neither of these

d. neither of these a. the broker b. the offeror

(6) 16. To collect a commission for a sale on an exclusive right to sell listing, the broker must prove all EXCEPT that a. there is a valid listing b. the sale took place during the listing, an extension of it, or its safety period c. the broker was licensed at the time the commission was earned d. the broker was the procuring cause of the sale

d. the broker was the procuring cause of the sale

(7) 1. Real property includes a. growing annual crops b. mineral rights c. leasehold interests d. trust deeds

d. trust deeds Land and those appurtenances that go with the land Real property generally consists of: land what is affixed to land what is incidental, or an appurtenance, to land (appurtenance include rights, privileges, and improvements that transfer with the land) and What is immovable by law except that, for the purpose of sale, emblements, industrial growing crops, and things attached to or forming part of the land that are agreed to be severed before sale or under contract of sale are treated as goods (personal property)

breach of contract

failure to comply with a material term or provision of a contract Breach of Contract Most contracts end with performance according to their terms. However, some contracts are breached. A breach of contract is a failure to perform a contractual provision as agreed. Jaramillo v. JH Real Estate Partners, Inc. (2003) 3 Cal. Rptr.3d 525 involved a residential lease clause that required binding arbitration of any disputes, with the parties equally sharing in the advance payment of arbitration fees for a three-arbitrator panel. The plaintiffs argued that the arbitration clause was unconscionable because it was an undue economic burden and that the clause was unenforceable because it was a contract of adhesion. The defendant appealed from a superior court ruling that the arbitrations clause was unenforceable. The court of appeal affirmed, ruling that the clause was unconscionable and lacked mutuality because this was a contract of adhesion where the tenant had no bargaining power. Note: See Flores v. Transamerica Home First, Inc. (2001) 93 C.A.4th 986. In this case, the court ruled that a mandatory arbitration clause in a reverse mortgage is unconscionable and unenforceable by the lender as a contract of adhesion due to lack of bilateralism. A party does not have to wait to start legal action until an actual breach has occurred of there has been an anticipatory breach. Example: -renunciation of the agreement by the other party -an act that would make performance impossible, such as the seller conveying title to another before a scheduled close of escrow. Often, parties will look for ways to get out of contracts that are disadvantageous. If they disavow the contract by treating an action of the other party as a contractual breach when it was not such a breach, they might be guilty of breaching the contract themselves. Generally, the only party with a standing to sue for damages would be the injured contracting party. There is an exception in that a third-party beneficiary can sue for equitable or monetary remedy. A third-party beneficiary, while not party to a contract, was intended to be the beneficiary of the contract. As an example, if a close friend paid a painter to paint your house and the painter decided he didn't have to do it because your friend had died, you could sure for damages, the cost of having the house painted, because you were the third-party beneficiary of the contract. Accord and Satisfaction - see above Novation - see below Tender A tender is an offer to perform.. A party might refuse a proper tender in the mistaken belief that the tender is improper. As an example, a party might refuse $4,000 to discharge a debt with the mistaken belief that $4,400 was due. The refusal of full payment under a contract does not excuse the debt, but it does prevent future interest from accumulating until the party agrees to accept the proper tender. If a person's performance is a condition precedent or a concurrent condition for the performance of the other party, the first party must first make a tender of performance to hold the other party in default. Tender is not required to hold another party in default if tender of performance would be an idle act. For example, if a seller under a purchase contract sells the property to another, they buyer does not have to tender the purchase price because the seller is no longer capable of making a conveyance. Doctrine of Substantial Performance. Substantial performance allows recovery when an unintentional breach has occurred and the noncompliance is not related to substantial matters. Normally, the doctrine of substantial performance involves construction contracts, where a different or less expensive material than was specified was used, but the different material did not endanger the structure. In such a case, a court normally will say that the contract price should be reduced by the difference in value of the structure as built, and the value the structure would have had if the contract had been strictly complied with. Contractual Remedies The judicial remedies discussed in Unit 1 apply to breach of contract. Monetary Damages Compensatory damages Compensatory damages are awarded to make the injured party whole. They are financial compensation for the loss suffered. When a real estate purchase contract is breached, the measure of monetary damages would be the difference between the contract price and the property's fair market value at the time of the contract breach. (Reese v. Wong (2001) 93 C.A.4th 51) If a service or construction contract were breached, the measure of damages would be the additional reasonable costs incurred for the work in excess of the original contract price. An injured party has a duty to keep damages to a minimum or to mitigate them. For example, if a lessee breaches a lease, the lessor has a duty to use reasonable efforts to repent the premises. The case of Erlich v. Menezes (1999) 21 C.4th 543 involved a "dream home" built on an ocean view lot. Two months after occupancy, rain saturated the bathrooms and left 3 inches of water in the living room. Nearly every window leaked. The garage ceiling liquified and fell in chunks. Structural engineers found serious construction errors. The Erlichs sued the builder Menezes. The San Luis Obispo County Superior Court awarded them $406,700 for the cost of repairs, $100,000 for emotional distress, and $50,000 for physical pain and suffering. The Court of Appeal affirmed the award. The California Supreme Court affirmed as to the cost of repair but reversed the award for emotional distress. The court held that negligent breach of contract is not sufficient alone to support a tort action.To find the builder liable for emotional distress, the breach of contract must be accompanied by fraud, or the party must realize the breach will cause serious harm in the form of anguish, etc. Note: Damages for defective construction are minted to repair costs, lost use, and/or relocation expenses, or the diminution in value. Punitive or exemplary damages These damages awarded in addition to compensatory damages to punish the wrongdoer. They are awarded by courts for intentional and outrageous acts. Excessive punitive damages will not be upheld by the courts. In the case of Storage Services v. C.R. Oosterbaan et al. (1989) 214 C.A.3d 498, the trial court had awarded $75,000 in punitive damages against an agent because of fraud. This was at least one-third of the agents net worth and more than the agents annual gross income. The court pointed out that generally punitive damage awards exceeding 10% of a defendants net worth have been considered excessive. The court ordered a new trial on the damages unless the plaintiff agreed to a reduced award of $20,000 Nominal Damages Nominal damages are a token sum, such as $1 or $10, awarded for a breach where no real compensatory damages were warranted. Liquidated damages. - see below Waiver of damages In contract, people cannot waive their rights to hold another personally liable for damages for fraud, willful acts, or violations of the law, either willful or negligent (Civil Code Section 1668). Nevertheless, some contracts still contain such waivers of this type, apparently based on the reasoning that if people do not think they have any rights, they will not seek to enforce them. In the case of Salton Bay Marina v. Imperial Irr. Dist. (1985) 172 C.A.3d 914, the plaintiffs had a written agreement with the irrigation district that shielded the irrigation district from liability and gave the district the right to flood the plaintiffs property. According to Civil Code Section 1668, contracts affecting public interest that purport to exempt a party from their liability for negligence are against public policy and void. The court held that the flooding agreements were contracts affecting the public interest that attempted to exempt the district from its own negligence. The agreement was therefor against public policy and void. Equitable Remedies Specific performance Specific performance forces a party to perform as agreed and is awarded only when compensating damages are inadequate. Because land is a unique commodity, specific performance will be enforced for the sale or lease of land, agreements to convey easements, and lease assignments. Specific performance would most likely be granted to buyers or lessees when there is a compelling need for a particular property. Property sellers normally resell and sue for consequential damages from the defaulting first buyer rather than seek specific performance; however, sellers may be granted specific performance. The case of B D Inns v. Pooley (1990) 218 C.A3d 289 involved an agreement by Pooley to buy an 840-unit motel built by B D Inns for $6,825,000. The court held that, while B D Inns could have sued for monetary damages, it still had a legal remedy of specific performance to which it was entitled. Because specific performance is an equitable remedy, it will not be granted if - there has not been adequate consideration - is not just and reasonable - the agreement was obtained by unfair practices - the agreement was entered into under a misapprehension (Civil Code Section 3391) In the case of Gilbert v. Mercer (1960) 179 C.A.2d 29, an owner agreed to sell 65 acres of land for $325. Before the title was transferred, the prospective purchaser gave a listing on the property for $3,750 and received an offer for $3,500. The court refused to grant the buyer specific performance. The court held that there was sufficient evidence that the consideration was not adequate, and that in an action for specific performance, the plaintiff must plead and prove adequacy of consideration. Reformation In asking for the equitable remedy of reformation, a party is requesting that the contract be modified to reflect what was intended by the parties. Reformation will be granted only when there was a complete understanding between the parties that was not properly reflected because of fraud or a mutual mistake in drafting the contract, such as a typographical error in a legal description in a deed that provides a transferor property other than what was intended to be conveyed. Injunction An injunction is a remedy in equity that orders a party to cease an activity, such as trespass. Prohibiting an action prevents future harm. Courts may order a permanent injunction or simply a temporary restraining order. As an example, a court might order a person to cease an activity that is in violation of a deed restriction. Declaratory relief The remedy of declaratory relief results in a court order determining the rights and duties of the parties. This remedy can be sought before actual damages occur. Rescission Rescission is a retroactive cancellation or annulment a contract. Cancellation terminates future obligations, but rescission returns parties to their position before contracting. The basis for rescission can be fraud, mutual mistake of fact, impossibility of performance, undue influence, or lack of contractual capacity. Statutes also provide for rescission in a number of specific cases, including the following - time-share purchasers in California have 72 hours after contracting to rescind their contracts - purchasers in undivided interest subdivisions have the right of rescission within three days of executing the contract. - Civil Code Section 1689.6, dealing with home solicitation sales, provides a three-business-day right of rescission. -Civil Code Sections 1695.13-1695.14 provide for rescission within two years on home equity sales where a buyer of one to four residential units took unconscionable advantage of an owner in foreclosure. -Section 66499.32 of the Government code allows buyers to rescind within one year of discovery that a parcel was wrongfully divided according to the Subdivision Map Act -The interstate Landfill Disclosure Sales Act, 15 U.S. Code Section 1703(b), gives purchasers the right to rescind within 7 days after signing for purchase of undeveloped land covered by the act. -According to the Truth in Lending Act, 15 U.S. Code Section 1635(a), buyers may rescind up until midnight on the third business day following a transaction that places a lien on the borrower's residence. The rescission rights do not apply to purchase money, primary loans, or loans in which a state agency is a lender. For a minor breach, courts ordinarily will allow only compensatory damages, not rescission. Waiver - See below

homeowners association (HOA)

governing association of owners required for common interest subdivision A homeowners association (HOA) board of directors, elected by the owners, is the governing body for the condominium.(Homeowners associations also govern cooperatives, community apartment projects, planned unit developments, and time-shares.) Homeowners associations can place reasonable assessments against units, which if unpaid are liens against individual units. Homeowners associations can record their lien against a members property for unpaid assessments if the amount exceeds $1,800. Theres a 90 day redemption right after lien foreclosure. The HOA must notify the homeowner of the right of redemption, Membership in a HOA is generally a deed covenant that runs with the land. An HOA must prepare an operating budget and must perform a reserve study every three years to determine adequacy of reserves. What are homeowner responsibilities and what is the responsibility of the HOA and be a matter of contention.

chattels

items of personal property Personal property, also known as chattels, is any property that is not real property. Personal property is generally considered movable. Title to personal property does not automatically pass with the transfer of title to the real property where it is located

fixtures

items of personal property that are attached or annexed to real property Items of personal property that have become so attached to realty as to become real property Fixtures are formal items of personal property that have become affixed to realty so that they are now part of the property. For example, a household furnace is personal property before it is installed into a residence, but it becomes real property ( a fixture) after it is installed. Title to fixtures generally transfers with real property. There are five tests for determining whether or not an item is a fixture 1) Intent: This is the most important test. Did the improver intend to make a permanent improvement to the property? If so, it is likely to be a fixture 2) Method of attachment. Is the item attached in a permanent manner? Bolts, nails, concrete, and pipe are generally considered permanent, even though an item can be readily removed. If an item is attached by roots (a tree or a plant) it generally is regarded as a fixture A fixture could be attached by it's weight alone. An example would be a building that is not attached to a foundation. Personal property does not become a fixture the it has been wrongfully attached - when it is attached by a person who is not the owner of the real property - and who had no right or permission to make the attachment 3) Adaptability: Was the item specifically adaptable to the use of the real property? For adaptability, the item meed mot be custom made; it need only relate reasonably to the use. For example, an argument could be made that an odd-sized refrigerator placed in a specially built alcove is a fixture, even though its only connection to the real property is a plug in a wall socket All three of the preceding tests need not be met for the courts to determine that an item is a fixture. Civil Code Section 1019 added two additional tests for fixtures 4) Agreement: Parties are free to agree on whether an item is realer personal property, and their agreement will govern the nature of the property. 5) Relationship of the parties: When it is not clear of an item is a fixture or personal property, the issue will be determined in favor of the - tenant between landlord and tenant - buyer between seller and buyer - lender between borrower and lender

unincorporated association

nonprofit association An unincorporated association is a nonprofit organization that under common law could not hold a title because it is not an entity. In California, however, unincorporated associations for religious, scientific, social, educational, recreational, or benevolent purposes may hold title to real property necessary for their purpose in the name of the organization. Property nonessential to the operation of the organization cannot be held for more than 10 years. An unincorporated association can convey property by a deed executed by the president and secretary or others as authorized by the bylaws. Recording a verified certificate listing the names of officers and other people authorized to convey would be conclusive proof that a deed so executed was a properly executed conveyance. In California, members of such associations are not personally liable for leases or purchases of property used by the association unless they agree to liability in writing

actual notice

notice that has been expressly given and is known to a party While recording and possession give constructive notice of an interest in real property, actual notice is express knowledge of the prior interest. A person who has actual knowledge of a prior interest cannot claim property if interest because they recorded first. Actual notice has the same effect as the constructive notice of recording. Constructive notice: Inspection of the property Recorded Instruments All Persons Charged with Knowing Actual Notice: Person Has Direct Knowledge of Information

community property

property acquired during marriage that is considered, as a matter of law, to be owned equally by the spouses Spanish Influence The Treaty of Guadalupe Hidalgo (1848) ended the Mexican-American War, resulting in California becoming part of the United States. Under this treaty, the United States agreed to recognize the property rights of MEXICAN citizens. This agreement represented more than just recognizing title to property, however. It also made California a community property state. MEXICO had adopted from Spain the concept of community property, in which property acquired during marriage is owned equally by the spouses. Community property, originally a Spanish concept, holds that property acquired by a couple during marriage is owned equally by both spouses. This principle differed greatly from the early English concept that a wife's property became the property of the husband. As noted earlier, the Treaty of Guadalupe Hidalgo ending the Mexican War in 1848 called for the rights of Mexican ownership of property to be respected. Mexico had adopted the Spanish concept of community property. The California Constitution specifically adopted the community property concept. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico allows ownership of community property, and in Alaska, parties can agree to community property ownership. Formerly, in California, property acquired in the wife's name alone was presumed to be her separate property. Now, property acquired by either spouse alone during marriage is presumed to be community property. The burden of proving it to be separate property falls on the spouse claiming separate property. Property that is acquired with community property funds is community property. Property that is acquired by one spouse using the credit of the other spouse is community property Separate property remains separate property unless it becomes commingled so as to be indistinguishable from community property, in which case it would become community property by the commingling. One spouse's use of community property to improve the separate property of the other spouse is considered a gift and is not commingling. One spouse's use of community property to improve their separate property could be commingling, which would convert the separate property into community property. However, the courts are more likely to give a community property interest proportionally based on the community property investment. Exclusions In California, excluded from the equal ownership community property are - property separately owned by husband or wife before marriage -rents and profits from separate property -property acquired by either spouse by gift or inheritance -property acquired with separate property funds -damages received for personal injuries - earnings and accumulations of a spouse while living separate and apart (include legal separation) Generally, when there is no marriage, there is no community property. When one or both spouses believe that a valid marriage existed, however, the property acquired that would have been community property had a valid marriage existed, will be considered quasi-marital property and will be divided as if it were community property Domestic Partnerships As of January 2005, same sex domestic couples, although not married, may register with the California Secretary of State. Property acquired with earned income after registration will be considered equally owned as if community property. This registration is also available to unmarried opposite sex couples where one party is at least 62 years of age. Note: The purpose of domestic partnerships for older, opposite sex couples was likely to allow couples to retain greater Social Security benefits and also have property rights similar to community property.

survivorship

right of surviving joint tenant(s) to interests of another joint tenant on the latter's death The right of survivorship means the right if other co-owner's to receive one co-owner's interest upon his death. Upon the death if a tenant in common, his interest does not pay by survivorship to the other tenants in common. The interest passes by will or intestate succession to the heirs of the decedent. If the tenant in common dies intestate (without a will) and leaves no heirs, the interest will escheat (pass) to the state. (Unmarried partners who live together will ofter choose tenancy in common as their form of ownership when the survivorship feature is not desired)