Fri, May 22nd, 2009
A Gift is Just That, and Not a Resulting Trust in Property
A gives B money to buy some real estate. A tells B the money is because he really wants her to have an investment, in case they ever lose touch. So he wants to buy her some land. A puts it into escrow on her behalf.
Years later, after they do in fact lose touch, A comes back around and tells B she owes him the money plus interest and that he has a resulting trust in the property, because the law in California says that when one pays for the downpayment on property, he/she has a resulting trust in the property to the extent of the payment.
Will A win this argument? No, not if he told her it was a gift, or said words to that effect. Even if he paid the money into escrow. This is often the case in divorce proceedings where there is a dispute to title to property held by the husband and wife. In most cases, the court will look at two things: was there a gift, and if not, was it a straightforward loan? Either way, the transfer of money probably does not create a resulting trust, as I wrote about in my last post.
As a post-script, there is much debate over whether a “loan” should lead to a resulting trust. I’ve seen cases going both ways on this issue.
Posted by Nick Yonano at 04:38
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Labels: constructive trust, land, real estate, title dispute
Wed, May 20th, 2009
A Resulting Trust Where an Express Trust is Not There
I’ve written about the “constructive trust” lately, and here I’m switching gears slightly to talk about a resulting trust. I say slightly, because most lawyers still liken a resulting trust to a constructive trust. But the two are different. A constructive trust is a remedy that is put in place to rectify a fraud or other improper act on the part of the “trustee”. A resulting trust, instead, is utilized by the courts as a remedy to enforce the intentions of the parties. Difference? A resulting trust carries out the (somewhat) good intentions of the trustee and requires him/her to hold it as the trustee for the person who should hold title.
There are several old cases dealing with mining claims where the parties had difficultin in transferring title to the property, or the mining claims. One 1800s case sprung from a mining claim in Nevada County (Grass Valley). Many of the cases, whether involving mining claims or not, address the failure of an “express trust”. That is, a trust that was written to transfer property from one person/entity to another. In these cases, the trust may fail for some reason, such as an illegal purpose or an improperly executed document. In order to achieve the transfer where the “trustee” is not cooperating, the beneficiary must bring an action to enforce a “resulting trust”, to carry out what the “result” should have been.
I’ll give an example or two where a court DID NOT allow a resulting trust in my next post.
Posted by Nick Yonano at 04:34
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Labels: constructive trust, fraud, land, real estate, trust
Sat, May 2nd, 2009
Constructive Trust for Profits from Property
In my series of posts about constructive trusts, I thought it would be a good idea to focus on the profits of a trust. One case that I can recall from earlier days of practice involves the theft of jewelry molds by a partner in a jewelry business. Those molds ended up making some money for the embezzling partner after the breakup, but they belonged, in part or in full, to the innocent partner. There was a lawsuit, and the court found on appeal that the profits that resulted from the use of the mold, though not made by the efforts of the innocent partner, belonged to the innocent partner and not the embezzler.
The theory is this: a constructive trust attaches to not only the thing being held by a person as a trustee for another, but the profits realized from that thing.
When I (they) say “that thing”, remember we’re also talking about real property. If real estate produces a profit, not just in general appreciation, but in other ways, such as mineral or oil profits, in most cases those profits belong to the person who truly owns the property. The idea here is to avoid “unjust enrichment” for the trustee, so that he/she cannot be able to profit, in any way, from his/her actions.
Posted by Nick Yonano at 10:46
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Labels: constructive trust, fraud, property value, real estate
Sat, March 28th, 2009
A Constructive Trust for Restaurant Equipment
The case of Burlesci v. Petersen, a 1998 California appellate decision, reviews a situation where a lender of money to a restaurant owner held the restaurant equipment as a constructive trustee, and prevented the owner from selling the equipment. The owner probably wanted to sell the equipment to help pay off the loan. The problem which the lender had in Burlesci is that he did not have a proper security interest in the equipment (he should have filed and perfected a UCC-1 and a security agreement when he made the loan). The lender tried to argue that by being in possession of the equipment, he had the interest, an interesting argument, but this didn’t fly with the court.
The Burlesci ruling holds that a constructive trust remedy is not predicated on “intent”. This is a little contradictory to the last case I posted on, the Zaslow case, where I mentioned that the intent to exercise ownership was a factor. While technically the Burlesci court is correct, the court did not clarify when the element of intent should be a factor. Some gray area here, I suppose.
If you loan money to a restaurant (or any business), make sure you have the proper security agreement and a UCC-1. A constructive trust argument against you may no longer be feasible. But if you just prevent someone from the use of their property in a manner which appears that you are taking the property as your own, there could be a constructive trust imposed on you and the property.
Posted by Nick Yonano at 12:10
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Labels: constructive trust
Thu, March 26th, 2009
No Constructive Trust if a Landlord Does it Right
Earlier, I talked about when a constructive trust could be imposed on personal property, just as it can with real property. With any type of property, if someone exercises dominon/control over it with an intent to show ownership, they may hold it in trust for the person it truly belongs to. What about property left behind in a home or business location when the tenant is evicted? Does the landlord risk liability?
The answer comes in separate parts. First, there are laws regulating how a landlord takes over and sells “abandoned” property. California’s Civil Code requires a specific form of notice and a waiting period.
Second, if the landlord follows through with the requirements, he will not be held to a constructive trust remedy. A case that deals with this is the Zaslow case (a Supreme Court decision in California), which reviewed a complaint stating that the constructive trust applied where one tenant in common put another tenant in common’s property in storage. There, the court held that the “intent to exercise ownership” didn’t exist because the defendant gave the plaintiff notice and told him he could pick it up. Had the first tenant in common simply taken the property without more, he could have been liable for this type of fraud.
There is an interesting restaurant case which cites this Zaslow case, which I will post about next.
Posted by Nick Yonano at 04:07
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Labels: Uncategorized, constructive trust, real estate
Fri, March 13th, 2009
What’s so Constructive about this Type of Trust?
Unlike the living trust most people are familar with, there is a legal remedy out there which the courts have to declare to be valid. Known as a Constructive Trust, this is a judicial remedy which holds that person A holds title or possession of property that truly belongs to person B, and person A obtained it wrongfully, so person A holds it in trust for person B. It’s known as a “fraud-rectifying” trust, which means that it’s in place only to make up for the fraud that a person commits to get the property in the first place.
Most of the property involved in an action to impose a constructive trust is real property. But the trust could also apply to personal property, such as stock accounts or checking accounts. I’ll present some examples in my next post.
Posted by Nick Yonano at 08:48
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Labels: constructive trust, fraud, land, real estate, title dispute, trust
Wed, March 11th, 2009
Reimbursement of a Down Payment on a Home
Just settled a case involving many real estate and trust issues. Settlors of the trust were quite possibly tenants in common if the trust was properly revoked. Settlors split up and one left the house before the possible revocation. Years before, the mother of one of the settlors allegedly loaned the couple some money to buy the home, but did not ask to have a lien on the property. So does she have a right to get her down payment back?
One argument is that she has what is called a “resulting trust”, which means that the couple holds her interest in trust for her, to be paid back when the property is sold or refinanced. The counter to that is since there never was an agreement to hold the property in trust, no such “lien” exists.
We never tried the case, and there were many more facts which would have complicated the outcome, but you should be aware that there is a common law remedy known as a “resulting trust”, which is there to protect someone who loans money to another to buy property. It is essentially an “intention-enforcing trust”. I’ll write later about a “constructive trust”, which is a “fraud rectifying” trust. Similar to a resulting trust.
Posted by Nick Yonano at 04:30
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Labels: constructive trust, land, revocable trust, trust
Thu, September 27th, 2007
To Trust in Another: The Constructive Trust
The constructive trust. To most it’s just another legal term that confuses the average person. Lawyer speak. But I think it’s important for anyone in the real estate or title industry to understand. A constructive trust is essentially a term to refer to the manner in which one individual (the trustee) holds legal title for another individual (or individuals). This arrangement often comes up when one person takes legal title for another because, for example, the beneficiary could not qualify for a loan to buy the property. (There are many other reasons why one person would take title for another, such as in a partnership to develop or manage real property.) Even though the title holder, is well, on title, the beneficial owner is the true owner, and the title holder is merely a constructive trustee. If the “trustee” disagrees that there is such an arrangement, a complaint is often filed, and there are many factors that a court will look at in deciding whether there is a constructive trust. (The court will have to determine what the intent of the parties was at the time the title was put in the “trustee’s” name.) One factor is who made the payments for the mortgage or perhaps property taxes. Another factor is why the title was placed in the defendant’s name.
A similar type of trust is a resulting trust. I’ll post about this one later. Both types of trusts are important to understand in today’s real estate environment.
Posted by Nick Yonano at 03:42
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Labels: constructive trust, title dispute, title holder, trust
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