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SEPTEMBER 2014
Recent Notable California Real Estate Cases
– Kim Corcoran, Associate
Quitclaim Deeds: One often thinks of quitclaim deeds as a simple matter. Indeed, a quitclaim deed only transfers whatever property interest one may have; one does not need to specify the interest being transferred. However, a recent case, People v. Denman (2013) 218 Cal. App. 4th 800, underscores how important it is to be clear that you, in fact, have a property interest in the first place. If the quitclaim deed purports to convey an interest you do not have, this can have grave consequences. It can be construed as clouding the property rights of another person and, as shown by the Denman case, it may even lead to criminal charges. The facts of Denman were particularly egregious. Mr. Denman signed quitclaim deeds for properties he did not own that were in foreclosure, transferring the properties to himself. He then rented the properties out to tenants, collected the rent, and claimed that he had adversely possessed the properties when the scheme was uncovered. The criminal prosecution focused on Mr. Denman’s actions with regard to the quitclaim deeds. Mr. Denman, of course, argued that he had not done anything wrong – that the deeds were not illegal because a quitclaim deed did not guarantee that he had any interest in the property. Both the trial court and the Court of Appeal held that defendant’s signatures on those quitclaim deeds were criminal activity; he received a 23-year prison sentence for recording false documents and for perjury.
Bank Appraisals: When “penciling out” the finances on a property purchase, one often relies to some extent on the bank’s appraisal, even if only as a double-check on one’s own estimate of the property’s value. However, you may want to obtain your own appraisal of a property if you have any questions about the property’s fair market value. The bank’s appraisal is just for the bank; a property owner has no right to rely on the bank’s appraisal. [ Graham v. Bank of America, NA (2014) 226 Cal. App. 4th 594]. In Graham, an investor sued his lender and the bank’s appraiser on many bases, among them, that he relied on the bank’s appraisal as an indication of the property’s value. The Court of Appeal strongly disagreed, stating “[s]ince the appraisal is a value opinion performed for the benefit of the lender, there is no representation of fact upon which a buyer may reasonably rely.” As such, when appropriate, an independent appraisal of the property before its purchase could be important information as to the fair market value of the property.
Prescriptive Easements: We are familiar with the concept that, if someone uses all or a part of our property for a number of years there may be an issue of a prescriptive easement. However, that period of time depends on continuous possession or use of the property by the adverse party, not continuous possession of the property by the property owner or its tenants. [ King v. Wu (2013) 218 Cal.App. 4th 1211]. In King, the property owners had owned the property for several decades. However, the owners were able to prove to the trial court that neither they nor any one of their tenants had been in possession of the property for a five-year period necessary for their neighbors to have gained a prescriptive easement over the property’s driveway. None of the leases was in excess of five years and the owners themselves, never lived on the property for a five-year period of time. As such, the property owners argued that there was no possible way that they could have known about their neighbors’ prescriptive use of their driveway. The trial court agreed; unless the property owners or one of their tenants had continuous possession of the property for a five-year period of time, the time does not run against the property owner. However, the driveway-using neighbors appealed and won on appeal. The Court of Appeal referred the case back to the trial court stating that, as the case proceeded, the property owners could not use the argument that nobody had possessed the property long enough to know that the neighbors had been making use of the driveway for a five-year period. The property owners themselves appealed that decision to the Supreme Court but the Supreme Court let the decision stand. As such, when purchasing property, it may not be sufficient to ask the seller how long an adverse use has been made of the property. He or she may not know the extent of the use, particularly if the property had been leased out for a period of time. Even so, a prescriptive easement may have arisen, which can affect both the value of the property and its intended use.
Testing for Contaminants: Most of us have heard of CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) and related laws that require owners of contaminated property to clean-up contaminated property, even if the owner was not the one that caused the contamination in the first place. As a result, many typical purchase and sale agreements contain provisions that allow pre-purchase testing, indemnification for contamination and similar provisions. A recent case appears to have expanded the type of contamination that can trigger the CERCLA clean-up requirement. In Voggenthaler v. Maryland Square LLC (9th Cir. 2013) 724 F.3d 1050, toxic contaminants that spilled on the floor of an old dry cleaning business were held to have triggered CERCLA clean-up requirements. Whether or not the contaminants migrated into the soil or groundwater was not a determinative factor. In the words of the court, CERCLA “contemplates that some spills may never enter the environment . . . the definition of [disposal] covers more than direct spills.” Environmental clean-up laws are broadly construed, and in the decision, the court reaffirmed the broad construction of environmental clean-up laws. The take-away is that environmental testing may extend to far more than the soil on the property.
These recent cases demonstrate how seemingly simple issues can be more complicated than one may think. As always, the attorneys at CMPR can advise or assist you with any of your real property legal needs.
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