Types Of Zoning Laws And How They Affect Your Real Estate Investment

Zoning laws may affect the value of your real estate investment. There are three main zoning area, and these are residential, commercial, and industrial. Residential zoning applies to residences and multi family dwellings, commercial zoning usually applies to businesses, and industrial zoning normally applies to manufacturing shops and plants. Zoning laws will vary from area to area and city to city, so make sure that you know the zoning restrictions on any real estate before you invest.

The purpose of zoning laws is to specify what types of dwellings or businesses may reside in a certain area. Obviously you would not want to see an adult entertainment club next to an elementary school, or a manufacturing plant in the middle of a residential area. Zoning laws group areas of the town or city into specific areas for each type of land use. Zoning laws may change, and a real estate investment that is zoned commercial or residential today may be rezoned for another use in the future.

If you invest in real estate that is rental property, your tenants may cause zoning problems. Tenants who run a business from their home may unknowingly violate zoning laws, so it is very important to have a clause in your lease agreement stating what can and can not be done on your rental premises. Most home based businesses are not a problem, but if the tenant has customers coming to the property, there may be complaints about noise or traffic which can cause problems.

Another way that zoning laws may affect your real estate investment is when zoning is changed from one class to another. If the zoning is changed from residential to another class this can mean a higher property value, which means more value for your investment.. If the class is changed to residential then the property value may drop, causing you to lose money on your investment. Sometimes there is a conditional zoning requirement. One case may be where a residence has existed on a property for years. If the zoning laws change the area from residential to commercial, the city can not force the owner to sell or tear down the residence. But if the home is destroyed in a natural disaster or fire it can not be rebuilt, and only commercial buildings can be built on the land.

It is very important for a real estate investor to know the zoning requirements of any property before they invest. Find out what these laws are and any proposed changes. This can save you a lot of money and aggravation. Make sure that your lease agreement states what activities are allowed and not allowed on the rental premises. Find out what the other properties in the same area as the possible investment are zoned. By being aware of the zoning laws and requirements you will avoid some costly and time consuming mistakes.

California Law for Real Estate Investors – Including Forclosure Issues

One mistake that California real-estate investors make is signing a purchase contract too soon when a probate is required.

Some real-estate investors try to buy properties when the deceased left real estate to family members or friends who cannot make the monthly loan payments. If the deceased had a trust, generally there is no problem: The current trustee has the power to sell the property.

It is different, though, if the deceased either had only a will, or had neither a trust or a will. In that case there has to be a probate unless there is a will leaving everything to a surviving spouse. (There is also an exception if the assets of the estate, without subtracting any loans, is less than $100,000, but that is very unlikely if real estate is involved.) With a will leaving everything to a surviving spouse, it is often possible to bring a “spousal petition” in the probate court to transfer full title to the surviving spouse without having to go through an entire probate.

Otherwise, usually a probate must be filed or there will not be clear title to the real estate. Basically a probate is a court procedure where the will (if any) and a listing of the assets are filed with the Probate Court, a person representative (executor) is approved by the Court, creditors and heirs are given a chance to submit claims, a representative of the Court frequently determines the value of the estate, and ultimately the Court issues an order directing how the money and property in the estate are to be distributed. The whole process can take eight months or so, although the time depends on the complexity of the matter.

Real-estate investors should understand that an executor has no authority to sign contracts for the sale of real estate until that executor is approved by the Probate Court as the personal representative for the estate. Also, unless the petition for the probate asks that the personal representative be given “full authority” (and the Court grants it), any sale of real estate from the estate must be specifically approved by the Court. If the Court has to approve the sale, it may be sold for no less than 10% below the fair market value determined by the Court representative who values estate property. Sometimes executors try to handle the probate themselves without the help of an attorney; few know to ask for “full authority” when the initial papers are filed – and if it is not requested initially, the Court frequently will be reluctant to grant it later. On the other hand, once a personal representative has been approved with “full authority”, any agreement signed with that personal representative regarding the purchase of real property should be binding.

Because probate is complex and non-attorneys who try to handle a probate themselves frequently run into problems, if you are dealing with a probate situation as a potential purchaser, try to get the executor to retain an attorney who can handle the probate. This does cost some money (although the attorney is only paid at the end of the probate), but otherwise the property may be lost to foreclosure. This is particularly true since, while many lenders will stop the foreclosure process if they are given proof that an attorney is handling the probate, frequently they will not stop the process if no attorney is involved.

Preforeclosure Sale Requirements

Another mistake that real-estate investors make is not following the requirements when purchasing residential property in California if a notice of default has been recorded by the lender.

California has a detailed set of statutes setting out requirements for contracts for residential preforeclosure sales. (Civil Code §§1695-1695.17.) These statutes apply to any residential real property consisting of one-to-four family dwelling units, one of which the owner occupies as his or her principal place of residence, and against which there is an outstanding notice of default. These statutes require, among other things, that the contract:

Spell out all terms of the agreement (including, for example, buyback rights).

Contain certain notices that meet certain size and bolding requirements.

Allow the seller to cancel, usually up until midnight of the 5th business day after signing.

Be accompanied by a Notice of Cancellation form in duplicate.

Also, until the cancellation period ends, the buyer cannot:

Have the seller sign a deed or deed of trust.

Record any deed or deed of trust regarding the property.

Transfer any interest in the property to a third party.

Pay the seller any money or other consideration.

In addition, the purchaser cannot make any untrue or misleading statements regarding the value of the residence in foreclosure, the amount of proceeds the seller will receive after a foreclosure sale, or any other untrue or misleading statement concerning the sale of the residence.

Moreover, purchasers are forbidden from taking “unconscionable advantage” of the seller. This applies if the seller is incompetent or does not understand the transaction (for example, if the seller is not fluent enough in English), and may apply in other situations as well. If “unconscionable advantage” is taken, the transaction may be rescinded at any time within two years of the date of the recordation of the conveyance of the residential property.

If any of these provisions are violated, the seller may not only be able to rescind the agreement but also recover actual damages, attorneys’ fees and costs, and exemplary damages in an amount equal to the greater of three times actual damages or $2,500. Fraud or deceit may additionally be punished by a fine of $25,000, by imprisonment in the county jail or in state prison for not more than one year, or by both for each violation. Other remedies may apply as well.

Any provision of a contract which attempts or purports to limit the liability of the purchaser is void and, at the option of the seller, renders the purchase contract void.

Moral of the story: If you are going to be purchasing preforeclosure residential property, you should have an attorney review your forms.

Restrictions on Giving Foreclosure Advice

California also has specific statutes regarding residential foreclosure consultants. (Civil Code §§2945-2945.11.) Part of these statutes are directed at those who charge an owner for helping the owner obtain any money remaining after a foreclosure sale, although the statutes cover more than just that. “Foreclosure consultant” basically is defined as any person who makes offers to perform for compensation or who performs for compensation any service to:

1. Stop or postpone the foreclosure sale.

2. Obtain any forbearance from any lender.

3. Assist the owner to exercise a right of reinstatement.

4. Obtain any extension of time for the owner to reinstate his or her obligation.

5. Obtain any waiver of an acceleration clause.

6. Assist the owner to obtain a loan or advance of funds.

7. Avoid or ameliorate the impairment of the owner’s credit.

8. Save the owner’s residence from foreclosure.

9. Assist the owner in obtaining any remaining proceeds from the foreclosure sale.

With the exception of the last item, there are exceptions for licensed real-estate brokers and agents, accountants, licensed residential mortgage lenders and servicers, etc.

The owner has the right to cancel such a contract until midnight of the third “business day” after the day on which the owner signs the contract.

The contract must be in writing and, among other things, must:

Fully disclose the exact nature of the foreclosure consultant’s services.

Fully disclose the total amount and terms of compensation.

Contain a specific notice in a minimum size and with bolding.

Have a Notice of Cancellation form attached in duplicate.

Only after the 65-day period following any foreclosure sale, may the foreclosure consultant enter into a contract to assist the owner in arranging the release of funds remaining after the foreclosure sale. This agreement also must contain a specific notice in a minimum print size in bold.

Among other things, it is a violation for the foreclosure consultant to:

1. Receive any compensation until after the foreclosure consultant has fully performed.

2. Receive any fee or other compensation which exceeds 10 percent per annum of the amount of any loan which the foreclosure consultant may make to the owner.

3. Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.

4. Receive any consideration from any third party in connection with services rendered to an owner unless that consideration is fully disclosed to the owner.

5. Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted.

6. Take any power of attorney from an owner for any purpose.

7. Induce or attempt to induce any owner to enter into a contract that does not comply with the foreclosure consultant statutes.

8. Enter into an agreement to assist the owner in arranging the release of surplus funds prior to 65 days after the trustee’s sale is conducted.

Note that (e) means that someone cannot both be paid as a foreclosure consultant AND also purchase some or all of the property.

A foreclosure consultant is also liable for the acts of any representative that he/she uses.

Any waiver by an owner of the statute is void, and any attempt by a foreclosure consultant to induce an owner to waive his/her rights is a violation of the statute.

If a foreclosure consultant violates any of the statutes, the owner may receive a judgment for actual damages, reasonable attorneys’ fees and costs, and appropriate equitable relief. The court also may, in its discretion, award exemplary damages and must award exemplary damages equivalent to at least three times the compensation received by the foreclosure consultant in violation of certain provisions, and three times the owner’s actual damages for any violation of other provisions, in addition to any other award of actual or exemplary damages. The owner may bring the action up to four years after the date of the alleged violation. In addition, there may also be criminal penalties of not more than ten thousand dollars ($10,000) and/or imprisonment in the county jail for not more than one year, or in the state prison.

If you are going to receive any type of compensation for acting as a foreclosure consultant, you should have an attorney review in advance the agreements you will be using.

Predatory Lending Law

California’s predatory lending law (Financial Code Sections 4970-4979.6) applies to certain loans secured by a lien on a residence.

Basically, the predatory lending law applies where there is a “consumer loan” (defined below) in which the original principal balance of the loan does not exceed two hundred fifty thousand dollars ($250,000), adjusted upwards every five years after 2001 in accordance with the California Consumer Price Index, in the case of a mortgage or deed of trust, and where one of the following conditions are met:

1. For a mortgage or deed of trust, the annual percentage rate at consummation of the transaction will exceed by more than eight percentage points the yield on Treasury securities having comparable periods of maturity; OR

2. The total points and fees payable by the consumer at or before closing for a mortgage or deed of trust will exceed 6 percent of the total loan amount.

“Consumer loan” is defined to mean a loan that is secured by real property located in California that used, or intended to be used or occupied, as the principal dwelling of the consumer that is improved by a one-to-four residential unit. “Consumer loan” does not include a reverse mortgage, an open line of credit, or a loan that is secured by rental property or second homes. “Consumer loan” also does not include a bridge loan, which is defined as any temporary loan, having a maturity of one year or less, for the purpose of “acquisition or construction” of a dwelling intended to become the consumer’s principal dwelling.

What this means is that if the loan is for an amount greater than $250,000 (and is secured by a mortgage or deed of trust) or the term of the loan is a year or less AND is for acquisition or construction, then the predatory lending law does not apply.

If the law does apply, a number of complex requirements come into play. Among other items, there can be no prepayment penalty for the first 36 months, any other prepayment provision must meet specific requirements, the interest rate cannot increase on default, the originator must reasonably believe the borrower will be able to make the scheduled payments, acceleration cannot be based on the lender’s sole discretion, there are restrictions on payment of home-improvement contracts and there must be an identifiable benefit to the borrower. In addition, a person who originates a covered loan cannot make a covered loan that finances points and fees in excess of one thousand dollars ($1,000) or 6 percent of the original principal balance, exclusive of points and fees, whichever is greater. Because of the complexity of the statute, if you are going to be making loans covered by the statute, you should seek an attorney’s services.

If the person violating this section is licensed, the licensing agency can take disciplinary action, including suspension or revocation of the license. In addition, any person who willfully and knowingly violates this law is liable for a civil penalty of not more than twenty-five thousand dollars ($25,000) in an action brought by the licensing agency.

Whether licensed or not, a person who fails to comply with the law is civilly liable to the borrower in an amount equal to any actual damages suffered, plus attorneys fees and costs. For a willful and knowing violation, the offender is liable to the borrower in the amount of fifteen thousand dollars ($15,000) or actual damages, whichever is greater, plus attorneys fees and costs.

A court may, in addition to any other remedy, award punitive damages to the borrower upon a finding that such damages are warranted.

While the City of Oakland had an even stricter predatory lending law, the California Supreme Court struck it down as preempted by the State law in American Financial Services Assn. v. City of Oakland (2005) 34 Cal.4th 1239.

Usury Law

Usury is governed by Art. 15, §1 of the California Constitution, although some exemptions to it are scattered throughout the California statutes.

Subsection (1) governs loans primarily for personal, family, or household purposes, BUT Subsection (2) applies to all other loans. The latter limits interest to the higher of 10% OR 5% plus the then-current Federal Reserve rate.

A lender may charge a borrower an extra and reasonable amount for additional incidental expenses in negotiating, brokering, making, and securing the transaction without such charges being treated as interest. To determine this, you probably look at the points commercial lenders are charging for this size loan (at the same interest rate and same length of loan) at the time the loan was made. To the extent that points are in excess of that amount, those points count towards the usury limit.

There are a number of exemptions. The primary one is for any loans made or arranged by any person licensed as a real estate broker by the State of California and secured in whole or in part by liens on real property, assuming that the broker is compensated (however little) for doing so.

There is another exemption for “industrial loan companies” that are licensed by California, and an exemption for licensed finance lenders.

In addition, there is an exception for shared-appreciation loans.

If there is a violation and the interest has not been paid, the interest provision is void and the lender recovers only the principal, although the borrower could seek punitive damages as well. If the interest has been paid, then an uncodified law allows treble damages.

f you are going to pay a licensed real-estate broker to arrange the loan, it is strongly recommended that you have a brief written agreement in place with that broker as evidence.

Licensing for Making Residential Mortgage Loans

You cannot be engage in the business of making residential mortgage loans in California without being licensed in some way. (See, e.g., the California Residential Mortgage Lending Act, California Financial Code Section 50000 et seq.) This means that either you will need to obtain a license or involve a licensed real-estate broker or some other appropriately licensed person for such loans.

Other Limitations on Real-Property Loans

The California “Real Property Loans” statutes puts restrictions on late charges and on prepayment penalties. (California Business & Professions Code §10240 et seq.)

Any late charge imposed for late payment of an installment due on a loan secured by a lien on real property cannot exceed an amount equal to 10 percent of the installment due, except that a minimum charge of five dollars ($5) may be imposed. No charge may be imposed more than once for the same late payment of an installment, and no late charge may be imposed on any installment which is paid or tendered in full within 10 days after its scheduled due date.

Also, only a prepayment made within seven years of the date of execution of such mortgage or deed of trust may be subject to a prepayment charge. An amount not exceeding 20 percent of the unpaid balance may be prepaid in any 12-month period. A prepayment charge may be imposed on any amount prepaid in any 12-month period in excess of 20 percent of the unpaid balance which charge shall not exceed an amount equal to the payment of six months’ advance interest on the amount prepaid in excess of 20 percent of the unpaid balance.

There are additional requirements that apply if the loan is a first trust deed with a principal of less than thirty thousand dollars ($30,000) or is a junior lien with a principal of less than thousand dollars ($20,000). Such small loans seem unlikely.

Trusts to Avoid Transfer Taxes and Due-on-sale Clauses

A land trust (at least in California) is just a trust that has a piece of real property as the trust asset. (Some states have specific land-trust statutes, but California does not.)

Virtually all fixed-interest loans secured by a residence have a “due-on-sale” clause that allows the lender to call the loan when the property is sold, transferred, etc. Some purchasers have the property put into a trust so that the lender does not discover that a transfer of the property has been made that would trigger the due-on-sale clause. More specifically, what they do is have the original owners set up a trust and transfer the property into it via a deed. Then when sale occurs, the beneficiaries and trustees in the trust are changed to the new owners; no deed to the new owner is recorded. Some take it step further and when they re-sell the property they again change the beneficiaries and the trustees to the latest new owners.

Lenders, though, have a variety of ways by which they learn that a transfer has taken place (for example, the signature of the trustee changing on the checks). As a practical matter, a year or two may go by, but the lender almost always seems to find out eventually. Some lenders are governed by regulations that require them to exercise the due-on-sale clause if they discover that a transfer has been made.

Probably the most a lender would do is call the loan and not actually sue anyone, but taking this approach seems to constitute inducing the original owner to breach the due-on-sale provisions of the loan agreement and might even be considered fraud. There are also Prop. 13 issues in California in that normally a transfer of real property (except to certain family members) triggers a reappraisal of the property at fair market value. That could also expose a purchaser to liability in this situation.

There are legitimate uses of a land trust, including preserving privacy and avoiding – legally in some cases – some transfer taxes. If a piece of property is only going to be owned for a few weeks before resale where a deed is used with the last buyer, a land trust may be OK, since the lender and the county are notified of that sale. Outside of that situation, using a land trust to avoid the due-on-sale clause or reappraisal may expose the purchaser to liability.

Required Legal Forms for Buying or Selling Real Estate

For individuals looking to buy or sell property with the help of a real estate agent, making sure the necessary legal forms are completed is generally not a concern. It is agent’s job to help ensure that all the proper steps are taken to make the property transition as smooth as possible.

Unfortunately, real estate agents are pricey, and in this housing market homeowners are looking for any way to cut back on overall net cost of putting a house on the market and make the most from their investment. This means that more and more buyers and sellers are wading into the real estate market unassisted.

DIY home buying and selling can pay off big in the end, but navigating through the legal obstacle course can be a challenge. Read below to review a checklist of legal documents you need to complete before buying or selling a property.

Sales Contract

A sales contract is the legal document which specifies and binds the agreement between the buyer and seller. Sample contracts can be obtained, but traditional sales contracts include the final purchase price, as well as any contingencies allowing the deal to be nullified, such as a failed home inspection or a buyer who is unable to find financing. Both the buyer and seller must sign the contract to make it legal.

Property Disclosures

Sellers must fill out, sign, and submit a disclosure form before finalizing the sale of their property. A property disclosure is where the seller lists all of the defects of the property as honestly as possible. Failure to provide a complete list of property defects can result in a lawsuit where the seller is held liable.

Occupancy Agreements

Occupancy agreements are responsible for defining the date the seller must move out, and when the buyer is permitted to move in. If the buyer is moving into the property prior to the finalization of the deal, or if the seller is occupying the property after the deal is confirmed, then separate pre-occupancy and post-occupancy documents must be completed.

Lead Paint Record

If a property was built before 1978, under federal law the seller must submit a lead paint hazard form. The form must contain a lead paint warning, statement that the seller has fulfilled all lead paint legal requirements, and an acknowledgment that the buyer received a pamphlet (approved by the EPA) on the dangers of lead paint poisoning. Both the buyer and seller must sign and date the document as well.

Offer and Counter Offer Forms

Sellers have the option of giving the buyer an offer form to fill out when bidding on the property. The seller, in turn, can either submit a counter offer form to the buyer, or sign and approve the buyers offer. These forms aren’t necessary, but can prevent future misunderstandings.

Third-Party Financing Addendum

If the buyer intends to take out a mortgage to finance the purchase of the property, then a third-party addendum will be required. This document allows for the deal to be terminated if the buyer is unable to receive financing in a specified amount of time.

Homeowner’s Association

For properties that are members of a homeowner’s association, a couple additional documents will need to be filled out and submitted: a resale certificate, and an addendum transferring over the membership fees of the homeowner’s association. In most states, failure to provide the buyer with association information can result in termination of the deal at the seller’s expense.

Title Documents

The job of a title company in a property sale is to schedule and prepare for the sale closing, and handle the transfer of funds. If a buyer or seller decides to hire a title service to oversee the sale, make sure the necessary documents are included in the deal.

Real Estate Attorneys

Deciding to put your property up for sale by owner, or buying a property from a seller without an agent, can be financially beneficial to both parties involved. However, it also means there is an increased risk of failing to complete the complicated legal procedure of transferring property.

The Purchase and Sale of Commercial Real Estate in California

I – Risks are allocated in commercial real estate transactions by the negotiation of representations, warranties, disclaimers, and releases.

A warranty or representation is an affirmation by the seller of a fact or facts relating to the property. See, 3 Witkin, Summary of California Law, Sales §§50-75 (9th ed 1987). Failure of a condition in the agreement generally excuses a party’s performance, but breach of a warranty entitles a party to damages and possibly rescission. Unless a warranty is also a condition, its breach will not relieve the buyer from the duty to perform, although any damages might be offset against any sums owed by the buyer. See 1 Witkin, Summary, Contracts §§721-723.

While warranties allocate the risk of certain potential post closing events and can force sellers to make disclosures, the limits placed on the Seller’s warranties can also serve as a road map for the Buyer’s due diligence.

Beginning with the letter of intent, the Seller’s objective is to give as few warranties as possible, to limit the scope of the warranties given, and to provide that if the Buyer approves the property, the Buyer will be relying solely on its own investigation and purchasing the property “as is.”

Warranties are often heavily negotiated because of the parties’ competing objectives: The buyer wants protection from unknown risks, while the seller wants to eliminate warranties or at least limit them to necessary disclosures. If the purchase price has been discounted, or if the seller is in a liquidation mode, or if the buyer has negotiated a substantial time period during which to conduct a due diligence investigation, the seller may be unwilling to give more than minimal warranties.

II – Sellers should be made aware that they cannot fail to disclose material information about the property in their possession without risk of liability, even if the seller has made no warranties.

In the final analysis, the Seller’s best protection is to make full and fair disclosure in writing about the property. This can be done by qualifying any representations and warranties by the disclosure of problems with the property set forth in one or more exhibits to the purchase agreement.

An “as is” clause will not protect the Seller from the failure to disclose materia! facts known to the Seller which would affect the Buyer’s decision to purchase least when those facts are not readily discoverable by the Buyer. See Loughrin v. Superior Court (1993) 15 Cal. App. 4th 1188; Shapiro v. Hu (1986) 188 C.A. 3d 324.

An “as is” clause will relieve the Seller from liability for defects in the property where the Seller was not aware of the defects even if they were not readily discoverable by the Buyer. Id.

A release with a waiver of Civil Code § 1542 initialed by the Buyer will bolster an “as is” provision, particularly where the purchase agreement delineates the types of risks being released.

In addition, a covenant not to sue is helpful to underscore the understanding of the parties, e.g. in the absence of a breach of warranty that the Seller will not sue the Buyer relating to the condition of the property after the close of escrow. Once again, a fraud claim will not be defeated by such a provision.

III – The extent to which representations and warranties can be obtained from a seller depends upon both the nature of the warranty requested and the relative bargaining strength of the parties.

Some types of properties are traditionally sold without any warranties, such as “real estate owned” or “REOs” which have been foreclosed upon by an institutional lender.

Even where an REO is not involved, institutional sellers will seek to limit certain types of warranties to the actual knowledge of those employees who have had “hands on” involvement with the property.

The Seller’s goal is to limit future liabilities as much as possible.

A. This particular concern can sometimes be resolved with a very short expiration period for the warranties. This “survival period” is negotiable, but will probably be shorter than the applicable statute of limitations.

B. The Seller will want to avoid any “hold backs” in escrow of a portion of the purchase price during the survival period. Depending on the nature of the potential problem and the future of the Seller, the Buyer may seek to negotiate a hold back.

C. It is also helpful for a Seller to negotiate a “floor” (a claim will not be allowed unless the alleged damages exceed a minimum amount) and “ceiling” or upper limit on warranty liability (except where a claim is based on intentional fraud).

The buyer will also want the purchase agreement to specify which representations and warranties survive the closing.

Warranties that the Seller is duly organized, has authority to execute the documents and has obtained all necessary consents to the sale will customarily be given by a Seller.

Warranties with respect to title matters are not customary in California and sellers will take the position that title insurance and endorsements will adequately protect the seller. Also, a seller may provide the buyer with an ALTA survey. The buyer can then specify which title exceptions and survey matters should be eliminated or cured before the closing.

An exception may occur with respect to unrecorded matters and leases. A seller should be willing to warrant that no unrecorded matters affect title, except as disclosed in an exhibit to the purchase agreement or by the ALTA survey discussed above.

A Seller should be willing to warrant that an attached rent roll identifies all leases affecting the property.

Warranties with respect to absence of claims, litigation, condemnation and similar matters are often given by Sellers if qualified by the “actual knowledge” of specific persons who are knowledgeable regarding the property. The Seller will also want to provide that the employee with actual knowledge will not be personally liable for breach of a warranty.

The use of “to the best of Seller’s knowledge” may create problems since it may imply some level of diligence which is not adequately defined. The Buyer will argue that such a warranty includes what the Seller actually knows, plus what he or she should have known after a reasonable investigation.

An absolute warranty has no limitation and will be very difficult to obtain from a sophisticated Seller, except for matters such as those set forth in paragraph E. above.

Warranties with respect to the accuracy of financial information regarding the Property can be a major source of negotiation.

If the information is incorrect, the parties should negotiate who will bear the loss. This is a different issue than determining whether the Seller has “knowledge” and whether the knowledge is “actual” or “best” with an implied obligation to investigate.

If a warranty is given it should cover the accuracy of all expenses included in pass throughs to the tenants of the property.

Warranties regarding lists of tenants, rent rolls, lists of service contracts and true copies of documents are customarily provided by the Seller. However, Tenant estoppel certificates are the customary method for Buyers to confirm the accuracy of information regarding leases.

A form of the estoppel certificate should be attached to the purchase agreement.
A major issue in the sale of an office building or other multi-tenant property is the percentage of estoppel certificates that must be returned to satisfy the condition, it usually being agreed that certificates must be received from tenants under certain major leases and a specified percentage of other leases. Seller may negotiate the option to give a warranty or Landlord’s Estoppel Certificate to cover the estoppel certificates that are not received from the tenants.

The Purchase Agreement should specify that the estoppel certificates confirm all information given by the Seller with no material comments or corrections.

Warranties regarding compliance with zoning laws and building codes are virtually impossible to obtain from Sellers in view of the difficulty of knowing whether a building is in compliance. The usual compromise is to obtain a warranty that no written notice from a governmental agency that the property is not in compliance has actually been received.

Environmental warranties usually present serious negotiation problems.

Sellers should be willing to warrant that they, and their tenants, have not created any environmental problems. However, if an environmental investigation has been conducted, the warranty should be qualified by the contents of the environmental reports which will be provided to the buyer.

Environmental insurance may fill the void of some environmental warranties. It can take weeks to months to negotiate a policy of environmental insurance, so start early if it appears that this insurance may be required to close the deal.

If the Buyer is seeking to transfer some risk to the Seller, it may also be preferable to use an indemnity clause rather than negotiate a warranty that may be qualified by someone’s actual knowledge.

Sellers should include a provision that if a Buyer finds a warranty to be inaccurate prior to the losing, the Buyer cannot close in reliance on the false warranty and seek damages post-closing. See Jue v. Smiser (1994) 23 Cal App. 4th 312.

IV – Even if warranties are given, the buyer’s lawyer must advise the client to undertake a thorough study of the potential risks and liabilities associated with the acquisition.

While the client might focus on economic issues, such as the viability of the leasing market and comparable land values, the attorney should properly advise the client regarding the possible risks and liabilities which could be imposed upon the Buyer of the property.

Of particular importance is the need to communicate with the client regarding the client’s expectations of what the lawyer intends to do and what the client will do itself or through its staff. It is particularly important to discuss the entire due diligence program with the client and the probable cost of the legal work involved.

Many lawyers don’t perform diligence work that might be expected by the client because they believe. The work will be time consuming and the client will be unwilling to pay.

V – Special warranty and disclosure issues.

Undeveloped Land – – the Seller should make it clear he or she will not be responsible for any problems with entitlements or improvements to the land, and should provide that the Seller is selling the property subject to any unrecorded lien that may be created by a subdivision map or bonds to insure the completion of improvements, or that the Buyer should obtain its own bonds to complete the improvements.

Apartment Buildings – – warranties or representations about the number of units can give rise to litigation if any of the units has been “bootlegged” or is not legal.

Residential Property – – the C.A.R. form currently in use does not contain an “as is” provision or any warranties. The form does provide that the property is sold “7.A.(a)… in its PRESENT physical condition as of the date of Acceptance and (b) subject to Buyer’s investigation rights…” It is up to the parties or realtors to negotiate a more comprehensive “as is” provision or any warranties. Care should be taken on behalf of the seller of a residence with respect to physical or structural problems. The following documents can be used to protect the Seller’s interests.

One More Result of the Real Estate Meltdown in California – A Rental Crisis is Coming

The Coachella Valley of Southern California has been hurt tremendously by the real estate and credit crisis meltdown. Now a rental crisis is coming to cities such as Palm Springs, Palm Desert, Cathedral City, Rancho Mirage, Desert Hot Springs, Indian Wells, Indio, Coachella, Thermal, Yucca Valley, Joshua Tree, Twentynine Palms and Salton City which have all seen construction of new homes virtually grind to a halt after years of over-building.

It doesn’t take a Palm Desert real estate lawyer or a Palm Springs Realtor to know there is a rental crisis coming to these cities at the same time as real estate agents find themselves with few homes anyone wants to buy. Just in early October 2008, the area’s biggest Realtor in the valley announced it was closing its doors and letting all of it’s agents go to other real estate agencies. Rental homes in some areas such as Salton Sea, however, are difficult for renters to find.

Just when you thought you had heard enough about the economic crisis, the credit crisis, the real estate crisis, the foreclosure crisis or the construction crisis, add one more as fallout from the others. A rental crisis is coming to cities in California, just as sure as the heat comes to the desert every summer.

The number of households looking to rent is going up every month as foreclosures take away their homes. While homes sit empty either not for rent or at rents higher than these households can afford, the demand for cheap apartments is on the rise.

What makes this a crisis, is that construction of affordable rental property is declining significantly, rents are going up, unemployment is going up, and those who are employed are seeing their real income fall. That, adds up to a crisis.

Have you seen a tent city in your town? You may have one or more, but they simply may not be on the roads you travel.

As rents go higher and renters get poorer, despite the demand for cheap rentals, landlords are likely to be faced with potential renters that either fail credit checks or whose credit scores are far lower than they would like.

Estimates of when the real estate crisis will end are now being extended farther and farther out. When it was estimated that the real estate market in California would not recover until 2009, people thought such estimates were crazy. Now experts are predicting a turn around won’t occur until 2011 and no one is calling these experts crazy anymore.

This situation may have one silver lining. If demand for rental properties continue, and land values continue to decline, this may be the next area of growth for California’s construction industry.

But now, just when you thought you had seen the worst of the real estate crisis, it seems to have become worse again with the stock market crash. Whatever month or year people thought the real estate market would recover, we can probably push that date another six months to a year farther out.

If you have a landlord-tenant, real estate, mortgage or finance issue, our experienced attorneys can serve as your Palm Springs Landlord-Tenant Lawyer or your real estate attorney anywhere in Southern California. We have nearly thirty years of experience and have represented clients from San Diego to Orange County, from Newport Beach and Laguna Beach to San Luis Obispo, from Anaheim and Irvine to Carlsbad and La Jolla, from Ontario to Victorville, and from Temecula and Yorba Linda to Palm Springs, Palm Desert, Indian Wells and throughout the Coachella Valley.

Using a Power of Attorney For Real Estate Contracts

The use of a Power of Attorney in connection with real estate contracts and be a powerful tool, but care should be taken to avoid potential pitfalls. Here are a few common questions that Arizona real estate lawyers commonly face with regard to the use of the Power of Attorney in the real estate context.

Q. What is a Power of Attorney?

A. A Power of Attorney is simply a signed document that authorizes one person to act on behalf of another. A Power of Attorney is commonly used in Arizona real estate transactions when a party is not available to sign closing documents and wishes to designate another person to sign for them. In such cases, if a Power of Attorney must be used, it should be limited (Referred to as a “Special” or “Limited” Power of Attorney) to the discrete use for which it is intended. In most cases, an Arizona real estate lawyer should be consulted to make sure the Power of Attorney serves only the purpose it was intended for.

Q. Who are the parties to a Power of Attorney?

A. The parties are the principal (who grants the power) and the agent or attorney-in-fact (who gets the power).

Q. What is the scope of the given power?

A. This depends on what the document says. In most cases the principal should avoid a “General” Power of Attorney, which allows the agent to do anything the principal has the power to do. A Special or Limited Power of Attorney (described above), on the other hand, will allow the agent to do only what the principal requires to get the job done.

Q. How long does a Power of Attorney last?

A. Again, this can be controlled by what is stated in the document. If the written document does not specify an expiration date or event, the document generally remains in effect until it is revoked or until the principal dies or becomes incapacitated or incompetent. In most cases, an expiration date should be included in the document because even after a Power of Attorney is revoked it remains effective with regard to third parties who don’t know it has been revoked.

Q. What is a Durable Power of Attorney?

A. In some cases the principal wants the Power of Attorney to survive his or her disability. In such cases a Durable Power of Attorney is used to avoid the automatic revocation of the Power of Attorney upon the principal’s incapacitation or incompetence.

Q. Are there any special requirements for a Power of Attorney in Arizona?

A. Yes. In most cases the Power of Attorney must be signed by a witnesses not related to the principal and must also be notarized. Also, if the agent is to receive any compensation, this must be spelled out and separately initialed by the principal and witness. There are other requirements and harsh penalties, including possible criminal repercussions, so its a good idea to have an Arizona real estate lawyer help.

Q. How should the agent sign a document on behalf of the principal?

A. The agent should sign the principal’s name “by _____ (Agent) as his attorney-in-fact.”

As suggested above, you should be very careful before granting a Power of Attorney to someone else, or before agreeing to act on behalf of someone as their agent. Its always a good idea to seek legal counsel from an experience Arizona real estate lawyer before doing so.