What is “usury”, and how are you protected from it?
In making of loans to conventional real estate buyers and “flippers”, investors should remember that for most private transactions, California enforces its usury law against excessive interest charges, with certain exemptions for seller carry back loans, and loans “made or arranged” by a licensed broker.
Usury is defined as charging a rate of interest in excess of the legal limit, and for personal, family or household purposes it is 10% per year, and for loans for “any other purpose”, the legal rate is either 10% per year, or 5% per year plus the federal discount rate that exists on the 25th day of the month preceding the date of the loan contract or date the loan was made, whichever is greater. The rate is set by California’s constitution, but there are exceptions for federal banks, credit card companies, and other institutional lenders, including the VA and FHA.
Investment loans used to purchase, build or improve real estate, also known as “hard money loans”, are considered loans for “any other purpose” and are subject to the higher of the 10% rate or the rate based upon the federal discount rate. Continue reading
How effective can an expert witness be in determining the outcome of your real estate lawsuit?
Even if the homeowner has the only expert witness regarding damages in an eminent domain action, that testimony needs to be grounded in a proper interpretation of the law, or it will be barred, and the homeowner will not recover any damages in excess of the fair market value of the house.
This rule was applied in the recent McNamara case where the family sued the Department of Transportation for taking their house for an improvement project in Prunedale. The McNamara appraiser conceded that the decrease in the value of the their home from September 2006 when the project was approved, and the date of valuation of the house in July 2008 when DOT filed its lawsuit, was due to the general market decline, and Caltrans was not responsible for the decline.
Significantly, the DOT had not restricted the McNamara’s sale of their property before July 2008, and the Appellate Court cited the rule in the Klopping case that any losses occasioned by a general decline in property value that occur before the date of the taking must be borne by the property owner. In other words, if the general market decline caused the loss of value, the property owner cannot hold the DOT responsible due to general market decline. The McNamara appraiser admitted he could not attribute the property’s loss due to anything other than the market’s decline. Continue reading
Real estate investor partners: Is your word good enough?
With prices appreciating, and loan rates and inventory low, there is an increased willingness to own real property by two or more investors who need to combine their capital and/or credit to participate in buying, and flipping or renting the property. Often, the investors’ focus is on selecting the property or raising the down payment, with little or no consideration for what happens if co-owners disagree, one wants out, or the optimistic expectations are not realized.
A popular formula in the current flipping frenzy is for one investor to obtain the loan because of a superior credit rating and taking title, while the silent investor contributes funds for the down payment, and perhaps occupies the property as a de facto tenant paying “rent” as the monthly mortgage payment, and sharing the insurance, taxes, and other costs of the property. This allows the purchase and investment by investors who could not otherwise participate by themselves, and increases the number of players in the market. Continue reading
With Deception, Comes Consequence
For transactions with a middleman that deceives both the seller and buyer, section 3543 of California’s Civil Code can break the tie where both parties are negligent, stating where one of two innocent persons must suffer by the act of a third (i.e., middleman), he, by whose negligence it happened, must be the sufferer. Huh? What does not mean in simple English?
In other words, if both parties are negligent in closing a sale after being deceived by the middleman, the one who is more responsible for the loss must suffer and bear the loss. That appears easier to understand, but the application of section 3543 depends on the facts.
First, being the victim of deception can be interpreted as negligence or unreasonable conduct, a rather sad commentary on our internet society that almost demands that you mistrust, confirm and verify everything you may be told. So it may not be enough to prevail by claiming there was no resisting the false promises or conduct of the middleman. Continue reading
What is your liability when signing legal documents?
Legal documents are frequently prepared by the professionals involved in the transaction, such as escrow or title companies, but it is important that the signer of the documents carefully review the manner in which the signer’s name is set forth on the documents, and in what capacity he signs the documents, especially if the party to the transaction is a legal entity such as a corporation or limited liability company. Unless the document is signed “By”, or “as President”, or “as Managing Member”, it may be determined that the document was signed in an individual capacity, with personal liability for the signer. Such a result defeats the corporate shield, the main purpose of entering into contracts as a corporation or limited liability company. In California, it is essential that the documents disclose the identity of the principal (e.g., trust, corporation, limited liability company) to relieve the agent (i.e., signer) from liability. If the principal is not sufficiently disclosed, the agent may be found to be personally liable on the contract. The simple addition of the word “By” on the signature line would reveal that the other party was dealing with a corporation or other entity that was liable, and not the agent signing the document. In addition, the signer can specify his officer position with the corporation such as “as President” or “as Secretary” to further guard against personal liability. Continue reading
BASIC PARTS OF ESTATE PLAN
- Revocable Trust;
- Last Will (“Pour Over Will)
- Durable Power of Attorney – Financial
- Advance Health Care Directive
- Grant and Assignment Family Trust
- Trustees’ Certification of Trust.
REVOCABLE TRUST: Distributes Trust assets without the necessity to obtain court approval (which is necessary to probate a will). However, application to the court is still possible. Until death, the Trust can be modified or even revoked at any time.
POUR OVER WILL: Confirms that prior wills are revoked, and pours over or transfers all property into the Trust that is not already in the Trust.
DURABLE POWER OF ATTORNEY-FINANCIAL: Becomes effective in the event the person executing the Power of Attorney becomes incapacitated (e.g., severe injury or dementia or other cause of mental incapacity). Use while Trustor is still alive.
ADVANCED HEALTH CARE DIRECTIVE: Serves as a living will and provides guidance in the event of coma or persistent vegetative state, etc., and gives control over all of the health care decisions. Hospitals like to have it in their file as it confirms who can make medical decisions.
GRANT AND ASSIGNMENT TO TRUST: Confirms the nature and description of the property that is part of the Trust estate, except assets held in joint tenancy, and life insurance.
TRUSTEES’ CERTIFICATION OF TRUST: Use instead of the Trust document to prove the existence of the Trust for banking or other financial purposes. A summary of the Trust.
TYPICAL ESTATE PLAN PROBLEMS:
A. NOT SIGNED
B. REAL PROPERTY NOT TRANSFERRED TO TRUST
C. DISHONESTY OF ALTERNATE TRUSTEE
These opinions do not create an attorney-client or a broker-client relationship, or constitute legal or tax advice. Craig B. Forry, has been a California attorney since 1984 (SBN 113432), and a California Realtor® since 2004 (DRE 01446739), and is the founder of Forry Law Group, and a co-owner of CARES Realty, Inc. Individual circumstances vary and professional advice is recommended before making any decisions concerning legal matters.
Government Mortgage Program Allows Recourse Against Lenders For Compliant Homeowners
The Home Affordable Mortgage Program (HAMP) was started in 2009 to help homeowners avoid foreclosure, and its goal is to provide lower monthly payments to borrowers who have defaulted on their payments, or who are likely to default. It has been extended to December 31, 2015 and the requirements relaxed to encourage more applications. A typical HAMP homeowner may be able to reduce the mortgage payment as much as 35%. The biggest problem with the program is it does not reduce the principal amount of the mortgage.
The main obstacle to qualifying is the borrower must be employed, in order to document an ability to make the required monthly payments. Other requirements include a mortgage obtained before January 1, 2009, loans less than $729,750 on a residence, with higher limits on 2, 3 or 4-unit rental property, a financial hardship, and no recent felony conviction. Keep in mind the law is always changing, and if lower payments are needed, an application should be submitted. Continue reading
Q: The value of my residence is less than the amount that I owe on the mortgage, and because I lost my job, I cannot continue to make the loan payments. Do I have any option other than losing the property to foreclosure?
A: Given the one‐two punch of falling property values and increasing unemployment, the number of homes with debt that exceeds their value, and the owners inability to keep payments current, have caused short sales to become an increasing share of the market. Whether a short sale is a better alternative than foreclosure is subject to many factors, including the flexibility of seller and buyer, and convincing the lender that it can get a better deal from the short sale than the inevitable foreclosure. The keys to a successful short sale are patience, persistence, and a convincing package that satisfies all of the lenders’ requirements. Continue reading
Q: With the recent fire in the hills where I reside, and the rains that have caused severe mud slides that appear to be heading my way, how can I protect my property and not get sued by the lower owners?
A: In California, water that is diffused over the surface of the land and resulting from rain, snow, or springs is known as “surface water”. The mud flows from burn areas are caused by heavy rains on the denuded slopes, and the resulting surface water carries mud and debris downhill. Surface water is different from water flowing in a fixed channel such as a river or stream, or the extraordinary overflow of rivers or streams that is termed “flood water”.
One of the three basic rules that courts follow in the United States in considering ground water cases is termed the “common enemy doctrine”, and it holds that each landowner has an unqualified right as the owner of his land to fend off surface waters without being required to consider the consequences of water diversion methods to other landowners. In other words, every owner for himself. This doctrine was followed in Hawaii, Washington, North Dakota, New York, and Massachusetts, among other states. Continue reading
Q: I obtained a loan to purchase my single family residence in 2002 from Bank 1, and then I obtained a line of credit secured by a second deed of trust on my residence in 2005 from Bank 2. Although I remain employed, the value of my property is less than the amount I owe on both loans and I have stopped paying the mortgages. If Bank 1 forecloses on its loan to me, will I still be liable for the amount I owe to Bank 2 on its loan?
A: A determination regarding whether a borrower remains liable for a debt secured by real property depends upon whether the California antideficiency statutes provide protection from a deficiency judgment. A deficiency judgment is a personal money judgment against the debtor for the difference between the price realized for the secured property at a foreclosure sale, and the balance remaining on the deed of trust being foreclosed and any other loans on the property. Continue reading