Listing Agreement Is Key To Collecting Commission

The recent case of Jacobs v. Locatelli outlines the importance of the listing agreement as a binding contract for a broker to recover a commission for the sale of real property, even if it was not executed by all of the owners.

The vacant land was owned by 6 owners, and Jacobs obtained an exclusive Vacant Land Listing Agreement for a list price of $2,200,000 that was only signed by Locatelli, with the other owners' signature lines left blank.  Jacobs alleged in her complaint that a written "agency agreement" exists between Locatelli and the other owners, Locatelli told her he was authorized to act on behalf of all of the owners, the other owners were aware of her retention as a broker, and two of the owners acknowledged her employment, were impressed by her performance, and inquired about working with her on other projects. These were important allegations, but not as valuable as obtaining all of the owners signature on the listing agreement to begin with.

Jacobs alleged that she spend significant time to market the property, and contacted a potential buyer named The Trust For Public Land (TPL), whose representative expressed interest in purchasing the property. However, when Jacobs informed Locatelli, of the interest from TPL, he was angry, asked for information regarding TPL, claimed he had been speaking with TPL for three years, and he wanted to change the exemption in the agreement from the Open Space Land Trust to TPL.

Subsequently, Locatelli informed Jacobs she was not to contact TPL, and that he would deal directly with TPL regarding the sale.  The owners of the land and TPL entered into an agreement for TPL to buy the property, but the sale was never consummated, apparently because issues arose between the owners and TPL.

Nevertheless, Jacobs filed a complaint against the owners for a $200,000 commission, alleging causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, anticipatory breach (implied repudiation), and specific performance.

The owners filed a demurrer, arguing that because all of the owners had not signed the listing agreement, the complaint was barred by the statute of frauds. Jacobs argued that Locatelli signed the agreement on behalf of the "joint venture" that consisted of all of the owners of the property.  The trial court sustained the demurrer, and after Jacobs filed an amended complaint, the trial court sustained the demurrer without leave to amend as to all owners who had not signed the listing agreement. 

In the listing agreement, "Owner" is defined as Locatelli, as trustee of his trust, "et al.", which the court of appeal ruled means "and others". Under the Statute of Frauds set forth in Civil Code, section 1624(a)(4), an agreement authorizing an agent or broker to purchase or sell real estate is invalid unless it is in writing and subscribed by the party to be charged or by the party's agent.  Any agency authority to enter into a contract required by law to be in writing must also be given by an instrument in writing under the equal dignities rule in Civil Code, section 2309.

In finding that the issue is whether Jacobs' allegation that Locatelli signed on behalf of the other owners who formed a joint venture is sufficient to satisfy the statute of frauds, the court of appeal applied the pragmatic approach of the California Supreme Court in its decision in Sterling v. Taylor, which states the Statute of Frauds was not enacted to afford persons a means of evading just obligations, and if after consideration of the surrounding circumstances, the pertinent facts and all the evidence in a particular case the trial court concludes the enforcement of the agreement will not subject the defendant to fraudulent claims, the purpose of the Statute "will be best served by holding the note or memorandum sufficient even though it is ambiguous or incomplete."

As a result of Sterling, when ambiguous terms in a memorandum are disputed, extrinsic evidence is admissible to resolve the uncertainty.  The agreement must still provide the essential terms that cannot be supplied by extrinsic evidence, but extrinsic evidence can be used to explain essential terms that were understood by the parties but would otherwise be unintelligible to others.  A cardinal rule of construction is when a contract is ambiguous or uncertain, the practical construction placed upon it by the parties before any controversy arises as to its meaning affords one of the most reliable means of determining the intent of the parties, and this rule governs the interpretation of a memorandum under the Statute of Frauds.

Therefore, the court of appeal reversed the trial court's decision, and allowed the case to proceed to enable Jacobs to introduce extrinsic evidence of the manner in which Locatelli signed the listing. The listing specified that there were multiple owners, and that could be interpreted as referring to all of the members of the joint venture that Jacobs claimed to exist.  Of course, it is doubtful that the defendants will provide any written confirmation of Locatelli's agency authority to sign for the other owners, and the uncertainty of a trial decision may encourage the parties to reach a settlement.

LESSONS: 

1.         The listing agreement is the contract that provides the broker a legal right to recover a commission, and extensive care should be given to its preparation and execution.

2.         The owners of real property should be determined by the broker in   preparing the listing agreement, and all owners' signatures should be obtained on the listing agreement.

3.         If the listing agreement is properly prepared and signed, the commission may be earned when a sale contract is entered into between the seller and buyer, even if the sale was never consummated with a closing of escrow.

BFP's Purchase At Sheriff's Sale Prevents Restitution

In the recent case of Lee v. Rich, the California Court of Appeal recognized Code of Civil Procedure section 701.680 that provides that a Sheriff's execution sale (aka Trustee's Sale during a foreclosure proceeding), is "absolute and shall not be set aside for any reason", and ruled that because the purchaser of the real property at the Sheriff's sale was not the judgment creditor (i.e, lender, typically a bank) and was a bona fide purchaser ("BFP"), the debtor's remedies were limited to recovery of proceeds of the sale or equitable redemption.

Lee purchased his single family home in a common interest development (Homeowners Association-HOA), and ceased paying the HOA assessments.  The HOA dutifully sent Lee notices of delinquency, intent to record a lien, and recorded a lien on the property.  The HOA then filed a lawsuit against Lee that included foreclosure of the assessment lien.  Lee did not respond to the lawsuit, and after his default was entered, a judgment of foreclosure of the assessment lien was entered. 

Based on the default judgment, the HOA obtained a writ of sale, and a sheriff's deputy posted a notice of the sheriff's sale under foreclosure on Lee's front door that advised the property would be sold at auction to the highest bidder. 

Rich learned of the sheriff's sale, and the bidding opened for the amount of the HOA judgment, and overbids increased in $5,000 increments, until Rich made a bid of $210,000, and the property was sold to him for that amount.  Rich paid the required 10 percent deposit by cashier's check, and paid the balance at the end of the 3 month redemption period.  The property was subject to tax liens and other encumbrances that Rich paid.  Rich received a sheriff's deed to the property, and then filed an unlawful detainer action to evict Lee and obtained a default judgment.

Lee filed a motion to set aside and vacate the HOA's default judgment, arguing that he never received actual notice of the lawsuit because the summons was never mailed to his post office box address, but he did not serve Rich with the motion.  The Court granted Lee's motion to set aside and vacate the HOA's judgment and allowed him to file an answer.  Lee then filed a cross-complaint against the HOA, Rich, and the Orange County Sheriff for restitution of the amount of the judgment of $19,578.32.  Lee next filed a motion for restitution and to cancel the Sheriff's deed, which the court granted.

The Court of Appeal found that Rich was an indispensable party to the motion to set aside and vacate the default judgment because the potential effect of the motion would be to void Rich's title, and he was a party to the sale transaction.  Rich was a BFP at the Sheriff's sale, and the motion to vacate the default judgment impaired and impeded his ability to protect his interest in the property he purchased.

By statute, only the judgment debtor can set aside a Sheriff's sale for irregularity, and only where the purchaser was the judgment creditor.  Therefore, the sale to Rich, who was a BFP, could not be set aside, even if the underlying judgment was vacated.

The historical right of the debtor to exercise equitable redemption is only available where the judgment creditor purchases the property, and for a "grossly inadequate price", and where the purchaser is guilty of unfairness or has obtained an undue advantage.

This case is a good illustration of the steps involved in a Sheriff's sale following a judgment for an HOA against a debtor who fails to pay monthly assessments, and the limited ability of the debtor to recover the property after the sale.

The Lessons:

            1.  A debtor needs to enforce his/her rights before the Sheriff's or Trustee's Sale;

            2. A BFP is protected after purchasing the property at the sale; and

            3.  If the sale is to a BFP, The debtor is limited to recovery of proceeds of the sale or equitable redemption even if the underlying judgment is vacated.

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.