It’s A Company Town

            One of the most important principles concerning Property is the concept of “exclusivity.”  Under this principle, a property owner has the right to exclusive use of his property, and he or she has the rights to exclude the entire world from using his or her property.  This principle is sometimes referred to as “Exclusivity.”

Most of us intuitively recognize that by “owning” Property, we have the right to exclude others from using it (unless we consent to their use of it).  But even though this right of control and exclusive use of Property is a basic right, it can sometimes be necessary to temper, or balance, that right against other important rights.  For example, there can be situations where the right of free speech can be infringed by a vigorous observation of property rights.  Following is a real-world example.

In the 1940’s, there was a “company town” in Alabama where a certain shipbuilding company owned the town – all of it.  The company owned all of the houses, all of the commercial buildings, and all of the downtown area. The company even owned all of the streets and all of the sidewalks in the town.  The company owned  literally all of the real estate in the town.  A deputy of the County Sheriff served as the town’s policeman, and the company paid his salary.  Merchants and business owners rented stores and places of business from the company, and the United States postal service ran a post office out of one of the buildings owned by the company.  There was a public four lane highway that ran parallel to the business district, and the general public were readily able to drive into the town and  onto the streets that were owned by the company.  There were no outward indications that all of the real estate in the town was owned by the company. However, the company had posted signs in the downtown stores that said “This Is Private Property, and Without Written Permission, No Street, or House Vendor, Agent or Solicitation of Any Kind Will Be Permitted.”

A member of a religious organization came into town, stood on the sidewalk near the post office, and began distributing religious literature.  This person was warned that she could not distribute such literature without a permit; she was also told that no permit would be issued to her.  She protested that she had a constitutional (free speech) right to distribute religious literature.  When asked to leave the sidewalk, she declined.

The deputy sheriff arrested her and she was charged in state court with violating an Alabama law which made it a crime to enter or remain on the premises of another after having been warned to leave.

At her trial, the woman protested that she had first and fourteenth amendment rights to freedom of speech and freedom of the press.  The Company (apparently) claimed that the woman was on private property controlled by the company, and that by refusing to leave after being warned, the woman was in direct violation of the Alabama statute which made it a crime to remain on private property after being told to leave (i.e. trespassing).

You be the judge.  Who was right?  Who should win?  The woman was on private property owned by the Company, and the Company wanted her gone.  But the woman wanted to speak her religious opinions to the persons who were in the Company town.

If you said that the Company should win and the woman didn’t have the right to distribute religious literature on Company property, then you would have agreed with the Alabama state trial court.  The trial court rejected the woman’s claims of first and fourteenth amendment rights. The Alabama Court of Appeals upheld the woman’s conviction by holding that the sidewalk belonged to the Company, and the public had not used the sidewalk in such a way as to result in an “irrevocable dedication to the public.”  In other words, though the public could use the sidewalk, it still belonged to the Company.

The woman appealed to the United States Supreme Court.  In that appeal, the State of Alabama argued that the Company’s right to “control the inhabitants” of the company town was similar to the right of a homeowner to “regulate the conduct of his (or her) guests.”  But the Supreme Court rejected that argument by holding that “Ownership does not always mean absolute dominion.  The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it.”  The Court further held “Thus, the owners of privately held bridges, ferries, turnpikes and railroads may not operate them as freely as a farmer does his farm.  Since these facilities are built and operated primarily to benefit the public and since their operation is essentially a public function, it is subject to state regulation.”

The woman won; the Company (and the State of Alabama) lost.  The case is reported as Marsh v. Alabama (1946) 326 U.S. 501.

Though the individual won this time, the outcome could be different under a different set of facts. First amendment rights of free speech and free assembly are governed by extensive case law interpreting and defining those rights.  Proper application and understanding of these rights involves complex legal considerations.  Persons with First Amendment claims, issues or questions should consult competent legal counsel.

Risk Management in Transactions

Virtually every transaction has some risk.  But the risk in most transactions is so small that we usually don’t even think about it.

For example, buying a candy bar at a convenience store usually has very little risk.  But no transaction is completely risk-free.  Years ago I knew a person who bought a package of candy-covered chocolates at a small store.  She put a handful in her mouth and broke a tooth.  The machine that made the candies had malfunctioned and put a hard piece of solid candy into the bag along with the chocolates. Expecting only soft chocolates, this person bit down hard and broke a tooth.

While there may not be much risk in buying candy, there can be much more risk in buying real estate.  Most real estate includes many systems which only work properly if they are correctly designed, constructed, and maintained.  A failure to correctly design, build, or maintain real estate can result in problems, and many of the problems seen in real estate can be traced to one of these causes.  In addition, there can be problems with title, easements, liens, and other issues concerning legal ownership or use of the property.  Fortunately, many transactions go smoothly with no problems, surprises, or disappointments. But when things go wrong, the time, cost, and frustration of setting things right can be significant.  The whole purpose of getting property inspections and professional advice before buying a property is to try to avoid surprise, expense and disappointment as much as possible.

After litigating for more than 30 years, Robert Jacobs now mediates challenging real estate, business, construction, personal injury, trust and probate cases. In 2020 he served as Chair of the Contra Costa County Bar Association ADR section and Co-Chair of the Alameda County Bar Association ADR section.  Since 2017 he has served as one of the update authors for the CEB treatise Real Property Remedies and Damages and is a co-author of CEB Practitioner (Real Property). He holds an AV rating from Martindale-Hubbell and is a designated SuperLawyer. Mr. Jacobs received his mediator training from Northwestern University in Chicago, Illinois.

Rose Bowl A Tradition

            On any given New Years Day, perhaps the most valuable piece of real estate in the entire nation is the football stadium where the Rose Bowl game is played in Pasadena, California.  Without a doubt, the Rose Bowl is the site of one of the most well known college football games each year.

Perhaps less well-known is the fact that the Stadium itself is listed as a National Historic Landmark. The National Historic Landmark Database is maintained by the National Park Service.  According to a National Park Service National Historic Landmarks update in 2004, National Historic Landmarks are designed to provide  “reflection upon how we Americans came to be what we are today.” (For more information about National Historic Landmarks, point your browser to http://www.nps.gov/history/nhl/).

According to the web site maintained by the National Park Service, the Historic significance of the Rose Bowl stadium is described as follows: “Since 1922, this has been the site of the earliest and most‑renowned post‑season college football “bowl” games. Held every New Years Day since 1916, the Rose Bowl also commemorates the civic work of the Pasadena Tournament of Roses Association, the sponsor of the annual flower festival, parade, and bowl game. Additionally, this was one of the venues of the 1932 and 1984 Olympics.”

Following is an excerpt from the official Rose Bowl web site at www.RoseBowl.com: “This uniquely American event began as a promotional effort by Pasadena’s distinguished Valley Hunt Club. In the winter of 1890, the club members brainstormed ways to promote the “Mediterranean of the West.” They invited their former East Coast neighbors to a mid‑winter holiday, where they could watch games such as chariot races, jousting, foot races, polo and tug‑of‑war under the warm California sun. The abundance of fresh flowers, even in the midst of winter, prompted the club to add another showcase for Pasadena’s charm: a parade would precede the competition, where entrants would decorate their carriages with hundreds of blooms. The Tournament of Roses was born.”

The popularity of the annual college football bowl game increased over the years.  As a result, there came a time when the game sold out, and some of the hopeful observers were disappointed.  One of these situations ended up in a California legal case.  At one point in time, the University of California at Los Angeles was selected to represent the Pacific Coast Conference in the annual Rose Bowl game.  Radio and newspaper advertisements were made which announced that there would be a public sale of 7500 admission tickets to be conducted at the Rose Bowl stadium.  Several hopeful observers came to the box office, and while waiting in line were given numbered “identification stubs,” which were to provide them with the opportunity to purchase two admission tickets to the game.  A total of 3,350 “identification stubs” were distributed, but after only 1,500 tickets were sold, the box office closed and announced that all of the available tickets had been sold.  The result was that most of the persons holding the “identification stubs” were never able to purchase tickets to the game.

Four of those persons who stood in line and received “identification stubs” filed suit for $100 in damages.  They each claimed that they had been “wrongfully refused” admission to the Rose Bowl game.  They filed the suit as a “class action” on behalf of all of those who had received “identification stubs” and stood in line but had been refused admission to the game.

The Court held that under the specific facts of this case, the complaint amounted to nothing more than an “invitation to such persons as may be interested to join with them in this action seeking relief.”  The Court did not allow the lawsuit to proceed as a class action.  The case is reported as  Weaver v. Tournament of Roses Association (1948) 32 Cal. 2d 833.

The scramble for Rose Bowl tickets has been around for a long time.  The year when this case was decided?  1948 – just three years after the end of World War II.

The moral of the story?  Get your tickets early.

The Rule of 78s

            My father-in-law Sandy was a quiet, gentle man.  He’s passed away now, but his memory lives on in those of us who knew him well.  He left a lasting imprint on a large number of us, and he taught us many, many things. One of the minor things he taught me about was the rule of 78s.

Sandy was an engineer.  He sometimes did things that were perhaps unimaginable to those of us who had not been through the School of Engineering.  One of those feats was to perform the interest calculations on his new car loan.

If memory serves, Sandy bought a new Toyota.  He bought it on credit.  After he had received a few statements and made a few payments, Sandy actually got out his mathematical tools (a slide rule perhaps?) and he calculated the amount of interest that was being credited to his account with each payment that he had made.  Sandy wasn’t afraid of numbers.  I sometimes caught him reading books that had strange mathematical symbols.  So in truth, he probably did these calculations as much for fun as he did to check up on the vehicle lender.

Anyway, Sandy’s calculation showed that the lender wasn’t crediting his payments properly.  In other words, Sandy’s principal balance was not going down as quickly as it should have been.  The lender was applying too much of the payment towards interest and not enough of each payment to principal.

I remember Sandy coming down the hall shaking his head.  He told me what the problem was.  He said that he had discovered this problem with the lender’s calculations, and so he contacted them to let them know they were incorrectly crediting his payments, and that his principal balance should actually be lower than what was shown on his statements.  That was when he learned about the “Rule of 78s.”  The lender’s representative told Sandy that the interest was being correctly calculated, but that it was being calculated according to the “Rule of 78s” which meant, in essence, that the interest on the front end of the loan was being paid off at a higher rate than it would be at the end of the loan.  Apparently, when the Rule of 78s is applied, everything works out well in the end if the loan is paid over its full term on the basis stated in the loan papers and if the loan isn’t paid off early.  But if the loan is paid off early, then the lender collects a bit more interest than it would otherwise.

Sandy wasn’t happy about it.  But he had signed a contract that allowed the lender to credit his payments according to the Rule of 78s, and so Sandy figured out he would just pay off the car according to the loan terms (again, if memory serves, he subsequently decided to pay it off early).

I subsequently bought a car on credit, and sure enough, there on the loan application was a box that could be checked so that the “Rule of 78s” could be applied.  However, the box wasn’t checked, and so it wasn’t used in connection with my car loan.

Exactly what is the Rule of 78s? I couldn’t find an article in Encyclopedia Brittanica that discussed it.  But there is an article in Wikipedia.  The URL is   Reading this article?  It helps if you like math.  If you really, really like math, then you might enjoy the Wikipedia article on Rule of 72 Interest Calculations at   I was interested to find that some years ago a federal law was passed that prohibited use of the Rule of 78s on consumer transactions with a term of more than 61 months.  This law is found at 15 U.S.C. 1615 (here’s the link:   Most car loans are 60 months (or less) and so this federal law may not prohibit the use of the Rule of 78s on car loans.

How does this apply to the purchase of housing?  Most home loans are made for a term of more than 5 years (or 60 months).  Since 15 USC 1565 prohibits the application of the Rule of 78s to loans with a term of more than 61 months, most home loans would never be properly subject to the Rule of 78s.

Proper calculation and application of interest can be complex.  Persons with any question about their loan, whether about the interest or otherwise, should contact a trained professional.

Keeping Your Checks

           I recently spoke to an accountant about tax problems.  He pointed out that there are certain statutes of limitations as to tax disputes with the IRS, and that due to these statutes of limitations many accountants advise people to keep their financial records for at least seven years.

Makes sense.  But what’s the preferred time to keep financial records? Is it five years? Seven years?  Something more?  Something less?

Well, it all depends on why the records are being kept. If you want to feel a bit more snug in your home, then of course it’s possible to fill closets and file drawers with old financial records.  At least then you know what you’ve bought, saved, and spent.  I remember my mother showing me her account ledgers from the 1940’s.  It was delightful to see what she paid for a quart of milk in, say, 1942.  And her household expenses were far less when my dad was teaching typing for 25 cents an hour.  It can be a great nostalgia trip to look back and remember those days when bread cost 10 cents a loaf, an ice cream cone was 10 cents, a candy bar was 5 cents and a gallon of gas was 19 cents (I don’t think of myself as being old, but even I can remember those prices).

So nostalgia aside, why is it a good idea to keep old financial records for a period of time, or is it even necessary at all?

If you never have a future dispute or misunderstanding with the IRS, or your lender, or anybody else, then you may never have a need to keep any records.  But the several statutes of limitations are written, in part, because old records tends to get discarded after a period of time.  The thinking is that it’s unfair to allow old, stale claims to be made against people after they’ve tossed all their old records and can’t prove much through their documents.

But the follow on to that line of thinking is that people do tend to keep their written financial and other records for some period of time.  And there is good cause for this.  If there’s a financial dispute or a claim of any kind, then much of the evidence may well be centered on financial records.  For example, an accountant might say that the IRS has a period of several years in which they can come back and challenge a tax return.  Just because the IRS doesn’t say something now doesn’t mean they can’t in the future.  If a taxpayer can’t produce records to verify the deductions claimed, then that taxpayer could find themselves in a very difficult (and potentially expensive) situation.  If a borrower claims to have made payments that can’t be proven later, then it can be both difficult and expensive to resolve a dispute that might have easily been settled if the proper documents were available.

How long does a bank keep copies of checks?  Some banks will tell you that they only keep them for a period of a few years.  So what happens if there’s a dispute?

Over the past few years, there have been a number of reports about banks not being able to find an original loan agreement, or an original promissory note.  What happens if the bank modifies a loan agreement – but if nobody can find that modification agreement?  Loans get paid back over a period of 30 years or more.  There can be a lot of water going under the bridge in 30 years.  If at the end of the day the Bank says that one amount is still due to pay off a loan, but the borrower says it’s something less, then how can such a dispute be resolved?

The best way to resolve such a dispute is through producing a copy of the signed loan agreement, a copy of the signed loan modification agreement, and by producing copies, front and back, of each and every check submitted in payment.  That’s a bit of an administrative feat – but it sure makes things easier if there’s a dispute about how much has been paid.  Borrowers should also review their statement each month to ensure that their loan payments are being properly credited, and should immediately raise a protest if the numbers aren’t correct.  And copies of these statements should also be saved, front and back.

And what if a borrower wants to start making extra payments each month to pay off their loan early?  In such a case it’s certainly a good idea to keep a copy of the canceled checks – just in case the extra payments aren’t properly credited to the account. Early payments can have a profound effect on the interest charged on a loan – but only if the extra payments can be documented, or proven, in the event of a dispute.  Some loans provide for a fee or a penalty to be paid for the privilege of making early payments.

Proper calculation and application of interest can be complex.  Persons with any question about their loan, whether about the interest or otherwise, should contact a trained professional.

Beachfront Property Complex

It’s been a busy end of the year – which means we haven’t seen as many Christmas DVDs this year as we might normally watch.  But some weeks ago, we did watch “Miracle on 34th Street.”  This is a charming movie from 1994 (which is actually a remake of a movie from 1947).  The movie concerns the reality of Santa Claus.  Richard Attenborough does a masterful job of portraying Kris Kringle in this heartwarming film about whether or not Santa Claus is real.  The climax of the movie occurs in a New York courtroom, where trial judge is called upon to determine whether or not Santa Claus actually does exist.  Following some fancy legal maneuvering, the trial judge makes a final decision, and there’s a happy ending all around.

It’s not every day that a lawyer gets to represent Santa Claus in court.  Dylan McDermott, who represents Kris Kringle in the film, does a great job of portraying the legal eagle who advocates Santa’s cause.  But what are the chances that most lawyers, or even any lawyer, would ever get a chance to represent the “Jolly Old Elf?”

The likelihood that any California lawyer might get a chance to represent Father Christmas in a legal matter may depend, at least in part, on how California Law views Santa Claus.  There are online legal databases that allow for word searches of all California cases.  So – if you were to do a word search of California legal cases, you’d find that the phrase “Santa Claus” actually does appear in a number of California cases. In one case, a police officer dressed up as Santa Claus and led a procession of motorcycles in a “pursuit for Kids Toy Ride.”  Amezcua v. Los Angels Harley Davidson (2011) 200 Cal. App. 4th 217.  In another case, a witness offered testimony at trial which the Court compared the testimony to a belief in Santa Claus.  People v. Moret (2009) 180 Cal. App. 4th 839.  And there’s even a case involving beachfront real estate – which is briefly described as follows.

The development of California’s coastal lands are regulated by law.  California beaches, or “tidelands,” are generally publicly owned.  This means that most tidelands and beaches are owned by the people of the State of California and not by private owners or investors.  However, there is a “line” where the beach “stops” and where private ownership of land begins.  This “line” is known as the “Mean High Tide Line.”  Land which is closer to the sea is “seaward” of the line and is owned by the public.  Land which is further from the sea is “landward” of the line, and such property can be owned by private individuals.  It’s very interesting to note that this property “line” does not stay a fixed location.  It changes over time with the level of the sea and the erosion or build-up of the shore.  It’s one of the very few property lines that can be constantly changing over time.

The California State Lands Commission is charged with the oversight of these beachfront lands.  The Commission adopted a policy which said that building, or development, is prohibited if it is any closer to the sea than position where the “Mean High Tide Line” has ever been.  In other words, if a parcel of land is presently located on the “landward” side of the line, but in the past it was located on the “seaward” side of the line, then the policy would prevent such landowner from ever building on such land.

In the case of Bollay v. California Office of Administrative Law (2011) 193 Cal. App. 4th 103, a landowner challenged the policy of the Commission.  Initially, the trial court held that the commission’s policy was valid and effective. But the Court of Appeal found that among other things, the policy would prohibit the development of land that is not now owned by the State of California and which may never in the future be owned by the State of California.  As a result, the Court of Appeal reversed the trial court and found that the Commission’s policy was invalid.

Notwithstanding this holding, the development of beachfront property involves complex legal considerations, and persons considering building, developing, or remodeling beachfront properties should consult appropriate legal counsel.

So how does such a case involve Santa Claus?  The beachfront property at issue was located on Santa Claus lane in Carpinteria.

Second Loan Interest Rate Reflects Higher Risk to Lenders

            Most homeowners are familiar with the concept of Homeowner’s insurance. This kind of insurance will typically insure the house against loss or damage.  If a home is damaged by fire or storm, most homeowners would know to call their insurer to report the damage and make a claim.

But some homeowners may not be familiar with mortgage insurance, also know as PMI.  This insurance typically provides coverage in the event of a mortgage default or foreclosure.  This insurance is typically designed to benefit lenders, but not homeowners. If a homeowner defaults on their loan, and their property is sold in foreclosure, then PMI mortgage insurance is designed to compensate the lender for the loss to the lender in the event the property sells for less than the amount of the loan.

Twenty years ago it seemed like many lenders were routinely requiring borrowers to purchase mortgage insurance. The PMI insurance payment was a monthly charge that borrowers paid in addition to their mortgage loan  payments of principal and interest.  In the event of a default or foreclosure, the borrower never received any payout from the insurer.  Instead, any payout went only to the lender.  In more recent years, it seems like lenders have often used a second loan to replace mortgage insurance.  Instead of requiring borrowers to purchase mortgage insurance, lenders often make two loans to borrowers.  The first loan, at a lower interest rate, often covers the majority of the house purchase price.  The second loan, at a higher interest rate, covers something like 10 to 20% of the price of the house.  If the market turns down, then this second loan is at a higher risk of not being repaid.  This increased risk is usually reflected in the higher interest rate charged by the lender.   Because the second loan is the one most at risk, such lenders have considered it unnecessary for borrowers to pay for PMI insurance when the property is purchased with two loans.

Church Properties Subject to Law

Most kids in High School take a class in Civics or U.S. History.  And most of those kids will learn about the United States Constitution.  They’ll learn that the Constitution was amended by the Bill of Rights, and they’ll learn that the Bill of Rights is the name of the first 10 amendments to the Constitution.  They’ll also learn that one of those amendments provides that Congress may not pass any law concerning the establishment of a religion.  This is formally known as the “establishment” clause.  It’s more commonly known as “separation between Church and state.”  Less know, but equally true, is the fact that the California Constitution also prohibits the California State Government from making any “establishment” of religion.  This is found in the California Constitution at Article I, section 4.

This separation is so firmly embedded in our perspective that the thought of having a church that is favored by the government is completely foreign to us.  But not every country takes this approach.  For example, some countries have supported a state-favored church with tax money.  This can obviously provide such churches with an enormous benefit with respect to operational costs.

In the United States, the separation between church and state is almost taken for granted.  Most people in this country never even think about how the establishment clause might affect their daily lives.  Yet the establishment clause can have a real effect on peoples lives right now.

Here’s an example.  Suppose a local congregation owns a church building on land that is also owned by the congregation.  But suppose the congregation encounters a disagreement over a point of church beliefs.  If this disagreement becomes severe enough, then it’s possible that the congregation may split.  Each side could claim it holds the correct beliefs.  If the dispute becomes sufficiently severe, there could literally be a separation of the congregation.  If this were to happen, each side might claim that it is entitled to the church-owned land and building.

What happens if the dispute becomes severe enough that the dispute ends up in Court?  The result can be surprising.  In such a situation, a court would literally be called on to make a decision as to which group is entitled to ownership rights as to church property.  However, the courts are governmental entities.  Even though a court isn’t a legislative body, it is still one of the branches of government and courts can actually create law where none existed before.  As a result, courts are subject to the establishment clause.  This means that the courts can’t take sides, nor can they favor one religion over another.  Where a “heierchal” church structure exists, then in appropriate circumstances a court may look to the decision of the church heierchary for determination as to which group represents the “true” church.  And once the “true” group is determined, then a court may award the church property to the “true” group.  In other cases, ownership of the church building and property may be determined by the bylaws of the church, the deeds to the property, and other key documents relating to church governance.   These principles are generally discussed in Metropolitan Phillip v. Steiger (2000) 82 Cal. App. 4th 923.

What can be done in advance?  Local congregations that own real property may be able to avoid later problems by deciding in advance how they are going to hold title to their church property, the nature of their relationship with a larger church organization, and how they plan to handle any potential disputes concerning ownership and handling of church property.

Short Sale Can Result in Surprise

California has a “Security First” rule.  This rule requires a lender to foreclose on a property before looking to a buyer’s other assets if a Buyer defaults on a loan.

The “Security First” rule can help borrowers who aren’t able to make the payments on their home.  But homeowners need to be cautious when getting involved in short sales, deeds in lieu of foreclosure, or other negotiations with their lender concerning loan modification or defaults. An uninformed borrower can actually damage their position if they get involved in a short sale without taking the necessary steps to protect themselves.

Here’s how it works.  Many borrowers today have two loans on their home.  If their home is “underwater” then such borrowers may elect to sell their home for less than the amount of the loans against their properties.  If the lenders agree to this, then such borrowers can use a “short sale” to get out of their underwater property.

But these days some lenders on a second loan are only agreeing to “release their lien” in a short sale.  This is very different from having such lenders release all claims against the buyer under the loan.  If the lender only releases its lien, then the lender may be only agreeing to release its mortgage lien so the homeowner can sell their property in a short sale.  Unless the lender releases all claims against the buyer under the loan, the lender could be planning to make a claim against the borrower for the unpaid loan balance following the short sale.

This could be a very unpleasant surprise for an unsuspecting homeowner following a short sale.  Such a homeowner might finish a short sale thinking that they are fully done with the property, only to find out later that their lender is making a claim against them.

Care must be used to avoid such situations.  Homeowners who want to avoid such surprises should get competent, qualified professional assistance in connection with their contemplated short sale or deed in lieu of foreclosure.

Short Sale Is Only One of Several Options

My wife and I bought our first home in 1989.  That was a banner year for real estate – in more ways than one.  The real estate market had experienced appreciation of close to 20% each year during the previous five years.  As a result, we paid almost exactly double the price that our seller had paid five years earlier.

This got my attention.  We’d paid more than we could afford at the time, and the monthly loan payments were a real challenge.  But given the rapid increase in prices I’d seen over the preceding years, I figured that if we needed to get out, then we’d sell at a profit.  Little did I anticipate that we’d hold the house for 7 years, do many improvements, and then sell at a loss.

For many years afterwards I’d mention to friends and acquaintances that we had lost money in the California real estate market.  Nobody could believe it.  All around us prices were escalating ever upwards, and the thought of losing money in real estate seemed like an impossibility.  I was the only person I knew of who had lost money in the California real estate market.

Fast forward to 2010.  I’ve been practicing real estate law now for over 20 years.  My first foreclosure matters were in 1987, and after that I hadn’t really worked on any for close to 15 years.  And then the market turned downwards.   I now consult on short sale and foreclosure matters on nearly a daily basis.  The white-hot appreciation of five years ago is gone, and homeowners are just trying to find out the best way to walk away from their homes – with most of them experiencing substantial loss.  It’s a difficult time.

It’s difficult to work on scraping together a down payment, then experience the excitement of moving into a new home, and make improvements only to find out years later that the home is worth half of what you paid for it.  Some homeowners choose to stay in their homes even in these situations.  But other homeowners are transferred in their jobs or they experience employment setbacks.  These owners have limited options with respect to their homes.

Many people are of the opinion that the best way to walk away from their home is through a short sale.  But that’s not always the case.  Liability issues can linger after a short sale – even though homeowners may believe that they are done with the property once it’s sold.

Mortgage, short sale and foreclosure law is complex.  These subjects involve complicated tax and liability issues.  Sometimes the best approach for a homeowner in distress is to short sale a property, but other times foreclosure is a far better option.  Bankruptcy is the best option for some owners.

Because of the complex issues and law involved, homeowners are prudent when they seek competent, qualified, experienced tax and legal advice.