Special Brokerage Relationships - Probate Sales and Commissions +13California · Real Estate · English

An estate representative may initiate a probate sale by seeking offers directly or through brokers (Probate Code § 10150). The executor/administrator may sell estate real property when in the estate's best interests. The sale, public or private, must be advertised by publication or posting (Probate Code §§ 10300 et seq.). Acceptance is subject to probate court confirmation. With court permission, the representative may grant an exclusive right to sell for not more than 90 days (Probate Code § 10150). Under the Independent Administration of Estates Act, the administrator may sell without court confirmation but with notice to all beneficiaries (Probate Code § 10400 et seq.).

• ✓A probate sale requires advertising by publication or posting and is subject to probate court confirmation
• ✓With court permission, an exclusive right to sell may be granted for not more than 90 days (Probate Code § 10150)
• ✓Under the Independent Administration of Estates Act, sales may proceed without court confirmation but with notice to all beneficiaries

An offer to purchase must be for a price not less than 90% of the property's appraised value (appraisal dated within one year of sale) and must conform to statutory requirements, local superior court rules, and the terms in the public notice (Probate Code § 10160 et seq.). The court ensures the property was exposed to the market. Bidders and their brokers should attend the confirmation hearing since overbidding may occur, and should know local rules on advance bidding and required deposits. After confirmation, normal escrow procedures complete the transaction.

• ✓A probate offer must be at least 90% of appraised value, with the appraisal dated within one year of the sale
• ✓The offer must conform to statutory requirements, local court rules, and the public notice terms
• ✓Overbidding may occur at the confirmation hearing, so bidders and brokers should attend and know local advance-bidding rules

Payment of commissions in probate sales is generally within the court's discretion subject to statutory standards. Under Probate Code § 10162, the compensation of an agent producing a successful bidder (via overbid) shall not exceed one-half of the difference between the original return bid and the successful bid; this limit does not apply to an agent holding a § 10150 contract with the estate. If a purchaser not represented by an agent has an overbid confirmed, the listing broker may receive a full commission on the original bid only (Probate Code § 10162.5). The court's confirming order sets the commission amount and its division. Where the agent is also the purchaser, the court scrutinizes the substantiality of the agent's acts (Estate of Levinthal v. Silberts, 105 Cal. App. 3d 691 (1980)).

• ✓An overbid agent's compensation cannot exceed one-half the difference between the original return bid and the successful bid (Probate Code § 10162)
• ✓If an unrepresented buyer's overbid is confirmed, the listing broker receives full commission only on the original bid (Probate Code § 10162.5)
• ✓The court's confirming order sets the commission amount and its division among brokers
• ✓Courts scrutinize the substantiality of an agent's acts when the agent is also the purchaser

The borrower may demand a written beneficiary statement showing unpaid balance, interest rate, overdue installments, payment amounts, due date, tax/insurance status, impound balance, additional charges, and transferability. The fee is capped at $30. The statement must be delivered within 21 days; willful failure incurs a $300 penalty.

• ✓Beneficiary statement fee capped at $30
• ✓Must be delivered within 21 days of written demand
• ✓Willful failure to deliver incurs $300 penalty plus damages
• ✓Cannot be requested more than 60 days after Notice of Default recording

The pay-off demand statement details amounts owing for loan payoff and can be requested anytime except after the first publication of notice of trustee sale or the judicial hearing. It defaults if the request does not specify which statement type. Same fee and 21-day/$300 rules apply.

• ✓Pay-off demand statement details amounts for loan payoff
• ✓May be requested anytime except after first publication of trustee sale notice
• ✓Beneficiary defaults to pay-off statement if type not specified

Impound accounts are prohibited except when required by regulators, upon failure to pay two consecutive tax installments, when the loan is 90%+ of sales price/appraised value, when combined loans exceed 80% of appraised value, or for higher-priced mortgage loans under Regulation Z.

• ✓Prohibited for owner-occupied dwellings except in specified circumstances
• ✓Allowed when loan is 90%+ of sales price or appraised value
• ✓Allowed when combined loans exceed 80% of appraised value
• ✓Allowed for higher-priced mortgage loans under Regulation Z/TILA

A Short-Pay Demand Statement sets forth an amount less than the outstanding debt with terms under which the lender will reconvey. It follows a Short-Pay Agreement and Short-Pay Request. The lender must respond within 21 days; its operative period is not greater than 30 days. Provisions were subject to repeal January 1, 2014.

• ✓Short-Pay Demand Statement operative period not greater than 30 days
• ✓Lender must respond to Short-Pay Request within 21 days
• ✓Late response subjects lender to $300 sanction plus damages and attorney's fees

Under Civil Code 2954, a borrower may request a statement of condition of account, provided within 60 days after each calendar year, itemizing interest, principal, and impound account activity. One statement per year is free. No increase in impound payment is effective until an itemized accounting and new rate statement are furnished.

• ✓Statement provided within 60 days after end of calendar year (one free per year)
• ✓Impound payment increase requires itemized accounting and rate statement
• ✓Monthly statement or passbook satisfies the requirement

A creditor/lender or assignee has no liability under 15 USC 1607, 1611, and 1640 for a failure to comply if, within 60 days after discovering an error and before an action is filed or written notice is received from the borrower, it notifies the borrower of the error and makes account adjustments so the borrower will not pay more than the actually disclosed charge/APR equivalent, whichever is lower.

• ✓Correction must occur within 60 days after discovering the error
• ✓Correction must occur before suit is filed or written borrower notice is received
• ✓Adjustments must ensure borrower pays no more than the disclosed charge or APR equivalent, whichever is lower

A creditor/lender or assignee may not be held liable in a civil action if it shows by a preponderance of evidence that the violation was unintentional and resulted from a bona fide error despite maintenance of procedures reasonably adapted to avoid such errors.

• ✓Must prove by preponderance of evidence the violation was not intentional
• ✓Must show a bona fide error occurred despite procedures reasonably adapted to avoid errors
• ✓Applies under 15 USC 1640(c)

Special assessments are levied for the cost of public improvements or services (streets, sewers, irrigation, drainage). They are NOT based on the value of the property, and their liens are usually equal in priority to general tax liens.

• ✓Special assessments fund public improvements/services, not based on property value
• ✓Liens are usually equal in priority to general tax liens
• ✓Self-governing districts may issue bonds and assess lands on an ad valorem basis; lien has priority over private interests

Rather than forming a district, a city/county may create an 'improvement area' and assess lands based on benefits received. Benefit assessments are often included on the property tax bill and generally are not income-tax deductible.

• ✓Distinguished from special assessments by the assessment base
• ✓Generally NOT deductible on California or federal income tax returns
• ✓Only assessments to finance maintenance (not improvements) are deductible
• ✓Levied for lighting, flood control, transit, police, fire, county services, paramedics

A preliminary public report lets a subdivider begin marketing before a final report but only allows nonbinding reservations with fully refundable money in escrow.

• ✓Only allows the subdivider to accept reservations from potential purchasers
• ✓Reservation money must be fully refundable and kept in escrow
• ✓Preliminary public reports have a one-year term and may be renewed
• ✓Does not provide the same disclosures as a final report

A final public report has a five-year life. Material changes require an amended report; unsold subdivisions at five years require a renewed report.

• ✓A final public report has a life of five years
• ✓A material change (e.g., change of ownership, purchase money handling, use) requires applying for an amended public report
• ✓At the end of five years if not sold out, a renewal for an additional five-year term may be applied for

An interim report permits only nonbinding reservations pending an amended report; a conditional report permits binding sale contracts before full qualification for a final report.

• ✓Interim public report: special type of amended report, permits only nonbinding reservations, valid one year, expires upon issuance of the amended report
• ✓Interim report can only be applied for in conjunction with or after an amended/renewed application
• ✓Conditional public report: authorizes binding sale contracts even though the project has not fully qualified for a final report (Code Section 11018.12, Regulation 2790.2)

FEMA Flood Hazard Boundary Maps delineate special flood zone areas (100-year), areas of moderate flood hazard (100-500 year), and areas of minimal risk (above 500-year). A seller (or agent/cooperating agent) of property in a special flood hazard area must disclose that fact and that federal law requires flood insurance as a condition of financing on most structures there.

• ✓Special flood zone areas are within the 100-year flood boundary
• ✓Federal law requires flood insurance as a condition of financing on most structures in a special flood hazard area
• ✓The seller and agents must disclose the flood hazard to the buyer
• ✓Disclosures are typically made on the NHD form

If a seller knows the property is in a state responsibility area or on a Department map given to the county assessor, the seller must disclose substantial fire risk and that the land is subject to preventative requirements (Public Resources Code 4291). Absent a county ordinance assuming responsibility, the seller must disclose the state is not obligated to provide fire protection unless required by a cooperative agreement.

• ✓Must disclose substantial fire risk and preventative requirements if the property is in a state responsibility area
• ✓Public Resources Code Section 4291 lists the preventative requirements
• ✓Must disclose the state is not obligated to provide fire protection absent a cooperative agreement
• ✓State responsibility area maps are updated every five years

Under the Alquist-Priolo Earthquake Fault Zoning Act, a seller (or agent) must disclose that property is or may be situated in an earthquake fault zone on the Natural Hazard Zone Disclosure Statement. Delivery of the Homeowner's Guide to Earthquake Safety is required for residential dwellings built before Jan 1, 1960, and both guides for masonry buildings with wood-frame floors/roofs built before Jan 1, 1975.

• ✓Alquist-Priolo Act requires disclosing property in an earthquake fault zone
• ✓Homeowner's Guide required for one-to-four unit residential dwellings built before January 1, 1960
• ✓Masonry buildings with wood-frame floors/roofs built before January 1, 1975 require the guide(s)
• ✓If the buyer receives the guide, no further geologic/seismic information is required, but disclosure of the fault zone and known hazards still must be made

Third-party NHD reports often include ordnance location disclosure (Civil Code 1102.15, within one mile of former military training with actual knowledge), commercial/industrial, airport proximity/influence, Megan's Law database, mold, and Mello-Roos disclosures.

• ✓Ordnance location must be disclosed under Civil Code 1102.15 if within one mile and seller has actual knowledge
• ✓Mello-Roos disclosure required under Civil Code 1102.6b — seller must make a good faith effort to obtain the district notice
• ✓Megan's Law database disclosure is included in the NHD report
• ✓TDS exemptions apply to ordnance and Mello-Roos disclosures

The booklet 'Environmental Hazards: A Guide for Homeowners, Buyers, Landlords, and Tenants' covers asbestos, radon, lead, and formaldehyde. If provided, neither the seller nor agent has a duty to give further information on such hazards (other than lead) unless they have actual knowledge of hazards affecting the property.

• ✓The booklet covers asbestos, radon, lead, and formaldehyde
• ✓If provided, no duty to disclose further on those hazards (except lead) absent actual knowledge
• ✓Lead-based paint and other known environmental hazards must still be disclosed on the TDS

A trust account normally may not be interest-bearing, but a broker may deposit funds into an interest-bearing account at the request of the owner/principals if all requirements of B&P Code Section 10145(d) are met.

• ✓Account must be in the broker's name as trustee for a specified beneficiary/principal
• ✓All funds must be insured by a federal agency and kept separate from broker's funds
• ✓Broker must disclose the nature of the account, how interest is calculated/paid, service charges, and withdrawal penalties
• ✓No interest earned may inure to the benefit of the broker or persons licensed to the broker

A broker acting as agent for a financial institution that is the beneficiary of a loan may, under Regulation 2830.1, deposit obligor (borrower) funds into an interest-bearing trust account to pay interest on impound accounts per Civil Code Section 2954.8.

• ✓Funds must be for future payment of property taxes, assessments, or insurance on a one-to-four family residence
• ✓Account must be in broker's name as trustee, FDIC-insured, and hold only trust funds
• ✓No interest may inure to the benefit of the broker or persons licensed to the broker

The property manager must maintain proper records and make regular, understandable reports covering all operations. A monthly accounting is recommended along with a detailed annual statement, which lets the manager assess income and expense fluctuations and formulate future policies.

• ✓A monthly accounting to the owner is recommended plus a detailed annual statement
• ✓Annual statements help assess income/expense fluctuations and formulate future rental, maintenance, and employee policies

Tenants want the most for their rental dollar and to feel safe. The manager must set policies giving tenants maximum benefits while ensuring a proper return to the owner. Effort spent on tenant retention results in more satisfied residents and increased owner profits.

• ✓Tenant retention efforts increase resident satisfaction and owner profits
• ✓Policies must balance tenant benefits with a proper return to the owner

The property manager employs nearly all people working on the premises and provides their instruction and supervision, needing to know the 'what, how, and when' of each job. Success often depends on the manager's ability to choose, train, direct, and retain personnel, since an effective staff keeps vacancies and maintenance costs low.

• ✓The manager employs and supervises almost all personnel on the premises
• ✓An effective staff keeps vacancies and maintenance costs at a minimum
• ✓Success often depends on the manager's ability to choose, train, direct, and retain personnel

Rental space may be unintentionally vacant due to improper rent, space not ready to rent, ineffective selling by the resident manager, an inattentive manager, poor retention programs, unappealing facades, no traffic, or high area vacancy factors. Successful managers stay alert and adjust marketing and personnel.

• ✓Improper rent, unready space, and poor selling are common vacancy causes
• ✓Managers must adjust marketing strategies and personnel where indicated

A broker counseling a buyer must ensure statements are not construed as legal advice or warranties about a business's future. The broker should discuss the buyer's background, investment funds, borrowing sources, credit from suppliers, professional advisors, income expectations, potential losses, and loan qualification. The broker must be aware of taxable events in a business transfer and advise principals to seek legal and tax advice.

• ✓Counseling statements must not be construed as legal or tax advice or warranties about the future
• ✓Broker should advise principals to seek legal and tax advice
• ✓Broker must be aware of taxable events resulting from a business transfer

A tax law effective January 2000 adversely affects a seller who takes a note for part of the purchase price. It applies to asset sales (not corporate sales) where the accrual method of accounting is used. The total dollar amount of the note is taxable all at once even if proceeds are received in installments over years. The licensee must direct the seller to discuss this with an accountant at listing.

• ✓The January 2000 law applies to asset sales, not corporate sales, using accrual accounting
• ✓Total dollar amount of the seller's note is taxable all at once even if paid in installments
• ✓Licensee must direct the seller to discuss this with an accountant at the time of listing

In an asset sale, great care must be taken in allocating the consideration among furniture, fixtures, equipment, non-compete agreement, goodwill, inventory, consulting agreements, lease, leasehold interests, and employment contracts, because allocation may have important tax consequences for the parties.

• ✓Consideration in an asset sale must be carefully allocated among the various asset categories
• ✓The allocation of items may have important tax consequences for the parties

In the original survey, lakes, streams, and features created fractional pieces of land less than a quarter section, identified by number as government lots. Today acreage lost to correction lines and errors is placed in quarter sections bordering the western and northern township boundaries, also called government lots. A government lot does not necessarily contain a standard number of acres.

• ✓Government lots are fractional parcels identified by number
• ✓Correction-line adjustments are placed in the western and northern township quarter sections
• ✓A government lot does not contain a standard number of acres

A surveyor or civil engineer who completes a survey may file a record of survey with the county surveyor when it discloses physical change not on prior maps, a material discrepancy, evidence of alternate line positions, or lines requiring trigonometric calculations. The county surveyor then files it with the county recorder.

• ✓A record of survey is filed with the county surveyor, then the county recorder
• ✓It discloses physical changes, discrepancies, or lines not ascertainable without calculation

The county assessor may prepare and file accurate maps of county land, numbering or lettering parcels as approved by the board of supervisors. Under Revenue and Taxation Code Section 327, land may not be described in a deed or conveyance by reference to such a map unless the map has been filed for record in the county recorder's office.

• ✓Assessor's maps number/letter parcels for tax purposes
• ✓Land cannot be described in a deed by an assessor's map unless it is recorded

In the absence of a title report, property may be referred to by street number, name (e.g., 'The Norris Ranch'), or blanket reference (e.g., 'my lot on High Street'). These methods are legal, but title companies will not ordinarily insure title with such a description. When in doubt, consult a licensed engineer, surveyor, or title company.

• ✓Informal descriptions (street number, name, blanket reference) are legal but not title-insurable
• ✓Consult a surveyor, engineer, or title company when the correct method is uncertain

Geology textbooks such as 'California's Changing Landscapes' by Gordon B. Oakeshott focus on California geology. Information on the state's oil and gas fields, structural conditions and quality of production is available from the California Division of Oil, Gas, and Geothermal Resources of the Department of Conservation. The California Geological Survey of that Department offers publications on mineral, mining and geological matters.

• ✓The California Division of Oil, Gas, and Geothermal Resources is part of the Department of Conservation
• ✓The California Geological Survey publishes resources on mineral and geological matters

Licenses are issued for four years and should be renewed before expiration. DRE mails a courtesy renewal form about 90 days before expiration, but non-receipt does not relieve the responsibility to renew. Renewal requires the fee and evidence of continuing education completion; no examination is needed.

• ✓Licenses are renewed every four years without examination
• ✓DRE mails a courtesy renewal notice ~90 days prior; non-receipt does not excuse timely renewal
• ✓Renewal requires the appropriate fee and evidence of completed continuing education

A license may be renewed late within two years of expiration with a proper application, current CE, and the late renewal fee, but no licensed activity may occur during the lapse. Two years after expiration, all license rights lapse and the individual must requalify by examination.

• ✓Late renewal is allowed within two years of expiration with the late renewal fee
• ✓No licensed activity or commission is allowed between expiration and late renewal
• ✓Two years after expiration, all license rights lapse, requiring requalification by exam (Section 10154)

If a broker's license expires, all licensed activities must cease, the broker's salespersons are placed in non-working status, and branch office licenses are cancelled. The broker must re-activate salesperson licenses (RE 214) and branch offices (RE 203). Mailed renewals must be postmarked before midnight of expiration; postage meter stamps are not valid postmark evidence.

• ✓When a broker's license expires, salespersons are placed in non-working status and branch licenses cancelled
• ✓Mailed renewals must be postmarked before midnight of the expiration date
• ✓Postage meter stamps are not accepted as evidence of a U.S. Postal Service postmark

The position of trust assumed by a broker as agent for a principal is most accurately described as a fiduciary relationship. A broker acting for a client in dealings with third persons is bound by the laws of agency.

• ✓The broker-principal relationship is a fiduciary relationship
• ✓A broker is bound by the laws of agency in dealings with third persons
• ✓Fiduciary duties include loyalty, care, disclosure and accounting

If a broker, while acting as agent in a sale, misrepresents the principal's property to a buyer, the principal may be subjected to rescission of the sale, a court action for damages, and tort liability (any of the above).

• ✓A principal may be liable for an agent's misrepresentation to a buyer
• ✓Consequences include rescission, damages actions and tort liability

When a broker discovers evidence of termite infestation before escrow closes, the broker should promptly disclose this information to both buyer and seller for appropriate resolution.

• ✓A broker must disclose discovered material defects like termite evidence to both buyer and seller
• ✓Failure to disclose known material facts violates the broker's duty

The most important reason for a broker to maintain a trust fund account separate from a business account is the consequence which could occur should legal action be taken against the broker (protecting client funds from the broker's creditors and commingling liability).

• ✓Trust funds must be kept separate from broker's business/personal funds
• ✓Separation protects client funds if legal action is taken against the broker
• ✓Commingling is prohibited

Copies of all listings, deposit receipts, canceled checks, and trust records must be retained by a licensed real estate broker for three years.

• ✓Brokers must retain transaction and trust records for three years
• ✓Required records include listings, deposit receipts, canceled checks and trust records

The maximum commission a broker may charge a seller for the sale of residential income property is negotiable—it is not set by the Real Estate Law, by percentage cap, or by local custom.

• ✓Real estate commissions are always negotiable between broker and principal
• ✓There is no legal maximum commission set by law or custom

Under California Real Estate Law, a California broker may pay a commission to a broker of another state (a cooperating out-of-state broker), even if that broker is not licensed in California.

• ✓A California broker may pay/split a commission with a broker of another state
• ✓The out-of-state broker need not be California-licensed to receive a cooperative commission

Persons furnishing labor or material to improve real estate may file a lien if not timely paid. The basic right arises from Article XIV, Section 3 of the California Constitution, implemented by Civil Code Title 15 (Section 3082 et seq.). The lien's theory is that improvements add value, so it is equitable to charge the land.

• ✓Mechanics, materialmen, artisans and laborers have a constitutional lien right (Art. XIV, Sec. 3)
• ✓The lien must be founded on a valid contract and is valid only to the extent of labor/materials actually used
• ✓No lien attaches to a public work; only to private works of improvement

Converting the lien to payment requires: (1) timely recordation of a notice and claim of lien in the county where the work is located; (2) perfection by filing a lawsuit in the proper court; (3) recording a lis pendens; (4) timely pursuit of the lawsuit to judgment; and (5) enforcement by a foreclosure sale.

• ✓A claim of lien must be timely recorded, then a foreclosure action filed to perfect it
• ✓A lis pendens must be recorded to give notice of the pending lawsuit
• ✓Failure to sue within 90 days after recording renders the lien null and void

Except claimants under direct contract with the owner, one performing labor for wages, or an express labor trust fund, a claimant must serve a preliminary 20-day notice within 20 days of first furnishing labor/materials (Civil Code 3097). It is a prerequisite to a valid mechanic's lien and informs the owner, contractor, and lender that liens may arise.

• ✓The preliminary 20-day notice must be given no later than 20 days after first furnishing labor/materials
• ✓It is a prerequisite to the validity of a claim of mechanic's lien
• ✓Direct-contract claimants notify only the construction lender; others notify owner, contractor, and lender
• ✓A current statutory form must be used or the court may disregard the notice

With a recorded notice of completion/cessation, an original contractor must record within 60 days; any other claimant within 30 days. If no notice of completion/cessation is recorded, any claimant has 90 days after completion to record the claim of lien.

• ✓Original contractor: 60 days after notice of completion/cessation
• ✓Other claimants: 30 days after notice of completion/cessation
• ✓No notice recorded: 90 days after completion for all claimants

A mechanic's lien terminates by voluntary release or automatically if no foreclosure action is filed within 90 days of recording. If work commenced before the lender recorded its deed of trust, all mechanics' liens are prior to the lender's encumbrance (Civil Code 3134), jeopardizing construction loan security.

• ✓Foreclosure action must be filed within 90 days after recording the lien or it is void
• ✓If work commenced before the deed of trust was recorded, mechanics' liens take priority over the lender
• ✓Extended credit for lien purposes may not exceed one year from completion, and notice must be filed within the 90-day period

Completion is fixed by: occupation/use plus cessation of labor; owner's acceptance; cessation of labor for 60 continuous days; or cessation of 30 days with a recorded notice of cessation. The owner may file a notice of completion within 10 days of completion. A public-entity work is complete on acceptance or 30 days' cessation.

• ✓Completion may occur by acceptance, occupation with cessation, 60-day cessation, or 30-day cessation with recorded notice
• ✓A notice of completion should be recorded within 10 days after completion (Civil Code 3093, 3117)

An owner (or interest holder) may avoid liability by posting a notice of nonresponsibility in a conspicuous place and recording a verified copy within 10 days of learning of the work. Owners/contractors disputing a lien may record a lien release bond (Civil Code 3143) to lift the lien from the property.

• ✓A notice of nonresponsibility must be posted AND recorded within 10 days of obtaining knowledge of the work
• ✓If posting is not done, a recorded notice affords no protection
• ✓A recorded lien release bond lifts the claim of lien from the property (Civil Code 3143)

Effective 1991, architects, registered engineers, and licensed land surveyors under written contract may file a design professional's lien (Civil Code 3081.1–3081.10). A 10-day written demand for payment must be mailed before recording. The lien does not apply to single-family owner-occupied residences under $100,000 and yields to prior recorded interests.

• ✓A 10-day written demand for payment (certified/registered mail) must precede recording
• ✓The lien does not apply to single-family owner-occupied residences under $100,000 (Civil Code 3081.10)
• ✓The lien does not take priority over interests recorded before it (Civil Code 3081.9)