Additional Remedies Against Brokers/Agents and Escrow Companies

Recovery Under Bureau of Real Estate's Consumer Recovery Account

California's Bureau of Real Estate maintains a Consumer Recovery Account that is funded from a portion of the fees paid by brokers and agents. It enables a person who has been defrauded or had trust funds converted by a real estate licensee in a transaction requiring a license, and who satisfies specified requirements in the California Business and Professions Code, sections 10471, et seq., to recover at least some of the actual loss when the licensee has insufficient assets to satisfy the loss.

In general, the requirements for payment include obtaining a final civil judgment or arbitration award, or a criminal restitution order against a licensee.  The judgment, award or order must be based on intentional fraud or conversion of trust funds in connection with a transaction requiring a real estate license.  The victim must first attempt to recover against the defendant licensee, including a reasonable search for the licensee's assets.

An application for payment must be submitted to the Bureau within 1 year after the judgment, award or order becomes final.  Applications are available on the CalBRE website, or by writing to the Bureau.  A copy of the application and required notice must be served on the judgment debtor/licensee, who has an opportunity to respond to the allegations in the application and object to payment of the claim.

If an application is granted, the limit on a recovery is $50,000 per transaction, with a possible total aggregate maximum of $250,000 per licensee.  If an application is denied, the applicant can refile the claim in court, and the Bureau is represented by the California Attorney General's office. 

An example case is where the buyers were not provided a transfer disclosure statement until after the close of escrow, and it disclosed the true age of the roof, and a garage was constructed without the proper permits.  A judgment was entered against the seller and its agent for $50,000, based upon the court's finding that they intentionally misrepresented the condition of the property, concealed known defects, and failed to provide a disclosure statement.  After the buyers were unsuccessful in collecting the judgment against the sellers and their agent, they filed an application that was granted for $20,000, the maximum amount allowable at the time the application was filed.  The agent's license was indefinitely suspended until the agent reimbursed the Consumer Recovery Account the amount paid, plus 10% interest.  The agent's license was also revoked as a result of a disciplinary enforcement action filed by the Bureau.

Recovery Against Escrow Company's Surety Bond

A typical case may involve the escrow company's handling of earnest money deposits or other errors in the escrow, and a potential remedy is a cause of action for declaratory relief to resolve if the surety defendant is obligated to pay the proceeds of the surety bond equal to the earnest money deposits or financial loss.

Escrow companies and their agents are fiduciaries of the parties to the escrow, and by California law, escrow companies must maintain an Escrow Agent Bond that is a type of license and permit surety bond that protects the parties in cases of incorrect advice, an incorrect or unethical decision, or an error in the client's information.  If the parties suffer financial hardship because of the error, they are protected by the bond and made whole by the surety bond company.  The bond company then obtains reimbursement from the escrow company.

The bond amounts are $25,000, $35,000 or $50,000, depending upon the size of the company. The amount of the premium is a percentage of the total bond amount, and the percentage is based on the personal credit history of the owner of the escrow company, and the companies business financial information.  The bond runs continuously until canceled.

The injured party can make a claim on the bond to recover loss if the escrow company and its agents fail to fulfill their legal obligations, in addition to any other remedy that the injured party may have, but such claim must be brought within 2 years from and after the act or default complained of under Financial Code, section 17205.  Although the limitations period is subject to the delayed discovery rule because of the fiduciary relationship, the application of this rule in particular circumstances is uncertain.  Therefore, the injured party should always consider adding a cause of action against the surety company in the civil complaint against an escrow company, especially in those cases where it appears that the full measure of damages cannot be recovered from the escrow company.

Recent Changes to California Real Estate Law

Clarification - Effective 9/25/2016:

No Disclosure Required of a Death 3 Years or More Prior to a Purchase Offer

            Clarification in law provides that the death of an occupant, or the manner of death, occurring more than 3 years prior to an offer to purchase is not a material fact that must be disclosed.  No disclosure is required where an occupant had HIV or died of AIDS-related complications 3 years before an offer is made.

Effective 1/1/2017:

Lessor of Commercial Property Must Disclose Inspection by Certified Access Specialist

            This law requires a lessor to state in a commercial lease whether the property was inspected by a Certified Access Specialist, and if it was inspected and a report issued that meets applicable standards, the owner or lessor must provide a copy of the report to the tenant.  The tenant has a right to review the report prior to signing the lease, and may cancel the lease within 72 hours after signing based upon the report.

No Public Access to Unlawful Detainer Records Unless Plaintiff Prevails

            Previously, the law permanently restricted access to a UD action public records if the defendant/tenant prevails within 60 days of the filing of the action.  Now the UD records are available only if (1) the plaintiff prevails within 60 days, or (2) by order of the court when judgment is entered after a trial more than 60 days after the complaint was filed.  If a proof of service is not filed within 60 days and the action is dismissed, no public access to the records. The court can also bar access to the court records if the parties stipulate.

Landlord Protected from Liability for Environmental Hazards

            A landlord is protected from disclosure liability if the tenant is provided with the Residential Environmental Hazards booklet for leases of more than one year's duration under Civil Code § 2079.7, and it covers asbestos, lead, mold, and other hazards, unless there is actual knowledge of such hazards.  Includes all commercial and vacant land properties, but not multi-unit residential rentals of 5 units or more.

Owner Required to Provide HOA With Address Information

            New Civil Code § 4041 requires an owner of a separate interest in a HOA to provide written notice to the HOA on an annual basis, presumably to its management company, of the following information:

            1.         The address or addresses to which notices from the HOA are to           be delivered:

            2.         An alternate or secondary address to which notices from the HOA are to be delivered;

            3.         The name and address of an owner's legal representative, if any, including any person with power of attorney or other person who can be contacted in the event of the owner's extended absence from the separate interest; and

            4.         Whether the separate interest is owner-occupied, is being rented, if the parcel is developed by vacant, or if the parcel is undeveloped land.

            The HOA is required to request the information.

Maximum Fee for a Notary Public Increased to $15 for Deeds and Power of Attorneys

            Currently, the law limits a notary public fee for each signature to $10, but the fee may be as much as $15 for taking an acknowledgment or proof of a deed, or other instrument, that includes the notary's seal, and for certifying a copy of a power of attorney.

Effective 7/1/2017 for New Tenants, and 1/1/2018 for Existing Tenants:

Landlord Barred From Showing or Renting Vacant Units If Knowledge of Bedbugs

            If a landlord knows about bedbug infestation, the landlord cannot show or rent the vacant unit.  But there is no requirement to inspect a dwelling unit or common areas if the landlord does not have notice of suspected or actual infestation. 

Effective 1/1/2018:

Specified First Point of Contact Solicitation Materials

            All first point of contact solicitation materials must include:

            1.         name and number of the licensee;

            2.         responsible broker's "identity" and name of under which the broker is currently licensed, but broker's license number is optional.

            No longer an exemption for electronic media, or for newspapers and magazines. Signs such as "for sale" and "Open House" do not have to contain the agent's name or license information, but must contain the responsible broker's name, with his license optional, unless there is no licensee identification information.

Licensee May Petition BRE to Remove Past Disciplinary Action After 10 Years

            Currently, a discipline notice remains against a licensee's name in the BRE online database indefinitely.  Under the new law, a licensee may send a written request and the fee to request removal of disciplinary actions 10 years after the posting of the violation.  This enables the licensee to attempt to prove sufficient rehabilitation and that the licensee is no longer a credible risk to members of the public.

Borrowers Can Demand A Payoff and Beneficiary Statement

California Civil Code § 2943 requires that a beneficiary of a deed of trust (normally the lender), after receiving a written demand from an "entitled person" (the borrower a.k.a. trustor or mortgagor), prepare and deliver a "payoff demand statement" to the person requesting it within 21 days of the receipt of the demand.  The  foreclosure process may excuse compliance depending upon when the written demand is presented.   Delivery means by mail, or transmitted by facsimile machine, but does not include by email.

"Payoff demand statement" means a written statement setting forth the amounts required as of the date of its preparation necessary to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement.  The written statement must include information reasonably necessary to calculate the payoff amount on a per diem basis for the period of time, not to exceed 30 days, during which the per diem amount is not changed by the terms of the note.

An entitled person may also make a written demand for a "beneficiary statement" that the beneficiary must satisfy by preparing and delivering to the person demanding it a true, correct, and complete copy of the note or other evidence of indebtedness with any modifications thereto, and a beneficiary statement. 

The "beneficiary statement" is a written statement showing:

            a.         the amount of the unpaid balance of the obligation secured by the mortgage or deed of trust, and the interest rate, together with the total amounts, if any, of all overdue installments of either principal or interest, or both;

            b.         the amounts of periodic payments, if any;

            c.          the date on which the obligation is due in whole or in part;

            d.         the date to which real estate taxes and special assessments have been paid to the extent the information is known to the beneficiary;

                       

            e.         the amount of hazard insurance in effect, and the term and premium of that insurance to the extent the information is known to the beneficiary;

           

            f.          the amount in an account, if any, maintained for the accumulation of funds with which to pay taxes and insurance premiums;

            g.         the nature and, if know, the amount of any additional charges, costs, or expenses paid or incurred by the beneficiary that have become a lien on the real property involved; and

            h.         whether the obligation secured by the mortgage or deed of trust can or may be transferred to a new borrower, such as by an assignment.

            A beneficiary must provide a "short-pay demand statement" (for a short sale attempt) within 21 days of a request.  If a beneficiary elects not to proceed with the transaction that is the subject of the short-pay request, it may refuse to provide a short-pay demand statement, but it must provide written notice of that decision within 21 days of the receipt of the short-pay request.

            The entitled person may rely on the beneficiary statement, payoff demand statement, or short-pay demand statement, and any amendment thereof. 

            If a statement is demanded that does not specify one of the three options, the beneficiary must treat the request as a request for a payoff demand statement. 

            The beneficiary may charge up to $30 for furnishing each required statement, except for mortgages or deeds of trust insured by the FHA or guaranteed by the Administrator of Veterans Affairs.

            If a beneficiary for a period of 21 days after receipt of the written demand willfully fails to prepare and deliver the statement, the beneficiary is liable to the entitled person for all damages that the entitled person sustains by reason of the refusal, and even if actual damages are not sustained, the beneficiary shall forfeit to the entitled person the sum of $300.  Each failure to provide and deliver that statement constitutes a separate cause of action.  The term "willfully" means an intentional failure to comply with the requirements of statute without just cause or excuse.

            Remedy:  If a beneficiary does not comply with the statute, the entitled person should consider filing a civil lawsuit for violation of Civil Code § 2943, and include causes of action for breach of the promissory note and deed of trust based upon the beneficiary's breach of the implied covenant of good faith and fair dealing in both documents.  A breach of contract cause of action may enable the recovery of attorneys fees in addition to costs, depending upon the terms of the note and deed of trust.  The legal action may also support a request for an injunction against a foreclosure based upon the beneficiary's failure to comply with the statute.