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Updated:
February 18, 2005
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Articles
on various subjects related to arbitration, discipline and
the real estate industry are available from
John V. Giardinelli,
Giardinelli & Associates, Association Legal Counsel
John
V. Giardinelli
Association
Legal Counsel
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DATE: February 2005
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COURTSIDE NEWSLETTER
TO: MEMBERS AND AFFILIATES OF THE
ASSOCIATION OF REALTORS®
FROM: JOHN V. GIARDINELLI and SYLVIA J. SIMMONS
ASSOCIATION COUNSEL
DATE: FEBRUARY 16, 2005
___________________________________________________________________________
This month's article includes some selected highlights from the January
California Association of REALTORS® Convention in Monterey, summaries
of some of the new laws for 2005, and review of several court decisions
of interest to real estate professionals. In next month’s article,
we will analyze the new forms.
New Forms
The controversial new Seller Property Questionnaire (“SPQ”)
continues to be a hot topic of discussion. The Standard Forms Committee
is recommending release of the new form in April 2005. Also to be released
in April are two other new forms: (1) A Foreclosure Purchase Agreement
(the name may be changed); and, (2) A Cancellation of Listing Form.
Revisions have been made to the Smoke Detector Statement of Compliance,
the Water Heater Statement of Compliance, and the Statewide Buyer and
Seller Advisory. Members should check to be sure they are using the
most recent version of any form. We will go into greater detail regarding
the new forms (especially the SPQ and its impact) next month, prior
to release.
Electronic Signatures and Records in Real Estate Transactions
California’s Uniform Electronic Transactions Act (“UETA”)
and the federal Global and National Commerce Act (“E-Sign”),
effective in January and October 2000, respectively, authorize the
use of electronic signatures and records in real estate transactions.
Although allowed, acceptance and use of this technology has been slow
due to security and authentication issues. Those problems are being
addressed by companies who are now marketing software programs for
use by real estate agents to transmit and electronically sign documents.
WINForms® now has an electronic signature feature, provided through
the DocuSign software program which was demonstrated during the Legal
Affairs Forum attended by this writer. The expense may still discourage
widespread use among real estate agents ($.10 to $.40 per page delivered),
but clearly use of this technology provides multiple benefits to agents
and their clients, including speed and accuracy. To learn more about
e-signatures and what type of documents are included and excluded,
check out the Q&A entitled “Electronic Signatures and Records
in Real Estate Transaction” on C.A.R.’s website.
Risk Management
An attorney addressed the Risk Management Committee. He emphasized
that thoroughly documenting the transaction is the most important
risk management tool a real estate agent can use. He encourages listing
agents to create a Conversation Log on every file to memorialize
all statements made during discussions with the seller regarding
the Transfer Disclosure Statement and disclosure obligations. He
advised that the seller, not the agent, should check the boxes and
fill in the form. Entries in the Conversation Log should be made
as the conversations and events take place, not created later. If
there is litigation regarding the transaction, the requirements of
the Evidence Code will be met for a contemporaneous business record
prepared in the usual business practice and custom, and a presumption
is created that the noted events did actually occur.
Another suggestion given is that agents should keep a single chronological
list of all transactions. This establishes that events happened at
a particular point in time, because there are entries on other transactions
before and after the subject entry.
The Agent Inspection Form is the best evidence that the agent has
conducted the visual inspection. You should not use stock phrases on
the form, such as “Buyer advised to get all inspections buyer
deems necessary.” Instead, the agent should put on the form what
he or she sees in a summary fashion, including mentioning any red flags.
Notations should not diagnose the problem observed. For example, write “cracks
in ceiling” rather than “normal cracks;” or “uneven
floor” rather than “settling in kitchen.” The visual
inspection should be done when meeting with the seller to prepare the
TDS, as that will jog the seller’s memory. The new SPQ is designed
to help elicit information to embellish the seller’s disclosure.
As the agent walks through the property with the seller, the agent
should ask questions about each item.
Taking the time to document the transaction file can provide the agent
with protection from future claims. Files with all the agent’s
professionally written notes should be kept longer than the DRE requirement
and should not be destroyed until after three years, which is the statute
of limitations period for fraud.
Sierra Club Tactics in Humboldt County
During the meeting of the Land Use Committee, a report was made by
a member from Humboldt County regarding the settlement of a lawsuit
filed by the Sierra Club against a real estate developer for environmental
law violations. Apparently, the developer agreed that covenants,
codes, and restrictions (CC&Rs) will be recorded against each
new subdivided parcel to fund environmental uses. The first buyer
to purchase from the original owner of the property must pay a conveyance
fee of ½ point. Following that first transfer, every subsequent
purchaser of the property for the next 20 years must pay the conveyance
fee. The committee moved to request C.A.R. look into this arrangement
as it appears to be the equivalent of a transfer fee that, if imposed
by government, would be prohibited. If this scheme is repeated elsewhere
throughout California, it is feared that it will have a negative
impact on property values and ability of owners to sell their properties.
Cases of Interest
Vasquez v. Residential Investments, Inc.: In this case arising out
of the murder of a tenant, the California Appellate Court found that
the risk of criminal intruders is one of the foremost risks against
which the landlord’s duty to repair the apartment door window
pane was intended to protect. The general rule is that criminal conduct
is unforeseeable and thus a superseding cause that totally eliminates
the landlord’s responsibility for the tenant’s injury.
However, this court found that there was a triable issue of fact
whether the condition of the door was a substantial factor in bringing
about the attack that resulted in the tenant’s death, and therefore
the landlord was not shielded from liability.
The tenant was stabbed to death by the father of her infant child
who gained entrance to the apartment by removing a plywood panel that
the tenant’s family member put in the empty window pane of the
door. The family had made numerous requests to the landlord to replace
the missing window pane because of security concerns. The family sued
the apartment owner for the wrongful death of their daughter. The murderer
testified that he realized the missing window pane provided him an
easy opportunity to gain entrance and that he would not have tried
to break in through a glass pane because of the risks and difficulties.
Each case is subjected to a fact-specific analysis of duty and causation.
The appellate court used a three-step approach to determine a landlord’s
duty to protect against third-party criminal assaults on its property:
(1) The court determines what the plaintiff claims the defendant
should have done to prevent the injury; (2) The court analyzes the
burden to the landlord, both financially and socially, to comply
with the prevention measures suggested by the plaintiff; and (3)
The court identifies what conduct by the criminal could have been
prevented if the landlord had implemented the prevention measures
suggested by the plaintiff, and the probability (foreseeability)
that the criminal conduct would occur. After independently assessing
the burden and foreseeability, they are compared to determine the
scope of the duty that should be imposed on the particular landlord
to prevent the harm. The question a court will consider is not whether
a duty exists at all but what the scope of the landlord’s duty
is under the specific facts of the case.
Holly v. Meyer: We have reported on this case more than once in the
past. It is now pending on appeal before the federal Court of Appeals,
9th Circuit. In December 2004, C.A.R. filed an Amicus Curiae (friend
of the court) brief urging the Court to overturn the lower court’s
decision that the salesperson is the agent of the individual designated
officer broker of a real estate corporation and therefore the designated
officer is vicariously liable for the acts of the salesperson under
the Fair Housing Laws. It is argued that this position is inconsistent
with the direction issued by the Supreme Court of the United States,
and further is based on liability principals that are inferred or lifted
out of context from certain California statutes and the entire real
estate law scheme. We will continue to monitor this case.
Fericks v. Soffe Trust: Although this is a decision of Utah’s
highest court, it is of interest to real estate professionals in California,
because the court found the real estate brokerage could be liable in
tort for its agent’s oral misrepresentations regarding modifying
the contract and that the brokerage had no right to attorneys fees
as the prevailing party under the purchase contract.
Joe Goodman of Pentad Properties, Inc. listed the property for the
Lucy Ann Soffe Trust. C. Kurt Hoffmand and John A. Fericks contracted
to buy the property. The purchase agreement required an initial $5,000
down and an additional $10,000 earnest money payment on April 6, 2002.
Eleven days before the second payment was due, one of the buyers contacted
Joe and requested a 30-day extension to make the payment. Joe said
the buyers could consider the extension “done” and promised
to prepare a written extension. The day before the payment was due,
one of the buyers again asked Joe for the written extension. It was
never provided. Two days after the due date, the seller terminated
the contract. Soon thereafter, one of the buyers spoke to a trustee
of the Soffe Trust and was told that Joe had never asked the seller
for an extension of time to make the second payment. The buyers also
found out later that after they requested the extension, the seller
got a higher offer with an earlier closing date. The buyers filed suit
against the seller and the brokerage for specific performance and alleged
fraudulent misrepresentation and intentional interference with contract
by the brokerage.
The trial court threw out the contract claims against the seller for
specific performance because the alleged misrepresentations were oral
modifications of a real estate contract and, as such, is barred by
the Statute of Frauds (all contracts regarding real property must be
in writing). Because the oral modification was unenforceable, the court
also threw out the tort claims for fraud and interference with contract
against the brokerage. The trial court awarded attorneys fees to the
brokerage, based on a provision in the purchase contract that said
if a lawsuit arose out of the contract, the prevailing party was entitled
to an award of attorneys fees. The buyers appealed on the claims against
the brokerage and won.
The Utah Supreme Court agreed with the buyers’ argument that
they should be allowed to proceed on their tort claims, because those
claims did not depend on whether or not they were enforceable contract
claims, and the oral contract modifications do not have to be enforceable
to support a valid tort claim. The alleged misrepresentations about
the extension were just part of the alleged plan to induce the buyers’ breach
of the agreement. Under prior Utah case law, when the oral contract
representation is a “circumstance” of the alleged fraud,
the Statute of Frauds does not apply to the tort claims. The case was
remanded to the trial court for further proceedings on the tort claims.
The Utah Supreme Court also held that even if the brokerage is the
prevailing party on remand, the brokerage had no right to enforce the
purchase contract provision which applied only to the parties to the
agreement and not to their agents.
Review of Selected 2005 New Laws
AB 2718 -- CIDs
Common interest development (“CID”) homeowners’ associations
are required by law to provide certain financial information, but often
do not distributed it in a useful way. CID’s also sometimes fail
to provide for an adequate budgetary reserve taking homeowners by surprise
with assessment increases to cover repairing roofs, pools, and other
features of the common areas. This C.A.R. sponsored bill makes several
improvements to the way homeowners’ associations inform their
members of required financial information. The law alerts homeowners
about possible assessment increases and revises the requirements for
associations to notify their members about their reserve funds intended
to cover future repairs or replacements of “major components.” The
law requires that associations that divert funds to a “Community
Service Organization” (a nonprofit entity that performs functions
for the association or community) must provide meaningful financial
disclosures to association residents. Also, when residents have to
obtain disclosure documents, the law limits document preparation charges
to actual and reasonable costs.
AB 488 -- Megan’s Law
By July 1, 2005, the Department of Justice is required to make specified
information about certain sex offenders available to the public via
an internet website and to update that information on an ongoing
basis. This information is to include all of the information currently
available to the public via CD-ROM, and would also include the home
address of specified offenders. With regard to certain offenders
whose residence addresses are to go on the internet website only
under specified circumstances relating to their criminal histories,
the department would be required to put that address information
on the website on or before July 1, 2006. The law also provides penalties
for misuse of this information.
AB 920 -- National Hazardous Disclosure
This "clean up" legislation modifies the existing statutory
National Hazard Disclosure form. It reinforces the responsibilities
of the disclosure companies making substitute disclosure and requires
them to sign their own work.
AB 578 -- Electronic Recording
This C.A.R. sponsored bill gives county recorders the authority to
use electronic recording for transfer of ownership of most California
properties and encourages the use of electronic recording.
SB 1436 -- Spyware Act
This law prohibits an unauthorized user of a computer owned by a
person in California from willfully causing computer software to
be copied onto the computer and using the software to (1) take control
of the computer, as specified, (2) modify certain settings relating
to the computer’s access to or use of the Internet, as specified,
(3) collect, through intentionally deceptive means, personally identifiable
information, as defined, (4) prevent, without authorization, an authorized
user’s reasonable efforts to block the installation of or disable
software, as specified, (5) intentionally misrepresent that the software
will be uninstalled or disabled by an authorized user’s action,
or (6) through intentionally deceptive means, remove, disable, or
render inoperative security, antispyware, or antivirus software installed
on the computer.
AB 1825 -- Sexual Harassment Training
Employers with 50 or more employees must now provide two hours of training
and education to all supervisory employees by January 1, 2005. Sexual
harassment training and education provided after January 1, 2003
satisfies the requirement. The training and education must be provided
once every two years after January 1, 2006. Compliance with the law
does not insulate an employer from liability.
SB 115 -- Restrictions on Cash Payment
Landlords and their agents may not require cash as the exclusive payment
of rent or deposit of security, except in circumstances following
a tenant’s failure to pay rent with a valid financial instrument,
as specified. A waiver of these provisions is contrary to public
policy, void, and unenforceable. Also, “the issuance of a money
order or a cashier’s check is direct evidence only that the
instrument was issued,” which is intended to protect landlords
from a tenant claim in court that the rent was paid by money order
or cashier’s check when in fact the tenant cashed the money
order himself or herself.
AB 3016 -- Social Security Numbers
With some exceptions, public posting, or display of a person’s
social security number or acts that compromise the security of a person’s
social security number are prohibited by law. Continuous use of a person’s
social security number established prior to July 1, 2002 may continue
if certain conditions are met, but must be discontinued by July 1,
2006.
AB 1338 -- Tax Withholding
Effective for escrows that close on or after January 1, 2005, transfers
of real property owned by non-individuals (such as corporations,
trusts, estates) are subject to the same automatic withholding tax
as individuals unless the seller meets one of the certifiable exemptions.
Under the new law, non-individual sellers can no longer request a
waiver or a reduced withholding rate based upon a small gain. For
individual sellers, the 2003 state withholding law provided five
certifiable exemptions: (1) sale of the property for less than $100,000,
(2) sale of the seller’s “principal residence” (as
defined in Internal Revenue Code Section 121 – “IRC 121”),
(3) sale of the property at a loss, (4) sale of the property as part
of an IRC 1031 exchange, and (5) sale of the property because of
an involuntary conversion (a government taking) and seller will replace
the property under IRC 1033.
AB 2693 -- Mortgage Broker
Real estate licensees are licensed and regulated by the Real Estate
Commissioner and finance lenders and brokers are licensed and regulated
by the Commissioner of Corporations. This law prohibits real estate
licensees and licensed finance lenders and brokers from failing to
disburse funds in accordance with a commitment to make a loan, or
intentionally delaying the closing of a loan for the purpose of increasing
specified costs to the borrower. AB 2693 also requires a real estate
broker who solicits borrowers or lenders for or negotiates loans
or collects payments or performs other services for borrowers or
lenders or note owners in connection with loans secured directly
or collaterally by liens on real property or on a business opportunity
and who meets certain criteria, to notify the Department of Real
Estate annually in writing.
AB 1338 -- California Withholding Law
Effective for escrows that close on or after January 1, 2005, transfers
of real property owned by non-individuals (such as corporations,
trusts, estates) are subject to the same automatic withholding tax
as individuals unless the seller meets one of the certifiable exemptions.
Under the new law, non-individual sellers can no longer request a
waiver or a reduced withholding rate based upon a small gain. For
individual sellers, the 2003 state withholding law provided five
certifiable exemptions: (1) sale of the property for less than $100,000,
(2) sale of the seller’s “principal residence” (as
defined in Internal Revenue Code Section 121 – “IRC 121”),
(3) sale of the property at a loss, (4) sale of the property as part
of an IRC 1031 exchange, and (5) sale of the property because of
an involuntary conversion (a government taking) and seller will replace
the property under IRC 1033. This law adds another certifiable exemption--the
last use of the property sold was as seller’s principal residence,
even if the seller does not meet the 2 out of the last 5 years requirement
or one of the special circumstances as enumerated in IRC 121.
Proposition 64 -- Unfair Competition Laws (November 2004 Voter Initiative)
Before Prop 64 passed, a person initiating a lawsuit under the unfair
competition law did not have to show that he or she suffered an injury
or lost money or property. Claims could also be brought for unfair
competition lawsuits without meeting the requirements for class action
lawsuits (i.e., certification by the court of a group of individuals
as a class of persons with a common interest, demonstration that there
is a benefit to the parties of the lawsuit and the court from having
a single case, and notice to all potential members of the class). Now
under Prop 64, only an individual who was actually injured by or suffered
financial or property loss can bring an action for private enforcement
of unfair business competition laws. Also, Prop 64 requires private
representative claims to comply with the procedural requirements applicable
to class action lawsuits. The financial incentive to bring such actions
has also been reduced by Prop 64’s provision that restricts the
use of proceeds from civil penalties to the enforcement of consumer
protection laws.
If you have questions you would like to see answered or topics you
would like to see explored in this monthly column, please feel free
to e-mail your questions or comments. All opinions expressed are those
of the writers and may not reflect the Association=s point of view.
Specific legal issues should be addressed to your attorney. The information
contained in this Newsletter is general in nature.
John V. Giardinelli and Sylvia J. Simmons, Attorneys at Law
GIARDINELLI, DUKE & SIMMONS, LLP
31594-C Railroad Canyon Road
Canyon Lake, California 92587
Telephone: (951) 244-1856
e-mail: office@gdslaw.org
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