Real Estate Remedies - Part 2 - Chapters 38-40 Flashcards
Recognize the criteria necessary for an investor in residential property to be found guilty of rent skimming under state and federal laws
Rent skimming occurs when an investor receives rents from a parcel of residential rental property during their first year of ownership and does not apply the rents (or an equivalent amount) to the payments due on all mortgages secured by the property.
An investor exposes themselves to state criminal prosecution as well as civil penalties for multiple acts of rent skimming when they skim rents from FIVE OR MORE parcels of residential real estate they took title to during any TWO YEAR PERIOD.
An investor who engages in multiple acts of rent skimming is liable to the mortgage lenders for money losses incurred on mortgages secured by one of the properties involved in rent skimming. However, lender recovery is limited to the rents collected on the property, whether or not the investor obtained or assumed the mortgage.
An investor engaged in multiple acts of rent skimming also exposes themselves to a separate criminal prosecution, not only civil liability for money losses they inflict on tenants, sellers and mortgage lenders.
The investor operating under any type of business entity or title holding arrangement will still be held liable as a rent skimmer. They are the individuals in control of the rental properties and mortgage payments. In distinction, a property manager is not liable for rent skimming.
Any waiver of rent skimming law is void as contrary to public policy.
Explain the consequences of initial multiple acts and additional single acts of rent skimming
An investor exposes themselves to state criminal prosecution as well as civil penalties for MULTIPLE ACTS OF RENT SKIMMING when they skim rent from FIVE OR MORE PARCELS of residential real estate they took title to during any TWO YEAR PERIOD.
An investor guilty of an initial 5 acts of rent skimming under a multiple rent skimming charge is subject to criminal penalties of:
- imprisonment for 1 year
- a fine of no more than $10,000 or
- both imprisonment and a fine.
For each additional act of multiple rent skimming the investor is found guilty of beyond the initial five acts, additional penalties include:
- an additional one year imprisonment
- a $10,000 fine or
- both imprisonment and a fine.
The crime of multiple acts of rent skimming is considered a misdemeanor unless the court in its discretion sentences the rent skimmer to State Prison.
*A rent-skimming investor avoids both criminal and civil rent skimming when they — use the money to pay medical expenses within 30 days of collecting the rent, and no other funds were available to pay the expenses.
rent skimming
Rent skimming is when an investor receives rent from a parcel of residential rental property during their FIRST YEAR OF OWNERSHIP and does not apply the rents or an equivalent amount to the payment due on all mortgages secured by the property.
Rent skimming with civil monetary liability occurs when an investor:
- received rent from a parcel of residential rental real estate during their first year of ownership AND
- does not apply the rents or an equivalent amount to the payments due on all mortgages on the property.
parcel
A parcel is a three-dimensional space of real estate identified by a legal description circumscribed on the face of the Earth by a surveyor.
Determine when an agreement containing an attorney fees provision entitles a person in a lawsuit to attorney fees
Attorney Fees Provisions are designed to reimburse the beneficiary of the provision on successful completion of litigation by trial.
**When the litigation is terminated by a voluntary dismissal or settlement, no one collects attorney fees.
Each party to a lawsuit has to bear the burden of their own attorney fees unless a statute or the agreement out of which the dispute arose calls for an award of attorney fees to the prevailing party.
The prevailing party, determined when the court enters its final judgment in the case, is the individual who:
- receives the greater money damages award
- receives the requested equitable relief (a non money remedy, such as specific performance)
- successfully defends against the plaintiffs claim and the plaintiff obtains no relief.
Real estate agreements which usually contain an attorney fees provision include:
- listings
- purchase and exchange agreements
- escrow instructions
- leases and rental agreements
- promissory notes and Trust Deeds
Distinguish between claims on a contract and tort actions and the collection of attorney fees under differently worded provisions
Any agreement containing an attorney fees provision entitles the prevailing party to reimbursement of attorney fees they incurred enforcing the contract, regardless of how the provision is worded and even when the underlying agreement is unenforceable. An agreement containing an attorney fees provision does not need to be signed by either party for the prevailing party to collect attorney fees.
Any agreement containing an attorney fees provision entitles the prevailing party to reimbursement of attorney fees they incurred enforcing the contract, regardless of how the provision is worded. This RECIPROCAL FEE STATUE applies to actions only on the CONTRACTS, not tort actions such as misrepresentation, deceit or breach of agency duties.
An attorney fees provision in an agreement is read to apply reciprocally for all parties to the agreement to collect attorney fees when they Prevail on any action based on the contract.
Simply, when an attorney fees provision exists, the prevailing party at trial receives their attorneys fees in contract disputes. The fees are limited only by reasonableness, the wording of the fee provision and the application of the reciprocal fee statute.
However, the persons sued on a contract with an attorney fee provision limiting recovery of enforcement cannot collect their attorney fees on any action they pursue on a tort theory which arises out of the contract.
Discuss risk reduction concerns with attorney fees provisions in differing contractual arrangments
The inclusion of a mediation provision in all real estate agreements mitigates the risk of costly judicial actions and incorrect arbitration results.
A dispute between a buyer and a seller will not proceed to litigation when the recovery of the money losses will be economically infeasible to pursue unless there exists the ability to additionally recover attorney fees, an unintended but real consequence of the provision. Thus, the risk of a broker’s entanglement in litigation between buyers and sellers is reduced by eliminating the attorney fees provisions from purchase agreement forms.
The prevailing party in some real estate disputes is entitled to recover their attorney fees under a statute or by a court created right.
attorney fees provision
An ATTORNEY FEES PROVISION is a provision in an agreement permitting the prevailing party to a dispute to receive attorney fees when litigation arises due to the agreement.
The amount of attorney fees the non-prevailing party owes to the prevailing party is offset by any excess financial benefit received by the prevailing party from the nonprevailing party.
mediation
MEDIATION The inclusion of a mediation provision in all real estate agreement mitigates the risk of costly judicial actions and incorrect arbitration results. Mediation is an informal, confidential, non binding legal process. By design, mediation helps the parties reach an accord and put disputes to rest without litigation, while still allowing for judicial intervention when a resolution is not found.
Unlike arbitration, which requires parties to an agreement to actively sign or initial away their rights to a fair and reviewable judicial determination, mediation passively allows for a mutually acceptable termination of a dispute.
Most importantly, mediation works. The Los Angeles Superior Court System reports that 63% of cases ordered into mediation are resolved. Nationwide, the mediation success rates ranges between 60 and 90%.
class action
A CLASS ACTION is an action against a person brought by or on behalf of all similarly situated claimants.
Legal theories to collect attorney fees in a class action case include:
- COMMON FUND recovery for numerous injured parties
- SUBSTANTIAL BENEFITS conferred on a group
- benefits conferred on a broad class of people involving a matter of strong PUBLIC POLICY.
Note a private citizen who was awarded attorney fees in a public policy case is called a private attorney general.
Locate, interview and retain an attorney to advise and render services in real estate disputes
Often times it is necessary or advisable for a licensee in a real estate transaction to seek the legal counsel of an attorney. To initiate the attorney selection process, you first need to talk to several experienced real estate brokers in the area where the subject real estate is located.
When meeting with an attorney, you will consider many aspects of the attorneys law office and practice, including:
- the compatibility of the attorneys personality with yours
- the efficiency and professionalism of the attorneys work habits
- the law offices of appearance and whether it appears to be well-organized and adequately equipped
- the attorneys conversational skills
- the courtesy, productivity and helpfulness of the office staff
- how quickly and thoroughly the attorney or staff return phone calls and emails from you and
- the competency of the attorneys law clerks or legal assistance to follow up and advise on fact investigation, legal research, calendaring of events and related details.
Anticipate what to expect when retaining a competent attorney
During the initial conference with the selected attorney, discuss your real estate dispute and interview the attorney to determine their qualifications. This contact is the first step toward deciding whether you will feel this attorney is the best attorney for you to retain - comparative shopping. When you are interviewing the attorney, the attorney will also be deciding whether or not they want to represent you.
Once you choose an attorney who is willing to represent you, you will be asked to enter into a retainer agreement employing the attorney.
The attorney is to provide you with a billing within 10 DAYS following your request. You are also entitled to receive invoices at intervals of no less than 30 days following your initial request for a billing statement.
10 DAYS FOR ITEMIZED BILLING
30 DAYS THEN FOR INVOICES
Discuss the deductibility of legal fees
Deductibility of legal fees for tax reporting is determined by the nature of the activity causing the expense. Legal fees fall into one of four federal tax reporting categories:
- personal expenses
- business expenses (deductible)
- real estate rental (passive) expenses (deductible)
- investment portfolio expenses
Legal fees incurred for consultation on a Brokers business-related matter are fully deductible as an expense of earning brokerage fees a business category activity. Legal fees incurred in the management, conservation or maintenance of income-producing real estate rentals - or for the production or collection of rents, are an expense deductible from rental income, a passive income category.
When NOT deductible, the legal fees are either:
- personal losses - For example, legal expenses incurred to preserve ownership or defend title to an owner’s personal residence are nondeductible personal expenses.
- capital investments/expenditures added to the cost basis of the property or ownership interest involved - For example fees incurred by property owners and buyers in connection with zoning battles, title defenses, condemnation, or acquisition.
initial conference
An INITIAL CONFERENCE is the first meeting between a licensee and perspective attorney conducted prior to entering into a retainer agreement where the licensee discusses their real estate dispute and interviews the attorney to determine their professional background, qualifications and compatibility.
retainer agreement
A RETAINER AGREEMENT is a contract entered into between an attorney and a licensee specifying the respective responsibilities of each, and the hourly rate, deposit and other fees the attorney charges for Legal Services. Written retainer agreements need to contain:
- the hourly rate, deposit and other rates and charges
- the nature of the services to be provided and
- the respective responsibilities of the attorney and you in performance of the retainer agreement.
Fee agreements for attorney services must be in writing when it is known the fees will exceed $1,000.
All billings for services are itemized stating the name of the activity performed, the amount due, and the hourly rate or basis of calculation used to determine the fees. When a retainer fee is negotiated, the agreement needs to be in writing.
