The Real News

May, 2018
Second Jury sides with Coldwell Banker over Square Footage Claim
In 2007, a billionaire named Horiike bought a house in Malibu, CA for $12.25 million. He later sued Coldwell Banker because, as he claimed, the "approximate square footage" of 15,000 square feet on a flyer was a misrepresentation and a breach of the listing salesperson's fiduciary duty. He did admit that he did not read any of the documents containing the varying square footage information such as permits, disclosures, public records, or architectural drawings.

During the first trial, the jury sided in favor of the broker and the listing salesperson on the grounds of intentional and negligent misrepresentation claims. The judge dismissed the breach of fiduciary duty claim against the broker because the buyer's salesperson was not named in the suit. It just so happens that the buyer's salesperson was also licensed with Coldwell Banker.

Fast forward to 2016, the California Supreme Court ruled that there was an agency relationship between the buyer, the broker, and the listing salesperson. The trial court had to go back and completely retry all counts from the first trial, including the breach of fiduciary duty claim. After only one day of deliberations, the second jury found that the broker and listing agent were not in breach.

Square footage claims continue to be an issue with disclosures. There are things real estate professionals can do to protect themselves from litigation. They should make sure that square footage claims are clear, as is stated in the California Association of Realtors (C.A.R.) Statewide Buyer and Seller Advisory (see C.A.R. Form SBSA). It should also be made clear that the broker has not verified the square footage claim. Different "experts" argue what is available square footage information. Real estate professionals should always state the source of the available square footage information, that the licensee has not verified the information, and that only an appraiser can reliably confirm square footage.
Case of the Month

Erik J. Hansen et al, Plaintiffs, Cross-defendants and Respondents, v. Sandridge Partners, L.P. et al, Defendants, Cross-complainants and Appellants

Erik Hansen and several relatives ("the Hansens") own a farm in Tulare County, California that is roughly 382 acres (the "09 parcel"). Their partnership, named Hansen Ranches, has farmed the 09 parcel for as long as Erik can remember. For the past 30 years, Erik has actively been working the farm and currently manages the day-to-day farming activities. The adjacent parcel of land (the "05 parcel") is roughly 250 acres and owned by Sandridge Partners, L.P. Approximately 10 acres of the southwest area of the 05 parcel is a roughly triangular-shaped area that both property owners are suing over (the "Disputed Land").

The Hansens farmed mostly cotton, alfalfa, and wheat. The crops were planted on both the 09 parcel and the Disputed Land. The disputed land was primarily cotton over the years but would occasionally be alfalfa or wheat depending on crop rotations. The Hansens were consistent with their farming practices over the years. In 2002, the Hansens planted some pistachio trees on a portion of the 09 parcel North of the Disputed Land. In 2010, they discussed planting pistachio trees on the remaining land of the 09 parcel. In 2011, they ordered pistachio trees specific for that purpose.

In early 2011, Erik learned the owner (at that time) of the 05 parcel, Valov, was in negotiations with Sandridge Partners, L.P. to sell them the parcel. Erik's father mentioned that he "remembered that there was a lot line adjustment issue." This was the first of Erik learning that the Disputed Land they've been farming on wasn't their land. Erik contacted Valov to try and work it out before the sale of the property. Valov was initially receptive to the idea, but that never came to fruition. In the spring of 2012, Erik installed a drip irrigation system both on the 09 parcel and the Disputed Land. In June 2012, the Hansens planted the pistachio trees, again covering both the 09 parcel and the Disputed Land. Valov completed the sale to Sandridge Partners, L.P. in December of 2012.

Hansens and Sandridge held negotiations to try and resolve the lot line issue with the Disputed Land. The negotiations were not successful and litigation followed. The Hansens sued to quiet title for a prescriptive easement for their continued use and occupation of the Disputed Land. Under the requested prescriptive easement, the Hansens requested that Sandridge would have "no right to use or occupy any portion of the Subject Property." Sandridge cross-complained to the quiet title and sought damages for conversion and trespass. The superior court denied the Hansens' request for a prescriptive easement but did grant them an "equitable interest ... of limited scope and duration ... with the following conditions:" 1. The Hansens pay the full fair market value of the unimproved land; 2. The Hansens may not add to the encroachment, but they may repair any equipment and replace any trees that die in the first five years of planting; 3. The Hansens' interest in the land will end if they stop farming it for one year or sell the property; and 4. Their interest will end once the current trees are no longer producing a commercially viable crop (no dates were determined or set by the court). Of course, Sandridge appealed.

There are three factors that need to be present in order to grant an equitable easement: 1. The "encroacher" must be innocent, meaning it's not willful or negligent; 2. Unless the rights of the public would be harmed, the court should stop the encroachment if the burdened landowner will "suffer irreparable injury", regardless if the encroacher may suffer an injury; and 3. The hardship to the encroacher from the order of removing the encroachment must be greatly disproportionate to the hardship caused by the plaintiff if the continuance of the encroachment were to take place. This must be proved by the defendant with clear evidence. If any one of these three elements are not present, then the equitable easement cannot be ordered by the court. While there is evidence the Hansens' encroachment was not intentional, the evidence does support the conclusion that the encroachment was negligent. It was already shown that they knew there was a lot line dispute and that it needed to be worked out. They should not have planted the trees (a permanent fixture versus an annual crop like cotton) until the lot line dispute was resolved.

The Hansens also argued that Sandridge should have gotten a survey before the trees were planted to prove who owned the Disputed Land. However, the court ruled that Sandridge did not commit the encroachment and therefore does not have a duty to prove the lot lines (plus she did not own the land at the time of the encroachment). However, since the Hansens did commit the encroachment, they should have had a survey conducted to ensure they did not commit an encroachment.

The Hansens also argued the trial court should have ordered a prescriptive easement. The trial court concluded that "the interest sought here isn't a prescriptive use culminating in an easement, but an adverse possession that seeks to effectively create a change in title." The appellate court agreed with the trial court. The Hansens wanted to use the 05 parcel in a manner in which the owner of the property could not use their own property. The interest in the land that is functionally equivalent to ownership may be acquired by adverse possession, but not as a prescriptive easement.   The Hansens did not meet the requirements of an adverse possession.

The appellate court reversed the trial court decision and directed the trial court to enter judgment in favor of the defendants Sandridge Partners, L.P. (and Citibank, N.A. their lender). Said defendants shall recover costs on appeal.

CFPB 2018 TILA-RESPA Rule Change

On April 26, 2018, the Consumer Financial Protection Bureau (CFPB) issued a final rule titled 2018 TILA-RESPA Rule. The change is when a creditor may use a Closing Disclosure to reset tolerances under TILA-RESPA rules. This new change is effective 30 days after its publication in the Federal Register.

Under TILA-RESPA, creditors have to provide to consumers a Loan Estimate which discloses good faith estimates of key loan terms, including closing costs. This is done at the beginning of the loan process. However, between the time the loan process starts and the loan is finalized (consummated) many factors may change which can affect the original estimate. Under the old rules, it was very difficult to amend the original disclosure. Certain closing costs are still considered to have been given in good faith of they are within a 10% tolerance of the original disclosure, as long as they do not exceed the total disclosure estimate provided.

Under the current rule, the estimate can only be changed within four business days of loan consummation. Under this new rule, if there is a change in circumstance or another triggering event, a creditor may be able to use a revised estimate. The creditor must provide the revised estimate within three days of the change or triggering event regardless of the loan consummation date. Making this revision is often referred to as "resetting tolerances". It is still required that the consumer receives an initial Closing Disclosure at least three business days before loan consummation. A new three day waiting period is only required for a corrected Closing Disclosure if any of the following items occur:
  • If the APR becomes inaccurate;
  • If a prepayment penalty is added; or
  • The loan product changes from the loan product that was previously disclosed.
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Jennifer Felten, Esq., Principal & Editor
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