Suits, arbitration settle differences

            Nobody wants to buy a lawsuit.  But most people want to buy a house.  So what happens when home buyers discover they bought the house of their dreams—but one of their dreams is a nightmare?

The first step is often to call the seller.  If the home is new, the seller is usually a developer, and most developers provide a warranty with their homes.  In these cases, a buyer can sometimes have construction problems fixed at the expense of the seller.

But what happens when the seller is another homeowner instead of a developer?  Homeowners often don’t have the resources to repair major problems.  In some cases, sellers claim they didn’t know of problems (when they actually might have).  In other situations, even a developer may be unwilling to acknowledge a problem or repair it.

If buyers and sellers can’t agree about repairing problems with a house, they often involve lawyers.  The lawyers may exchange several phone calls and letters.  If agreement can’t be reached, the lawyers file a lawsuit.

Are lawsuits effective?  They can be.  Every lawsuit is eventually resolved either by agreement between the parties, or by a judge or jury at trial.  Are lawsuits expensive?  They can be, and they typically are.  The expense depends on how the lawsuit is handled and the length of time before it is resolved.  Many trials are held approximately one year after the lawsuit is started.  The cost of a lawsuit through trial can be surprisingly high.  Is there any way to reduce the costs of a lawsuit?  Yes, through binding arbitration.

Binding arbitration is dispute resolution without a lawsuit.  In arbitration, a dispute is submitted to an arbitrator who is often an attorney or a retired judge.  Both sides present their case at an arbitration, which is similar to a trial.  “Binding” means the result is final and generally there is no right to appeal.

Arbitration is similar to a trial in that both processes use a hearing before a decision maker.  At arbitration, the decision maker is an arbitrator.  At trial, the decision maker is a judge (or a jury).  In both processes, the decision is legally binding between the parties.

Arbitration is different from trial in several ways.  Arbitration is often less intrusive.  In many arbitrations, neither side has the right to ask the other side any questions before arbitration.  This can make the process less expensive than a lawsuit, because in a lawsuit both sides have the right to ask the other side many questions.  Arbitration is often concluded in a matter of months instead of nearly a year or more.  Arbitration is usually thought of as faster and less expensive than a trial.

One of the primary differences between trial and arbitration is the right to appeal.  Because arbitration is designed to be final, there is usually no right of appeal (although there can be exceptions).  Because arbitration usually has no right of appeal, the process can be much shorter.  But if an arbitrator makes an error, the parties often have no recourse.  This means that arbitration may be faster and less expensive than trial, but it may also be less predictable.

There is no general answer as to whether trial or arbitration is better in any given situation.  Each situation must be evaluated separately.  Persons considering whether to choose trial or arbitration should contact a lawyer.

Swimming Pool Tile Can Indicate Pool Movement

A carpenter’s level can be like a swimming pool.

In order to build a carpenter’s level, a small clear tube is filled with colored liquid and an air bubble is left in the tube.  Two visible lines, or marks, are placed on the small tube.  The tube is then incorporated into a larger block of wood or metal.  When this block is level, or very close to level, the air bubble will stay between the two lines.  When the block is moved off of level, the air bubble will move past one of the lines. When the bubble moves past one of the lines, the device isn’t level.  The device works on the principle of gravity.

This same principle can be used in inspecting a swimming pool.  Pool builders presumably use a leveling device to ensure that the pool tile at the top of the water is all placed at the same elevation.  If this is done, then the same amount of tile will show above the water all around the pool.  If after a period of time some of the tile at the water level starts to show more or less tile, then this can be an indication that the soil, and the pool, may be either settling or moving upwards.  Such soil movement can be an indication the further investigation is warranted into the soils or the building pad on the lot.

Top Ten Ways to Get Rid of Property

There’s no doubt about it.  Sometimes it’s just necessary for a homeowner to let their property go.  There are generally 10 ways to get rid of a property.

1)  Conventional sale.  This is a sale where the homeowner has equity in the property.  In this situation, the sales price is higher than the amount of the loans secured against the property.  The lenders are paid off in full and the owner keeps all of the sales proceeds in excess of the amounts needed to pay off the lenders and the closing costs.

2)  Short sale.  This is a sale for less than the amounts due on the loans secured by the property.  The lenders must agree to this kind of a sale because the lenders usually won’t be paid off in full.

3)  Foreclosure.  Foreclosure occurs when a borrower defaults on a loan and the lender causes the property to be sold and the sales proceeds are applied to the loan.

4)  Deed in Lieu of Foreclosure.  This is used when the buyer signs a Deed in favor of the lender.  The use of the device avoids the necessity of a foreclosure sale.  The lender must agree to this in order for it to work.  This is done in part to the fact that a deed is only effective if it is accepted.  If the lender refuses to accept a deed, then this approach most likely won’t work.

5)  Tax sale.  If a homeowner doesn’t pay their county property taxes, then the county will eventually hold a tax sale where the property is sold to pay the unpaid taxes.

6)  Gift.  It’s usually possible to give a property away by signing an appropriate deed.

7)  Creditor sale.  A creditor with a judgment against a borrower can sometimes cause a property to be sold in order to pay a judgment.

8)  Adverse possession.  If an owner doesn’t use their property for several years, and if a stranger uses the property as though they owned it and if such stranger pays property taxes, then such a stranger may actually acquire ownership of the property.

9)  Bankruptcy.  A homeowner in bankruptcy may be discharged from personal liability for one or more loans that are secured by the property.  In some situations, a borrower who declares bankruptcy may save a significant amount of taxes that may otherwise need to be paid.  Real Property can also be sold or foreclosed on in conjunction with a bankruptcy.

10)  Inheritance.  When a homeowner dies, the title to their property will typically pass to someone else.  Deceased people can’t own property.  But the property previously owned by a deceased person will usually remain subject to the lien of the deeds of trust that encumbered the property prior to death.

A homeowner who needs to get rid of their home will often have several options for doing so.  But the method chosen by such homeowners can have profound tax and legal consequences.  Many complex considerations are involved in connection with the sale or loss of property. Most homeowners aren’t aware of the potentially significant consequences that can attend the sale or transfer of real property.  Making an appropriate decision as to how to dispose of real property requires specialized training, skill and/or knowledge.  Homeowners who are considering disposing of their home should obtain competent, qualified tax and legal advice.

Tax Consequences of Short Sale Can Be Significant

A “short sale” is a sale of a property where the sales price is less than the amount that the seller owes to the Bank or other lender.  Some lenders these days will agree to accept less than the amount due on their loan.  When this happens, the property is sold “short,” which means it is sold for less than the amount due on the loan.

Homeowners with loans often receive a monthly statement from their lender.  As a result, such homeowners are usually very aware of the amount they owe on their loan.  The only way most of these owners can sell their properties is if their lender agrees to accept less than the amount due on the loan.  If the lender agrees to accept less than the amount due on the loan, the borrower may potentially still be liable to the lender after the short sale unless the lender also releases the borrower from personal liability.  But even if the lender releases the seller from personal liability on the loan, borrowers can still face unexpected consequences as a result of the short sale.

Sellers can forget to think about potential tax liability they may have from the short sale.  But tax consequences following a short sale can be significant.  When a lender forgives a debt or any part of it, then such a forgiveness may in some cases be taxable to a borrower as income.  Although this may sound surprising, it’s true.

A Borrower’s actions can sometimes make a significant difference on the tax consequences of a short sale. For example, The Mortgage Debt Forgiveness Act of 2007 can provide some borrowers with very significant tax savings.  But borrowers may need to actually live in their property for a certain amount of time before they are eligible for benefits under this Act.  The Act also contains other restrictions.

Tax considerations involved in a short sale or foreclosure can be complex. Most borrowers are not readily familiar with the applicable tax laws and will need to rely on a qualified tax professional in order to minimize the tax consequences of their foreclosure or short sale.  Because the tax consequences may become irreversible after a foreclosure or short sale, it may be important for borrowers to get professional tax advice before their property is actually sold through foreclosure or a short sale.

Unusual Construction Problems Can Exist

I’ve done construction law for many years, and I’ve seen a lot of construction defects.  Roofs that leak.  Walls that crack.  Inadequate foundations.  Improper framing.  Corroded piping.  Missing sheet metal. But some construction defects are more memorable than others.

Several years ago I inspected a house with a number of construction defects.  The owners had recently bought the home, and after moving in they found a number of construction defects they hadn’t noticed before.  But the most unusual one involved the backyard irrigation sprinklers.

I went outside to the backyard and saw irrigation pop-up sprinklers placed in the lawn.  When these types of irrigation systems are turned on, the water pressure forces the sprinkler heads up out of the ground and water is sprinkled for a distance of eight or ten feet.  I stood in the back yard and watched as the sprinklers were turned on, and the most amazing thing happened.  Steaming hot water came out of the sprinkler heads.  The water was hot enough that it would scald you if you touched it for any length of time.  The water temperature must have been 180º or more.  The steam rising up from the several sprinkler heads was clearly visible.

How could such a thing happen?  Why would anybody want steaming hot water to come out of their sprinkler heads?  I suppose this could be a creative—though expensive—way to melt snow off your yard—except that snow is not a problem in the Bay Area.

The property sellers had apparently done a lot of their own work on the property before listing it for sale.  Lacking the necessary plumbing expertise, they had apparently crossed the hot and cold water pipes with the result that they hooked up their backyard sprinklers to their hot water heater.  I doubt their lawn appreciated the extra warmth—and I’m sure their pocketbook didn’t.

Issues Exist With Use of Inspection Reports

            You be the judge.  Here’s a real-life case that was recently decided by one of the California Courts of Appeal.

A daughter inherited a property from her mother.  Her mother lived in the property for over forty years. Before inheriting the property, the daughter had the property inspected by a licensed home inspector.  The home inspector’s report noted that there was evidence of “wood destroying insects, organisms and/or rot observed at posts, doors, and trim.”  The inspector also noted loose flashing at a balcony deck, which could lead to water intrusion (and damage).  The inspector recommended a further inspection by a termite inspector.

The daughter thereafter hired a termite inspector.  The termite inspector found drywood termites throughout the main house and also found damage to a support post.  The termite inspector recommended fumigation and that a licensed contractor be hired to repair the termite damage.  The termite inspector didn’t find or report any damage to the balcony railing at the elevated deck.

The daughter paid to have the house fumigated.  But the daughter didn’t have any repairs made to the wood that had been damaged by the termites or other wood-destroying pests. A few months later, the daughter’s son and daughter-in-law purchased a one-half interest in the property, and they moved into the property.

Some time later, the daughter’s son and daughter-in-law invited a guest to their new home.  This guest leaned against a balcony railing.  Due to the unrepaired wood damage, the balcony gave way and the guest fell approximately ten feet to the ground below.

The falling guest filed suit.  Who is at fault?

The Court of Appeal decision noted that the daughter who had arranged for the inspections knew about the wood damage at the deck. She chose to have the house fumigated, but she didn’t repair the damaged wood.  However, Court didn’t discuss the daughter’s liability and it appears that the daughter was not part of the lawsuit filed by the falling guest.  It’s not clear whether the falling guest didn’t sue the daughter, or whether the falling guest settled with the daughter at some point.  However, the falling guest did sue the termite inspector by claiming that the termite inspector should have discovered and reported the wood damage to the balcony railing.  The falling guest claimed that the damaged railed constituted a safety hazard, and that the termite inspector had a duty to discover and report the damaged wood and to recommend that it be repaired.

So as between the falling guest and the possibly negligent termite inspector, who wins?

The Court of Appeal found that a termite inspector does have a duty to “make a reasonable assessment of property for potential safety defects.”  But the Court also found that the falling guest didn’t hire the termite inspector and so there was no contract between the termite inspector and the falling guest.  The court further found that the termite inspection report was prepared the daughter’s benefit.  The court found that the termite inspector didn’t prepare the report for the benefit of the falling guest, and as a result, the termite inspector owed no duty of care to the falling guest.  Therefore, even if the termite inspector failed to find or report the damage to the balcony railing, the falling guest had no valid claim against the termite inspector.  This decision is reported as Formet v. The Lloyd Termite Control Co. 2010 DJDAR 8738.

So the score at the end of the day: Termite Inspector – 1, falling guest – 0.

This case involved a complex analysis by the Court of duty and negligence liability theories.  Liability issues and questions can be complex, and they are governed by a sophisticated set of statues and case law.  The fact that the falling guest lost this case is no indicator as to a how a court may rule in any given situation.  As with all legal questions, persons who may have a claim should seek competent, qualified legal counsel.

Deal Points Can Be Critical

So when is a deal not a deal?  The answer is, it depends.

Sometimes it seems like half of the law is tying down loose ends.  And sometimes it seems like the other half consists of getting written commitments so people don’t change their minds.

Here’s a good example.

A Seller sold a house to a Buyer.  After the sale was completed, the Buyer filed a lawsuit against the Seller, claiming breach of contract, misrepresentation, negligence and negligent misrepresentation by the Seller.

Both of the parties were represented by attorneys.  The attorneys agreed, with court approval, that the claims would be submitted to “binding arbitration.”

Binding arbitration is a substitute for trial.  In binding arbitration, an arbitrator makes a decision or renders an award in favor of one of the parties.  This arbitrator isn’t usually a judge.  It can be an attorney, but it’s not necessary that an arbitrator be an attorney.  The arbitrator can be anybody the parties agree to.

The matter was decided by an arbitrator at “binding arbitration” and the arbitrator rendered an award of $55,475 in favor of the Buyer.  The Buyer asked the Court to make the award enforceable, but the Seller objected.  The Seller claimed that he had never agreed to binding arbitration.  The Seller apparently may have agreed to non-binding arbitration, but not to binding arbitration.

The Court had to make a decision whether or not the binding arbitration award was valid and enforceable.  In order for the award to be valid, it was necessary that the parties have agreed to submit the matter to binding arbitration.  The Seller claimed that he had never agreed to binding arbitration, and the Buyer wasn’t able to provide the court with definite proof that the Seller had agreed to binding arbitration.  The Court held that an attorney’s agreement to binding arbitration is insufficient to commit the client to binding arbitration.  Because the Seller’s attorney had agreed to binding arbitration, but because there was no proof that the Seller himself had agreed, the Court found the arbitration award unenforceable. Giving up a right to trial is a substantial right, and the Court wasn’t satisfied that the Seller had ever actually given up his right to a trial.  The case is reported as Toal v. Tardif (2009) 178 Cal. App. 4th 1208.

That’s a tough spot for the Buyer.  The Buyer had spent all of the time, money, and attorneys fees necessary to get through arbitration and receive an award, only to find out that the award was no good.  As far as the Buyer was concerned, this was a done deal. But due to an uncertainty, this Buyer lost his entire award.

Sometimes legal proceedings seem like a ponderous, complex, over-the-top process.  But it’s exactly these types of situations that cause lawyers to spend so much time confirming every arrangement, crossing every “t” and dotting every “i”.  It can be surprising, frustrating and disappointing to think that you’ve got a solid deal in place, only to later find out there’s an infirmity.

The foregoing article is provided for general information purposes and should not be used in connection with any specific legal matter.  Persons with legal issues or matters should consult competent legal counsel.

Robert B. Jacobs is an attorney, mediator and arbitrator with over 30 years of litigation experience.  He mediates business, real estate, construction, personal injury, wrongful death, employment, trust and probate cases.  He is a designated Super Lawyer and holds an AV rating with Martindale-Hubbell.  He was the 2020 chair of the ADR section of the Contra Costa County Bar Association and the co-chair of the ADR section of the Alameda County Bar Association. Since 2018 he has been an update author for the CEB treatise Real Property Remedies and Damages. He is an adjunct law professor at Hastings College of the Law in San Francisco.  Reach him at [email protected]

What’s a Tree Worth?

            So what is the value of a tree?  The answer can vary.  There are several ways to value a tree.  A tree may have value as lumber or firewood.  Or a tree may be valued according to the cost of replacing it.  A tree may have an aesthetic value that can be quite different from its value as lumber or firewood. It might seem like some trees have very little value.  But others can have considerable value.

These questions can become important when trees are removed, damaged or destroyed.

Law is often based on experience.  And experience shows that people sometimes damage, destroy, or remove trees located on property belonging to someone else.  Sometimes these cases arise when landowners don’t know the true location of the property line.  And sometimes these cases arise when persons deliberately remove trees that don’t belong to them.

When trees belonging to someone else are wrongfully damaged, destroyed, or removed, the general rule is that the “measure” of damage is the diminution in value of the real property.  In other words, if the trees in an orchard were wrongfully removed or destroyed, then the amount of the damage would usually be the difference in the value of the property before and after the trees were removed or destroyed.   In the case of timber land, the value of the trees may be the difference in the value of the land before and after the trees are removed. In some cases, the correct value may be the value of the trees as lumber, or the value of the trees when then are still in the forest after being cut.

In a suburban setting, the value of the trees may be quite different.  A single tree removed from a residential lot may not diminish the value of that lot by any significant amount.  But if the owner has a personal reason for replacing the tree, or if it’s likely the owner will actually restore the tree, then the correct measure of damages may be the cost of replacing the tree with a similar tree.

Any one of these values can be significant.  The cost of replacing a single large, mature oak or palm tree could be surprisingly high.  And the timber value of several acres of prime timber land could be enormous.  In one recent case, a ranch owner received a damage award of $375,000 for damage to trees on their property caused by a fire. This case is reported as Kelly v. CB&I Constructors, Inc. (2009) DJDAR 16339.

California law provides that in some situations, a person who wrongfully removes or damages a tree can be liable for twice the amount of the damage.  In other situations, such a person can be liable for three times the amount of the loss or damage to the trees.  This law is found in part at California Civil Code section 3346.

Most landowners probably don’t ever anticipate that they might become liable for a wrongful removal or damage to trees on neighboring properties.  If landowners don’t spend a lot of time removing trees, then this may be true.   But a surprise can exist with respect to fires.  A person who allows or causes a fire to damage neighboring trees can be liable for two or even three times the value of the damage to the trees.  This can be a significant amount of money, and is another good reason for homeowners to make sure their homeowner policies are kept current with adequate amounts of liability coverage.

Can Dust Be a Trespasser?

It seems like most people have some general idea of what trespass means.  We’ve all seen signs posted that say things like “NO TRESPASSING.”  Of course, these signs never seem to define what a trespass is, nor do they say exactly what the landowner intends by this message.  But most people seem to have a general sense that ‘trespassing’ somehow involves walking, driving, or going onto somebody else’s property without an invitation or a legal right to do so.

Trespassing is actually a much broader concept than simply not walking onto property without a legal right to do so.  “Trespass” is generally defined as the “unlawful interference with the possession of real property.”  Landowners have a legal right to exclusive possession of their property.  Interference with this right is often referred to as “trespass.”

In order for a trespass to occur, there must usually be some time of “physical” or “tangible” entry onto property.  For example, one California case considered whether or not there could be a trespass by electric and magnetic fields arising from power transmission lines.  San Diego Gas & Electric Co v. Superior Court (1996) 13 Cal. 4th 893.  In that case, a homeowner filed suit against a utility because the homeowner was concerned about potential health effects of electro-magnetic field resulting from power lines. The Supreme Court held that because there was no physical “entry” or invasion into land, that therefore there was no trespass from the electro-magnetic fields generated by the power transmission lines.  The Supreme Court noted that light, sound, noise, and odors likewise can’t usually cause a trespass, because when those things are present there is no physical interference with property.  (However, there may be other legal remedies for such invasions of the use and enjoyment of property – but even in such situations, there will generally be no claim for a trespass).  The Court noted that trespass can exist where such noise, vibration, or odors have resulted in the depositing of dust or other particles on real property.  A trespass can also exist where there has actually been damage to the property.

In one case, a defendant operated a “cotton ginning mill” which caused the lawns, flowers, shrubs, window screens, hedges and furniture on the neighboring property to be coated with a thick coating of dust, lint and “ginning waste” for six months during each year.  The neighbor finally got fed up, and filed a lawsuit for trespass.  The Court ruled (no surprise here) that the defendant had in fact trespassed by depositing all of this dust and debris on the neighbor’s property.  Many landowners might not realize that such deposits constitute an unlawful trespass.  This is perhaps an extreme example, because a trespass can exist with a far smaller volume of deposited material than is described in this case.  This case is reported as Kornoff v. Kingsburg Cotton Oil Co. (1955) 45 Cal. 2d 265.  As far as the law is concerned, trespass may or may not involve people setting their foot on a neighboring property.  If there’s even so much as a depositing of fine dust or particles, then a trespass may occur.

Correct legal analysis of whether or not a trespass occurs requires careful evaluation of applicable legal principles and is best performed by trained professionals.  Legal results can vary widely from the examples given in this article.  Persons concerned about trespass or potential trespass issues may not have sufficient expertise to correctly identify whether or not a trespass exists, and such person always do well to consult qualified, experience legal counsel in connection with any such questions.

Trespass Damage Can Be Significant

                Most people probably don’t spend much time thinking about trespass.  But when most people think about trespass, they tend to think of driving, walking, or going onto somebody else’s property without an invitation.

But trespass can be much more than simply cutting across somebody’s lot.

A trespass can occur anytime there is an unauthorized entry onto the property of another.  Such an entry can consist of throwing, dropping, or depositing something onto land that belongs to someone else, even if the person who throws, drops, or deposits the item never sets foot onto the other person’s land.  A trespass can also occur when small items such as cement dust or even invisible particles of flouride compound are deposited onto land belonging to someone else.

A trespass can even occur when a fire damages a neighboring property.  In one case, a landowner intentionally set fire to piles of grass and sagebrush on its property so that the landowner could reduce the risk of fire to other building on its property.  This landowner apparently recognized that unburned grass and brush presented a fire hazard.  By intentionally burning this material in a controlled manner, this landowner apparently hoped to avoid any uncontrolled fire that could spread to the landowner’s buildings.

Unfortunately, this landowner failed to take the necessary precautions for containing the fire, and the fire escaped to a neighbor’s property and damaged it.  The neighbor sued for the cost of repairing the fire damage to its property.  This case is reported as Elton v. Annheuser-Busch Beverage Group, Inc. (1996) 50 Cal. App. 4th 1301.

The Court held that the fire constituted a trespass, and that the landowner who set the fire and allowed it to escape was responsible for the damage it caused to the neighbor’s property.  Moreover, because the damaged property was used for the raising of livestock, the landowner who set the first was also liable for the attorneys fees of the owner whose property was damaged.

A dramatic example of trespass liability occurred in Southern California in 2002.  A contractor was constructing a municipal water tank. Sparks ignited a large brush fire known as the Copper Canyon fire.  The fire spread over 20,000 acres, and caused considerable damage to a ranch located 15 miles away.  The fire damaged hillside vegetation and a large number of trees on the ranch. The fire negatively affected the flow of water across the ranch.  As a result, heavy rains resulted in mudslides that created a large gully and destroyed a house.  The mudslide was caused by the vegetation changes which resulted from the fire.

The owner of the Ranch filed suit against the contractor for trespass.  A jury found that the cost of restoring the Ranch to its condition before the fire would cost millions of dollars, and the Court eventually entered a judgment in favor of the ranch owner and against the contractor for over four million dollars. The case is reported as Kelly v. CB&I Constructors, Inc. (2009) DJDAR 16339.

That’s a lot of trespass.  Since a fire can constitute a trespass, this single fire resulted in a trespass to over 20,000 acres of land, along with liability for all of the resultant damage.  That’s a really, really bad day for the contractor.