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Construction Contracts Sometime Go Bad	Ongoing Construction Contracts
What's A "Dispute Resolution Conference"?	What about Court?
What's Discovery? How's it used in Real Estate Cases?	What About Arbitration?
Options - What to Do When Your Home Lacks Disclosures	What's Mediation?
What Happens When Your Home Lacks Disclosures	Buying or Selling: Caveat Emptor or Seller Beware?
Title Insurance -Does Your Policy "Fly Like An Eagle"?	Elder Abuse - What Is It? What Are The Remedies?

#1 Tips & Traps: Construction Contracts Sometimes Go Bad

The job is done - or so says the builder. You do a walk-through, everything seems OK. You close escrow, take possession and move-into your new home.

As fate would have it, sometimes there are problems or "defects" in the construction and/or component parts of your home. Defects may be of different kinds and may include failure to comply with plans and specifications, failure to comply with building codes, standards, laws or simply poor workmanship, materials or related problems. In any case, you may be caught between the proverbial rock and a hard place since, even if the defects are not truly significant and you feel that you can live with them, the fact remains that once you know about them, you are obligated to disclose them when you sell the property.

Upon learning of defects, the best advice is to immediately document them both photographically (if feasible) and in writing. A letter, or at a minimum a "punch-list", should be promptly sent to the builder, alerting him to the problem and permitting a reasonable time to remedy the issues. If the builder replies, you must always reply in writing. If writing does not result in corrective action, you may wish to consider legal options. Creating an appropriate paper-trail is critical in such matters. The law in California provides a "two-fold" statute of limitations for bringing claims for construction defects. The first is a 4 year statute of limitations for "patent" or obvious defects. The second is a 10-year statute of limitations for "latent" or non-obvious or hidden defects. There is also potential cause of action for fraud, which runs 3 years from discovery of the fraud and potentially can outlast the 10-year statute of limitations. Builders will often use a marketing pitch that they offer a "1 or 2 year Warranty" on their homes. In reality, unless you have signed something to the contrary, you essentially have a 4 year warranty for obvious defects, and a 10 year warranty, for hidden defects as a matter of law. Some builders will even attempt to get a home-buyer to waive or reduce the statute of limitations by asking them to sign a particular contract limiting the statute of limitations to 1 or 2 years. There is some legal authority to suggest that such shortening of the statute of limitations, if properly done, may be enforceable. As the owner / buyer, you should be wary of such clauses since if you sign them, you are giving up significant rights. Also, frequently seen are binding arbitration clauses in many construction and other commercial and business contracts. Binding arbitration may be OK in some instances, but the owner / buyer should be aware they are giving up certain important rights by signing such clauses such as the right to a jury, right to appeal and in some instances right to discovery. Further, some experienced legal minds are of the opinion that binding arbitration is not the best forum for construction disputes as the arbitrators may be complicit, may render decisions favorable to builders (or their insurers) who they see on a regular basis or may simply render "split the baby" decisions, giving neither party adequate relief. Also, such claims as strict liability and punitive damages may be disallowed or may not be considered in binding arbitration.

When the file comes to the lawyer's office, he investigates the builder's licensing and insurance. The construction contract is reviewed. A site inspection is usually conducted with an independent general contractor or other experts who detail defects and costs of remedying defects. The lawyer usually sends a "demand letter" to the builder seeking to resolve the matter out-of-court. If that fails, the lawyer may recommend pursuit of binding arbitration or mediation, if the contract requires such procedures. Or, in the appropriate case, the lawyer may file suit for the owner / buyer against the builder and/or the subcontractors and may also file against the builder's license bonding company and related responsible parties. Generally, it is prudent for all concerned to conduct an early site inspection (which may lead to further site inspections), to isolate the issues in dispute, to disclose applicable insurance coverage and to seek prompt mediation of the case. Often, a retired judge or experienced attorney is appointed as "special master" to supervise proceedings and he seeks to bring parties together to fashion a settlement of the dispute. Creating an appropriate paper-trail is important from the beginning. Lawyers are skilled and experienced in drafting correspondence to preserve and advance the rights of the client. It is best to have an attorney review correspondence and/or write correspondence in the event of a dispute, particularly where the parties may not be on good terms.

C, C & R's and other topics in future issues.

David M. Trapani is a licensed attorney in California and has offices located in El Dorado Hills and San Jose, California. He graduated from Santa Clara University Law School in 1987. He can be contacted at (916) 337-3777 or at dmtatlaw@hotmail.com. This article is for general information only. It is not a substitute for legal advice for your particular situation and cannot be relied upon as a substitute for consultation with an attorney regarding your specific facts and no attorney client relationship is created hereby.

#2 More Tips & Traps: Ongoing Construction Contracts

Now that the construction job is underway, you as the owner, hope things progress smoothly & on-time. Unfortunately, that's not always the case!
Misunderstandings & disagreements are common. Frequently, arguments we hear are: the contractor is delaying or not sending forces to the job site or that the work is below par. From the contractor's end we hear: the owner is never satisfied, makes unreasonable demands or repeatedly changes the project.

If you set out an appropriate schedule of progress payments in your contract and conditioned payment on your satisfaction (and the architect), then you'll have added protection that you're actually getting what you paid for. In other words, the job is being done in a workmanlike manner per plans, specifications and in compliance with all applicable codes. If things are progressing well, then you will want to close-off liability to mechanic's liens as you make each progress payment. How to do this?

The Civil Code actually sets out various mechanic's-lien release forms, which may, and should be used, on construction projects to reduce your liability for additional costs. The law allows contractors to file mechanic's liens on the property, if services rendered or materials supplied are not paid for. Many disputes arise in this area, particularly if work is shoddy, unacceptable or not up to code. Only the general contractor (the one with a signed contract with the owner) may file a mechanic's lien without a 20-day preliminary notice. All other sub-contractor's and material suppliers are required to serve an appropriate 20-day preliminary notice before they can record a mechanic's lien. If they fail to do this (or do so too late) they'll be barred from enforcing a mechanic's lien. As the owner, you obviously want to protect your land & project from liens. One way to do that is by having the contractor sign lien release forms at each stage of the project. Once signed, this precludes the contractor from going back before that date and claiming additional money. Also, joint-check systems are helpful. Under those systems, progress payment checks are made payable to the general contractor AND all sub-contractors and material suppliers. In this way, you have added assurance that all subs and others are actually being paid. Alternative protective methods may be to have the contractor purchase payment and performance bonds. These bonds are basically insurance which in the event of contractor default, should: a) pay unpaid lien claims; b) pay to complete the project, using replacement contractors if necessary.

If you find yourself in a dispute with a contractor you should contact an attorney as soon as possible to determine your rights under the contract and protect your property. There are bonds available (usually at a modest cost) which will "bond around" mechanic's liens so that for example, you should be able to re-finance or take other action with your property, which might not otherwise be possible with a pending mechanic's lien. There are also procedures for having mechanic's liens removed altogether. Of course, the ultimate goal is to get satisfactory and timely completion of your project, with fair compensation to the contractor.

Construction defects & dealing with them are coming next time.

#3 TIPS & TRAPS: What About Court?

Recently we've reviewed, in a general sense, various types of Alternative Dispute Resolution ("ADR") and how those processes work. But what about court?
Often enough in real estate transactions (or in other real estate matters, such as real estate partnerships) the parties do not "check the box" or initial for binding arbitration. What happens then? Without a contract providing for ADR, the parties are generally going to pursue conventional court process in the event of disputes.

Years ago ADR was not so much in vogue and nearly all types of real estate cases went through court for resolution. It used to be that cases could and would often take 3, 4, 5 years (sometimes longer, there was one case I had contact with as a young lawyer which lasted 10 years!). Often cases, would be filed and not served, or would be filed and served, but would languish (no action would occur) for many months or sometimes years. Sometimes, in those older times, the case would suddenly come alive and attorneys would earnestly begin taking discovery and preparing for trial when the 3 year or 5 year dismissal statute approached or worse yet, they were facing down a motion to dismiss for lack of prosecution. In those older times, cases that were heavily litigated often led to a "survival of the fittest" contest that is whoever had deepest pockets would outlast or outspend their opponent. Of course, the facts and law applicable to the case played an important role and cases could be decided sometimes on summary judgment motion, that is without trial or the party with the best facts, evidence (or attorney) could prevail at trial.

More recently, the courts enacted "fast-track" rules. These rules require most cases to be resolved or tried within 12 to 18 months of filing. There are some exceptions for complex or class action cases. Also, there are strict time-limits not only for filing suits (statutes of limitation), but also strict (fast track) rules on serving and responding to suits. Typically, there are 4 basic stages of a lawsuit filed in court. 1) The lawsuit is filed, served and responded to; 2) discovery processes go forward; 3) Settlement Conference; 4) ADR or Trial. At stage 1, the lawsuit is filed at court and summons is issued. The defendants are served (handed or delivered) the summons and complaint. The defendant (in most cases) has 30 days after being served to respond to the complaint. The defendant may answer the complaint or file a motion to attack the complaint. If it's attacked, there will be a hearing on the motion ruled upon by the judge which will dictate the future course of the case. If the complaint is answered, lawyers often say the case is "at issue". This at issue status signals the start of stage 2, the discovery process. It is in the discovery process that the attorneys can request production of documents and things (Inspection Demand) or subpoena documents send written questions (interrogatories), take oral testimony from witnesses under oath (depositions) and do related activity to gather evidence and prepare the case for settlement, ADR or trial. At stage 3, the courts will generally require a settlement conference or some form of ADR in effort to resolve the case, and finally, failing that stage 4 the case may be tried before a judge (bench trial) or a judge and jury (jury trial).

There are many advantages / disadvantages to conventional court processes for dispute resolution. Some of the advantages include having access to the court and judges empowered to make orders and judgments enforceable by law. Discovery can also offer a significant advantage over other forms of ADR, such as arbitration or mediation which often have little if any discovery. The disadvantage can be the cost and time involved. Many people and businesses still prefer resolution of disputes through conventional court process. It is important to evaluate each matter on a case-by-case basis to determine which form of dispute resolution is best.

David M. Trapani is a licensed attorney in California and has offices in El Dorado Hills and San Jose, California. He graduated from Santa Clara University Law School in 1987. He can be contacted at (916) 939-2294 or at
dmtatlaw@hotmail.com. This article is for general information only. It is not a substitute for legal advice for your particular situation and cannot be relied upon as a substitute for consultation with an attorney regarding your specific facts and no attorney client relationship is created hereby.

#4 TIPS & TRAPS: What's A "Dispute Resolution Conference"?

Arbitration and mediation were covered in previous articles. But, for those with cases in El Dorado County (civil) Court, there is another form of Alternative Dispute Resolution ("ADR") called: Dispute Resolution Conference. A Dispute Resolution Conference or "DRC" is a form of settlement conference which the court will require in most civil cases. The DRC is usually held fairly early on in the case often before the parties have spent significant sums on attorney's fee and costs and before reaching what some may call "the point of no return". Retired judges or, more often it seems, local attorneys volunteer to act as a DRC judge for cases filed in El Dorado County courts. The court will randomly select a DRC judge for each case and will send out notice to the DRC judge and attorneys involved in the case.

The plaintiff (person filing the lawsuit) will usually have the job of contacting the appointed DRC judge and other attorneys to schedule the DRC. Often the DRC will be held in the DRC judge's office or another attorney's office if space or location is a consideration.

When the DRC is set the parties will appear with their attorneys to meet with the DRC judge. Usually, the attorneys will have prepared and delivered a brief to the DRC judge in advance of the DRC. This allows the DRC judge to review the facts, legal arguments and applicable law in advance of the DRC.

Upon arrival at the DRC (similar to mediation) many DRC judges will have the parties and attorneys initially meet together in one room. The DRC judge may ask the attorneys for a brief opening statement or may have questions of the attorneys to provide answers about issues which are unclear.

After introductions and opening statement, the DRC judge will often separate the parties into rooms with their own attorneys. In other words, each party (and their attorney) will have their own private room separated from the other parties and their attorneys. The DRC judge will then typically caucus or shuttle between these rooms in an effort to seek resolution of the dispute. The DRC judge will strive to get the case settled so that the matter may be dismissed from the court's docket. The DRC judge is not a real judge however, and cannot make orders or judgments and cannot force anyone to take any action (or refrain from action) if they don't voluntarily agree. If the case settles, it should be reduced to writing and signed by the parties. If it doesn't settle, the matter will continue through the litigation process until the case is settled or tried.

The DRC is a very effective tool for resolving disputes in many cases. It can be a better tool than a mandatory settlement conference as the mandatory settlement conference typically does not happen until very close to trial when the parties have spent significant funds, have entrenched themselves in their respective positions or where have reached the proverbial point of no return.

More on dispute resolution next time.

#5 TIPS & TRAPS: What About Arbitration?

Mediation was covered in the last article. But, what about that other procedural step called: Arbitration? Arbitration may be either binding or non-binding. Binding arbitration, as the name implies, is indeed "binding" in the sense that it generally results in a final decision for a case. Binding arbitration may be made part of a contract or may be required by law or statute. An example of contractual arbitration is found in standard CAR purchase and sale agreements for residential real estate. Another example is found often in building contracts. An example of statutory binding arbitration is found in the uninsured motorist context. If you are hit by an uninsured motorist, your claim will be with your own auto insurance company. If claims cannot be resolved by negotiation, such cases are typically submitted to binding arbitration per the Insurance Code. Binding arbitration has been a much debated process, as it involves the waiver of certain Constitutional or statutory rights, namely right to a jury trial, right to discovery and right of appeal. The pros of arbitration are generally that it is faster and less expensive (less formal to be sure) than a trial in court before a judge and jury. The cons can be that unusual decisions may result. Many people are not aware that an arbitrator does not have to follow the law in making decisions. This may not seem important, but can lead to some unexpected results. For example, if the law requires an award of 100% of damages, plus attorney's fees, an arbitrator may or may not award 100% of damages and may or may not award some or all of the attorney's fees. This can lead to some bizarre or financially painful results. Lawyers often refer to this as the "split-the-baby" phenomenon. In other words, the trade-off for saving time and money with binding arbitration is that you may not always get all you're entitled to. Binding arbitration is not held in court. There is no "judge" or "jury". Typically, there is no court reporter (none is needed since there is no appeal and no need for record on appeal). It is typically assigned to a retired judge or experienced attorney to listen to testimony, review evidence and decide the case by way of an arbitration "award". Arbitration awards are enforceable in court by a real judge by way of motion. A party may execute on a judgment entered on a binding arbitration award, just as they would a conventional judgment.

Non-binding arbitration is very similar to binding arbitration, except that an award arising from non-binding arbitration may be rejected by a disappointed party. Some courts use non-binding arbitration to facilitate settlement and avert trial.

Many, if not most, real estate contracts contain a binding arbitration clause. Usually, the buyer and seller will have to initial this clause to make it enforceable. If it is not initialed then the parties are usually at liberty to file suit in court to resolve their disputes (sometimes subject to mediation - discussed last time). Buyers and sellers should be aware they are giving up certain rights by initialing binding arbitration clauses. The parties should be counseled before they waive these important rights.

More on real estate dispute resolution next time.

#6 TIPS & TRAPS: What's Mediation?

What's mediation? This question often comes up after close of escrow and after a dispute has arisen. At that point, the attorney usually explains the process to the client. It is really a question, though that should be asked (by the seller and buyer) and answered (by the agents) before the purchase contract is signed. In many standard form CAR real estate purchase contracts, mediation is mandatory. And, it is usually made mandatory at the beginning of any dispute. Unlike the binding arbitration clause, which is a different process, the mediation clause usually does not need to be "initialed" or "checked". Instead, by signing the purchase contract, the buyer and seller (sometimes unwittingly) have agreed to a process called: "mediation".

Generally, mediation is a voluntary dispute resolution process which is similar to a settlement conference. In the context of real estate purchase agreements, mediation is no longer "voluntary" once the contract containing such a clause is signed. Like a settlement conference, mediation is typically held "outside court", that is, it is often held in the office or conference room of the mediator. There is no (real) judge or jury present. There are no court reporters or bailiffs. The mediator himself may be a retired judge or experienced real estate attorney. The parties will usually agree on the selection of a mediator or in the event they cannot agree, may petition the court for his/her appointment. Once the mediator is selected a date and time available for all parties and counsel may be set. Usually, the parties (or their counsel) will prepare and submit a written mediation statement to the mediator in advance of mediation. The mediation statement will usually set out the facts, applicable law, damages, legal defenses and may attach relevant documents. In this way, the mediator will be aware of the nature of the case and will be better prepared to conduct the mediation. On arrival at the mediation, the mediator will usually take all parties and counsel into one room to make preliminary introductions and to explain the mediation process. He/she may then have some follow-up questions on the mediation statements or may have counsel give a brief (verbal) opening statement. The setting is usually informal and a good mediator will try to foster cooperation and may strive to minimize adversarial posturing. One effective method used by a mediator is to put the parties and counsel into separate meeting rooms. The mediator may then meet with each "side" privately to learn positions, claims, damages and defenses. The mediator can also learn what demand, offer or counter-offer the parties may make. The mediator will often then "shuttle" between rooms to relay information in effort to move parties towards a settlement of the dispute. The mediator's role is to settle the dispute. In order to do this, he/she must often raise money from the defendants or their insurance companies. Mediation may take several hours, days and sometimes continues over a period of several days or more. A mediator is not like a real judge and cannot "order" anyone to do anything they do not want to do. A mediator cannot make "awards" or render "judgment". Therefore, unless the parties are prepared for mediation and are willing to seriously review the matter and take steps to resolve the matter, it can be a frustrating, time-consuming and expensive process. On the other hand, mediation can be an extremely effective method for resolving cases and may save the parties many tens of thousands of dollars in litigation fees and costs.

Sometimes mediation is not a good method for resolving disputes. Mediation at the outset of a dispute, for example (as required by many CAR real estate contracts) may be placing the proverbially "cart before the horse." At the outset of the dispute there may not be time to get applicable insurance companies involved in the claim, parties may be very defensive and may drag their feet at agreeing to mediation, selecting a mediator, a date for mediation and may be unwilling to offer realistic compensation for claims made. Sometimes, it may be better to submit the matter to litigation for some period of time to allow discovery and to provide time for insurance companies and parties to evaluate claims and to raise sufficient money or "authority" to offer for resolution of claims.

What's mediation? Something best to ask before signing the dotted line.

More next time.

#7 TIPS & TRAPS: What's Discovery? How's it used in Real Estate Cases?

Since we covered going to court last time, it may be useful to have a quick overview of a court process known as: "Discovery".

Discovery is a set of procedures used to gather evidence and information in a court case. They are usually done outside the courtroom, before trial. There are different kinds of Discovery. Some of the most common: 1) Interrogatories; 2) Document Requests / Subpoenas; 3) Requests for Admissions; 4) Depositions.

Quite generally, Interrogatories are written questions which must be answered in writing under oath. Document Requests, as the name implies, requires the production of documents, records, files and other tangible things such as computer hard drives, discs, etc. Document Requests are used to obtain documents from parties in the case. When documents are in the possession of another person or company (not a party to the case) documents are gathered using the Subpoena. Subpoenas are powerful discovery tools. Sometimes a document is found (say at a title company or a real estate company) which can dramatically alter the outcome of the case. Lawyers refer to these as "smoking gun" documents. Requests for Admissions ask the party to admit, deny or state that they lack information to admit or deny certain statements of fact or to admit or deny the genuineness of certain documents. These are useful in document intensive cases or where many facts should not be reasonably disputed. Depositions are very important discovery tools. A Deposition may be of a party or non-party to a case. If it is a Deposition of a party, they are compelled to appear for deposition on written notice. If it's a Deposition of a non-party, they must be served a Subpoena to compel them to appear. In a Deposition, a witness is to appear before a court reporter to answer questions (verbally) under oath in a live setting. The Deposition may be videotaped. The Deposition offers the attorney an opportunity to ask questions and receive real-time answers from a witness. The Deposition, as well as other Discovery, may be used as evidence in court.

Often, lawyers talk about creating a "discovery plan". A discovery plan is used to create a series of discovery procedures designed to develop evidence most favorable to the client's cause. For example, some attorneys prefer to use Interrogatories and Document Requests at the out-set to get a handle on the claims, defenses and the state of available evidence. Secondly, they may wish to follow-up with Depositions of important witnesses in order to nail down the pros and cons of available evidence. Depositions often help in settlement discussions, trial preparations, trial, or in disposing of cases by way of summary judgment.

If Discovery is not attended to in the proper time frame, a Motion to Compel may be filed. A motion to compel typically asks the court to order the errant party to respond to Discovery. In ruling on a Motion to Compel, the court may impose "sanctions" or a monetary fine or other penalties.
Discovery is important in real estate cases. Often records are sought from title companies, escrow holders, real estate brokers, inspection companies and the like. A Discovery plan is useful to successful preparation of real estate cases and other types of cases as well. More on Discovery and court processes next time.

#8 TIPS & TRAPS: Options - What to Do When Your Home Lacks Disclosures

O.K. so you bought that dream home. Hopefully, it lives up to expectations. But, sometimes, it doesn't. What if you learn that additions were made to the home without permits or the home, or parts of it, violate the building code. While ignorance may be bliss, once one is aware of defects or problems with a home they should be disclosed when the home is put up for sale. Well, if your seller knew of problems and didn't disclose, you didn't get what you were entitled to. Instead now, you're strapped with the need to: a) pay to fix the problems; and/or b) disclose when you sell. Either way, these are unfortunate problems. It is going to cost money to fix or cost money in the amount of the sales price realized when problems are disclosed.

Typically, most buyers finding themselves in this situation want recourse. Why should they bear the loss, when they should have been told, could have negotiated a reduction in purchase price, or could have simply have walked away?

What are the buyer's options? The first option may be to do nothing. The problem here is that it must be disclosed when sold and this will have an effect on market value or price realized. The other problem with the first option is if you change your mind and want recourse later, it may be too late to do so! The statute of limitations will run at different times for different types of claims. The law does not allow persons to be dilatory ("sitting on one's rights") and later bring a claim for recourse after the statute of limitations have run out. Option one therefore is often not a good option. The second option may be small claims court. The pros of small claims court are generally that it is fast (usually trial in 60 days) and inexpensive (filing and service fees probably less than $100). The cons of small claims are: 1) no lawyers are allowed, i.e. you have to do all the work yourself; and 2) it generally only goes up to $5,000.00. Option two can be a good one for those claims of around $5,000.00 and for those who can organize and present information effectively. However, for those claims over $5,000.00 option three is often best. Option three is pursuing claims through mediation, arbitration or court processes. This can actually be done with or without a lawyer. However, often the sellers, and particularly the agents, property inspectors and the like, defending claims will have lawyers. Therefore, it is usually advisable to have a lawyer in your corner as well. If the sales contract calls for mediation, you will be obligated to mediate with the sellers first, before pressing claims. Mediation is essentially a voluntary settlement conference. It is usually presided over by a "mediator". A mediator is usually a retired judge or experienced real estate attorney. His / her job is to bring the parties together and fashion a settlement. Mediation is non-binding that is the mediator (unlike a judge) cannot order anyone to do anything they don't agree to. If mediation settles the case, great! But, if not then the matter would proceed to arbitration (if that clause is initialed in the contract) or to the filing of a lawsuit in court. As discussed with one attorney recently it is sometimes not beneficial to go to mediation or even to binding arbitration. The buyers and sellers can actually agree to skip mediation and/or arbitration and go directly to a lawsuit, if that is advisable. Some of the benefits of mediation are that it is less expensive than litigation and can result in an early settlement saving the parties significant expense. However, if not all parties participate in mediation or if there is a low probability of settlement there, it may be advisable to save the time and expense for arbitration or a lawsuit. Arbitration has benefits, which are generally that it may be faster and less expensive than a lawsuit in court. On the negative side, it may result in some unexpected outcomes (arbitrators don't necessarily follow letter of the law) and arbitration awards generally cannot be appealed. Also, under the typical real estate sales contract, only the buyer and seller are obligated to go to arbitration, if they initialed the arbitration clause. It is typically optional for the agents. Other parties such as inspectors and the like are not parties to the contract and may or may not be compelled to attend arbitration. If the buyer goes to arbitration and wins, but fault is apportioned among seller, agents and/or others then the buyer can only get judgment against the seller for the portion owed by the seller. How to get compensation from the others? The arbitration clause may require the buyer to do two things: 1) go to arbitration with the sellers; and 2) file a lawsuit in court against everyone else. This can be a cumbersome, time-consuming and expensive proposition. It may be better for the buyer, if possible to file suit against all parties (if it cannot be settled) so that the entire dispute may be resolved or tried in one forum.

More on the subject next time.

#9 TIPS & TRAPS: What Happens When Your Home Lacks Disclosures?

Although the law requires sellers and listing agents to disclose all material facts affecting the value or desireability of the property for sale, in practice as we know, it doesn't always happen that way. The failure to disclose may be careless or intentional. Either way, what often happens is the buyer discovers after close of escrow that there are defects in the home or alterations or improvements completed without necessary permits or which do not meet code. When this happens, the buyer is saddled with: a) the cost of repair to remedy matters; and b) duty to disclose when they sell. Many sellers are unwilling to bear this burden since if the issues were properly disclosed they would have either negotiated a better purchase price, taking into account cost-of-repair, or would walk-away and buy another property. Not having the benefit of the disclosure, they were deprived of making that choice. Now what? Typically, the purchase and sale transaction was documented in writing on a form supplied by the agents. These are typically C.A.R. (California Association of Realtors) forms, which as the name implies, were prepared by CAR or attorneys or staff working on their behalf. One of the problems with the forms is that they may, in some aspects favor the agents. This is seen in the dispute resolution and attorney's fees clauses of the agreement. When a dispute arises over non-disclosed issues, some buyer's are surprised to learn that they cannot "go to court" and may not "sue" to recover damages. This is because in many of the CAR purchase and sale agreements, there is a mediation and/or binding arbitration clause. These clauses (if properly initialed and signed) take the dispute out of the court's hands and put it into an arena with private mediators and/or private arbitrators. This is not necessarily a bad thing and often it can be a good thing. However, economics often play a role. The CAR contract usually requires mediation before arbitration or going to court, regardless of whether the arbitration clause is initialed or not. It is important for agents to explain this to clients to be sure they understand and agree to go to mediation at the outset or otherwise, if they don't, they should strike the clause from the contract. Mediation, at the appropriate time, can be very useful. However, we often find (particularly in smaller disputes) that it is difficult, time-consuming and expensive to compel sellers to mediate under the contract at the outset of the dispute. Also, the CAR has written most of these contracts in such a way that mediation is "optional" for agents, but mandatory for sellers and buyers. Also, agents may or may not be compelled to attend arbitration. This may wreak economic havoc as the buyer would prefer the benefit of having all potentially responsible parties in attendance, yet the agents are sometimes not compelled to go. Mediation and binding arbitration are generally faster and less expensive than going to court. But, on the flip-side, people are surprised to learn that arbitrators are not required to follow the law in rendering decisions, whereas courts are. This can lead to some unusual or unexpected results i.e. arbitrators may "split-the-baby" and award only partial relief or refuse to grant all or part of attorney's fees incurred This may sometimes leave parties unhappy with the outcome. It is important to evaluate each transaction on a case-by-case basis to determine, in advance, which type of dispute resolution would be most beneficial to the parties. In this way, the parties may ensure a more expedited dispute resolution process, in the event that your home lacks disclosures. More on mediation arbitration and going to court next time.

#10 TIPS & TRAPS: Buying or Selling: Caveat Emptor or Seller Beware?

Last time we talked about buying homes and title insurance. It seems now would be a good time to generally address duties of the seller, buyer and agents in home sales transactions. The old law was "caveat emptor" or: "buyer beware!" Developments in the law have largely done away with "caveat emptor" and now put a larger onus on the seller and their agent to disclose, disclose & disclose! (All issues materially affecting the value or desireability of the home held for sale must be disclosed to the buyer). This does not mean the buyer has no duty. In fact, the buyer has a duty to take reasonable steps to protect his own interests as well. The buyer cannot simply rely on statements of the seller and agents.

The famous (or infamous - depending on who you're asking) case resulting in the agent's duty to inspect and disclose is Easton v. Strassburger (1984) 152 Cal. App. 3d 90. The Easton case was later codified in the Civil Code. The court in Easton held that the broker's duty to inspect and disclose does not relieve the buyer of the duty to exercise reasonable care to protect himself. So, for example, a defect in a property could be so clearly apparent that as a matter of law a broker would not be negligent for failure to expressly disclose it, as the broker could reasonably expect that the buyer's own inspection of the premises would reveal the flaw. In discharging the duty to exercise reasonable care to protect himself the buyer must take into account those facts that are known to or within the diligent attention and observation of the buyer. Civ. Code § 2079.5. Under the Civil Code, the agent may be able to defray some of their exposure by hiring experts, i.e. home inspectors, contractors, engineers, etc. to deal with specific aspects or issues in the home being held out for sale. Also, generally, the agent is not obligated to find concealed defects i.e. something in or behind a wall. The standard of care for agents is that of their peers: The standard of care owed is the degree of care that a reasonably prudent real estate licensee would exercise, and is measured by the degree of knowledge through education, experience, and examination, required to obtain a real estate license. Civ. Code § 2079.2. The agents and sellers are typically making their disclosures in the so-called TDS-14 and related disclosure forms. However, it is important to mention that the inquiry and disclosure is not necessarily limited to questions posed by the TDS-14. Any issue known (or arguably knowable) by the reasonably prudent real estate licenses should be discovered and disclosed, whether called for in the disclosure forms or not.

A seller of residential property is required, except in certain cases, to make specified disclosures about the property to the purchaser. Civ. Code § 1102. The required disclosures must be made, and each required act relating to the disclosure statement must be performed, in good faith, that is, with honesty in fact in the conduct of the transaction. Civ. Code § 1102.7. The required disclosure is not a warranty of any kind by the vendor and is not a substitute for any inspections or warranties that the purchaser may wish to obtain. Civ. Code § 1102.6; however, the purchaser may rely on the information in the disclosure statement when deciding whether to purchase the property and on what terms to purchase it. Civ. Code § 1102.6. With these general rules in mind, it is clear that "caveat emptor" is no longer the rule. It is the better practice for both sellers and agents alike to: disclose, disclose, disclose or stated another way: when in doubt, disclose. For buyers, they should still get all necessary and appropriate inspections given the nature of the property in question and should carefully and diligently inspect and research the property in question.

#11 TIPS & TRAPS: Title Insurance -Does Your Policy "Fly Like An Eagle"?

When we buy a home, one of the charges showing up on the "closing statement" is typically a charge for "title insurance." Title insurance is generally purchased to protect ownership in favor of the buyer. For example, what if there was an "off-record" deed to the property and the person holding that deed later claims title? Or, what if there is an easement or encroachment claimed by an adjacent landowner, which was not known or disclosed. Such issues may be covered by or compensated with title insurance. Title insurance is often requested by the new mortgage lender. This is a separate policy (the lender's policy) designed to protect the lender's security interest (deed of trust) which is recorded in record title to the property. The lender wants to be sure there are no other unknown liens or encumbrances taking precedence over their deed of trust.

Lately, we see quite a number of cases involving homes sold with undisclosed issues. Under disclosure laws, sellers and agents must disclose all known facts which materially affect the value or desireability of the property being offered for sale. The agents are obligated to conduct a reasonably competent and diligent inspection of the premises. And, they must disclose all material facts ("red flags") discovered in the inspection. Non-disclosure is actionable. This is only fair since the homebuyer is now saddled with having to disclose the issue when they sell the property, which impairs the property's marketability and value. Often these cases involve claims being made against sellers, agent(s), broker(s), property inspectors and other responsible parties.

Until most recently these cases had nothing at all to do with title insurance. But now, some of the title insurance underwriters (Financial Title and First American) are offering so-called "Eagle Protection Owner's" policies. These policies appear to provide coverage for certain instances of non-disclosed issues or certain types of physical defects on the property. As a result homebuyers with undisclosed issues should examine their title policies to see if they have "Eagle Protection". If they do, and if the facts warrant, a claim may be made for coverage. These policies can be a tremendous boost as they may afford a greater chance to be "made whole" in certain non-disclosure cases. This of course turns largely on how broadly (fairly) those charged with interpreting the policies will construe them. It remains to be seen whether the policies will actually "Fly like an Eagle".

#12 TIPS & TRAPS: ELDER ABUSE - WHAT IS IT? WHAT ARE THE REMEDIES?

The term "Elder Abuse" may conjure up those dark images of the dingy, dirty rest-home inhabited by abused old folks. Is Elder Abuse then limited to this unpleasant image of uncared for elders? No. In fact, Elder Abuse, under recent enhancements made by the State Legislature, is better described as "Financial Abuse" or "Fiduciary Abuse" of Elders. Such abuses of elderly folks may include bad real estate sales (fraud, non-disclosure, etc.), bad construction sold to elderly folks or bad or abusive financial advice, transactions or services rendered to elders, to name a few. Elder Abuse may be prosecuted criminally and/or civilly. This article is limited to a brief discussion of civil action and remedies. Generally, an "Elder" is any person residing in California who is 65-years of age or older. Welfare & Institutions Code Section 15610.27. "Financial Abuse" of an elder occurs when a person or entity does any of the following: 1) takes, secretes or appropriates or retains real or personal property (including money) of an elder…to a wrongful use or with the intent to defraud, or both. Wel. & Inst. Code Section 15610.30(a). An "Assister" in financial abuse is defined as "[one] who assists in taking, secreting, appropriating or retaining real or personal property (including money) of an elder…to a wrongful use or with intent to defraud or both. Wel. & Inst. Code Section 15610.30(a). Examples of such abuse may be found in bad or abusive loans made to an elder, under reverse mortgage or deed in lieu of foreclosure transactions, where a real estate agent buys a home below market and promptly "flips" it or transfers it to a "strawman" for a quick profit, exorbitant fees or commission charges, refinance and/or foreclosure equity skim transactions. Possible defendants in elder abuse claims are really just about any professional or business entity who may have abusive financial dealings with an elder such as real estate agents, contractors, mortgage brokers, escrows, notaries, insurance companies, banks, investment counselors and yes, even lawyers. Where there is a fiduciary duty owed to the elder by the person or entity involved (a special relationship) or where "undue influence" is exercised, then the burden of proof may be easier for the elder to recover compensation or damages. A recent case came to our attention where a middle-aged man claimed to have befriended an elderly woman, lived at her home and "helped" her by doing handy-man chores and repairs around the house. This man ultimately asked the elderly woman to deed the house to him. She did this. When the local district attorney learned of the transaction, he promptly swooped-down and arrested and charged the man with criminal elder abuse. In another recent case, an elderly couple purchased their "dream-home", which was new construction offered for sale by a "spec" builder. The home had construction defects, which the builder refused to properly repair. The elder couple raised the typical theories used in construction defect cases, i.e. negligence, breach of contract, breach of warranty, etc. But, they also raised the civil claim of Elder Abuse. In that case, the Elder Abuse claim was an effective tool in promptly gaining just compensation for these elderly folks, so that they could repair the home and begin to enjoy living there. Elder Abuse laws exist to protect older folks from being taken advantage of and permit enhanced means for recovering damages (including possible punitive damages and attorney's fees) in appropriate cases. If you feel that you or a loved one is a victim or possible victim of elder abuse, counsel and/or the district attorney should be notified.

More on Elder Abuse and related topics in future issues.

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David M. Trapani is a licensed attorney in California and has offices located in El Dorado Hills and San Jose, California. He graduated from Santa Clara University Law School in 1987. He can be contacted at (916) 939-2294 or at dmtatlaw@hotmail.com. This article is for general information only. It is not a substitute for legal advice for your particular situation and cannot be relied upon as a substitute for consultation with an attorney regarding your specific facts and no attorney client relationship is created hereby.