Fri, March 12th, 2010
Decedent’s Business in Probate - What Should I Do?
A personal representative of an estate has enough to deal with in the normal probate until he or she learns that the business which the decedent owned was operated as a sole proprietorship, and not as a partnership or corporation. The rules for continuing (or not continuing) a business that was operated as a sole proprietorship are slightly different from the rules governing partnerships or corporations.
California Probate Code Section 9760 allows a representative a six-month window to run the business, at which time court approval is required for further operations. During that time, or at any time, any “interested person” (the Probate Code loves that designation) may petition the court to require the representative to discontinue operation of the business. Who is an interested person? I would consider the term broad, to include most creditors and heirs.
Some calls and questions I get about this obligation of the executor or representative:
Are debts from operating the business entitled to priority in payment? The general answer is no, if they occured during the representative’s operation (after decedent’s passing).
Is the executor, or representative, liable for torts he or she commits while operating the business? Yes. Is the representative entitled to be reimbursed for liability he or she incurs? Normally yes, unless he is personally at fault for a tort. The law is a little unclear on this last exception. Can the representative get insurance to protect against liability? Yes, and often the premium may be a business expense.
Can a representative operate the business even if a creditor objects? Yes, but only after getting court approval. Doing so places him or her at risk of personal liability for the business.
If a representative fails to get court approval first, is there any way to remedy the problem? Yes, the best course would be to immediately petition the probate for approval (ratification) of the prior acts. This should be a detailed summary of the operation of the business together with a request to ratify the operation as a whole or at least in part.
What if the business was a partnership or an entity such as a corporation or LLC? I’ll get into the management duties of a representative in these situations in my next posts.
Posted by Nick Yonano at 09:13
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Labels: Management of Assets, Probate Code, Uncategorized, executor, probate
Mon, January 25th, 2010
When a Formal Agreement to Lease Property is Not Required
The statute of frauds requires most agreements to be in writing in order to be enforcable. California Civil Code Section 1624, which I mentioned in the last two posts, allows certain exceptions, mostly out of fairness to the parties who intended to have a formal agreement, but never really followed through with a written agreement. In my last post, I mentioned one exception. In this post, I describe another exception, one that applies only when the facts of a particular case support enforceability of an agreement.
In the case of Derrick v. C.W.R. Ford Co. , a lessee offered to lease real property upon certain conditions. The property consisted of a storefront and a basement in Oakland. The lessee wrote these terms down in a letter and sent it to the landlord. The landlord responded with a separate letter, with some new, rather minor, terms. Eventually, the parties agreed to the arrangement, which was for ten years. The minor term(s) included the requirement that the tenant pay for any alterations and obtain a bond in doing so. For three years, the tenant paid rent and leased the property. Then, the landlord sold the building. There never was a formal written agreement which any of us would refer to as “the lease agreement”. Just the letters, and receipts for rent payments.
The new owner subsequently attempted to increase the rent. The lessee didn’t agree, because it thought that it had a prior, enforceable agreement. The new owner then brought unlawful detainer proceedings (an eviction process). In the end, the appellate court was asked to determine if the back-and-forth of letters between the lessee and the original owner was sufficient to take the “agreement” out of the statute of frauds.
The court held that the statute of frauds did not apply here, since the parties clearly agreed to the arrangement laid out in the prior letters. The fact that there were minor variances from the letters was not significant since it is sufficient to have letters, receipts, and similar evidences of writing in order to establish an enforceable agreement in writing.
Two things to remember. One, this line of reasoning does not only apply to real estate contracts or arrangements, but to other commercial agreements as well. Two, it is not wise to ever assume that a court will enforce an informal exchange of writings in the same manner as a formal agreement. As I mentioned earlier, this exception is fact-intensive. Here, it was sufficient. In many circumstances it is not.
Most importantly, getting to the point where a court must make this determination is rather expensive. It’s much less expensive to have the agreement drawn up first, with all essential terms agreed to at the outset.
Posted by Nick Yonano at 05:31
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Labels: Uncategorized
Fri, October 30th, 2009
Statute of Frauds and Real Estate Improvements
As I mentioned in my last post, there are exceptions to the Statute of Frauds.
California Civil Code Section 1624 provides a list of contracts which must be in writing to be enforceable. Subsection (d) of that section states the following as included in that list: “An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.”
This subsection is well-known for requiring real estate contracts to be in writing. What it does not require, however, is that every contract which involves real estate, in any manner, to be in writing. Take the 1961 California Supreme Court case of Pollyanna Homes, Inc. v. Berney, 56 Cal.2d 676, where the court held that a contract for the installation of off-site improvements adjacent to real property that was also being purchased, did not come within the statute of frauds, since it was not for the sale or leasing of real estate, and it was not to be performed within one year.
In that case, there was a related obligation for the purchase and sale of property, which in my opinion made it a close call for the court. However, the rule is often strictly interpreted when it comes to real estate. Keep in mind that in most cases where there is a written, long-term lease of real estate, which is often the case in commercial as well as residential lease arrangements, the statute of frauds may come into play under Section 1624.
Posted by Nick Yonano at 04:13
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Labels: Uncategorized, real estate
Sat, August 1st, 2009
Short Sale Seminar Review
Great seminar Wednesday night. Intero and Old Republic Title are planning additional seminars in August and September. I think everyone learned about short sales and the process, including myself. For more info on future seminars, contact Old Republic Title in El Dorado Hills or you may contact me as well.
Posted by Nick Yonano at 08:38
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Labels: Uncategorized
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
Thu, December 18th, 2008
Own a Partial Interest in Property? A Trust is Still Your Best Option
Some people ask me if a living trust (revocable trust) works for them if they share ownership in real estate. My answer is always the same: Sure it does, and you can hold your interest in your own trust just as if you owned the entire interest (fee simple) in the property.
Most situations where someone owns a partial interest, at least in residential property, is where the parents share title with the children. There are also many cases where business partners own the property together, usually as tenants-in-common (I’ll write later about why a joint tenancy is usually not recommended here).
If someone owns a partial interest in property, they can form their trust, just as they would in a conventional ownership, and deed their interest to the trust. The co-owners are not permitted to interfere with this transfer, provided their interest is not affected.
Why would a co-owner’s interest be affected by a transfer? In most cases where this is a concern, it’s because the transfer accompanies a change in the financing of the property, such as a refinance.
If you own ANY interest in real estate, your best option is usually to let this interest be held in a living trust.
Posted by Nick Yonano at 02:25
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Labels: Uncategorized, estate planning, real estate, revocable trust, trust
Thu, September 11th, 2008
Sacramento Bee tells a Short Sale Story
Today’s Sac Bee has an interesting article on the difficulties with short sales. It’s like many real estate agents and brokers are sitting there reading this and saying, yeh it has been tough to deal with banks, what’s new?!?. But it sounds like more and more lenders are willing to work with homeowners to avoid additional foreclosures. The next step for some of these folks is to figure out how to streamline the bidding process by cutting out some of the steps in getting an offer approved. Instead of 60 -90 days, it should only take 2-4 days to get an offer and counter through their systems.
Posted by Nick Yonano at 09:13
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Labels: Uncategorized, foreclosures, real estate, real estate agent, short sale
Mon, September 8th, 2008
Welcome to The Federal Housing Finance Agency
The financial markets were awakened this Monday morning with some big news: Fannie Mae and Freddie Mac were under the control of the government, and this time it is for real. The conservator is an agency known as the Federal Housing Finance Agency. This newly-formed agency is really there just to run things for now, instill some confidence in the lending market, and make it easier for the government (Treasury Dept.) to buy mortgage-backed securities.
Is this good for the real estate market in general? Yes, I think so. Will it solve all the problems? No way. Nothing will. There are some real underlying credit problems that need to be ironed out, and the housing inventory is just that, inventory. Good ol’ fashioned economics says this takes time.
What amazes me is the negativity of so many people. Take this quote from an analyst, which I found in an MSN article: “It’s not going to reduce foreclosures, it’s not going to shore up the home equity market,” said Dick Bove, an analyst at Ladenburg Thalmann. “I understand that they had to do it . . . but they’re doing it to protect the financial system. In terms of does the homeowner get any benefit from this: absolutely not,” Bove said.
This guy seems to think that since this move doesn’t solve all the problems, why bother? I disagree. Any positive action by the feds will help right now.
Posted by Nick Yonano at 08:32
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Labels: Uncategorized, housing market, real estate
Fri, September 5th, 2008
Protecting an Essential Asset– Your Home
It has nothing to do with greed, and everything to do with survival. Many people bought their home as a means of succeeding in this crazy financial world by investing in a very safe form of investment–real estate. Some even had to tap into this equity to get by. (Others who tapped in to by that cool boat don’t count here!). Then the bottom fell out. That safe investment, for the short term, didn’t look so safe.
Many of these people suddenly were, and are, facing the foreclosure option as more than just an option. If you’re in that category, know someone who is, or practice in that category, the best advice you can give, and receive is this: Your Home is an Asset. Protect it and it will be there for you.
Protecting it means not only preserving your equity in it, but doing what you have to in order to safeguard it from the legal process that will cause you to lose it to a lender. A foreclosure is only a reality if a homeowner doesn’t do the right things to safeguard it.
For starters, make sure that any loss doesn’t lead to losses of other assets, which can happen if there is a deficiency recovery. When values drop too low in relation to liens, a lender is more likely to proceed with a deficiency judgment if the deed of trust allows this. This is often the case if there was a refinance or if there is a home equity loan on the property. By talking to an attorney that specializes in real estate loans, you can likely negotiate a work-out with the lende
Posted by Nick Yonano at 12:24
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Labels: Uncategorized, foreclosures, real estate
Wed, September 3rd, 2008
Signing Real Estate Docs, 2008 Style
More techno stuff for real estate agents, mortgage brokers, and other real estate professionals. This is the Real Estate Dashboard. For anybody on the go and in need of getting documents signed without delay, and without paper, take a look at this gadget. It could be your best friend one of these days.
Posted by Nick Yonano at 08:26
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Labels: Uncategorized
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