California Legal Updates 2016/2017

By: Earl Wallace, Esq.
Ruzicka, Wallace and Coughlin

Water Conservation Devices

The recent drought in California has forced us all to be more water conscience and effective January 1, 2017 Senate Bill 407 regarding water conserving fixtures went into effect requiring water conservation devices statewide.

Beginning January 1, 2017, the bill requires all single family property owners to replace noncompliant plumbing fixtures with water-conserving fixtures (ultra-low flow toilets and shower heads) regardless of whether the property is being sold or not. At the time of sale, a Seller will have to disclose in writing to the Buyer the requirement of water-conserving fixtures and whether the property has any noncompliant fixtures.

The bill will also require that a seller of multifamily residential real property disclose to a purchaser or transferee, in writing, specified requirements for replacing plumbing fixtures, and whether the real property includes noncompliant plumbing. The bill further stipulates that on or before January 1, 2019, all noncompliant plumbing fixtures in multifamily residential real property be replaced with water-conserving plumbing fixtures (ultra-low flow toilets and shower heads).

Pre Sale Inspection Report Cost Increase (City of Los Angeles)

A Pre-Sale Inspection and Report is required by some Cities before an Escrow can close. The Pre-Sale Report requires the Seller to disclose to the Buyer City building permit records and any code or ordinance violations that may exist. Policies and requirements for the sale of real estate vary from city to city. Effective December 11, 2016, the cost of the City of Los Angeles’ pre-sale report (Report of Residential Property Records & Pending Special Assessment Liens, also known as the 9A Report) increased to $70.85 (from $70.20).

2017 Renewal Time – City of Los Angeles Foreclosure Registry Program

The City of Los Angeles is eager to reduce blight in Los Angeles communities. To accomplish this goal, the Foreclosure Registry Program (Ordinance No. 181185) was enacted in July 8, 2010 to establish a residential property registration program as a mechanism to protect residential neighborhoods, including abandoned properties, from blight due to a lack of adequate maintenance and security resulting from the foreclosure crisis.

The Foreclosure Registry Program requires that any lender or beneficiary or trustee who holds or has an interest in a deed of trust of a property in the foreclosure process, located within the City of Los Angeles, must register the property with the Los Angeles Housing + Community Investment Department (HCIDLA) within 30 days of the issuance of the Notice of Default (NOD).

Annual re-registration is due for each subsequent year, after the recording of the Notice of Default, as long as the property remains in the foreclosure process. Annual (online only) re-registration along with a fee in the amount of $155 is due to HCIDLA by January 31, 2017. The fee and registration shall be valid for the calendar year, or remaining portion of the calendar year in which the registration was initially required.

Additional Foreclosure Registry Program Requirements

  1. All registered properties must be inspected monthly and reported online to HCIDLA. Monthly inspection reports shall record the date of the inspection and the condition of the property as observed during that inspection along with a direct contact name and phone number.

    In regards to the monthly online inspection reports:  If you have a department that is responsible for paying the Foreclosure Registry Program fees, they would also be responsible for completing the monthly online inspection reports. For those clients for whom we are responsible for paying the Foreclosure Registry Program fees and submitting for reimbursement, we complete the monthly online inspection reports.

  2. De-registration must be requested within 10 calendar days after the property is no longer subject to the Ordinance. De-registration can be requested when one of the following is met:
    a. Reinstatement of Loan/Loan Modification/Full Reconveyance
    b. Sale to a third party (Non REO)
  3. Any person, firm or corporation that has registered a property must report any change of information contained in the registration with HCIDLA within 10 days of the change.
  4. A one-time proactive inspection fee in the amount of $356 is due upon property status change from NOD to REO, or upon registration of new REO properties that have not been previously registered, for all single-family and vacant multi-family residential properties.

    Please note that failure to satisfy registration, proactive inspection fee and monthly inspection requirements may result in penalty fees of $250 per day.

Foreclosure Deed Must Be Recorded Prior To Serving Notice to Vacate

U.S. Financial, L.P. v. Michael McLitus

On November 30, 2016, the California Supreme Court clarified the purchaser of real property at a foreclosure sale must wait for the foreclosure deed to be recorded before serving a Notice to Vacate.

Over the years, various arguments have been asserted as to why the person or entity who purchases a property at a foreclosure sale should not have to wait for the recording of the foreclosure deed before serving a Notice to Vacate. For instance, there is a statute that says the foreclosure sale is deemed perfected as of 8:00 a.m. on the date of the sale if the deed is recorded within 15 calendar days of the sale. However, the Supreme Court disagreed stating that both the foreclosure sale and title must be perfected before a Notice to Vacate can be served. Title is perfected upon recording of the foreclosure deed.

Borrowers Lack Standing To Challenge Securitization of Real Property Loans

In Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919 (Yvanova), the California Supreme Court issued a narrow ruling on a borrower’s standing the challenge the validity of the chain of assignments involved in the securitization of real property loans. The court held that a borrower has standing to allege that an assignment of the promissory note and deed of trust to the foreclosing party was void, but the borrower does not have standing if the transfer was merely voidable. The Supreme Court did not decide whether a post-closing date transfer into a New York securitized trust is void or voidable.

On December 13, 2016, in Mednoza v. JPMorgan Chase Bank, N.A., the California Court of Appeal held that a post-closing date transfer into a New York securitized trust is merely voidable because any defect in the transfer can be ratified by the parties to the assignment. Accordingly, the borrower/plaintiff, Maria Mendoza, did not have standing to challenge alleged irregularities in the securitization of her loan.

The Court of Appeal explained that where assignment is void, meaning of no legal force or effect whatsoever, the foreclosing entity has acted without legal authority by pursuing a foreclosure sale. Because the assignment is without any effect, it can never be ratified or validated by the parties to it.

By contrast, a voidable contract or assignment is one that the parties to it may ratify and thereby give it legal force and effect or extinguish at their election. Only the parties to the contract or assignment have the power to ratify or extinguish; consequently, allowing a borrower to challenge an assignment based on a defect that only renders it voidable would allow the borrower to exercise rights belonging exclusively to the parties to the assignment.

Because defects in the securitization process may be ratified, the result is that borrowers in California do not have standing to challenge securitization of their real property loans.

Proceeding With An Eviction Lockout While An Appeal Is Pending Can Be Risky

Beach Break Equities v. Martin Lowell

On December 14, 2016, the San Diego Appellate Division addressed the procedure to be following when the purchaser of real property at a foreclosure sale evicts the occupants, but the eviction judgment is later reversed on appeal. The appellate court held that the trial court may hold a restitution hearing where the can award damages to the occupant. Interestingly, by the time the appellate court issued its ruling, the purchaser had already sold the property to a third party.

City of Los Angeles Tenant Buyout Notification Ordinance

On December 15, 2016, City of Los Angeles enacted a Tenant Buyout Notification Ordinance. The purpose of the ordinance is to regulate and monitor voluntary vacancies of rental units subject to the City of Los Angeles Rent Stabilization Ordinance (RSO) pursuant to Buyout Agreements (aka Cash 4 Keys Agreements or Relocation Agreements). The new ordinance contains the following requirements:

  1.  RSO Disclosure Notice. Before making a Buyout Offer, the landlord is required to provide the tenant(s) with an RSO Disclosure Notice of tenant rights on a form authorized by the rent stabilization board, which must be dated and signed by the landlord and the tenant(s).
  2. Written Buyout Agreement. Every Buyout Agreement (defined below) is required to be written in the primary language of the tenant and state in a minimum of 12-point bold type above the tenant signature line as follows: “You, (tenant name), may cancel this Buyout Agreement any time up to 30 days after all parties have signed this Agreement without any obligation or penalty.” Additionally, every Buyout Agreement must be signed and dated by the landlord and tenant, and a copy of the fully executed Buyout Agreement must be given to the tenant.
  3. Cancellation of Buyout Agreement. A tenant has the right to cancel a Buyout Agreement for any reason for up to 30 days after execution by the landlord and the tenant without any financial obligation or penalty. Additionally, whenever an RSO Disclosure Notice and/or Buyout Agreement does not conform to the requirements of this the new law or applicable regulations, the tenant has the right to cancel the Buyout Agreement through the applicable statute of limitations period.
  4. Filing Executed RSO Disclosure Notice and Buyout Agreement. Within 60 days of execution of a Buyout Agreement, the landlord is required to file copies of the Buyout Agreement and RSO Disclosure Notice signed by the tenant and the landlord, with the rent stabilization board.
  5. Affirmative Defense. A violation of this the ordinance may be asserted as an affirmative defense in an unlawful detainer action.
  6. Private Right of Action. Additionally, a tenant may bring a private right of action against a landlord who violates a provision of the ordinance and recover damages and a penalty of $500.

The ordinance defines a “Buyout Offer” as an offer, written or oral, by a landlord to a tenant to pay money or other consideration to vacate an RSO unit. A “Buyout Agreement” is defined as a written agreement where a landlord pays a tenant money or offers other consideration to voluntarily vacate an RSO rental unit.

New Rent Control Ordinances

In November 2016, voters rejected strict rent control laws in Burlingame, San Mateo and Alameda but approved them in Richmond and Mountain View. Santa Rosa passed rent control, which is currently stayed based on a referendum filed challenging the measure.

Sealing of Eviction Actions

Effective as of January 1, 2017, all California eviction actions remain sealed unless a judgment is entered for the plaintiff (person suing). Under prior law, evictions were sealed only for the first 60 days after the action was filed. The old law tended to create a disincentive for occupants to delay evictions as their case would become a public record. Because most cases are settled, it may be difficult for potential landlords to find out whether a prospective tenant has been evicted.

Recreational Marijuana

Proposition 64 legalized recreational use of marijuana in California. Under the new law, (codified in California Health and Safety Code §11362 et seq.), people 21 years of age and older may possess, process, transport, purchase, obtain or give away (without compensation) up to 28.5 grams of non-concentrated cannabis and up to 8 grams of concentrated cannabis and possess, plant, cultivate, harvest, dry or process up to 6 living plants.

Marijuana possession, distribution, and use, regardless of purpose, remains illegal under Federal law (Controlled Substances Act (U.S.C. title 21).

Landlords may continue to prohibit marijuana and, if the property is subsidized by federal funds (i.e. HUD properties), the landlord may be required to do so.

New Bed Bug Notification Requirements

On September 26, 2016, California enacted Assembly Bill 551, which provides new duties for residential landlords and tenants regarding bedbugs.

Among the new requirements, Assembly Bill 551 requires residential landlords to provide prospective and existing tenants with a notification regarding bedbugs. On and after July 1, 2017, the notification must be provided to prospective tenants before they enter into a lease. The notice must be provided to all other tenants by January 1, 2018. The notice must be in at least 10-point type and be in substantially the following form:

Information about Bed Bugs

Bed bug Appearance: Bed bugs have six legs. Adult bed bugs have flat bodies about 1 ⁄4 of an inch in length. Their color can vary from red and brown to copper colored. Young bed bugs are very small. Their bodies are about 1 ⁄16 of an inch in length. They have almost no color. When a bed bug feeds, its body swells, may lengthen, and becomes bright red, sometimes making it appear to be a different insect. Bed bugs do not fly. They can either crawl or be carried from place to place on objects, people, or animals. Bed bugs can be hard to find and identify because they are tiny and try to stay hidden.

Life Cycle and Reproduction: An average bed bug lives for about 10 months. Female bed bugs lay one to five eggs per day. Bed bugs grow to full adulthood in about 21 days.

Bed bugs can survive for months without feeding.

Bed bug Bites: Because bed bugs usually feed at night, most people are bitten in their sleep and do not realize they were bitten. A person’s reaction to insect bites is an immune response and so varies from person to person. Sometimes the red welts caused by the bites will not be noticed until many days after a person was bitten, if at all. Common signs and symptoms of a possible bed bug infestation:

  • Small red to reddish brown fecal spots on mattresses, box springs, bed frames, mattresses, linens, upholstery, or walls.
  • Molted bed bug skins, white, sticky eggs, or empty eggshells.
  • Very heavily infested areas may have a characteristically sweet odor.
  • Red, itchy bite marks, especially on the legs, arms, and other body parts exposed while sleeping. However, some people do not show bed bug lesions on their bodies even though bed bugs may have fed on them.

For more information, see the Internet Web sites of the United States Environmental Protection Agency and the National Pest Management Association.

Contact Information:

Earl Wallace – Ruzicka, Wallace and Coughlin
16520 Bake Parkway, Suite 280 | Irvine, CA 92618
T 949-759-1080 | F 949-759-6813 | |