History +11California · Real Estate · English

In 1943, a statewide drive was undertaken by the Department of Real Estate to end fraudulent oil and gas sales activities. It was accomplished with assistance from district attorneys, the Attorney General, the Department of Corporations, and local police departments. Many promoters were convicted of grand theft, and about 600 operators lost their real estate licenses through formal hearings or failure to renew. These efforts resulted in the 1943 legislation.

• ✓The 1943 enforcement drive was led by the Department of Real Estate with other agencies
• ✓About 600 operators lost their real estate licenses through hearings or non-renewal
• ✓The enforcement effort led directly to the 1943 M.O.G. licensing legislation

Prior to 1943, extensive speculation occurred in the sale and leasing of mineral, oil and gas lands, especially during the Depression era (1933-1939). People made desperation investments hoping for huge profits, though most purchasers lost their entire investment. Approximately 1,000 oil and gas salespersons operated statewide, selling parcels in newly created oil and gas subdivisions located in California and other states with remote production potential.

• ✓Speculation peaked during the Depression period 1933 to 1939
• ✓About 1,000 oil and gas salespersons operated statewide selling speculative parcels
• ✓Most purchasers of these interests lost the entire amount invested

Under early English common law, real property ownership was transferred by feoffment, which required delivery of possession termed 'livery of seizin.' No writing or deed was involved; transfer was effected by delivering the land itself or a symbol such as a twig, stone, or handful of dirt. Another method was a spoken statement before witnesses in view of the land, followed by entry of the new owner.

• ✓Feoffment required actual delivery of possession called livery of seizin
• ✓No written instrument was originally required to transfer land
• ✓Incorporeal rights like easements were transferred by a 'deed of grant'

A 'conveyance by a release' was a deed used to transfer an estate or interest in land, but livery of seizin could not be given until the new owner took possession. A release was also used to extinguish a right in land and is the ancestor of the modern quitclaim deed.

• ✓A release was the historical basis for the modern quitclaim deed
• ✓A release could extinguish a right in the land

Land transfers in California under Spanish and Mexican rule were similar to common law. The California Supreme Court held land could not be conveyed without a written instrument unless conveyance was made by an executed contract delivering actual possession at sale through entry and ceremonial acts. Today the ancient livery of seizin is symbolized by delivery of the deed, not the property.

• ✓Spanish/Mexican law generally required a written instrument to convey land
• ✓The deed is now the symbol of title, replacing livery of seizin

Early American cities were compact, limited by walking distance. Industrialization, immigration, and mechanized transportation (electric trolley in the 1880s, later automobiles) led to overcrowding, urban sprawl, and declining living conditions, creating the need for planning.

• ✓Mechanized transportation (electric trolley) in the 1880s spurred suburban movement and land speculation
• ✓Urban sprawl intensified when automobiles became widely available

By the early 20th century, civic leaders saw the need to improve urban environments. The 'City Beautiful' movement stressed public works and civic improvements to make cities more livable. City plans evolved into 'comprehensive plans' expressing community goals covering both public and private land.

• ✓The City Beautiful movement stressed public works and civic improvements
• ✓Comprehensive plans address the physical development of an urban area as a rational response to urbanization

Today property is thought of as the thing owned, either real or personal. Real property consists of: (1) land; (2) anything affixed and regarded as a permanent part of the land; (3) that which is incidental or appurtenant to the land; and (4) that which is immovable by law.

• ✓Real property has four components: land, affixed items, appurtenances, and things immovable by law
• ✓Property is classified as either real or personal

Land includes soil, rock, and other earth substances, plus space on the surface, beneath it to the center of the earth, and above it to the top of the sky. Courts recognize a public right to airspace as a 'highway' if it does not unreasonably interfere with the owner's enjoyment. Owners may drill vertically for oil and gas but not slantwise under a neighbor's land.

• ✓Land extends beneath to the center of the earth and above to the sky
• ✓Public airspace use is allowed if it does not unreasonably interfere with the owner
• ✓Owner may drill vertically for oil/gas but not slantwise under a neighbor's land

Things affixed to land include buildings, bridges, and trees, plus anything affixed to them such as doors, permanently installed cabinets, or built-in appliances. These are part of real property.

• ✓Buildings, bridges, and trees are affixed items of real property
• ✓Doors, built-in cabinets, and built-in appliances are affixed and part of real property

Appurtenant real property includes anything used with the land by right for its benefit, such as watercourses, easements/rights of way, and passages for light, air, or heat. Stock in a mutual water company can be appurtenant to land, meaning it may not be transferred unless the land is transferred with it.

• ✓Easements and rights of way are appurtenant real property
• ✓Mutual water company stock, when appurtenant, cannot be transferred separately from the land

Section 761 of the California Civil Code (enacted 1872) classifies estates in real property by duration as: (1) estates of inheritance or perpetual estates; (2) estates for life; (3) estates for years; and (4) estates at will.

• ✓CC Section 761 lists four estate classifications by duration
• ✓Estates: inheritance/perpetual, for life, for years, and at will

Land includes soil, rock, and earth substances plus space—surface, beneath to the center of the earth, and above to the sky. Courts recognize a public right to airspace as a highway if it doesn't unreasonably interfere with the owner's enjoyment, and recognize the fugitive nature of oil and gas.

• ✓Land includes space from the center of the earth to the top of the sky
• ✓Public has a right to use airspace as a 'highway' if it does not unreasonably interfere with the owner
• ✓A landowner may drill vertically to capture oil/gas but may not drill slantwise under a neighbor's land

Real property includes things affixed to land such as buildings, bridges, trees, doors, permanently installed cabinets, and built-in appliances. Appurtenant items are used with the land for its benefit, such as easements, rights of way, and stock in a mutual water company.

• ✓Affixed items include buildings, bridges, trees, built-in appliances, and permanently installed cabinets
• ✓Appurtenant items (easements, rights of way, mutual water company stock) benefit the land
• ✓Mutual water company stock appurtenant to land cannot be transferred unless the land is transferred with it

A tenant's crops, industrial growing crops, and things attached to or forming part of the land that are agreed to be severed before sale or under a contract of sale are treated as goods (personal property).

• ✓Crops agreed to be severed before sale are treated as goods/personal property
• ✓Industrial growing crops are treated as goods

The Real Estate Law exists primarily to protect the public in real estate and mortgage transactions involving an agent. It sets qualifications ensuring brokers and salespersons meet standards of knowledge, honesty, and (for brokers) experience. The Commissioner's authority is not arbitrary — a license must be issued to qualified applicants.

• ✓The Real Estate Law exists primarily for protection of the public in real estate and mortgage transactions
• ✓When an applicant has the qualifications required by law, the Commissioner must issue the license
• ✓The Commissioner must have facts justifying a finding that an applicant is not honest and truthful

Sections 10131 and related sections define broker activities. Without a license, an individual cannot receive compensation for acts within the purview of a licensed broker or salesperson. Penalties exist for unlicensed activity; brokers who compensate unlicensed persons for licensed acts may be disciplined, and paying a nonlicensee for such services is a misdemeanor.

• ✓Without a license, an individual cannot receive compensation for licensed broker/salesperson acts
• ✓Compensating a nonlicensee for licensed acts is a misdemeanor (Sections 10138 and 10139)
• ✓Section 10132 defines a salesperson and requires employment by a real estate broker

On August 4, 1943, the statutory authority of the DRE was organized into two Parts of Division 4 of the Business and Professions Code. Part 1 (Sections 10000–10580) is the Real Estate Law (Licensing of Persons). Part 2 (Sections 11000–11288) is the Subdivided Lands Law (Regulation of Transactions).

• ✓Part 1 (Sections 10000-10580) is titled Licensing of Persons - the Real Estate Law
• ✓Part 2 (Sections 11000-11288) is titled Regulation of Transactions - the Subdivided Lands Law
• ✓These laws differ from real property law, agency law, and contract law

The Commissioner enforces the Real Estate Law and Subdivided Lands Law to protect persons dealing with licensees and purchasers of subdivided property. Duties include qualifying applicants, issuing licenses, investigating complaints and nonlicensees, and regulating subdivision sales. The Commissioner began regulating subdivided lands in 1933; the disclosure document required is called a public report.

• ✓The Commissioner began regulating the sale or lease of subdivided lands in 1933
• ✓The subdivision disclosure document furnished to purchasers is called a public report
• ✓The Commissioner regulates mineral/oil/gas property and Prepaid Rental Listing Services

Certain persons are exempt from the license requirement, including resident apartment managers and their employees, short-term (vacation, under 30 days) rental agents, employees of certain lending institutions, certain agricultural associations, cemetery authorities, and clerical help.

• ✓Resident apartment managers and their employees are exempt
• ✓Short-term vacation rental agents (rentals under 30 days) are exempt
• ✓Certain lending institution employees and clerical help are exempt (Sections 10131.01, 10133 et seq.)

Benefits of a recording statute are NOT available to one who takes title with actual notice of a previously executed but unrecorded instrument. Possession by someone other than the seller is actual notice imposing a duty to inquire. A prudent purchaser should inspect the premises and inquire of persons in possession.

• ✓Recording benefits are unavailable to a buyer with actual notice of a prior unrecorded instrument
• ✓Possession by a non-seller imposes a duty to inquire about the claim
• ✓Recording laws do not protect against unrecorded interests discoverable by physical inspection (e.g., easements, mechanics' lien rights)

An instrument is recorded when duly acknowledged/verified and deposited with the proper officer marked 'filed for record.' The recorder numbers it by order of receipt including year, month, day, hour and minute, transfers contents to records, and returns the original. Documents are indexed alphabetically by grantor/grantee and by date of recording.

• ✓Priority ordinarily determined by time of recordation (year, month, day, hour, minute)
• ✓The instrument recorded first in the chain of title generally achieves priority
• ✓If property lies in more than one county, it must be recorded in each county to impart constructive notice

Under the California Civil Code, a contract requires: parties capable of contracting; mutual consent; lawful object; and sufficient consideration. A fifth requirement present only in certain contracts is a proper writing.

• ✓Required: capable parties, mutual consent, lawful object, sufficient consideration
• ✓A proper writing is a fifth requirement for certain contracts (Statute of Frauds)

A minor is under 18. An unemancipated minor cannot delegate power, make a contract relating to real property, or contract for personal property not in immediate possession. A minor may disaffirm contracts during minority or a reasonable time after majority. A minor cannot appoint an agent, so a power of attorney is void. A broker cannot serve as agent of a minor; negotiation with/for a minor requires a court-appointed guardian with court approval.

• ✓A minor is a person under 18 years of age
• ✓A minor cannot make a contract relating to real property
• ✓A minor may disaffirm contracts during minority or reasonable time after reaching majority
• ✓A delegation of authority (power of attorney) by a minor is void
• ✓A broker cannot serve as agent of a minor to buy or sell

Under Family Code Sections 7000 et seq., emancipated minors may enter binding contracts to buy, sell, lease, encumber, exchange, or transfer real or personal property. A minor is emancipated by valid marriage (even if dissolved), active military duty, or a court declaration of emancipation.

• ✓Emancipated minors can contract for real property as if over majority age
• ✓Emancipation occurs by valid marriage, active military duty, or court declaration

After incapacity of a person of unsound mind is judicially determined, no contract can be made until restoration to capacity. A person entirely without understanding, though not judicially declared incompetent, has no power to contract. Dealing with incompetents in real property requires guardian appointment and court approval.

• ✓No contract can be made with a judicially declared incompetent until capacity is restored
• ✓Dealing with incompetents requires guardian appointment and court approval
• ✓Minors and incompetents may still acquire title by gift or inheritance

A partnership is two or more persons carrying on business as co-owners. Property may be titled in the partnership name, individual partners, or a third-party trustee. If in the partnership name, a GP-1 form must be filed with the Secretary of State and recorded before transfer. The Uniform Partnership Act of 1994 (Corporations Code 16100 et seq.) governs partnerships since January 1, 1999.

• ✓Partnership property should not be transferred until a GP-1 form is filed and recorded
• ✓Partnerships since January 1, 1999 are governed by the Uniform Partnership Act of 1994
• ✓In a limited partnership, at least one partner must be a general partner with unlimited liability

A corporation is an artificial person that must function through human agents, with control vested in the board of directors. Board resolutions authorize officers to deal with corporate property. Because a corporation has perpetual existence, it cannot take title in joint tenancy with right of survivorship.

• ✓Corporate property transactions require board resolutions authorizing officers
• ✓A corporation cannot take title in joint tenancy with right of survivorship
• ✓Shareholder liability is normally limited to the amount of their investment

A will may name an executor/executrix. If a person dies intestate or names no executor, the probate court appoints an administrator. These officials' acts are generally subject to court supervision, and agents encounter them when selling estate property.

• ✓Executor is named in a will; administrator is court-appointed when no will or no executor
• ✓Acts of personal representatives are generally subject to court supervision

In California, resident or nonresident aliens have essentially the same property rights as citizens (Civil Code Section 671), subject to certain federal restrictions. Convicts do not forfeit property; they may acquire by gift, inheritance, or will and may convey property.

• ✓Aliens may take, hold, and dispose of property in California (Civil Code 671)
• ✓Federal law may impose certain restrictions on aliens' property rights
• ✓Convicts do not forfeit their property

The Beverly-Killea LLC Act (Corporations Code 17000–17705) allows LLC formation. Two or more persons must enter an operating agreement and file articles of organization with the Secretary of State. The name must contain 'limited liability company' or 'LLC.' LLCs may not conduct banking, insurance, or trust business.

• ✓Formation requires an operating agreement and filing articles of organization with the Secretary of State
• ✓The name must include 'limited liability company' or 'LLC'
• ✓LLCs cannot engage in banking, insurance, or trust company business

Californians most often transfer title to real property by the grant deed, a simple written instrument. The word 'grant' is expressly designated by statute (Civil Code Section 1092) as a word of conveyance. A second common form is the quitclaim deed, which resembles the common law conveyance by a release.

• ✓The word 'grant' is a statutory word of conveyance under Civil Code Section 1092
• ✓The grant deed is the most common transfer instrument in California
• ✓Other deeds include warranty, trust, reconveyance, sheriff's, and gift deeds

The escrow holder is the agent and depositary (impartial/neutral third party) holding money, instruments, documents, or things of value until specified events occur or conditions are met. Once conditions are satisfied or waived in strict compliance with the instructions, the escrow holder (acting as escrow agent) has fulfilled its primary duty. The escrow holder is the agent and fiduciary of the principals and must exercise reasonable care, loyalty, and good faith. Its fiduciary duty is generally limited to faithful execution of the instructions given by the principals (Summit Financial Holdings v. Continental Lawyers Title Co.).

• ✓The escrow holder is an impartial/neutral third party and fiduciary of the principals
• ✓The escrow holder must exercise reasonable care, loyalty, and good faith toward the principals
• ✓An escrow holder's fiduciary duty is generally limited to faithful performance of the escrow instructions (Summit Financial Holdings v. Continental Lawyers Title Co., 2002)

The escrow holder is a dual agent — agent and fiduciary of both the buyer and seller, and of the lender(s) if applicable. Upon completion and close of escrow, the escrow holder becomes the agent for each principal to deliver statements, instruments, funds, documents, and title insurance to which each is entitled per the escrow instructions. The escrow holder may coordinate activities of professional service providers such as lenders, title companies, and brokers within the scope of the instructions.

• ✓The escrow holder is a dual agent of both buyer and seller (and lender if applicable)
• ✓Upon close of escrow, the escrow holder acts as agent for each principal to deliver what each is entitled to
• ✓The escrow holder may coordinate lenders, title companies, and brokers within the scope of the instructions

A lease has two legal characteristics, each with its own rights and obligations: (1) a conveyance of an estate in real property (creating privity of estate), and (2) a contract governing delivery, maintenance, possession, use, and payment (creating privity of contract).

• ✓A lease is both a conveyance (privity of estate) and a contract (privity of contract)
• ✓Privity of estate arises from conveyance of the estate in real property
• ✓Privity of contract governs delivery, maintenance, and payment obligations

A general agent is authorized to conduct a series of transactions involving continuity of service and is an integral part of a business (e.g., a branch manager). A special agent conducts a single transaction or series not involving continuity of service. Real estate brokers are usually special agents.

• ✓Civil Code § 2295: General agent conducts a series of transactions with continuity of service
• ✓Civil Code § 2297: Special agent conducts a single transaction without continuity of service
• ✓The distinction matters for determining authority to bind the principal

Employers/principals can be held liable for negligent conduct of employees/agents within the course and scope of employment. The broker's duty to supervise is well established, including for licensees acting as principals. DRE regulations require policies and systems to monitor conduct.

• ✓10 CCR Chapter 6 § 2725 requires the supervising broker to establish policies, rules, and systems to monitor conduct
• ✓The broker is vicariously liable for negligent acts regardless of employee/IC classification (B&P § 10032; Civil Code § 2079.13(b))
• ✓Broker is liable for intentional torts/criminal misconduct if ratified or if reasonably foreseeable (Alhino v. Starr)

A licensee may act as a principal in a transaction for his or her own account. Even when acting as a principal, the licensee owes duties to the other principal including honesty, fairness, good faith, and no fraud or deceit. Options, net listings, and guaranteed sales are legal in California only with full disclosure.

• ✓A licensee acting as a principal must disclose licensure to the other principal (B&P Code § 10177(o))
• ✓Full disclosure of the licensee's involvement and the legal effect of options/net listings/guaranteed sales is required
• ✓Arranger of credit under Civil Code §§ 2956-2957 must prepare and deliver a seller financing disclosure statement
• ✓Change of status from agent to principal must be disclosed in writing (Civil Code § 2079.17, B&P § 10176(a) and (d))

When a broker employed to find a buyer also holds an option to purchase the property, the broker occupies the dual status of agent and purchaser. The broker cannot exercise the option without full disclosure of information regarding prospects of a sale to another.

• ✓A broker with an option to purchase must divest agency obligations by making full disclosure before exercising
• ✓Options should only be obtained from sophisticated or independently represented principals with full disclosure

Before dealing with the principal on his own account, the agent must make no misstatements and must disclose all relevant facts fully. This includes disclosing that the agent is acting on his own account plus any facts bearing on desirability of the transaction. Full disclosure of all compensation, commission, or profit is required.

• ✓Restatement (Second) of Agency § 390 requires full disclosure of all relevant facts before self-dealing
• ✓B&P Code § 10176(g) requires disclosure of any compensation, commission, or profit claimed or taken

An employee renders personal services under the direction and control of the employer. An employee is an agent, but not all agents are employees. A broker is an agent of the principal, not an employee. The broker-licensee relationship is that of principal, agent, and employee.

• ✓All employees are agents, but not all agents are employees
• ✓B&P Code §§ 10032 and 10132 and Civil Code § 2079.13(b) govern the broker-licensee relationship
• ✓A corporate broker's salesperson is an agent/employee of the corporation, not the qualifying broker individually (Walters v. Marler)

An independent contractor exercises independent employment and is responsible only for results, determining the method of work. Salespersons/broker associates are usually independent contractors for tax and workers' comp purposes but remain agents/employees for public dealings.

• ✓Unemployment Insurance Code § 650 and 26 USC § 3508 allow IC status for tax/labor purposes
• ✓IC status for tax purposes does not diminish the broker's liability for the licensee's conduct
• ✓Resnik v. Anderson & Miles: a salesman cannot be classified as an IC relative to the broker for liability

Every real estate broker must have a written agreement with each salesperson or broker associate. A written agreement is required if the licensee is given access to withdraw monies from the broker's trust accounts.

• ✓Commissioner's Regulation 2726 requires written agreement with each salesperson/broker associate
• ✓10 CCR Chapter 6 § 2834: written agreement required if licensee can withdraw from trust accounts
• ✓The agreement is ineffective to the extent it conflicts with Real Estate Law

Under Section 13004.1, an individual is not an employee for state income tax if licensed, performing brokerage on commission, remuneration tied to output, and a written IC agreement exists. Mischaracterization can lead to IRS assessments, penalties, and interest.

• ✓Section 13004.1 lists three conditions for IC status: licensure/commission, output-based pay, and written agreement
• ✓IC status for tax purposes has no effect on broker civil/public liability for licensee misconduct
• ✓Unemployment Insurance Code § 650 excludes commission-only brokers/salespersons from employee definition

California Business and Professions Code Sections 6125 and 6126 prohibit the practice of law by persons who are not active members of the State Bar. The practice of law includes performing services in court, giving legal advice and counsel, and preparing legal instruments and contracts by which legal rights are secured, even outside of court.

• ✓B&P Code Sections 6125 and 6126 prohibit practice of law by non-active State Bar members
• ✓Practice of law includes legal advice, counsel, and preparation of legal instruments securing legal rights (People v. Sipper)

In People v. Sipper (1943), a broker advised clients on which legal document to execute to secure a loan and charged $15 (later $10) for preparing a trust deed and mortgage. The court held this was practicing law because he did more than clerical work. Crucially, if he had merely filled in blanks on a standard form using furnished information, or acted as a scrivener, he would NOT have been guilty.

• ✓Advising clients on which legal document to use and charging a separate fee constitutes unlawful practice of law
• ✓Merely filling in blanks on a standard form or acting as a scrivener does not constitute practicing law
• ✓Charging a fee beyond clerical work indicated the broker did more than clerical service

California Jurisprudence and Lancefield's article recognize that brokers and insurance agents may draw certain agreements in transactions they participate in professionally. These acts are proper when three conditions are met. Selection and use of a form may sometimes still require a lawyer's help.

• ✓Drafting is proper when the instrument is simple or standardized
• ✓Drafting is proper when no separate fee is charged (beyond regular commission)
• ✓Drafting is proper when it is incidental to the broker's other transaction activities