California Real Estate Law

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California Real Estate Law

Real Estate Law

Real estate law involves rights in the ownership and possession of land and buildings attached to land. Real estate law often is referred to as the law of real property to distinguish it from the law of personal property, which includes all other property. A stumbling block for many consumers entering the real estate market is the number of unfamiliar terms frequently used by real estate professionals. Because real estate is one of the oldest areas of the law, it uses many old terms and concepts, but many rights and responsibilities regarding real estate have evolved and been updated as society has changed.

This chapter summarizes some of the concepts and terms someone involved in a real estate transaction is likely to encounter, the process one goes through to buy or sell a house, and the rights and responsibilities of landlords and tenants.

Encumbrance

An encumbrance is an obligation that attaches to a piece of real property. It is a right or interest held by a party who is not the owner of the property. An encumbrance is not an ownership interest in real property, but it creates some kind of obligation for the owner. An encumbrance attaches to the property, not the property owner, so the property may be bought and sold even though there is an encumbrance attached. There are different types of encumbrances.

Easement

An easement is the right to use another person's land for a particular purpose. There are many forms of easements. Public utility companies frequently have utility easements that permit them to run gas, water, or electrical lines through the property of others. The owner of property near a lake might buy from the owner of lake shore property an easement to cross his or her property to access the lake. A person who owns property that is landlocked may receive an easement from an adjacent land owner to have access in and out of the property. This is called a right of way.

Deed Restriction

Deed restrictions also may be known as covenants, conditions, or restrictions. Deed restrictions, which usually are included in the seller's deed to the buyer, generally are imposed to maintain certain standards. Restrictions may limit the color one may paint the house, the kind of trees one may plant, or the size of home one may build on the property.

Lien

A lien is a charge against property that provides security for a debt or obligation of the property owner. The lien holder does not own the property. Some liens are voluntary, such as when the owner of property takes out a mortgage. Other liens may be imposed. For example, a lien may be imposed on property for nonpayment of taxes. One of the most common liens is the mechanics lien. A mechanics lien arises when someone furnishes labor or materials to improve a piece of property, but is not paid. The worker or supplier may file a notice of lien with the county recorder and the property owner and collect the amount owed from a subsequent sale of the property.

Assessment

An assessment is a value placed on real property by a local taxing authority for the purpose of levying taxes. Real estate taxes are calculated by multiplying the assessed value of a piece of property by the tax rate. Most properties are reassessed periodically, and a property's assessed value may not be the same as its actual market value. A special assessment is a tax levied on a piece of property to pay for improvements that benefit the particular property, such as streets, sidewalks, and street lighting. Special assessments are liens on the property until they are paid.

Real Estate Ownership

Typically, ownership of real estate includes the right to sell (convey), the right to use the property as security for loans (encumber), the right to improve the land or buildings on the land, and the right to use and possess the property. Property can be owned by one or more persons. The two common ways in which two or more parties can co-own a piece of property are joint tenancy and tenancy in common. Husbands and wives can also own community property.

Joint Tenancy

Although joint tenancy is a popular way for a husband and wife to own property, there is no requirement that joint tenants be married or that there only be two joint tenants. Owners in joint tenancy have equal interest in the property and have a right to sell, encumber, and possess the entire property. When one joint tenant dies, the remaining joint tenants automatically take the deceased joint tenant's share of the property by right of survivorship. The surviving joint tenants are required to file a death certificate and an affidavit with the county recorder. Joint tenancy allows the surviving joint tenants to avoid probate, transfer and death taxes.

Tenants in Common

Tenants in common, like joint tenants, share the right to possess, sell, and encumber the property. Unlike joint tenants, however, tenants in common do not have a right of survivorship. Upon the death of one tenant in common, his or her ownership interest passes to his or her heirs as part of the estate.

Community Property

In California, a husband and wife can hold property together as joint tenants or tenants in common, or the property may be community property. No two of these forms of ownership can exist at the same time. A husband and wife also can own property separately. In general, all real property acquired during a marriage and situated in California is community property. A leasehold interest is not considered community property, nor is property owned by either spouse before marriage, or property acquired by either spouse during marriage by gift or inheritance. Subject to certain exceptions and restrictions, either spouse has the power to manage and control their community property, and each spouse can devise their one half share in the community property by will. Income and profits on separately owned property remain with the separate property.

Advantages and Disadvantages of Co-Ownership

Although there are advantages to co-owning property, there are drawbacks as well. If co-owners cannot agree on use, sale, or possession of a piece of property, they may have to go to court to resolve the matter in a partition action. In a partition action a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Real property may be difficult to divide and partial interests may be difficult to sell, so a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in relation to their interests.

Residential Real Estate

The most common consumer real estate transaction involves the sale of a home. Unlike years past, today a home buyer has a variety of options in deciding the type of dwelling to buy. Single family houses are still the most common selection for home buyers. Single family homes provide the maximum amount of privacy and freedom to their owners, but they also may be the most expensive option and require the most upkeep.

Condominiums and townhouses are an option for some purchasers. Both give their owners many of the advantages of home ownership, such as tax deductibility of mortgage interest, without some of the responsibilities some people consider to be disadvantages, such as lawn care and exterior upkeep. Residents usually pay association fees to cover maintenance.

A homestead is not a particular type of dwelling. It is a tax classification that can dramatically lower what a homeowner pays in real estate taxes. People who live in the property they own are taxed at a much lower rate than if they rent out that property to others. If a person buys property that is rental property at the time of purchase, he or she must change the property's tax status. To change the tax status of the property, a person must first become eligible (by owning and living in the property) and then apply for homestead status with the assessor by 5:00 p.m. on April 15th of the calendar year in which the fiscal year begins. Even if this deadline is missed, a partial exemption may still be available if a person applies for homestead status before the following December 10th.

Title

Title to real estate is the ownership of the property. Title may refer to the actual ownership or to the documentary evidence of that ownership. Title is what gives the owner the right to the property. In order to sell a piece of property, all title matters must be cleared. Usually, this is accomplished through a title search. A title search is a diligent search of all records relating to the property to determine whether the owner is authorized to sell the property and whether there are any claims against it. If any defects in title are discovered during the title search, the seller usually has time to cure the defect.

Often people have title insurance to protect them against any hidden defects in the title. There are two types of title insurance. One type protects the lender's interest in the property and the other protects the home owner's interest.

Deeds

A deed is a written instrument that transfers the title of property from one person to another. The California Code authorizes a simple form for use as a deed. A deed must indicate who is granting the property, to whom it is granted, and what the property is, along with words signifying conveyance. In California, when a grant of real property is made usually it is assumed that the complete property passes unless it appears from the grant that there are restrictions on the estate. A quitclaim deed is a special type of grant that relinquishes whatever interest the seller may have in the property to the buyer. If the seller is the sole owner of the property, the quitclaim deed is enough to transfer title, but the buyer takes a risk by accepting a quitclaim deed because it offers the buyer no guarantee that the title is valid. A quitclaim deed does not give rise to the presumption that complete title is intended to be passed. Quitclaim deeds are used frequently during the property settlement phase of a marriage dissolution.

Recording

In California, real estate records are kept in each county. Owners and other parties with real estate interests file all documents affecting their interest in the property in order to give public notice of the interest. Documents are filed in the county in which the property is located. Before documents relating to real property can be filed, certain information must be provided and a fee is generally required. Titles in California are registered under the abstract system. An abstract of title is a record of all the interest entries for that property.

Buying or Selling a Home

Because California has many programs to help people buy homes, home ownership is a possibility for people at all income levels. Buying a home may be both rewarding and stressful. Every home purchase involves a number of complex legal issues, unfamiliar terminology, and lots of paperwork. Knowing how the process works may reduce many potential headaches.

Real Estate Agents

One of the first decisions for someone interested in buying or selling a home is whether to use the services of a real estate agent. Real estate agents are hired to help buyers and sellers meet in order to complete the sale of a house. Home buyers and sellers may choose to work with an agent exclusively or non-exclusively.

A person who decides to work with an agent will sign several contracts to clarify the relationship between the person and the agent. These contracts may include provisions regarding dual agency. This term refers to the arrangement in which an agent represents both the buyer and the seller of the house. It may be difficult for one agent to represent both a buyer and a seller fairly. When the agent finds a buyer for a house that the agency has listed, the agent's dual loyalties become apparent. The seller wants the highest price possible while the buyer wants to pay the lowest price. The contracts state what the agent may share with the other party and what information must remain confidential.

Seller Disclosures

When a seller signs a standard purchase agreement, he or she is required to disclose certain known problems and hazards to the buyer. In most cases, the seller must provide the buyer with a Real Estate Transfer Disclosure Statement, which supplements the information provided in the purchase agreement. This statement must disclose all known structural defects, as well as problems with or information about the heating, plumbing, mechanical, and electrical systems. The seller also must include potential problems of which he or she is aware such as easements, environmental hazards, landfills, flooding, zoning violations, or noise problems. It is also the duty of the seller's agent to conduct a visual inspection of the home and report all facts that materially affect the value or desirability of the property. These disclosures, while required, are not part of the contract between the buyer and the seller and are not warranties by the seller. Just because problems are listed on this statement does not mean that the seller must repair the problems, but the buyer may request repairs or a price break because of the problems.

When selling a condominium in California, the seller must give the buyer copies of the homeowners' association bylaws, financial statements, and other documents. The seller also is obligated to disclose any unpaid assessments.

Making an Offer

Once a buyer has found the home he or she would like to buy, the buyer makes a deposit which is called earnest money. This deposit will go toward the downpayment on the house if the seller accepts the offer. The deposit must be submitted along with a written offer on a form called the Real Estate Purchase Contract and Receipt for Deposit, usually referred to a deposit receipt. Upon acceptance by the seller, the deposit receipt becomes a binding contract. Therefore, great care should be taken to ensure that the deposit receipt contains all the important terms of the sale, such as the exact purchase price, the amount of the deposit, and any conditions that allow the buyer to get out of the contract. For example, a buyer may want the option of cancelling the contract if he or she cannot get a loan or if an inspection reveals substantial problems. If a buyer makes an offer before receiving the seller's disclosure statement, the buyer may be able to cancel the contract by acting quickly. An offer can be revoked at any time before it is accepted by the seller.

Inspections

Before buying property, it is a good idea to have the property inspected to see if any problems exist. Most buyers pay for a general home inspection for structural defects, a pest inspection to see if the house has been infested with termites or other pests, and an asbestos inspection. Buyers consider these inspections to be a good investment before actually purchasing the house, even if the inspections reveal defects.

Foreclosure

Nobody in the process of buying a house wants to think about the possibility of falling behind in house payments to the extent that the bank or mortgage company will foreclose on the loan and claim possession of the house. Nevertheless, it is wise for a consumer to understand why a lender forecloses on a piece of property, so the consumer can minimize the possibility of losing a house.

Up to a point, a lender typically will work with a homeowner who falls behind in making payments because the lender does not want to go through the hassle and expense of foreclosing on a property. Homeowners should communicate with their lenders as soon as financial difficulties arise that make paying the mortgage difficult. It can take months for a lender to begin a foreclosure, and more months before it is completed, so usually there is time to get the money needed to assure a lender that there will not be a default. After a lender begins the foreclosure process, there is a period of time called a redemption period during which a homeowner can stop the foreclosure and redeem the property by paying the purchase price at the foreclosure sale plus any taxes or assessments.

Landlord--Tenant

Under California law, whenever the owner (landlord) of a house, apartment, room, or any other living space agrees to let someone else (tenant) use the space for a fee, the two parties enter into a legally binding rental contract. General contract principles are discussed in the Contract Law Chapter. Rental contracts are a special class of contracts that are governed by many unique rules. This section discusses the laws applicable to rental contracts.

Rental Agreements

A rental agreement can be oral or written, but an agreement for more than one year generally must be in writing. There are two general types of rental agreements--leases and month-to-month agreements. Unless otherwise specified in writing, a rental agreement is presumed to be month-to-month. A lease is a rental agreement for a definite period of time (generally one year), unlike month-to-month rental, which continues until the landlord asks the tenant to leave or the tenant decides to move. If a tenant pays rent on a monthly basis, the tenant must give the landlord 30 days' written notice before moving. A landlord who wants the tenant to leave or who wants to raise the rent also must give the tenant 30 days' written notice.

Security Deposits

A landlord has the right to insist that renters pay a security deposit before moving in. The security deposit is used to pay for any damage beyond ordinary wear and tear that the tenant might make to the rental property, or to satisfy any debts between the tenant and landlord. The deposit may not be used by the renter to pay rent. California law puts a limit on the amount of a deposit that a landlord can collect. The total of all deposits cannot add up to more than the cost of two months' rent for an unfurnished apartment or three months' rent for a furnished apartment.

At the end of the tenancy, the landlord must return the deposit to the renter within two weeks. The landlord is allowed to keep the amount necessary to repair damages or to pay off debts owed to the landlord under the lease. If the landlord fails to return all or part of the security deposit, he or she must give the tenant, within two weeks after the tenancy ends and the tenant has given the landlord a forwarding address, a written explanation as to why money is being withheld.

Repairs

Owners of rental property are required to keep the property in reasonable repair. This requirement cannot be waived by the parties, but the tenant may agree to make repairs or perform maintenance if the arrangement is in writing and the tenant receives compensation in return. For example, a renter might agree to make routine plumbing repairs in return for a reduction in rent or payment from the owner. If the parties have not agreed the tenant will do repairs, repairs remain the responsibility of the landlord. If something needs repair, the tenant by law must notify the landlord and give the landlord a reasonable opportunity to make the repairs or have them made. If the owner refuses to make repairs, the renter has several options.

Call an Inspector

The renter may call local fire, health, housing, or energy inspectors to investigate whether there is a code violation in the unit. If an inspector finds a code violation, the inspector gives the owner a written notice to correct the problem within 60 days. If the owner does not make the improvements within 60 days, the renter may sue the owner. Often, an inspector's report of a code violation is enough to convince a landlord to correct problems. The law prohibits owners from attempting to evict renters in retaliation for calling an inspector.

Repair and Deduct

Within a reasonable time after giving written or oral notice to the landlord, the tenant may repair the problem in the rental property if the cost of such repair is not greater than one month's rent. The cost of repair may be deducted from the rent for the month immediately after the repair was made. This remedy is not available to a tenant more than twice in any 12-month period.

Vacate

If a rental unit is no longer livable, the tenant may vacate the premises, in which case the tenant is discharged from further payment of rent and the performance of any other conditions as of the date of vacating the premises. To be considered unlivable, the problem must be substantial, such as a lack of plumbing, heating, or lighting.

Rent Strike

If nothing else works to get the owner to correct a problem, all of the tenants in a building might consider holding a rent strike. In California, rent strikes are legal only under certain conditions. If such a course of action is being considered, it would be wise to consult a lawyer.

Eviction

Under no circumstances may a landlord forcibly remove a tenant from rental property. In order to get a tenant out of a rental unit, the landlord must bring an unlawful detainer action against the tenant in either small claims court or municipal court. Most eviction suits are filed in municipal court because lawyers are not allowed to represent parties in small claims court. Legitimate grounds for bringing an unlawful detainer action include nonpayment of rent, breach of a lease, or refusal to leave a unit after the tenancy expires. If the rental agreement is governed by a lease, the landlord must give the tenant a three-day written notice to move before suing to evict the tenant. If the rental agreement is month-to-month, the landlord may give the tenant a 30-day written notice to move to terminate the rental agreement. Some communities in California have laws that limit evictions to certain "good cause" reasons only.

To commence the unlawful detainer action, the landlord files a verified complaint against the tenant in court and has someone serve the tenant with a summons. The landlord may not personally serve the summons. The tenant has five days, including weekends, to respond to the complaint. If the landlord sues in municipal court, the tenant must respond to the complaint in writing. Courts in California must give unlawful detainer actions precedence over other civil actions so that they will be heard and determined quickly. A trial must be held no later than 20 days after a request to set the time of trial, unless all parties agree to an extension. At the hearing, each side has an opportunity to present its side of the story and the judge delivers an opinion. If the judge decides the tenant has no legal reason for refusing to leave the property, the judge orders the tenant to leave. If the tenant does not show up to the court on time, the judge can order the tenant to move immediately.

An enforcing officer then serves and posts a copy of a writ of restitution on the premises, and the tenant must vacate the premises within five days or be forcibly removed. Any personal property remaining on the premises will be sold or otherwise disposed of unless the tenant pays the landlord for the reasonable cost of storage and retrieves the personal property no later than 15 days after the premises are restored to the landlord.

Tenant's Rights

Tenants enjoy a number of rights, even if those rights are not specified in the rental agreement. The tenant has a right to quiet enjoyment of the premises, which means that the landlord may not interfere illegally or unreasonably in the tenant's life, just because the landlord owns the property. Renters have the right to use the rented premises in any way, as long as it is legal.

Privacy

Generally, a landlord may enter a tenant's unit only in an emergency, to make necessary or agreed-upon repairs, alterations, or improvements, or to show the unit to prospective renters or purchasers. Except in cases of emergency, or when the tenant has abandoned the property, entry may be made only during normal business hours unless the tenant otherwise consents. Unless it is impractical to do so, the landlord also must give the tenant reasonable notice (usually 24 hours) of intent to enter.

Access

Tenants have a right of access to the property they rent. A landlord who wants a tenant to move cannot legally lock the tenant out or remove a tenant's belongings. The landlord also cannot legally turn off the utilities to try and force a tenant out. If a landlord does any of these things, the tenant may sue the landlord for any actual damages. The tenant also may be entitled to recover additional sums, such as $100 for each day utilities were turned off, or attorneys fees.

Sublease

Subleasing is having someone else take over a tenant's rights and obligations under a lease before the original lease expires. The tenant has a right to sublet a unit if the lease does not prohibit doing so. If the new tenant does not pay rent, damages the unit, leaves before the lease expires, or breaches another condition of the lease, the landlord may hold the original tenant responsible. The original tenant then may sue the new tenant for those costs.

Rent Control

Some communities in California have rent control laws. These laws give tenants certain protection against rent increases, dictating when and by how much rent may be raised.

Public Utility Rule

Regulated utility companies are prohibited by law from shutting off electrical, gas, heat, or water service to any residence, whether rented or owner-occupied, without first providing at least ten days' written notice. In addition, termination of such services is not allowed: 1) during the pendency of an investigation of a customer complaint or dispute, 2) when a customer has been granted an extension for payment of a bill, or 3) on the certification of a doctor that to do so would be life threatening to the customer and the customer is financially unable to pay the bill within the normal payment period. Further, any customer who initiates a complaint or requests an investigation within five days of a disputed bill or who has, before termination of service, made a request for extension of a payment period, must be given an opportunity for review with the utility. The utility then may consider whether to amortize the customer's bill for up to 12 months.

Discrimination in Housing

Federal and California laws prohibit home sellers and landlords from discriminating on the basis of race, color, religion, sex, marital status, national origin, ancestry, familial status, or disability. Discrimination for other arbitrary reasons such as sexual orientation or political affiliation also is prohibited. Landlords may not discriminate against people with children unless the building is intended to provide housing for elderly persons. In order to qualify as a building for elderly persons, the building must meet additional requirements, such as operating under a state or federal program specifically designed to assist the elderly, or offering significant facilities or services designed to meet the needs of the elderly.

Any complaints of discrimination in housing should be filed with the Department of Fair Employment and Housing within one year of the discrimination or, as an alternative, a person may file a lawsuit on his or her own behalf within two years.

Resources

The State Bar of California, 555 Franklin Street, San Francisco, CA 94102-4498, (415) 561-8200, publishes free pamphlets, including What Should I Know Before I Buy a House and What Should I Know Before I Rent.

For information, to file a complaint, or to locate the nearest office, contact the Department of Fair Employment and Housing, (800) 884-1684. The Department also has free pamphlets available concerning discrimination in housing, including Housing Rights, Discrimination is Against the Law, A Guide for Complainants (Housing), and A Guide for Respondents Accused of Housing Discrimination.