Short Sales and Deficiency Judgments
Anna Greenstin
 As declining residential property values are starting to stabilize, mortgage lenders are approving more Short Sales as an alternative to foreclosure. A homeowner may elect to pursue a Short Sale when the fair market value of the property is less then the amount of the loan, and the owner cannot cover the mortgage payments. Some homes are encumbered with two or more loans. All lien holders must approve before a Short Sale can occur. If the loans are generated with different lending agencies, then the Real Estate Agent must contend with different business practices when assisting with the Short Sale application. For example, lenders have different procedures regarding Short Sale applications. Some lenders require submittals of offers. Often the Seller must disclose his financial records and explain his financial hardship. Financial information must be accurate and honest. Otherwise, the Seller and his Agent could be liable to the lender for fraud.
If the lenders approve of the Short Sale, a lender "Approval Letter" will follow. More often than not, the Approval Letter will specifically state that the lender reserves its right to pursue a deficiency judgment against the borrower for the difference between the loan balance and the price received from the Short Sale. This language is often overlooked by the Agent and the Seller, because they either do not understand the legal ramifications, or they are rushing to complete the sale. Sometimes the Approval Letter is silent and the lender does not mention it is reserving its rights to recoup the deficiency. The lender's silence on this issue usually does not constitute a waiver of its right to do so. Unless the Seller receives a written release directly from the lender, an unsophisticated Seller will be exposed to a possible deficiency judgment. This means that, after the property is sold, the Seller may receive a demand letter from the lender to pay the difference between the sale and loan amounts.
Agents must advise the Seller of government programs that may prevent lenders from going after the Seller for deficiency. For example, in the last few weeks the Homeowners Affordable Modification Program ("HAMP"), through the Home Affordable Foreclosure Alternatives ("HAFA"), came out with a new law that prevents lenders from going after the Seller for the deficiency. If the Seller meets the HAFA requirements, and proceeds with the Short Sale through HAMP, then the lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan. You can learn more about the HAFA requirements here.
Agents usually are not attorneys, nor are they Certified Public Accountants. When their clients receive a demand letter from the lender, the Agents are sometimes just as bewildered as the Seller. The Agent should advise the Seller, in writing, of the importance of speaking to an attorney or CPA about whether the borrower will remain liable for the deficiency. If so, the Seller will want to reserve the right to cancel the Short Sale without penalties or pursue negotiations with the lender to obtain a written waiver of the deficiency and general release of all claims against the borrower.
Agents assisting Sellers with Short Sales use the Short Sale Addendum (C.A.R. Form SSA 11/07). Section F of Form SSA broadly advises the Seller that he can incur credit or legal consequences, or taxable income from a Short Sale. It states that the Seller should "seek advice from an attorney, CPA or other expert regarding such potential consequences of a Short Sale." However, the language is ambiguous, and can create confusion about whether the Seller can cancel the sale after the lender approves of the Short Sale but does not release the deficiency.
In addition to using Form SSA, Agents and Brokers should also prepare a more detailed Addendum to the Purchase Agreement, permitting the Seller to meet with a lawyer or CPA to discuss the lender's agreement, and thereafter allowing a five day window to cancel the sale, if necessary. Such an Addendum to the Short Sale Purchase Agreement should include 1) the Seller's right to terminate the Short Sale (within a limited period of time); 2) notice that the Seller may have negative tax, legal or credit consequences which result when the funds due at the close of escrow are insufficient to fully satisfy a loan secured by the property; 3) notice that the lender may agree to take less than the full amount of the loan without releasing the deficiency; and 4) advise the Seller that there are government programs that may assist the Seller with avoiding a deficiency judgment.
Essentially, the Agent should address Short Sale issues more directly, and bring to light the possibility of the lender "approving" the Short Sale, but not releasing the Seller from any deficiency. Since proper documentation of the Short Sale process is necessary to maximize the Seller's legal protection, an attorney should be consulted to guide the Seller through this process. In addition, Agents should be advising the Seller of new HAFA programs that are being implemented to protect homeowners.
The real estate attorneys at Kring & Chung, LLP, some of whom also maintain a real estate broker's license, are knowledgeable and ready to assist both the Seller and the Agent through the Short Sale transaction, and any other real estate related legal matters.
Anna Greenstin is an associate with Kring & Chung, LLP's Irvine office. She can be contacted at (949) 261-7700, or agreenstin@kringandchung.com. |
SB 800 - Fact or Fiction?
Brendan Coughlin Senate Bill (SB) 800, now codified as Civil Code § 895, et seq. ("SB 800"), was supposed to revolutionize construction defect litigation. Approved by the California Legislature and signed into law on September 20, 2002, SB 800 promised to give construction contractors the "Right To Fix" claimed construction defects, rather than being launched into litigation. The law applies to sales of new home units beginning on January 1, 2003. Now, seven years after it became law, SB 800 cases are starting to show up with regularity on more and more construction trade Office Manager's desks. Often the first warning a subcontractor has of a claim is a letter from the owner/developer's counsel, demanding indemnity and defense pursuant to a subcontract, notifying of visual inspections in three weeks, and enclosing the "Notice of Construction Defect Claims" Plaintiffs' counsel previously sent to the Builder to satisfy Civil Code § 910.
The plain fact is that SB 800 as it became law does not give subcontractors the right to repair. Civil Code § 895, and the SB 800 code sections that follow it, provide for a schedule of events by which Plaintiffs' counsel and counsel for the owner/developer of a particular project "try" to agree to the Builder's proposed repair. Section 916(e) provides that the Builder must provide notice to the subcontractor or design professional responsible for its contribution to the alleged "unmet standard." There is a process by which the Builder makes repair offers to the Plaintiffs, without a provision that the subcontractors participate in the preparation of the repair proposals. And a Builder is not released by Plaintiffs after completing repairs, a significant disincentive for Builder to actually repair.
Things being as they are, the trade subcontractors are often nevertheless pulled along for the SB 800 ride. They attend visual inspections themselves, taking time away from their own businesses. They may try to attend mediations themselves, without their insurer or counsel, and find themselves sitting in a conference room with others like them, commiserating, telling stories, and perhaps just wasting their time because Plaintiffs and the Builder have no intention of settling, or agreeing to repairs by anyone.
Not every SB 800 litigation is proceeding this way, but many are. Ultimately, Plaintiffs routinely refuse the repair offers made by the Builder. Plaintiffs' counsel really does not have a great interest in having his clients' defect allegations repaired, unless he plans on being paid in chickens or eggs. Builder's counsel knows that even if he does reach a repair or cash settlement with Plaintiffs, he is going to turn around and sue the subcontractors for indemnity, all the while incurring fees and costs that he will try to pass on to the subcontractors. But the situation is not necessarily as bad as all that. There are significant additional reasons why subcontractors should seek out experienced and savvy construction litigation counsel, such as Kring & Chung, early in the SB 800 process. Some of these are the following: - As more subcontractors move into insurance policy terms that feature Self-Insured Retentions, and other restrictive provisions, there is a tangible benefit to having counsel versed in analyzing and obtaining appropriate insurance coverage;
- It may be possible to satisfy a single SIR as to several claims or cases, depending on a subcontractor's contract language with its insurer;
- Because subcontractors do not always turn SB 800 claims over to their insurers immediately, the Builder may obtain an agreement from Plaintiffs to sue the subcontractors even before the formalities of SB 800 have been met;
- Experienced counsel familiar with the nuances of construction defect law are more likely to be responsive and cost effective for subcontractors; and
- Early participation of counsel, even in SB 800 cases, prevents the possibility of Entry of Judgment against a subcontractor. The days when a subcontractor might ignore litigation, allow default to be taken against them, and ignore paperwork and attempted contacts, appear to be over. Aggressive Plaintiffs' counsel are now obtaining Judgments against non-participating subcontractors. Depending on the particular status of the subcontractor, this can unfavorably result in a Court Order to pay damages, without legal representation of the trade.
Kring & Chung is available to answer any questions you have regarding SB 800, and all construction defect issues and claims.
Mr. Coughlin is an associate with Kring & Chung, LLP's Irvine office. He can be contacted at (949) 261-7700, or bcoughlin@kringandchung.com. |
A Brief Overview of Premises Liability Law in Nevada
Merielle Enriquez and Monica Dean
Merielle Enriquez |
Premises liability law is a wide ranging area of law that all business proprietors should be knowledgeable about in order to protect their business patrons and to limit potential exposure in the event of an accident on their property. As in most jurisdictions, Nevada law recognizes that a proprietor has a duty to exercise reasonable and ordinary care in keeping its premises safe for its patrons. Basile v. Union Plaza Hotel & Casino, 887 P. 2d 273 (Nev. 1994). The following are examples
Monica Dean | of the various types of premises liability cases that a proprietor may encounter:
Falling Merchandise
Falling merchandise cases are becoming an increasingly prevalent area of premises liability law. Consider the case Scharrel v. Walmart, Inc. In this case, Plaintiff went to a local Wal-Mart store to purchase a power ice auger. The ice augers were located in boxes on top of a shelf that was approximately eight feet high. The Plaintiff requested the assistance of an employee, who stood on a ladder and attempted to remove one of the boxes from the shelf. The employee lost his balance and pulled down at least two boxes of ice augers as well as a display of ice chests. The Plaintiff was struck by the falling merchandise and is alleged to have suffered injuries including permanent brain damage and disk herniation. See Scharrel v. Walmart, Inc., 949 P. 2d 89 (Colo. Ct. App. 1997).
Notice of a hazardous condition is a critical issue in a premises liability case. It is a critical issue not just for falling merchandise cases, but for all types of premises liability cases. In the Walmart case, the Ninth Circuit upheld the admission of a Wal-Mart report of 17,000 falling merchandise incidents as evidence that the risk to customers posed by high stacking was foreseeable. Thus, Walmart had notice of this hazardous condition.
Slips and Falls
Possibly the most prevalent type of premises liability cases are slip and fall cases. Generally, if a slip and fall is caused by a substance or object on the floor, liability of a proprietor may be found if the condition was created by the proprietor or his agent. If the condition was created by a third-party, then liability will depend on whether the proprietor had actual or constructive notice of the existence of the condition.
Consider the case of Asmussen v. New Golden Hotel (392 P.2d 49 (Nev. 1964)) where the Plaintiff slipped and fell on a waxed floor of the hotel. The District Court held that a finding of liability upon the hotel was precluded as a matter of law, and the Nevada Supreme Court affirmed this decision.
In the Asmussen case, the Plaintiff was a guest at the hotel. She stepped from the elevator onto the hotel floor, slipped, and suffered injuries. Plaintiff alleged that the floor was "very heavily waxed" and that she slipped as a result of this condition. Plaintiff later admitted that this was the cause of the fall as related to her. The record did not show who waxed the floor, when the waxing was completed, nor the manner or method used in applying wax to the floor.
Since the record lacked evidence showing the material used to wax the floor or the manner of its application, the Asmussen Court held it would be impermissible to infer that an unbuffed waxed floor is dangerously slippery. To do so would effectively destroy the requirement that a claimant show either that the proprietor was negligent in the material used or in the manner of applying it.
Acts of Third-Parties
Injuries resulting from the criminal acts of third-parties commonly arise in premises liability cases. Generally, in Nevada, if a proprietor has knowledge of prior criminal acts on his premises, then the proprietor may be found liable to the injuries sustained to its patron. In Doud v. Las Vegas Hilton Corp., the Plaintiff was brutally attacked when he entered his motor home which was legally parked in the parking lot of the Las Vegas Hilton Hotel and Casino. Plaintiff filed a complaint that alleged the Hilton was negligent in failing to provide sufficient security. The Hilton was granted summary judgment by the district court on the contention that the robbery was unforeseeable and that the Hilton had no constructive knowledge of any danger to its guest from third-party assailants.
On appeal, however, the Nevada Supreme Court reversed the Hilton's summary judgment concluding that there was a material issue of fact as to whether the Hilton was on Notice of the potential for violent crimes on its premises. In reversing the district court's position, the Supreme Court considered evidence that the parking lot had been the scene of at least one prior armed robbery, and that there were eight-five (85) crimes and arrests reported on the entire Hilton premises in the last two years. Furthermore, seventy-eight of those crimes occurred in the Hilton's various parking lots. See Doud v. Las Vegas Hilton Corp., 864 P. 2d 796 (Nev. 1993).
The cases discussed above provide just some examples of the various types of premises liability issues that proprietors may encounter in the event of an accident on their property. Notably, there are many different issues that may arise, and as such, it is important to consult with a knowledgeable attorney who routinely practices in this particular area of the law.
The attorneys at Kring & Chung are highly skilled in all aspects of premises liability law and also seasoned in all stages of litigation and various methods of alternative dispute resolution. We will utilize our significant experience and team of forensic consulting experts to aggressively defend your case. To learn more about the contents of this article or any area of premises liability law in Nevada, please contact Kring & Chung's Las Vegas office where our attorneys will be happy to assist you.
|
|
|
Lawyers Available for Consultation
(949) 467-9164 |
|
Our Offices
Orange County
38 Corporate Park
Irvine, CA 92606
(949) 261-7700
Sacramento
2620 J Street #1
Sacramento, CA 95816
(916) 266-9000
San Diego
11622 El Camino Real, Ste 100
San Diego, CA 92130
(858) 436-0268
Inland Empire
3602 Inland Empire Blvd., Ste A120
Ontario, CA 91764
(909) 941-3050
Westlake Village
200 N. Westlake Blvd., Ste 207
Westlake Village, CA 91362
(805) 494-3892
Las Vegas
7040 Laredo Street, Ste K
Las Vegas, CA 89117
(702) 260-9500
Los Angeles
3600 Wilshire Blvd., Ste 1220
Los Angeles, CA 90010
(213) 384-1905
Our Attorneys
Partners
Kyle D. Kring
Kenneth W. Chung
Paul T. McBride
Robert P. Mougin
Kathleen Elder-Blakely
Timothy J. Broussard
David P. Ramirez
Suzanne M. Rehmani
Ronald J. Skocypec
Ted A. Connor*
Shane Singh
Laura C. Hess
Han Joo Kim*
Associates
Roland J. Amundsen
J. Christopher Bennington
Scott M. Bonesteel
Min K. Chai
Brendan J. Coughlin
June Yang Cutter
Monica R. Dean
Michael B. Efron
Merielle R. Enriquez
Christopher F. Geiger, Jr.
Anna Greenstin
Richard C. Hatem
John A. Kaniewski
Alyssa L. Morrison
Allyson K. Myers
Justin G. Reden
Matthew A. Reynolds
Arie L. Spangler
Michelle L. Wiederhold
Of Counsel
Timothy J. Schafer
David M. Griffith
Paul A. Rianda
*A Professional Corporation |
 |
 |  |  |
|
Attorney Spotlight
Courtroom Wins
Laura Hess won terminating sanctions against a defendant in a collection action. Hess filed a motion requesting the court strike defendant's pleadings and enter a default judgment based on the fact the defendant was intentionally delaying arbitration. Terminating sanctions are rarely ever granted (they are considered "doomsday sanctions.") However, Hess convinced the court that terminating sanctions were appropriate under these circumstances due to the defendant's long pattern and practice of egregious delay tactics.
Laura Hess obtained a favorable arbitration award in a breach of contract case. The case involved a design-and-build contract for the development of a new condominium complex in Laguna Beach. The developer sued Hess's client, the property owner, for money claimed to be owed under the contract in the amount of $249,367. The arbitrator's award was for $22,500, less than 10% of the pre-arbitration demand.
Writ of Mandate Success
Ron Skocypec and Chris Bennington recently succeeded in securing a writ of mandate to overturn a trial court's decision concerning allocation of defense fees and costs between the client and two other carriers. The case arose out of an underlying products liability action involving defective intraocular lenses implanted in patients by ophthalmic surgeons. The client and the two other carriers insured the entity that manufactured the storage containers for the lenses. It was alleged in the underlying actions that those storage containers contaminated the lenses and caused them to become opaque after surgical implantation. At the trial level, the court hearing the coverage matter granted a motion for summary adjudication and simply divided the costs of defense three ways. In so doing, it assigned one share to each of the three carriers, including the client. It also ordered the client to pay that one-third share immediately. This ruling was, at best, premature, and it also ignored many of the equitable factors that should have reduced the share attributable to the client. Despite the long odds against winning a petition for writ of mandate (only about 10 percent are granted), the Court of Appeal accepted Skyopec's and Bennington's arguments, reversed the summary adjudication, and overturned the allocation award pending trial on the various equitable issues that affect the allocation of the defense costs.
|
|
| | |
|
Kring & Chung in the Community
Kring & Chung, LLP proudly sponsors the Orange County chapter of SCORE Counselors to Small Businesses. On May 14th, Kring & Chung, LLP sponsored a table at the SCORE-OC Women in Business Breakfast Series at The Center Club in Costa Mesa, CA. These educational seminars for small to medium sized business owners occur once every two months.
The next upcoming seminar will be on June 12, 2010. Kring & Chung will present the legal portion of the Business Start Up Essentials seminar. This full day workshop will teach you how to start and manage your business. This workshop is designed to provide information for existing businesses that is equally valuable to prospective start-ups.
|
|
|
| |
This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
|
|
