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What Does The Largest Chinese Drywall Settlement In New Orleans Mean To California Homeowners Or Tenants?
Posted by: Kenny Tan
January 14, 2012
Topic: Foreclosure
Two days ago, a Federal Court in New Orleans approved what has been regarded as the larges
tsettlement ever for Chinese drywall cases in the United States. That case involves approximately 4500 homeowners located in the Southeast. The settlement has both property damage and personal injury components in it. Knauf Tian Jin, the supplier/ manufacturer for the defective Chinese drywalls has agreed to provide uncapped funds - estimated to be hundreds of millions to remedy the phsical damages caused by Chinese drywalls and capped funds in the amount of $30 million to compensate the victms for personal injuries attributable to Chinese drywalls.
It is believed that similar Chinese drywalls had been shipped to and installed in Western states such as California and Arizona between 2002 and 2007 during the construction boom and after Katrina which created a shortage of drywalls that prompted US suppliers and manufacturers to import the gypsum from China that was used to make these drywalls hence the name "Chinese drywalls" had been used to refer to and distinguish them from other drywalls.
At first glance, the settlement seems large. But this is a class action that involves about 4500 homeowners. Do the math and you'll see that the average amount to be paid to each homeowner to compensate them for personal injury is less than $10,000 - nonetheless still a rather attractive figure for an average wage earner.
What does this settlement mean to Californians?
So far, Chinese drywall problem has not become a phenomenon in California which is more arid and less humid than the Southeastern states like Louisiana and Florida which reported the most cases of Chinese drywall problems in the United States. It is believed that the culprits can be traced to either the chemicals or bacteria that came with the materials that were used to construct these drywalls either due to reactions with moisture in the air by certain chemicals or metabolism by the bacteria that lives in these drywalls. Whatever the theory may be, defective drywalls make a construction defect case for which the victims may claim compensation for property damage and personal injury if you're homeowner or tenant.
These Chinese drywalls may or may not manifest themselves as being defective for a long time if humidity is not a concern. But if there's a significant increase in the humidity in your household, you might notice some changes around the house that cause concerns. If you start smelling rotten eggs which can't be traced to bad eggs in your home and seeing your copper pipes corrode for unexplainable reasons or experiencing certain mold-like symptioms like watery or itchy eys, skin rashes, headaches and not able to trace them to mold around the house, and it your house was built around 2002 to 2007, you might be having Chinese drywall problems.
California has a 10-year statute of limitations for construction defects cases. We are now in 2012 so if Chinese drywalls had been used for the construction of your home in 2002, your claim may be barred by the statute of limitations if you have not discovered the problem early.
For now, however, it is not a huge problem in California.
Can A Botched Notarized Signature On The Deed of Trust Be A Viable Foreclosure Defense?
Posted by: Kenny Tan
October 29, 2011
Topic: Foreclosure
The recent California appellate decisions made it pretty clear that trying to stop a foreclosure based upon a procedural defect in the origination of of the loan or the foreclosure process is difficult.
If there's anyone out there who still believes that problems with MERS or botched assignment of the securitized mortgage can be weapons to stop foreclosure, I think they're either ill informed or have not been keeping up with the latest court decisions. In 2008 and 2009, there was a lot of excitement over the In Re Walker case about MERS issue and botched assignment; certainly there was cause to be excited if you're a borrower because this issue was hardly addressed in state courts. But in the last quarter there had been at least 3 decisions that touched upon these issues that came down against the borrowers. Now that's disheartening for borrowers trying to stay in their homes but its a hard cold truth.
Recently I stumbled across an issue relating to a flaw in the notarization of signatures on the deed of trust on a case involving a seller-financed purchase (which has nothing to do with securitzed mortgages or MERS) but it may be raised as a possible defense if lenders, private or institutional, try to foreclose on your property based on a defective security instrument.
I remember coming across several deeds of trust that had not been property acknowledged back in the crazy days of mid 2000s. Signatures were forged because the notary public neglected to perform their official duties or even complicit with the lenders in procuring forged signatures.
In California, it is a crime to participate in any forgery in the acknowledgment of a deed of trust. Forged deeds of trusts are void and cannot be used to foreclose on a property.
There are notaries who let others maintain control of their notary stamps to create forged documents. There are also others who would sign false affidavit attesting the witness signed the deeds of trust in their presence when in fact they had never even met the witness. This type of illegal activity was not uncommon in the mid to late 2000s.
Probably a botched notarization of a deed of trust can be used as a ground to stop a foreclosure whether or not there is actual fraud involved. All you need to prove is a flaw in the notarization process.
I had expected to receive more phone calls about this issue but I just don't hear people complaining much about it - though I know the process was pretty sloppy back then.
Would An Investor Have To Assume An Option To Purchase Clause On Existing Lease After A Purchase At A Trustee's Sale?
Posted by: Kenny Tan
September 17, 2011
Topic: Foreclosure
The Protecting Tenants After Foreclosure Act of 2009 has been around for a couple of years. Its purpose is to protect innocent tenants who pay their rent to landlords who had their properties foreclosed on while they the tenants are still occupying the premises.
Before this law was passed, many tenants were evicted by the new owners as a result of the foreclosure of the properties they're renting.
However, until the Protecting Tenants After Foreclosure Act sunsets, there's presently some - but not absolute - protection from eviction for the innocent tenants.
Assuming the tenancy is "bona fide", the new owner would have to honor it with two exceptions, i.e. he's planning to occupy the property as his primary residence or he has found a bona fide buyer to buy the property. If either exception applies, the tenants can be evicted with a 90-day prior notice.
But to what extent must the new successor owner honor the existing lease? I don't think the Act covers this issue very well. Granted it was the result of an emergency bill to address an urgent situation. So it was probably not well thought through.
Some residential leases provide for right of first refusal or option to purchase. What happens to these provisions after the property has been foreclosed on?
Stating the Act in paraphrase, it basically says the successor owner shall assume any bona fide lease until the remaining term of the lease. So the successor owner literally must honor the entire lease. What if you're an investor who's stuck with this property because either you're not occupying the property as your primary residence or you can't find a bona fide buyer for the price you want, and the lease provides for an option to the tenant to purchase it at the fair market rent less an agreed-upon discount which is more than your profit margin. Suddenly the tenant gives you notice to exercise the option, then what do you do?
Would a right of first refusal clause hamper your ability to sell the property to a bona fide buyer? It could and here's why.
Most right of first refusal clause requires the landlords to give the first priority to the tenants to buy the property on whatever terms the lease provides. Sometimes it gives the tenants the right to have a discount off of the fair market price. In a declining market, or for that matter any market, this means a reduction in the profit margin for the investor.
Having a right of first refusal clause may also mean that you can't even utilize the second exception, i.e. you've entered into a purchase contract with a bona fide buyer, because you're not supposed to do that until the tenant has chosen not to exercise his right of first refusal.
When that happens, you might as well forget about flipping the property and use the proceeds for the next investment. You might be stuck with this lease for a long time especially if it also contains successive options to renew. However, being a landlord in this market may not be too bad unless you're stuck with a lease that fixes the rent for a long period of time. This rent may be the fair market rent at the time the lease was entered but it may be below as the rental market has been hot the last several years due to a higher demand from the people who have been dislodged from their homes due to foreclosure.
About The Author: Kenny Tan is a real estate attorney practicing in the State of Caifornia with offices in both Northern and Southern California. He follows new development in foreclosure closely and regularly write blogs on interesting and seemingly unresolved issues in foreclosure
Quit Litigating The MERS And Assignment Issues To Stop Foreclosure!!
Posted by: Kenny Tan
September 14, 2011
Topic: Foreclosure
The messages from the Courts of Appeal in California are loud and clear - Quit litigating the MERS and assignment issues.
Back in 2009, several cases had been filed in California challenging MERS authority to commence foreclosure. The argument is that MERS didn't have any standing to foreclose because it didn't own the note and therefore if you had MERS as the "nominee for the beneficiary" on your deed of trust, you can stop the foreclosure on that ground or preempt lender's commencement of foreclosure by filing your own lawsuit first (as in the Gomez case).
Gomez is the first of several California appellate decisions that dealt with the question of whether MERS had standing to foreclose. It all started in a bankruptcy case filed Minnesota in 2008 where the bankruptcy court held MERS had no standing to file its proof of claim because it didn't own the note. Then later in 2009, a bankruptcy court in In Re Walker similarly held on a motion ruling that was unopposed by the lender. A few days ago, in Robinson v. Country wide, a different district in the California Court of Appeal published a similar opinion on an almost identical issue.
"Show me the note" defense is practically dead in California. While borrowers are frustrated in not being able to identify who the current holder of their note is, the Courts are not concerned who really holds the note as long as someone does which probably is the situation in almost all cases. The bottom line is money is owed to somebody.
So the message is "don't expect the courts to lend you a hand if you're looking to the courts for help on some mere technicalities".
In In Re Walker, the bankruptcy court stated that since MERS was not the holder of the note in the first place, it didn't have the right to assign the note since you can't assign something you don't own. The argument is since the assignment was invalid from MERS to the first assignee, any subsequent assignments to others are null and void, and therefore the last assignee didn't have the standing to foreclose as it didn't own the note. This issue has been dealt with recently. It is now abundantly clear how the California state courts feel about this issue. While these appellate opinions are based on some legal authorities and arguments, as the courts must in writing appellate decisions, you get the sense that courts have grown more and more impatient about borrowers trying to take advantage of mere technicalities to delay foreclosure.
If you're still googling the MERS issues in hope of finding an answer about stopping foreclosure, my question to you is "You live in California? Or where have you been in the last year?".
When Defendant Transfers Title to His Spouse As Her Sole And Separate Property, What Can You Do?
Posted by: Kenny Tan
September 04, 2011
Topic: Enforcement of Judgment
When you make the decision to sue someone for civil wrong, you hope to obtain a judgment that you can collect on. What would be the point of getting a judgment against someone who's judgment proof?
When someone is being sued or threatened with a lawsuit where the risk of liability is high, the first thing he thinks about is "how do I protect my assets?"
The temptation to transfer title to his properties, especially real properties, to someone else's name is high. But it may be naive to think that that's going to prevent creditors from coming after it later in time.
If you obtain a money judgment against a married person, for instance, practically all properties that he acquired during the marriage are community properties subject to enforcement of judgment. For example, if the property has equity and you have obtained money judgment, you may apply to the court to order the property be sold to satisfy the judgment.
Whenever someone transfers a property to put if out of the reach of creditors, that transfer may be set aside as a fraudulent conveyance.
So if the husband signs a deed to quitclaim a property owned and held under the names of himself and his wife and his wife as a "sole and separate property", for no consideration, that transfer is probably a fraudulent conveyance and can be set aside as such.
Setting aside a fraudulent conveyance is a legal remedy available under the Uniform Fraudulent Transfer Act (UFTA). It simply means that the law treats the transfer as void so the creditors may enforce the money judgment against it. You can even record a lis pendens against a property which is the subject of a fraudulent transfer.
Now even if the wife has immediately turned around and sold the property to a bona fide purchaser, it doesn't mean the husband and wife are off the hook. Creditors can still sue them for damages which they've caused by putting out of their reach. The court may in its discretion order a judgment against the wife for the amount the husband owes on the judgment. Also, punitive damages are available to the creditors if the fraudulent conveyance has been proven by clear and convincing evidence.
What Are The Pitfalls To Have A Friend Or Relative ? Even Stranger Hold Title To Your Property In Their Names On Your Behalf?
Posted by: Kenny Tan
August 28, 2011
Topic: Holding Title
Ordinarily people just don't do this unless they have a specific purpose in mind. Sometimes it's done to avoid holding assets in their names to protect these assets against past or future creditors, sometimes to obtain mortgage loans that they could not qualify for because they have bad credit. Sometimes parents purchase properties in the kids' names for estate planning purposes There's a gamut of reasons why people do this; good or bad, proper or improper, legal or illegal.
Whatever their reasons may be, there are definitely some risks involved with letting someone else hold title to your own property, no matter how much you think you can trust this person. Sometimes even a close family member cannot be trusted to honor your arrangement with them.
Here is an example of how things can go wrong for you.
Putting Title To Your Property In A Married Man's Name - What Happens When The Wife Files For Divorce
You've found a house that you like but want to purchase it. Your credit's bad and you need a loan to make the purchase. So you ask a friend with excellent credit score to help you purchase it and obtain a loan in his name. You got the loan and the escrow closed. You've paid the property taxes, insurance, mortgage; sometimes you'd write checks to your friends so he would pay on your behalf, sometimes your friend would bring you the bills and you pay them yourself.
For a while this arrangement worked fine without a problem.
There's just a little detail that you didn't consider when you decided to do this: The fact that your friend is married. A few years later his wife filed for divorce and found this property under this name and claims it as community property. The title to the property gets litigated in the family law court.
Now suddenly you regret not asking your friend to quitclaim it back to you soon enough.
When you go to family court to quiet title to the property to yourself, you have a lot explaining to the court why you're entitled to have title to the property. In case you don't know, the burden of proof for quiet title is by clear and convincing evidence. The theory for your quiet title is resulting trust which means your friend is holding it in trust for you.
But quiet title is an equitable claim which means your friend's estranged wife may be able to assert "unclean hands" as a defense against you. You can't come to equity court with "dirty hands". In this case, the dirty hands are the result of fraud on the lender. The family law judge tends to protect the spouse.
Being in that situation, you can only be saved if you're able to produce clear and convincing proof that you supplied the down payment to get the house. If you had paid cash and can't come up with such proof, you may be in jeopardy of losing your investment.
Still. You're looking for equitable relief in a family law court. The trial court has wide discretion in deciding whether to give you the title.
Even if you get lucky and are able to get your title back, you would have spent tens of thousands of dollars in lawyers' fees and costs. The bottom line is that it's possible to get title back but it may be difficult and expensive.
So the next time you consider doing something like this, you might want to get some legal advice first!
What Roles Do Testers Play In Housing Discrimination Investigation?
Posted by: Kenny Tan
August 24, 2011
Topic: Housing Discrimination
As landlords, you should always be conscious of conduct which may be perceived as housing discrimination. To be investigated for housing discrimination, you don't have to have an actual intent to discriminate. All that is required for there to be claim of housing discrimination is a rental policy which tends to have a disparate impact on a particular group of people who are protected because of certain traits or characteristics such as gender, race, disability, sexual orientation, marital or familial status. For instance, you can't have a rental policy which allows units to be rented to only family with no children when there's no legitimate and compelling reasons for having such a policy. You don't have to harbor a general hatred or dislike of children which would mean you have the actual intent to discriminate. All it takes is a policy that tends to prevent family with children from renting from you.
If you have a discriminatory policy that's written into some sort of operating manual, it's not hard for the investigating bodies to prove discrimination. Frequently the policies are not documented in company manuals but simply implemented in the selection of prospective tenants. Now that makes proving housing discrimination more difficult. That's why "testers" are used to help in the investigation to gather evidence necessary to establish a discrimination claim.
"Testers" are really just ordinary people who could be retirees or full-time working class. They might tell people they are volunteers but frequently they're paid to work as "testers". They call the compensation a "stipend" which could be hourly or task based. They might get paid as much as $12-15/hr or $50-100 to complete an assignment. In any event, they don't exactly "volunteer" their time.
"Testers" are used on telephonic investigations where they will make phone calls pretending to be prospective tenants. In the phone conversations, they will ask a set of questions designed to obtain specific type of answers which would tend to prove discrimination. For instance, to prove a landlord tends to favor Asians over non-Asian tenants, the investigation bodies will have an Asian "tester" and a nonAsian "tester" call the landlord on two separate occasions asking the same questions looking for completely opposite answers from the same landlord to prove racial discrimination. Typically, they will first gather evidence over the phone. If the results of the phone investigation indicates discrimination, they will then send "testers"to go out to the apartment complex to gather more evidence.
If you're not too careful, you might say the wrong thing which may become part of the reports by the "testers" which may be used as evidence to commence a civil case against you. In these lawsuits which may be brought be either the attorney general, the non-profit organization on behalf of the individuals who claim to be discriminated or the individual themselves, the plaintiffs may ask for money damages which may include punitive damages, injunctive relief, and attorney's fees.
Once these claims end up in the courtroom, they are generally very difficult to defend against for several reasons. For one thing, it's tough to have your words go against those of the "testers" who the court deem to be very credible. And the law favors the tenants in housing discrimination cases.
The stake is usually too high for the landlords who frequently end up settling the case. The terms of the settlement may include a combination of monetary compensation and mandatory classes, and attorney's fees.
Should Buyers HireTheir Own Attorney Or A 'Buyer's Broker' To Represent Them In Home Purchases?
Posted by: Kenny Tan
August 06, 2011
Topic: Residential Purchase Contract
You may be surprised to learn that in many parts of the world, real property transactions are handled by lawyers. Sellers and buyers would still engage the services of real estate agents to assist them in terms of the marketing and hunting of real properties. However, the agents are minimally involved in the drafting of real estate purchase contracts.Even in the commercial sector, we also see agents here in this country getting themselves involved in the drafting of purchase contracts in smaller purchases.
But overseas buyers from countries like the United Kingdom or Australia aren't accustomed to nor comfortable with not having their own lawyers represent them throughout the whole process. I freqently receive emails through my website - sometimes phone calls at my office - requesting representation at different stages of the purchase. Some wants representation from negotiating the purchase contract through the siging of the escrow documents; others want representation to review title reports only. Lately I'm getting more requests for representation on purchases.
How Necessary Is It To Have A Lawyer Represent You On A Residential Purchase?
Unlike the agents, the lawyer is someone who's a little more disinterested in whether or not the deal closes. The pay for his services is not dependent on the outcome of the deal. Of course, sometimes he's wrongfully perceived as a deal killer for being a little zealous of protecting his clients' interests - for sure at the risk of upsetting his own client if the deal doesn't close.
This morning I came across a blog on Market Watch where Lew Sichelman the author mentioned the idea and benefit of hiring a "Buyer's Broker" to represent a buyer on a residential purchase. The idea of having a "Buyer's Broker" to assist you is to have someone who has your undivided loyalty throughout the entire transaction; someone who's not all concerned that he would lose the opportunity to earn his commission by being over cautious about the inspection aspects of the property, or that someone who is objective in evaluating whether it's safe and therefore a good idea to buy the property from your perspective only.
This article highlights the the reality that in most transactions in the US, there's really no one who's truly on the buyer's side. .
In California, for instance, agents' commissions are typically paid by the sellers, not buyers. There's the Listing agent and the Selling agent but no "Buyer's agent". Some people argue the Selling agent protects the buyers' interests. But I don't think they truly do as a practical matter though the law imposes a fiduciary relationship between the Selling agent and the buyer just to make sure there's always someone who's there to look after the buyers' interests.
There's a reason why they are called "Selling Agents". As every one aound here knows, the Selling agent whom the law counts on to look after the buyer's interests gets paid by the listing agent who gets paid by the sellers.
The law says the escrow owes no fiduciary duties to any of the parties. They are the middle persons. Presumably they don't favor either side. But anyone familiar with the industry knows that even escrow companies may subconsciously favor one side over the other. For sure, a lot of escrow agents would tell you that they would rather see escrow closes than not. In fact, many earn higher fees if the deal closes than if it doesn't. Many escrow agents get their business referrals from real estate agents who tend to choose them as the escrow agent for the deals. Also the escrow agents are not lawyers and can't give legal advice. So the buyer can't really consult them on title issues.
Even the title company has its own interests to protect. They sell a product - title insurance. They are no different from other insurance policies - full of exclusions and exceptions. Generally most buyers are unfamiliar with the scope of the title insurnace they are buying. Many expect title insurance to be absolute and don't know what the exceptions an exclusions stand for in the title policy until something happens to the the title. Let's face it. How many buyers actually review the preliminary title reports? They would typically sign off on them without actually reading them. Granted title insurance gives the buyers some protection just not absolute protection. Many buyers are too ignorant to know the difference between a CLTA and ALTA policy.
The answer? it's essential, but not necessary, to have a lawyer represent you on a residential purchase. Sometimes that can mean spending $250 to get a peace of mind or tens of thousands of dollars and years of litgation over something that could've been avoided had you had someone look after your interests on your purchase.
Lis Pendens: When Should You Record One? What Are The Risks Of Recording One?
Posted by: Kenny Tan
August 03, 2011
Topic: Lis Pendens
You might not have heard about it but you do appreciate that in California there's a statute that allows you to record one to prevent further transfer of a real property if you have some stakes in it.
What is a Lis Pendens? It is a recorded public notice that there's a pending lawsuit involving a particular piece of property. The purpose of a lis pendens is prevent anything about happening to the title or possession of a property while you are litigating your rights to the property. 
Litigation That Affects Title Or Possession
For instance, if you're a buyer suing a seller for wrongfully refusing to sell a property to you, you certainly want to prevent the seller from either transferring the ownership out of his name or borrowing against it while the litigation is pending. Otherwise your litigation objective will be frustrated by changes in the conditions of the property or the transfer of the property to someone else.
Litigation That Involves Fraudulent Conveyance
Or you've been owed some money and you want to make sure you'll have a judgment that you can collect on against the debtor and are concerned that the debtor may have fraudulently transferred his property to a relative who in turn might further transfer to a bona fide purchaser such that by the time you obtain your judgment in a year or two, there's nothing to collect the judgment against.
No Right To Record A Lis Pendens On Other Types of Civil Suits
Generally, those are the only two categories of civil action where a lis pendens can be recorded. Otherwise, lis pendens is not allowed. For instance, if someone owes you $5,000, you sue him in court for breach of contract. Since a breach of contract action does not affect title or possession to property and as long as the property is still under his name, there's been no fraudulent conveyance, you have no right to record a lis pendens (You may seek a writ of attachment in some cases but it is different from a lis pendens.)
What Happens If You Record a Lis Pendens When You have No Right To Do So?
An improperly recorded lis pendens can be removed by the affected party by a motion to expunge. You may be liable for attorney's fees to the other side. In all likelihood in cases like this, the court will impose monetary sanctions. So you've got to resist the temptation to record one if you clearly do not the right to do so.
Even If There's Right To Record One, The Lis Pendens May Still Be Subject To Expungement If Your Case Is Weak
A lis pendens may still be expunged if you lack sufficient evidence to demonstrate to the court that you're likely to prevail on your claims. While the statute makes it mandatory to impose attorney's fees on the loser on a motion to expunge, I frequently see judges reluctant to impose monetary sanctions in this situation.
Since there are risks involved in recording a lis pendens, before you do so, you might want to decide whether it is even worth it to do one even if you think your evidence is strong. For instance, if you're a tenant who has just exercised a right of first refusal to purchase on a lease on a property that you occupy, while in theory the owner can still sell the property to someone else, the likelihood of that happening is small because bona fide purchasers typically would want to be able to access the property and take a look at the inside before they decide to purchase it. So if you've never had anyone come by to look at the property, chances are there's been no buyer for it. So in this situation, it may not be as important to record one.
Accepting Unsolicited Loan Modification Can Affect Your Credit Report or May Have Tax Implications? Ask Before You Accept
Posted by: Kenny Tan
July 31, 2011
Topic: Loan Modification
Banks are making more and more unsolicited loan modifications lately.
But they are not doing this out of generosity. In most cases, the borrowers to whom they've offered unsolicited loan modifications are people with option ARMs. Banks are concerned about holding on to too many "toxic" loans and finally more willing to convert these option ARMs into fixed rate loans. Banks consider the option ARMS "toxic" loans. Unless these loans are modified, they are very likely to end up in their REO department.
Chase is one such bank.
Before you decide to accept the banks' generous offers, make sure you ask them questions about the effect of the loan modification onyour credit scores and tax implications after your loans are modified.
Check out this blog on bankrate.com that explains how in some cases.
Essentially how the banks report the loan modifications may in some cases reduce your credit rating or cause you to be denied a car loan or a lease due to the reporting. (see my blog on a woman who said to the bank "Please don't modify my loan" but they did it anyway).
How the bank reports the loan modification may mean a world of difference. For instance, if the bank does not reduce the principal balance or forgive any past owed installments, the report may show as an "increase in principal balance" on that account which tends to reduce your credit rating.
Under the current tax exemption law which is expected to sunset in 2012, any forgiveness in debt such as the case of principal reduction gets reported as a discharge of debt which is the same thing as an income which gets reported on 1099. Also, as the tax exemption law only applies to principal residence, if the mortgage pertains to a rental property for instance, there's no tax exemption regardless of the year in which the loan modification is obtained.
