Statute of Limitations +8California · Real Estate · English

Actions must be brought within statutory periods after the cause of action accrues: 90 days (baggage recovery); 6 months (officer seizures, rejected county claims); 1 year (libel, slander, injury/death, forged check); 2 years (oral contracts); 3 years (statutory liability, trespass, injury to property, fraud/mistake); 4 years (written contracts, book accounts); 5 years (mesne profits, recovery of real property); 10 years (judgments).

• ✓Oral contract actions: 2 years; written contract actions: 4 years
• ✓Fraud or mistake actions: 3 years (accruing on discovery)
• ✓Recovery of real property actions: 5 years; judgments: 10 years
• ✓An action is commenced when the complaint is filed with a court of competent jurisdiction

The word 'grant' creates implied warranties: the grantor has not already conveyed to another and the estate is free from encumbrances made or suffered by the grantor or those claiming under grantor. It does NOT warrant the grantor owns the property or that it is otherwise unencumbered. A grant deed conveys after-acquired title. These implied warranties are not usually expressed in the form.

• ✓A grant deed implies the grantor has not previously conveyed and made no undisclosed encumbrances
• ✓A grant deed conveys after-acquired title
• ✓The grant deed does NOT warrant the grantor actually owns the property

A quitclaim deed transfers only the interest the grantor has at the time of execution, with no implied warranties and no guarantee of ownership. It does not convey after-acquired title. It effectively says 'I convey whatever title I have, if any.' It is generally used to clear a 'cloud on the title'—a minor defect. Deeds of guardians, administrators, and sheriffs usually have quitclaim effect pursuant to court order.

• ✓A quitclaim deed carries no implied or express warranties
• ✓A quitclaim deed does NOT convey after-acquired title
• ✓A quitclaim deed is commonly used to clear a cloud on the title

A trust deed is a three-party security instrument conveying title to land as security for an obligation. The parties are the trustor (borrower), beneficiary (lender), and trustee (holds legal title). The trustee can sell the property on default and can reconvey to the trustor when the note is paid. The trustor retains equitable title with rights of possession as long as the lender's interest is not jeopardized.

• ✓A trust deed has three parties: trustor (borrower), beneficiary (lender), and trustee
• ✓The trustee holds legal title and has power of sale on default
• ✓The trustor retains equitable title and right of possession
• ✓B&P Code Section 10141.5 requires a licensee to record or deliver the deed of trust within one week of closing

Certain deeds are void and pass no title even to a bona fide purchaser: a deed from a judicially incapacitated person or one under a conservator (CC 40); forged deeds (Meley v. Collins); a deed from an unemancipated person under 18; a deed executed in blank with the grantee name inserted without authority (Trout v. Taylor); and a deed purely testamentary in character.

• ✓Void deeds pass no title even to a bona fide purchaser for value
• ✓Forged deeds and deeds from judicially incapacitated persons are void
• ✓A deed from an unemancipated minor under 18 is void
• ✓A purely testamentary deed (effective only at death) is void

A warranty deed contains express covenants of title. Warranty deeds are uncommon in California because of the near-universal reliance on title insurance to evidence marketable title.

• ✓A warranty deed contains express covenants of title
• ✓Warranty deeds are uncommon in California due to reliance on title insurance

A reconveyance deed conveys title from the trustee back to the trustor upon termination of the trust, which usually occurs when the promissory note is paid in full. The beneficiary issues a 'Request for Full Reconveyance,' and the trustee then executes the reconveyance to the borrower.

• ✓A reconveyance deed returns title from trustee to trustor upon full payment
• ✓The beneficiary must issue a Request for Full Reconveyance to trigger it

A sheriff's deed is given to a party on foreclosure of property under a judgment of foreclosure on a mortgage or a money judgment against the owner. The title conveyed is only that acquired by the state or sheriff under the foreclosure and carries no warranties or representations.

• ✓A sheriff's deed results from a foreclosure or money judgment sale
• ✓A sheriff's deed carries no warranties or representations whatsoever

A grantor may make a gift of property using a grant deed or quitclaim deed form, optionally stating the transfer is for love and affection. A gift deed made to defraud creditors may be set aside if it leaves the grantor insolvent or contributes to fraud, under the Uniform Fraudulent Transfer Act (Civil Code Sections 3439–3439.12).

• ✓A gift deed may use a grant deed or quitclaim deed form
• ✓A gift deed can be set aside under the Uniform Fraudulent Transfer Act if it defrauds creditors

Voidable deeds pass title but may be set aside in appropriate judicial proceedings: a deed from a person of unsound mind whose incapacity has not been judicially determined (Hughes v. Grandy); and, prior to March 4, 1972, a deed from a person over 18 and under 21, except a lawfully married person 18 or older. Family Code Section 6701(b) limits a minor's authority to contract regarding real property.

• ✓Voidable deeds pass title but can be set aside in judicial proceedings
• ✓A deed from someone of unsound mind not yet judicially determined is voidable
• ✓A lawfully married person 18 or older was deemed adult for property dealings

In a residential lease, all deposits regardless of label are refundable security deposits; any waiver of the refund right is void. Beyond first month's rent, a landlord may require a maximum of two months' rent (unfurnished) or three months' rent (furnished). For leases of six months or longer, the landlord may collect an advance of not less than 6 months' rent.

• ✓Maximum deposit: two months' rent unfurnished, three months' rent furnished
• ✓All residential deposits are refundable regardless of terminology used
• ✓Any waiver of the security deposit refund right is null and void

Within three weeks after the tenant vacates and surrenders, the landlord must furnish an itemized statement (by personal delivery or first-class mail) showing the basis and amount of security retained, and return the remainder. The itemized statement must include copies of documents showing charges for repairs or cleaning (per CC 1950.5).

• ✓Landlord must return the deposit and itemized statement within three weeks (21 days)
• ✓The itemized statement must include documentation of repair/cleaning charges
• ✓Notice may be given no earlier than 60 days before a fixed-term lease expires

A security deposit secures the tenant's performance. It may be cash, letters of credit, or CDs. Categories include: prepaid rent, forfeitable deposit, non-forfeitable deposit, or a non-refundable bonus. The deposit is held for the tenant's benefit and has priority over all landlord creditors except a trustee in bankruptcy.

• ✓A security deposit secures the tenant's performance of lease obligations
• ✓A tenant's claim to the deposit has priority over all landlord creditors except a bankruptcy trustee
• ✓Deposits may be prepaid rent, forfeitable, non-forfeitable, or a non-refundable bonus

If the landlord retains any deposit in bad faith, the landlord is liable for actual damages plus a statutory penalty of up to twice the security amount. On sale/transfer, the landlord may transfer the deposit (less deductions) with written notice identifying the successor, or return it to the tenant. If the landlord fails to comply, both original and successor landlords remain personally liable.

• ✓Bad faith retention exposes the landlord to a penalty up to twice the security amount
• ✓On transfer, the landlord must give written notice identifying the successor or return the deposit
• ✓Failure to comply keeps both original and successor landlords personally liable

Commercial deposit law is less onerous to landlords. Deductions are limited to unpaid rent, tenant-caused damage, and cleaning. If the claim is only for rent and the deposit is no more than one month's rent plus last month's rent, remainder returns no later than 30 days. Bad faith failure carries a $200 statutory penalty plus actual damages.

• ✓Commercial deposit deductions limited to rent defaults, tenant damage, and cleaning
• ✓Bad faith commercial deposit failure carries a $200 statutory penalty plus actual damages
• ✓Return timelines are generally within 30 days of receiving possession

Misrepresentation may be fraudulent or negligent, both creating civil liability and possible discipline. Certain misrepresentations are actual fraud even without evil intent. Constructive fraud is a breach of duty gaining advantage by misleading another.

• ✓Positive assertions not warranted by information are actual fraud even if believed true
• ✓Constructive fraud is a breach of duty misleading another without actual fraudulent intent
• ✓Fraud allows punitive damages; a fraud civil judgment can support discipline (California Real Estate Loans v. Wallace)
• ✓A broker may make no representation without a reasonable basis, no half-truths, and no misleading combinations of truths

Liability for failure to disclose arises where the broker knows facts materially affecting value, desirability, or intended use unknown to the buyer. A fiduciary may be liable for constructive fraud even without actual fraudulent conduct.

• ✓Broker and seller must disclose latent defects materially affecting value/desirability/intended use (negative fraud)
• ✓Salahutdin v. Valley of Cal.: constructive fraud is any breach of duty resulting in damage even if not fraudulent
• ✓Duty applies when the buyer is unaware and the facts are not within diligent attention/inspection

An agent acting with authority binds the principal. An agent acting without or in excess of authority may be liable for breaching the implied warranty of authority. The agent does not guarantee the principal's capacity to contract.

• ✓An agent acting beyond authority may be liable for breach of the implied warranty of authority
• ✓The agent does not guarantee the principal's capacity unless expressly warranted or fraud concealed
• ✓To protect against liability, the agent should disclose uncertainty or limits of authority to the third party

An agent contracting in the principal's name is not ordinarily liable for performance. The agent is personally liable if lacking authority/good faith belief, or failing to reveal the principal's name or the agency capacity. The principal's name should appear on the contract.

• ✓Agent is personally liable if the principal's name or the agency capacity is not disclosed
• ✓The name of the principal must appear on the face of the contract to avoid personal liability
• ✓Sign as the principal's name 'by' agent to disclose both agency and principal's identity
• ✓Civil Code § 1558 and Jackson v. Grant: parties must be able to identify each other for a contract to exist

An agent is liable for his own torts whether or not the principal is liable, even when following the principal's directions. Misrepresenting authority may create tort liability to a relying third party.

• ✓An agent is liable for his own torts regardless of the principal's liability
• ✓Misrepresenting authority may create tort liability to a detrimentally relying third party
• ✓Material representations of fact that are false or misleading may create broker liability (B&P § 10176(a))

A broker who is the seller's exclusive agent misrepresenting the lowest acceptable price to a buyer is not usually actionable as it is not a material fact. Representations about price without the seller's consent may be actionable by the seller.

• ✓Seller's agent should not represent price to the buyer without the seller's knowledge and consent
• ✓A price misrepresentation by a buyer's agent is usually actionable by the buyer
• ✓A dual agent issuing a BPO should provide it to the buyer with the seller's consent

Statements that once were mere opinion or 'puffing' are increasingly treated by courts as representations of material fact, because unsophisticated buyers rely on them. A statement that a house is 'in perfect shape' has been held a material fact.

• ✓Courts increasingly treat 'best on the street' or 'handsome profits' statements as material facts
• ✓Reliance by persons of limited expertise elevates puffing to material representation
• ✓'In perfect shape' has been held a representation of material fact

A broker assisting a buyer with a loan application without charge is a gratuitous agent for that purpose. Failure to use reasonable care as a gratuitous agent can create liability if the buyer is injured.

• ✓A broker aiding a buyer's loan application for free is a gratuitous agent of the buyer
• ✓Failure to use reasonable care as a gratuitous agent can create broker liability
• ✓Industry standard: the commission is not deemed due and payable until close of escrow

Exotic loan products and layered risk led to the mid-2007 housing collapse.

• ✓Option ARMs, stated income/stated asset, and 100% financing layered no-down-payment, negative amortization, and rate increases into single loans
• ✓Teaser rates at or below 1% masked payment shock; lenders qualified borrowers on initial rather than fully-adjusted rates
• ✓In California, refinancing converted purchase-money mortgages (no deficiency judgment) into non-purchase money mortgages carrying personal deficiency liability

FIRREA capital reserve requirements redirected capital toward residential lending in the early 1990's.

• ✓Capital reserves for 1 to 4 unit residential loans ranged 2% to 4% depending on federal insurance/indemnification
• ✓Reserve requirements for commercial properties jumped to as much as 8%, causing lenders to favor residential loans

The primary mortgage market consists of lenders funding loans directly to borrowers.

• ✓Primary market participants include savings and loans, savings banks, commercial banks, thrift and loans, credit unions, pension funds, insurance companies, and mortgage bankers
• ✓Participants replenish capital by selling loans into the secondary market
• ✓Historically loans sold into the secondary market were FHA insured or VA guaranteed/indemnified

Federal and state agencies insure, indemnify, or assist with residential loans.

• ✓FHA insures loans made by approved lenders/mortgagees
• ✓VA indemnifies loans made to veterans for housing, farms, or businesses
• ✓California DVA purchases property and resells to veterans via land contracts under the Military and Veterans Code, not sold to the secondary market

Mortgage bankers are privately-owned companies that originate loans using their own capital or credit lines.

• ✓Mortgage bankers generally act as loan correspondents (agents/representatives of depository institutions)
• ✓California mortgage bankers are licensed as RMLs or CFLs; many hold REB licenses for commercial loans
• ✓Mortgage bankers may retain servicing, release it in a whole loan sale, or sell servicing separately

Money serves as a medium of exchange; savings are the primary source of lending funds and capital supply is finite.

• ✓'Creditor' identifies lenders in federal law; credit is extended based on belief the loan will be repaid
• ✓When mortgage money is in short supply, interest rates rise; government deficit borrowing reduces capital available for private investment

TILA became effective July 1, 1969, to promote informed use of consumer credit by increasing consumer understanding of the true cost of financing. The Federal Reserve Board (FRB) adopted Regulation Z to implement TILA. TILA requires lenders to disclose the cost of credit as a dollar amount (finance charge) and as an annual percentage rate (APR), and provides a right to rescind loans secured by a principal dwelling.

• ✓TILA became effective July 1, 1969 and is implemented by Regulation Z
• ✓TILA requires disclosure of the finance charge (dollar amount) and the APR (effective interest rate)
• ✓TILA provides a right of rescission in certain loans secured by a principal dwelling
• ✓The 1980 Truth in Lending Simplification and Reform Act became mandatory October 1, 1982

The 'creditor' furnishes TILA disclosures. Regulation Z defines a creditor as a person who extends consumer credit more than 25 times per year, or more than 5 times for dwelling-secured transactions, with the creditor's name on the note as initial payee, subject to a finance charge or payable in more than four installments. The definition is expanded to include anyone originating two or more Section 32/reverse mortgages in 12 months.

• ✓Creditor extends consumer credit more than 25 times per year, or more than 5 times for dwelling-secured transactions
• ✓Credit must be subject to a finance charge or payable by written agreement in more than four installments
• ✓The creditor's name must appear on the note as initial payee
• ✓The definition includes anyone originating two or more Section 32 or reverse mortgages in any 12-month period

The 1980 Simplification and Reform Act (Garn-St. Germain, 1982) deleted 'arranger of credit' from the creditor definition. Mortgage brokers (MLBs/MLOs) as arrangers of credit are NOT creditors for TILA/Regulation Z purposes and are released from providing TILA disclosures. However, as California fiduciaries they must remain informed and must disclose and explain material loan terms, and complete/deliver the California MLDS and the RESPA GFE.

• ✓MLBs/MLOs are arrangers of credit and are not 'creditors' for TILA/Regulation Z disclosure purposes
• ✓TILA disclosure liability rests primarily with creditors/lenders, not brokers
• ✓As California fiduciaries, MLBs/MLOs must disclose and explain material loan terms
• ✓MLBs/MLOs must complete and deliver the California MLDS and usually the RESPA GFE

Three types of transactions are exempt: (1) credit for business, commercial, agricultural, or organizational purposes; (2) credit over $25,000 (unless secured by real property used as the consumer's principal dwelling); and (3) SEC-registered broker-dealer securities/commodities transactions. If loan proceeds are 51% or more for business purposes, the loan is generally exempt.

• ✓Business, commercial, agricultural, and organizational credit is exempt from TILA
• ✓Credit over $25,000 is exempt unless secured by the consumer's principal dwelling
• ✓If 51% or more of proceeds are used for business purposes, the loan is generally exempt
• ✓SEC-registered broker-dealer transactions are exempt; unregistered de facto broker-dealers are not

TILA defines a dwelling as a residential structure or mobile home with 1-4 family units or condo/co-op units, creating a presumption of consumer purpose. Factors distinguishing business purpose include the relationship to primary occupation, degree of personal management, income ratio, transaction size, and use of loan funds. If a borrower occupies the property more than 14 days in a calendar year, it is owner-occupied and does not qualify for the business exemption.

• ✓A dwelling is a residential structure with 1-4 family units or individual condo/co-op units
• ✓1-4 residential units create a presumption of consumer purpose
• ✓Occupancy of more than 14 days in a calendar year makes property owner-occupied, defeating the business exemption
• ✓Later refinancing of a business-purpose loan for consumer purposes may re-characterize it as consumer credit

Real estate appraiser licenses are valid for two years; however, proof of the required 56 hours of continuing education is submitted every four years.

• ✓Appraiser licenses are valid for two years
• ✓56 hours of continuing education proof is submitted every four years

Licensees must complete an average of 14 hours of continuing education per year of the license term (56 total over four years). USPAP: each licensee must complete the 7-hour National USPAP Update Course every two years and submit proof every two years, taught by an AQB Certified USPAP Instructor. Laws and Regulations: complete the 4-hour Federal and State Laws and Regulations course during the four-year cycle, or certify reading/understanding of applicable laws (certification gives no CE credit).

• ✓Average 14 CE hours per year; 56 hours total per four-year cycle
• ✓Complete the 7-hour National USPAP Update Course every two years with proof
• ✓Complete the 4-hour Laws and Regulations course each four-year cycle; self-certification gives no credit

Under the Foreign Investment in Real Property Tax Act, a buyer must withhold and send the IRS 10% of the gross sales price if the seller is a 'foreign person.' Exemptions include a nonforeign affidavit with a U.S. taxpayer ID, an IRS qualifying statement, or a sales price not exceeding $300,000 with buyer intending to reside there.

• ✓Buyer must withhold 10% of gross sales price if the seller is a foreign person
• ✓Exemption: seller's nonforeign affidavit and U.S. taxpayer ID number
• ✓Exemption: sales price not over $300,000 and buyer intends to reside in the property
• ✓Consult the IRS due to numerous exemptions and requirements

In certain transactions the buyer must withhold 3 1/3% of the total sale price as state income tax for the Franchise Tax Board; the escrow holder must notify the buyer. It applies when the seller shows an out-of-state address, sales price exceeds $100,000, and the seller does not certify California residency or that the property is their personal residence.

• ✓Buyer must withhold 3 1/3% of the total sale price for the Franchise Tax Board
• ✓Escrow holder is required by law to notify the buyer
• ✓Applies when sales price exceeds $100,000 and seller shows out-of-state address or does not certify residency
• ✓Failure to withhold may result in penalties against the buyer; escrow holder failure to notify may result in penalties against escrow

An owner (other than a subdivider) of a separate interest in a common interest development must provide a prospective buyer governing documents, an age-restriction statement if applicable, recent HOA documents including financial statements/budgets/insurance (Civil Code 1365), a statement of current/unpaid assessments and liens, and information on approved future changes.

• ✓Owner must provide governing documents of the development
• ✓Must provide recent HOA financial statements, budgets, and insurance under Civil Code Section 1365
• ✓Must provide a statement of current, special, and unpaid assessments and liens
• ✓Must disclose approved changes to assessments not yet due

In an escrow for sale/exchange where no title insurance is issued, the buyer (or both exchange parties) receives and acknowledges by signing a statutory notice advising it may be advisable to obtain title insurance because of possible prior recorded liens and encumbrances.

• ✓A signed title insurance advisability notice is required when no title insurance is to be issued
• ✓The buyer acknowledges receipt by signing
• ✓Relevant to brokers conducting escrow under the exemption in Financial Code Section 17006(a)(4)

Within one month after close of escrow for a transfer of title (or sale of a business opportunity) through a real estate agent, the agent must inform the buyer and seller in writing of the selling price. For exchanges, it must include a property description and added money consideration. A closing statement from an authorized third-party escrow holder satisfies this law.

• ✓Agent must inform buyer and seller in writing of the selling price within one month after close of escrow
• ✓For exchanges, include property description and added money consideration
• ✓A closing statement from an authorized escrow holder satisfies the requirement

State law prescribes minimum energy conservation standards for new construction. Local ordinances may require energy retrofit as a condition of sale, which must be disclosed to the buyer by seller and/or agents. Federal law requires a 'new home' seller to disclose in the sales contract the type, thickness, and R-value of insulation.

• ✓Local energy ordinance existence and requirements must be disclosed to the buyer
• ✓Federal law requires new-home sellers to disclose insulation type, thickness, and R-value in the sales contract
• ✓If the buyer receives the Home Energy Rating Program Booklet, no additional information is required

Civil Code Section 1102.6a permits any city or county to require an additional local disclosure statement focusing on a local condition affecting use and enjoyment. Local ordinances relating to occupancy, zoning, building codes, and safety may apply; Civil Code 2079.3 limits the agent's inspection duty to exclude off-site areas and public records absent special circumstances.

• ✓Civil Code 1102.6a permits local option disclosure statements
• ✓Civil Code 2079.3 limits the agent's inspection duty (excludes off-site areas and public records absent special circumstances)

Funds belonging to a licensee may not be commingled with trust funds. Commingling is grounds for revocation or suspension under B&P Code Section 10176(e).

• ✓Depositing personal/company funds into the trust account is commingling even if separate records are kept
• ✓Depositing trust funds into a personal/general account violates both commingling rules and Section 10145 (and 10177(d))
• ✓Leaving earned commissions/fees in the trust account more than 25 days from the date earned is commingling
• ✓Depositing rents/deposits on broker-owned properties into the trust account is commingling

Regulation 2835 identifies situations that do not constitute commingling: allowing limited broker funds for bank charges and temporary retention of earned fees.

• ✓Up to $200 may be deposited to cover bank service charges/fees
• ✓Commissions, fees, and other earned income may remain up to 25 days after deposit
• ✓Broker may not pay personal obligations from the trust account even as a draw against commissions
• ✓Disputed broker portions must not be withdrawn until the dispute is settled