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Entries in real estate litigation (4)

Friday
Mar102017

Initiating Unlawful Detainer Actions: Perfection Not Required

Business LitigationReal Estate Litigation Attorney

by Nicholas Kanter
818-907-3289

 

In November 2016 the California Supreme Court ordered that a decision from the appellate division of the San Diego Superior Court in U.S. Financial, L.P. v. Michael McLitus (“McLitus”) be published.   

McLitus held that an owner that acquires a property at a non-judicial foreclosure sale is required to perfect title before serving a Three Day Notice to Quit, the first step in initiating an unlawful detainer action under Code of Civil Procedure §1161a. The court held if the Notice to Quit was served before title was perfected, the notice would be defective and could not support an unlawful detainer action.

Commercial Tenant Eviction

Based on the decision in McLitus, the new owner of a property purchased at foreclosure would have to wait to receive the Trustee’s Deed Upon Sale from the foreclosure trustee, and then until the Trustee’s Deed is recorded by the county recorder, before serving a Three Day Notice to Quit. Thus, McLitus had the potential effect of delaying a new owner from obtaining possession to an occupied property.

McLitus Decision Short-Lived

Four months after the McLitus decision was ordered published, the Second Appellate District of the Court of Appeal issued an opinion squarely rejecting the McLitus holding.   

In Dr. Leevil, LLC v. Westlake Health Care Center (“Westlake”), Westlake Village Property, which owned Westlake Health Care Center (WHCC), defaulted on a loan and filed for bankruptcy. The bank sold the loan to Leevil who instituted a non-judicial foreclosure, and subsequently purchased the health care center at a trustee’s sale. Leevil then served a Notice to Quit on WHCC. When WHCC refused to vacate the property, Leevil filed an unlawful detainer action under §1161a. Leevil ultimately obtained possession to the property.

On appeal, WHCC relied on the McLitus decision to argue the Notice to Quit was invalid because Leevil did not perfect title before serving the Notice. 

The Court of Appeal rejected WHCC’s argument and affirmed the trial court’s decision. The Court found that §1161a does not require that title be perfected prior to serving a Notice to Quit. Rather, this Section only requires that title be perfected before a party may be removed from the property following a foreclosure sale.

Code Civ. Proc. Section 1161a states, in pertinent part:

a person who holds over and continues in possession of . . . real property after a three-day written notice to quit the property has been served . . . may be removed therefrom . . . [w]here the property has been sold in accordance with [s]ection 2924 of the Civil Code . . . and the title under the sale has been duly perfected.

Nothing in Section 1161a requires that title be perfected before a Three Day Notice to Quit is served.  Further, the Court of Appeal held that “[n]one of the cases cited in McLitus support the requirement that title be perfected before service of the notice to quit.”

Future of Unlawful Detainer Suits

Because the Westlake decision is binding on lower courts, and decisions from the Appellate Division of the Superior Court are not, trial courts should be guided by Westlake.  Accordingly, as it stands now, purchasers at foreclosure do not have to wait until title is perfected before serving a Three Day Notice to Quit.  

Nicholas Kanter is a Real Estate and Business Litigation attorney. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Apr092014

Rent Control re Former Resident Managers: Good News for Landlords

Business LitigationCommercial Real Estate Litigation Attorney

 

by Nicholas Kanter
818.907.3289

 

Many apartment building landlords utilize a resident manager to manage day-to-day operations. The resident managers are commonly provided rent-free or reduced-rent accommodations in exchange for performance managerial duties.

When the landlord decides to terminate the managerial duties and start charging rent, the question of how much rent may be charged in a rent-controlled apartment often arises. The Court of Appeal in 1300 N. Curson Investors, LLC v. Drumea recently answered this question.

Landlord LawIn Drumea, the plaintiff-landlord terminated the defendant-resident manager’s managerial duties after eight years. Prior to being a resident manager, the defendant was a tenant at the rent-controlled apartment paying $850 per month.

Concurrent with terminating the defendant’s managerial duties, the plaintiff served defendant with a rent increase notice which advised the defendant that she would have to start paying rent in the amount of $1,552.03.

The defendant refused to pay the increased rent claiming it violated the Rent Stabilization Ordinance (RSO) because:

 

  1. She was never served with annual rent increase notices during her eight years as a resident manager, and

  2. The rent increase was cumulative and retroactive in violation of the RSO.

 

Accordingly, the plaintiff filed a lawsuit seeking a declaratory judgment that the increased rent demand was lawful. While the RSO requires a landlord to serve a tenant with a notice in advance of any annual rent increase, and prohibits cumulative or retroactive rent increases, the Court found that such requirement and prohibition do not apply to a former-tenant resident manager that was paying no rent:

We conclude that a former resident manager who was already a tenant in the unit before being appointed resident manager may be charged rent upon termination of managerial services in the amount of the rent the former manager had been paying tenant, plus the annual adjustments authorized under the Ordinance, and the landlord has no obligation to serve annual registration statements or notices of rent increases during the period that the former manager occupied the unit rent-free. 

The Court reasoned that this decision was consistent with the purpose of the RSO in that it protects a former-tenant resident manager from having to pay the prevailing market rental value of the apartment, if the market rent has increased more than the increases allowed under the RSO.

California Law Commercial PropertyTwo words of caution: although the RSO mandated annual rent increase notices and annual registrations statements do not need to be served on resident managers that pay no rent, these notices must be served on a resident manager that pays partial rent.

Moreover, to avoid a wage and hour claim, a landlord employing a resident manager must also make sure he/she is paying minimum wage for all hours worked and applicable overtime. If the landlord is providing living accommodations towards minimum wage, there must be a voluntary written agreement that explicitly references that such credits are being applied toward the minimum wage obligation of the landlord-employer and the credit must not exceed the permissible caps as stated in the wage order.

Nicholas Kanter is a Real Estate Litigation Attorney and Shareholder in our Business & Civil Litigation Practice Group. Contact him via email: nkanter@lewitthackman.com.

For more information concerning proper payment and documentation of wages for a resident manager, contact Sue M. Bendavid, Chair of our Employment Practice Group via email at: sbendavid@lewitthackman.com.


Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
Tuesday
May012012

Another Blow for Property Owners Challenging Foreclosure

Business LitigationSan Fernando Valley Business Litigation Lawyer

Nicholas Kanter
818.907.3289

When challenging a foreclosure sale, property owners look to defects or irregularities in the foreclosure process, which is strictly regulated by California’s Civil Code, to have the sale enjoined or rescinded.  Recently, one section of the Civil Code has received a lot of attention.

Civil Code Section 2932.5 requires the assignee of a mortgage to record the assignment prior to exercising a power to sell real property.  Parties have relied on this section to challenge foreclosure sales where a deed of trust is assigned, but not recorded, until after the sale. 

California case law, dating back to 1908, established that the predecessor statute to section 2932.5 (section 858) applies only to mortgages, not deeds of trust (Stockwell v. Barnum). 

However, federal and state courts have recently disagreed over the application of Section 2932.5 to deeds of trust.  On the federal side, e.g., Tamburri v. Suntrust Mortgage, Inc., (2011), and In re Cruz (2011), courts have applied Section 2932.5 to deeds of trust.  On the state side, the court in Calvo v. HSBC Bank USA, N.A. (2011), followed the Stockwell decision.

In support of Stockwell and Calvo, the Court of Appeal in Haynes v. EMC Mortgage Corp., (filed April 9, 2012, publication ordered April 24, 2012) found that Section 2932.5 does not apply to deeds of trust.  The Haynes court rejected Haynes’ reliance on the federal decisions finding:

We of course, are not bound by federal decisions on matters of state law…While our Supreme Court has noted in passing on issues other than the interpretation of section 2932.5, that “a deed of trust is tantamount to a mortgage with a power of sale” [citation], the court has not addressed section 2932.5 and the statute, by its plain terms, does not apply to deeds of trust.  

The court also explained why section 2932.5 applies to mortgages but not deeds of trust:

Section 2932.5 requires the recorded assignment of a mortgage so that prospective purchaser knows that the mortgagee has the authority to exercise the power of sale.  This is not necessary when a deed of trust is involved, as the trustee conducts the sale and transfers title. 

The Haynes decision, along with the holding in Calvo, reinforces long-standing California case law that Civil Code Section 2932.5 does not apply to deeds of trust, thus all but taking away a party’s ability to challenge a non-judicial foreclosure sale based on an unrecorded assignment.  

Nicholas Kanter is a Business Litigation Attorney in our Real Estate Practice Group. Contact him via e-mail: nkanter@lewitthackman.com.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
Jan052012

Mechanics Liens — Smart Tools of Construction Industry Professionals, and Bane of Property Owners

Business Litigation AttorneyConstruction Litigation

by Paul C. Bauducco

(818) 907-3245

 

In 1791, Thomas Jefferson and James Madison proposed the first mechanics liens legislation in order to promote development in Washington.

The Maryland Assembly (which governed Washington at that time) passed the proposed legislation. Since then, all 50 states have enacted mechanics lien legislation to encourage development and protect those involved in the construction industry, according to John G. Cameron’s “A Practitioner’s Guide to Construction Law.”

Mechanics liens” encourage “mechanics,” which include members of the construction industry as well as those providing materials and labor in construction, to engage in construction projects by giving them a process to secure payment for the labor and materials they provide to a project. This security allows homeowners and smaller companies to hire contractors who might not otherwise be willing to take on smaller projects.

In today’s economy, mechanics liens can be an essential collection tool for contractors and material providers in construction projects, allowing them to look to the property for payment if the general contractor or owner fails to pay for work and materials going into the property. They provide a bit of insurance for contractors and sub-contractors.

Conversely, mechanics’ liens can pose a real problem for property owners who pay their general contractors without receiving proper lien releases. If the general contractor fails to pay subcontractors or material providers sums they are owed out of an owner’s payment, the subcontractors and material providers may lien the owner’s property, forcing him to pay for the labor and materials twice.

Mechanics liens laws are strictly enforced and contractors and material providers must give timely and proper notice of their claims and file their liens and enforcements actions within the time frames specified by the applicable statute. If they fail to do so, they may waive their mechanics lien rights and be left without recourse against the property. Whether you are a property owner, contractor or material provider, there are some important things to know about recording and enforcing mechanics’ liens.

California Real Estate Law Regarding Mechanics Liens –
A Three Step Process

 

Contractors, subcontractors and suppliers must take the following three steps to ensure the proper filing of a mechanics’ lien:

1. Serve a Preliminary 20-Day Notice – Workers and suppliers must serve notice of services rendered or supplies delivered within 20 days after making improvements or delivering materials. The notice should be served to the:

▪ Property Owner
▪ General Contractor
▪ Lender or Financier

Contractors or suppliers who work directly with the property owner do not need to serve notice, since the purpose is to ensure the property owner knows who is working on the improvements or supplying the project if these subcontractors are working through a general contractor.

2. Record the Mechanics’ Lien – Claimants should record their liens within the county or counties in which the property is located within 90 days of:

▪ Completion of Work
▪ Excusal of Work (because of breach of contract by the property owner or the general contractor)
▪ Occupation and use of work of improvement by owner or agent
▪ Communicated acceptance of work of improvement by owner or agent
▪ Cessation of Labor for 60 days
▪ The Filing of a 30 Day Valid Notice of Completion or Cessation by the Property Owner (a general contractor has 60 days).

3. Enforce the Mechanics’ Lien – Here’s another deadline notice. A foreclosure suit must be filed within 90 days of the recordation of the lien, in the county or counties where the property is located. If a foreclosure suit isn’t filed in that time frame, the mechanics’ lien is voided.

Avoiding Construction Litigation Involving Mechanics Liens

 

It would be best for all parties concerned if mechanics’ liens and foreclosure suits aren’t filed at all. To avoid these situations, property owners should hire, and subcontractors should work with, properly qualified and licensed general contractors.

Both sides should keep track of the 20 Day Preliminary Notices served.

Finally, property owners and subcontractors should make sure proper payment procedures are in place which also provide waivers and releases of financial obligations when payments are made.

Paul C. Bauducco is a Los Angeles business litigation lawyer whose practice focus is on real estate and construction litigation. You can reach him via e-mail if you need more information: pbauducco@lewitthackman.com

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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