120 Week 2 F /For WIZARD KIM

Chapter 36: Water rights 255

After reading this chapter, you will be able to:

• identify the appurtenant water rights attached to riparian land; and

• understand the extent and terms of riparian rights.

Learning Objectives

Water rights

Chapter

36

Water belongs in one of two categories:

• surface water, consisting of watercourses, lakes, springs, marshes, ponds, sloughs, and any other water flowing over the surface of the earth caused by rain, snow, springs or seepage; or

• ground water, consisting of percolating, subterranean bodies of water located in underground basins.1

Holders of rights to withdraw surface waters have riparian rights. Holders of rights to pump ground water have overlying rights.

The legal rights to extract and use water are based on priorities and are classified as:

• landowner’s rights consisting of both riparian and overlying rights;

1 Restatement of the Law 2d Torts §§841, 845, 846

Water is used, not owned

riparian right The right of a real estate owner to take surface water from a running water source contiguous to their land.

overlying right

prescriptive right

riparian land

riparian right

State Water Resources Control Board

Key Terms

For a further discussion of this topic, see Chapter 8 of Legal Aspects of Real Estate.

256 Real Estate Principles, Second Edition

• appropriative rights to withdraw water under license from the state; and

• prescriptive rights to withdraw water legally entitled to be used by others.

Riparian rights refer to a landowner’s appurtenant property right to withdraw water from an adjacent river or lake for beneficial use on their riparian land.

Overlying rights refer to a landowner’s right to the use of ground water below the surface of their land.

An overlying landowner has rights to an allotment of water which is measured by the ground water in the basin over which their land is located. Overlying landowners have equal rights against other overlying landowners to a basin’s ground water percolating underneath their land, subject to their reasonable use of the water.

Overlying and riparian rights are legally analogous to one another, except for the limitations placed on overlying landowners to use ground water and riparian landowners to use surface water.2

A landowner’s use of water in the exercise of their riparian or overlying water rights has priority over water rights held by appropriators licensed by the state.

Riparian and overlying water rights are part of the ownership of land, and run with the title to the land when it is sold. Water rights are not personal property which can be assigned or used for the benefit of other property.

Riparian land is a parcel of real estate located both adjacent to a water source with surface water and within the watershed (basin) of the surface water.

A parcel is considered riparian land if it:

• touches the surface water; or

• was part of a larger riparian parcel and retained its riparian rights by reassignment when parceled.

The amount of frontage in actual contact with the surface water of a river or lake does not determine whether a parcel is considered riparian land. For example, a 40-acre tract of land, of which only 250 feet abuts a stream, is considered riparian land.3

To constitute riparian land, a property needs to also be located within the watershed surrounding the watercourse. If a portion of riparian land extends outside the watershed, only the portion within the watershed is entitled to use the water from the watercourse.

2 City of Barstow v. Mojave Water Agency (2000) 23 C4th 1224

3 Joeger v. Mt. Shasta Power Corp. (1932) 214 C 630

overlying right The right of a real estate owner to take the ground water below the surface of their land.

riparian land A parcel of real estate located next to a water source with surface water and within the watershed of the surface water.

Land entitled to

water rights

Chapter 36: Water Rights 257

Surface water used on land located within its watershed will eventually return to the watercourse, minus the water consumed, in a natural process called percolation. Additionally, rain falling on lands within the watershed of a watercourse feeds the watercourse. Thus, a riparian land owner can only divert water to the portion of their land which will allow the water to return to the watercourse.

Land lying within the watershed of one stream above the point where the two streams unite, called a confluence, is not considered to be riparian to the other. Further, the surface flow (river) below the confluence of two streams is a new and entirely different watershed, justifying a new name for the river below the confluence, as is the practice in Mexico to distinguish the watershed.4

The right to use riparian water is an appurtenant (incidental) right attached to and transferred with the ownership of real estate.5

Each riparian landowner is entitled to a reasonable use of the natural flow of stream water running through or adjacent to their land. However, the quantity of the water withdrawn is subject to an upstream riparian landowner’s priority right to first withdraw water for reasonable use on their upstream riparian land.

Additionally, a riparian landowner cannot divert stream water to nonriparian lands, even if they are entitled to use the water on their riparian land, since they are subject to the rules of percolation within the watershed. The landowner’s riparian right to use the surface water is appurtenant to the land bordering the stream, not other lands not bordering the stream.6

Riparian rights are limited by the requirement that water taken from a stream is to be put to a reasonable and beneficial use. No one has a protectable interest in the unreasonable use of water.7

Reasonable and beneficial uses include:

• domestic uses; and

• agricultural irrigation.

Whether a particular use of water is reasonable and beneficial is determined on a case by case basis.8

While riparian landowners hold the same classification of legal rights to water, they are to share the water, giving priority to domestic uses over other uses, including agricultural irrigation.

4 Anaheim Union Water Co. v. Fuller (1907) 150 C 327

5 Calif. Civil Code §§658, 662

6 Gould v. Eaton (1897) 117 C 539

7 Calif. Constitution, Article X §2

8 Calif. Constitution, Article X §2

Riparian rights are appurtenant

Reasonable use and domestic priorities

258 Real Estate Principles, Second Edition

The sharing of water between riparian landowners, with priority to upstream owners, is based on a tiered variety of priority and subordinate uses across the entire group of riparian owners, called correlative rights. Each landowner holds correlative rights within the riparian class of water rights.

Owners of land and water providers (appropriators) who hold water rights do not legally own water. They own rights to the reasonable use of the water. Their right-to-use is subject to change when circumstances controlling the use of water change, called usufructuary rights. It is a sort of “here today, gone tomorrow” approach to access and possession.

If a riparian land owner is not using water, downstream riparian land owners are entitled to the full flow of the water, subject to the upstream riparian owner’s future reasonable use. Thus, the lack of use of the appurtenant right to water is not lost by mere nonuse alone.

However, an upstream riparian owner who is not using their allotment of water may not divert water to nonriparian land since the water would not percolate into the watershed.9

In 1943, California established the State Water Resources Control Board (Board). The Board acts as a referee for all disputes over water rights. The Board advises the California courts on the appropriate water allotment each of the disputing parties is entitled to take. Also, on a request from holders of water rights, the board itself may hear legitimate disputes between the parties to determine the water allotment each party is entitled to take.10

When the Board determines the allotment of water to each holder of riparian rights, the needs of all riparian landowners within the watershed are taken into account. The amount of water allocated to a riparian owner is individually determined based on numerous factors, such as the need for domestic use, irrigation and generating power.

For example, an upstream owner of 66 acres of riparian land suitable for profitable irrigation is entitled to a smaller proportion of the water from a watercourse running through their land than a downstream owner of 96 acres of riparian land also suitable for profitable irrigation.11

Consider riparian land fronting a river or lake which is parceled. One of the parcels created has no frontage on the watercourse. The parcel is later conveyed without a provision in the deed transferring the riparian rights.

Here, the parcel conveyed without reference to its riparian rights loses its riparian land status forever. The conveyance of a parcel, severed from a larger parcel which has riparian rights, terminates the conveyed parcel’s riparian rights unless the rights are transferred by the deed which severed the parcel.

9 Gould, supra

10 Wat C §§2000, 2501

11 Half Moon Bay Land Co. v. Cowell (1916) 173 C 543

Water rights are

usufructuary

Competing water

rights and allotments

State Water Resources Control Board Government entity established to ensure the proper allocation and efficient use of state water resources.

Termination of riparian

rights

Chapter 36: Water Rights 259

Even if the severed parcel is eventually conveyed to waterfront owners of portions of the original riparian tract, the severed parcel’s status remains nonriparian.12

The right to the use of water located within the state of California may be acquired by appropriation by applying for a permit from the Board 13

On the approval of an application for an appropriation permit by the Board, the permit is issued granting the appropriator the right to use water only to the extent and for the purpose described in the permit.14

Waters flowing underground or surface waters flowing in natural channels in excess of the entitlement of riparian, overlying and previously appropriated water rights are considered the public water of the State of California. These excess waters are subject to appropriation by anyone.15

Prescriptive rights to the use of water can be established when a person wrongfully appropriates nonsurplus water openly and adversely for an uninterrupted period of five years, and does so without documentation or evidence of a legal right.

Riparian and overlying owners may interrupt anyone trying to obtain prescriptive rights by continuing to use their allotment of water.16

12 Anaheim Union Water Co., supra

13 Wat C §102

14 Wat C §1381

15 Wat C §1201

16 City of Barstow, supra

Appropriation and prescriptive rights by non-riparian owners

prescriptive right The right to use water established by appropriating nonsurplus water openly and adversely for an uninterrupted period of five years without documentation of a legal right.

Water is characterized as surface water and ground water. Holders of rights to withdraw surface water have riparian rights and holders of rights to pump ground water have overlying rights. A riparian landowner cannot divert water to non-riparian land or bar others from their riparian rights.

Those with riparian rights do not legally own the water, but hold the right to the reasonable use of the water. Riparian water rights cannot be lost by disuse.

The right to the use of water located within the state of California may be acquired by appropriation, which involves applying for a permit from the State Water Resources Control Board, or by wrongfully appropriating non-surplus water openly and adversely for an uninterrupted period of five years.

Chapter 36 Summary

260 Real Estate Principles, Second Edition

Quiz 7 Covering Chapters 31-36 is located on page 612.

overlying right ........................................................................... pg. 256 prescriptive right ....................................................................... pg. 259 riparian land ............................................................................... pg. 256 riparian right .............................................................................. pg. 255 State Water Resources Control Board ................................... pg. 258

Chapter 36 Key Terms

Chapter 37: Covenants, conditions and restrictions (CC&Rs) 261

After reading this chapter, you will be able to:

• understand the limitations and restrictions on use mutually agreed to by all property owners in a subdivision documented in the Covenants, Conditions and Restrictions (CC&Rs);

• distinguish between affirmative and negative covenants; • determine when a covenant runs with title to the land; and • understand the circumstances by which CC&Rs may be amended

or removed if they pose an unlawful restriction.

Covenants, conditions and restrictions (CC&Rs)

Chapter

37

Developers subdivide land into two or more horizontal or vertical sections called lots, parcels or units. Having created a subdivision, developers place restrictive covenants on how the lots may be used by later owners, called successors.

Use restrictions are usually contained in a document called a Declaration of Covenants, Conditions and Restrictions (CC&Rs). CC&Rs are typically recorded with the original subdivision map.

Recorded documents in the chain of title to a parcel of real estate place a buyer on constructive notice of their contents.

Recording restrictive covenants

covenants, conditions and restrictions (CC&Rs) Recorded restrictions against the title to real estate prohibiting or limiting specified uses of the property.

affirmative covenant

Covenants, conditions and restrictions (CC&Rs)

negative covenant

Learning Objectives

Key Terms

For a further discussion of this topic, see Chapter 16 of Legal Aspects of Real Estate.

262 Real Estate Principles, Second Edition

A prospective buyer of a home in a subdivision protects themselves from unknowingly buying property burdened with unwanted restrictions by reviewing a preliminary title report (prelim) prior to acquiring a property. A prelim discloses the results of the title company’s search of the property’s title history. [See Chapter 51]

The prelim functions with the very limited purpose of the title company’s revocable offer to issue a title policy. As a customer service, title companies supply copies of any CC&Rs of record to buyers or their agents on request.

A recorded restriction can limit the use of a property to a specific purpose (e.g., a school, railroad, highway, dwelling or irrigation system). This type of restriction is classified as an affirmative covenant.

Another type of recorded restriction prohibits identified uses of the property. Prohibitive restrictions are classified as a negative covenant. For example, a typical negative covenant prohibits the sale of alcoholic beverages or other activities otherwise allowed to take place on the property.

Recorded CC&Rs bind future owners of the subdivided lots, a scheme referred to as covenants running with the land.

For a covenant to run with the land and affect title and future owners, the restriction needs to directly benefit the property. Thus, to benefit one lot, all lots within the subdivision need to be burdened by the restriction.1

Consider a restriction limiting the use of all subdivision lots to single family residences (SFRs). The use restriction equally benefits and burdens each lot in the subdivision, assuring consistent and compatible use throughout the subdivision — a benefit with an advantageous effect on each property. Since it benefits every lot, the restriction runs with the title to each lot and affects all future owners.2

However, consider a subdivider who sells a beachfront lot while retaining ownership of the surrounding lots in the subdivision. The grant deed conveying the beachfront lot to the buyer contains a use restriction, stating the buyer can only operate a hotel or yachting clubhouse on the lot.

The buyer, unable to develop the property for the purposes set out in the use restriction, sells the lot to a developer who plans to use the property for a ferry landing service. The subdivider seeks to prohibit the developer from conducting a business which violates the restrictive use covenant in the recorded grant deed to the original buyer.

Can the subdivider enforce the covenant entered into by the original buyer and stop the developer from using the lot for a ferry service?

1 Calif. Civil Code §1462

2 Miles v. Hollingsworth (1919) 44 CA 539

Covenants specifying

use are affirmative

affirmative covenant A recorded restriction limiting the use of a property to a specific purpose.

negative covenant A recorded restriction prohibiting identified uses of a property.

CC&Rs and future owners

Chapter 37: Covenants, conditions and restrictions (CC&Rs) 263

No! The use restriction provides no benefit to the beachfront lot since it merely imposes a burden on the original buyer who agreed to limit their use of the property. Enforcement of the restriction is further limited due to its lack of wording binding the buyer’s successors in interest to the restrictive covenant.

The restriction is only enforceable as long as the original buyer holds title. Thus, it is classified as a personal covenant. Since the restriction against use is a personal promise, it does not run with the land and cannot be imposed on the developer who reacquired title.

Restrictions on selling, leasing or encumbrancing real estate may not unreasonably restrict the marketability of the property, even if the restriction is contained in a trust deed or lease agreement.3

However, due-on-sale clauses contained in a trust deed are no longer controlled by California law and, under federal mortgage law, are enforceable on the transfer of any interest in the real estate, except:

• short-term leases up to three years not coupled with a purchase option; and

• intra-family transfers of one-to-four unit, owner-occupied residential property on the death of an owner or for equity financing.4

CC&Rs on the installation or use of a solar energy system are unenforceable if the restrictions significantly increase the cost of the system or decrease its efficiency by:

• resulting in more than a 20% increase in the installation cost of the system; or

• decreasing the operating efficiency of the solar system by more than 20%.5

3 CC §711

4 12 Code of Federal Regulations §591.5(b)

5 CC §714

Unenforceable or unreasonable CC&Rs

264 Real Estate Principles, Second Edition

Quiz 8 Covering Chapters 37-43 is located on page 613.

Restrictive use covenants are contained in a subdivision’s Declaration of Covenants, Conditions and Restrictions (CC&Rs). A recorded restriction limiting the use of a property to a specific purpose is referred to as an affirmative covenant. A recorded restriction prohibiting identified uses of a property is classified as a negative covenant.

Recorded CC&Rs bind future owners of the subdivided lots, referred to as running with the land. For a covenant to run with the land and affect future owners, the restriction must directly benefit the property.

Restrictions on selling, leasing or encumbrancing real estate may not unreasonably restrict the marketability of a property, except as controlled by federal mortgage law under due-on clause enforcement.

affirmative covenant ................................................................ pg. 262 covenants, conditions and restrictions (CC&Rs) ................ pg. 261 negative covenant ..................................................................... pg. 262

Chapter 37 Summary

Chapter 37 Key Terms

Chapter 38: Common boundary structures 265

After reading this chapter, you will be able to:

• identify common boundaries and common boundary improvements; and

• understand the types of common boundaries and the rights of adjacent property owners relative to them.

Learning Objectives

Common boundary structures

Chapter

38

Most properties have three property lines setting the common boundary with adjacent properties owned by others. A fourth property line usually sets the frontage on a public right of way, such as a street.

The location of the common property lines might be represented by an improvement which acts as a demarcation of the property line, called a common boundary improvement.

A common boundary improvement may be a:

• party wall;

• boundary fence;

• tree line;

• driveway; or

• ditch.

Shared rights and responsibilities

common boundary improvement An improvement which acts as a demarcation of the property line.

common boundary improvement

common boundary trees

nuisance

party wall Key Terms

For a further discussion of this topic, see Chapter 9 of Legal Aspects of Real Estate.

266 Real Estate Principles, Second Edition

Prospective buyers interested in a property are concerned about the ownership of any common boundary improvements and who is responsible for their maintenance.

The rights of the adjacent property owners when setting up, maintaining or removing common boundary improvements depend on the type of improvement which exists.

Common boundary improvements, other than trees, located on a property line between adjacent properties are called party walls.

A party wall may be in the form of a wall, fence or building wall co-owned by the adjacent property owners.

The use and ownership of a party wall is best set forth in a written agreement between adjacent property owners. The agreement defines each owner’s responsibility for sharing the cost of maintaining the party wall. However, these written agreements rarely exist.

An adjoining property owner cannot remove or destroy a party wall without the consent of the other owner since each has an interest in the party wall.

An owner can alter a party wall, such as installing cosmetic ornamentation on their side, as long as they do not injure the wall or interfere with the adjoining property owner’s use of the party wall.1

For security and privacy purposes, many properties are fenced in by a boundary fence. A boundary fence may be a party wall co-owned by the adjacent property owners.

If an owner who leaves their land unfenced later decides to enclose it by using the existing fence as part of the enclosure, they need to compensate the neighbor who built the fence for the pro rata value of the neighbor’s fence used by the owner.2

Owners of adjoining properties are presumed to benefit equally from boundary fences. Under this presumption, all adjoining owners are equally responsible for constructing, maintaining and replacing boundary fences.3

The responsibility for constructing, maintaining or replacing boundary fences may be altered or removed only by:

• a written agreement between all affected owners [See RPI Form 323]; or

• an adjoining owner’s judicial petition to remove or alter their responsibility.

1 McCarthy v. Mutual Relief Ass’n of Petaluma (1889) 81 C 584; Tate, supra

2 CC §841(2)

3 CC §841(b)(1)

Party walls are owned by

both

party wall A common boundary improvement located on a property line between adjacent properties, such as a wall, fence or building co-owned by the adjacent property owners.

Boundary fences

and cost contributions

Maintaining the Good Neighbor

Fence

Chapter 38: Common boundary structures 267

Trees are:

• solely owned;

• government owned; or

• commonly owned.

A tree’s ownership is determined by the location of its trunk.

Solely owned trees belong to the owner of the property on which the trunk is growing.4

Trees growing on government-owned parcels, such as a right of way for streets and sidewalks, belong to the local government.

However, shrubbery or trees whose trunks stand partly on the land of two adjacent property owners belong to the adjacent owners as tenants in common. These trees are called line trees or common boundary trees.5

Adjacent owners who own line trees as tenants in common are jointly responsible for maintaining the trees.6

Co-owners of boundary trees, as adjoining property owners, both enjoy the use of the trees.

The use allowed a co-owner of boundary trees is the same as the use allowed the owner of solely-owned trees, as long as the use does not interfere with the other co-owner’s use and enjoyment of the trees.

To avoid disputes, adjacent property owners enter into an agreement detailing how they will handle the maintenance of boundary trees.

If a boundary tree injures the health and safety of a property owner or prevents them from enjoying their property, the tree may constitute a nuisance and can be removed.7

A co-owner of a boundary tree might refuse to consent to the removal of a boundary tree. If the tree constitutes a nuisance, an abatement of the nuisance is allowed.

For example, boundary trees may be a nuisance if their branches or the trees themselves continually fall, threatening the safety of people using the adjacent property or damaging improvements on the adjacent property.8

4 CC §833

5 CC §834

6 CC §841

7 CC §3479

8 Parsons v. Luhr (1928) 205 C 193

common boundary trees Shrubbery or trees with trunks which stand partly on the land of two adjacent properties belonging to the adjacent owners.

Sharing boundary trees

Remedies

nuisance An action which is injurious to health, offensive to the senses, or obstructs the use and enjoyment of surrounding property. [See RPI Form 550 §6.7 and 552 §7.3]

Line trees, a trunk with common owners

268 Real Estate Principles, Second Edition

Quiz 8 Covering Chapters 37-43 is located on page 613.

Most properties have three property lines setting the common boundary. The location of the common property lines are frequently represented by a common boundary improvement. The rights of adjacent property owners when setting up, maintaining or removing common boundary improvements depend on the type of improvement which exists.

A party wall is a type of common boundary improvement which is co- owned by the adjacent property owners. The owners share the cost of maintaining the party wall.

Shrubbery or trees whose trunks stand partly on the land of two adjacent property owners are called common boundary trees. Much like party walls, co-ownership of common boundary trees includes maintenance of the trees. Additionally, co-owners cannot alter or remove party walls or common boundary trees without the consent of the other co-owner.

common boundary improvement ........................................ pg. 265 common boundary trees .......................................................... pg. 267 nuisance ....................................................................................... pg. 267 party wall .................................................................................... pg. 266

Chapter 38 Summary

Chapter 38 Key Terms

Chapter 39: Encroachments: crossing the line 269

After reading this chapter, you will be able to:

• determine whether an encroachment exists extending onto real estate belonging to another person without their consent; and

• understand and apply any remedies available to an owner of property burdened by an encroachment.

Learning Objectives

Encroachments: crossing the line

Chapter

39

Consider an owner of an unimproved parcel of real estate. Shortly after their purchase, the owner discovers the garage on their neighbor’s property extends two feet over the boundary line onto the owner’s property, called an encroachment.

The owner demands the neighbor remove the encroachment. The neighbor claims the improvement does not need to be removed since:

• the encroachment was unknown and unintentional;

• the square footage of the owner’s property affected by the encroachment is minor; and

• the cost to remove the garage would far exceed the monetary loss to the owner if the encroachment were allowed to continue.

Boundaries violated and hardships balanced

encroachment An improvement on one parcel of real estate which extends onto real estate owned by another.

boundary dispute

encroachment

laches

nuisance

trespass Key Terms

For a further discussion of this topic, see Chapter 10 of Legal Aspects of Real Estate.

270 Real Estate Principles, Second Edition

Can the owner obtain a court order forcing the removal of the encroaching garage?

No! The encroachment is unintentional and minor in its effect on the burdened owner. Thus, the burden to the owner does not justify ordering the neighbor to undertake an expensive reconstruction activity.

Instead, the owner is awarded money losses based on the rental value for the lost use of their property. Further, the neighbor is granted an easement over the owner’s property for the life of the garage.1 [See Chapter 40]

For the neighbor to be allowed to maintain the encroachment, the neighbor is required to have acted in good faith when building the improvements. This means the neighbor needs to have constructed the improvements without knowledge they encroached on the owner’s property. If the neighbor had not constructed the improvements in good faith, the owner is entitled to a court order called an injunction forcing the removal of the encroaching structure –no matter how minor the encroachment.

Also, for the owner to recover money losses for the encroachment, they have to act within a three-year period of the statute of limitations. If the owner delays too long in making their claim, the encroaching neighbor earns the right to maintain the encroachment without paying rent or lost value.

Even if a new owner of a property burdened by an encroachment seeks an injunction or money losses from the neighbor immediately after acquiring the property, their action can be barred by the three-year statute of limitations.

The limitations period does not run from the discovery of the encroachment or the acquisition of the property. Instead, it begins to run from the creation date of the encroachment.

Although the owner may not recover money losses from the neighbor, they may recover losses from the seller due to the seller’s failure to disclose the existence of the known encroachment. The loss is based on the diminished value of the property and the excess purchase price paid.

An encroachment is an improvement on real estate which extends onto real estate belonging to another person without their consent. Thus, encroachments frequently take the form of a:

• building;

• fence;

• driveway; or

• tree.

1 Christensen v. Tucker (1952) 114 CA2d 554

Statute of limitations

Encroachment, trespass and

nuisance

Chapter 39: Encroachments: crossing the line 271

The concept of encroachment is closely related to trespass, nuisance and boundary disputes. All involve an interference with another person’s property rights.

An encroachment qualifies as a nuisance. Nuisance is broadly defined as any obstruction of another’s use and enjoyment of their real estate. [See Chapter 45]

An encroachment also constitutes a trespass when it actually rests on the ground of the neighbor’s property. [See Chapter 43]

However, the names used to describe interferences are unimportant. One way or another, an owner is entitled to recover for an unauthorized interference with their property rights.

Once an encroachment has been determined, the remedies available to the owner include:

• an injunction ordering the removal of the encroaching structure; or

• money losses for the diminished value of the property.

All that is needed to establish the existence of an encroachment is a survey locating the property line. If an improvement on one parcel extends over the line onto an adjacent parcel, it is an encroachment.

Occasionally, neighboring owners disputing the existence of an encroachment rely on contradictory surveys to establish the property line. If the owners cannot agree on the location of the property line, the boundary dispute is to be resolved before any remedy for the encroachment can be granted.

Boundary disputes are most frequently resolved by a court. The court determines which of the surveys is more accurate.2

An owner is entitled to terminate or prevent an unauthorized intrusion onto their real estate. However, when a building or other substantial improvement encroaches on an owner’s property, the neighbor’s cost of removing the encroachment may far exceed the damage inflicted on the owner burdened by the encroachment.

Thus, the encroachment is allowed to continue and the owner is awarded money losses for the lost use of their property, called balancing hardships or balancing equities.

The conditions for balancing hardships — i.e., merely granting money losses and allowing an encroachment to continue — are:

• the owner of the property affected by the encroachment may not suffer an irreparable injury due to the continued existence of the encroachment;

2 Iacovitti v. Fardin (1954) 127 CA2d 348

nuisance An action which is injurious to health, offensive to the senses, or obstructs the use and enjoyment of surrounding property. [See RPI Form 550 §6.7 and 552 §7.3]

trespass Any wrongful and unauthorized entry onto real estate in the possession of another.

Drawing the line

boundary dispute When owners of neighboring property cannot agree on the location of the dividing property line.

Balancing the hardships

272 Real Estate Principles, Second Edition

• the neighbor who owns the encroaching structure needs to have acted innocently and in good faith; and

• the cost to the neighbor of removing the encroachment needs to greatly exceed the damage done to the owner.3

The good faith of a neighbor who constructs improvements which encroach on the land of another needs to exist before any balancing of the hardship can take place. Thus, the good faith requirement prevents an intentional exploitation of the balancing hardships rule.

When the continuance of an encroachment on an owner’s property is allowed, the encroaching neighbor is granted an equitable easement to maintain the improvement on the owner’s property. [See Chapter 41]

Further, the neighbor needs to compensate the owner for the rental value of the lost use of their property. The easement lasts for the lifetime of the encroachment.

An owner seeking to terminate an encroachment or recover money losses is subject to a three-year statute of limitations running from the commencement of the encroachment.4

The limitations period for an encroachment is the same as for a permanent nuisance since the damage to the owner is complete and certain as soon as the encroachment is created. [See Chapter 45]

The limitations period runs from the creation of the encroachment, not its discovery. Whether or not an owner has knowledge an encroachment exists does not affect the statute of limitations.5

However, where damage resulting from an encroachment is progressive over time, the three-year statute of limitations does not apply from the date of creation.

For instance, an owner’s building is damaged when a neighbor’s building leans on it, due to a poorly compacted fill. The degree of the tilt, and the resulting damage, increases over time.

More than three years after the damage commences, the owner seeks to recover money losses from the neighbor. The neighbor claims the owner is barred from recovering money losses due to the running of the three-year limitations period.

However, the intrusion on the owner’s building is continuous and progressive — a further intrusion. As with a continuing nuisance, a new claim accrues each time the loss increases. Thus, while the three-year statute

3 Christensen, supra

4 Bertram v. Orlando (1951) 102 CA2d 506

5 Castelletto v. Bendon (1961) 193 CA2d 64

The encroachment

easement

Limitations and delay

Chapter 39: Encroachments: crossing the line 273

of limitations does apply, it does not begin to run on the commencement of the encroachment, but runs from the date of the last increase in damage from the progressively increasing encroachment.6

In addition to barring relief due to the statute of limitations, an action seeking money losses or an injunction against an encroachment can be barred by the equitable doctrine of laches, also called prejudicial delay or detrimental reliance.

A property owner loses their right to enforce the removal of an encroachment or recover money against the encroaching neighbor if the owner delays in making the claim, causing the neighbor to rely on the owner’s acquiescence to their detriment.

6 Kafka v. Bozio (1923) 191 C 746

laches An unreasonable delay which bars pursuit of a claim.

274 Real Estate Principles, Second Edition

An encroachment is an improvement on real estate, such as a building, fence, driveway or tree, which extends onto real estate belonging to another person without their consent.

Once an encroachment has been determined, the burdened owner may seek an injunction ordering the removal of the encroachment, or money losses for the diminished value of the property.

For the owner to recover money losses for the encroachment, they have to act within a three-year period of the statute of limitations, unless the losses due to an encroachment are progressive over time. If the owner delays too long before making their claim, the encroaching neighbor earns the right to maintain the encroachment without paying money. The limitations period does not run from the discovery of the encroachment, but from the creation date of the encroachment.

boundary dispute ...................................................................... pg. 271 encroachment ............................................................................. pg. 269 laches ............................................................................................. pg. 273 nuisance ........................................................................................ pg. 271 trespass .......................................................................................... pg. 271

Chapter 39 Summary

Chapter 39 Key Terms

Quiz 8 Covering Chapters 37-43 is located on page 613.

Chapter 40: Easements: running or personal 275

After reading this chapter, you will be able to:

• understand the tenement relationship between two parcels of real estate created by an easement;

• distinguish an appurtenant easement, which belongs to land, from an easement in gross, which belongs to an individual; and

• comprehend different easements for air, light, view, sun or conservation.

Easements: running or personal

Chapter

40

An easement is the right of one property owner to use the property of another.

The most common easement is used for ingress and egress. An easement for ingress and egress creates a right of way allowing one property owner to traverse a portion of another’s land to access their property.

Rights in another’s property

easement The right to use another’s property for a specific purpose.

appurtenant easement

conservation easement

dominant tenement

easement

easement in gross

ingress and egress

servient tenement

solar easement

Learning Objectives

Key Terms

For a further discussion of this topic, see Chapter 13 of Legal Aspects of Real Estate.

276 Real Estate Principles, Second Edition

An easement creates a tenement relationship between two parcels of real estate since it:

• benefits one property, referred to as the dominant tenement, whose owner is entitled to use the easement; and

• burdens another property, referred to as the servient tenement, the owner’s use of which is subject to the easement.

When an owner whose property is burdened by an easement interferes with the use of the easement by a neighbor whose property benefits from the easement, the neighbor is entitled to have the use of the easement reinstated. The easement is reinstated by either removal, relocation or modification of the interference.

Further, the neighbor who holds the easement is entitled to compensation for their money losses caused by the servient tenement owner’s obstruction of the neighbor’s use of the easement.1

An easement burdening an owner’s property as an encumbrance on their title is classified as either:

• an appurtenant easement, meaning the allowed use belongs to and benefits an adjacent property and is said to run with the land as an interest the adjacent property holds in the burdened real estate; or

• an easement in gross, meaning it belongs to an individual, not land, as their personal right to a specified use of the burdened real estate.

An appurtenant easement is incidental to the title of the property which benefits from its use. An easement is not reflected as a recorded interest on the title to the parcel of land it benefits. Nor is it a personal right held by a particular individual who may now or have previously owned the parcel benefiting from the easement.

Accordingly, an appurtenant easement is recorded as an encumbrance on title to the burdened property. The easement remains on the property’s title after a conveyance to new owners of either the benefitting or burdened property. To be enforceable, the easement does not need to be referenced in the grant deed conveying either property to new owners since it runs with the land.2

Conversely, an easement in gross benefits a particular person – not the real estate owned by that person. An easement in gross is personally held only by the individual who may use the easement. No parcel of real estate may benefit from an easement in gross since only the individual holding the easement can benefit.

An easement in gross is a personal right that is not transferred with the sale of real estate owned by the holder of the easement. However, the right can

1 Moylan v. Dykes (1986) 181 CA3d 561

2 Moylan, supra

dominant tenement The property benefitting from an easement on a servient tenement.

servient tenement A property burdened by a license or easement.

Appurtenant or in gross:

does the easement

run?

appurtenant easement A type of easement which is incidental to the ownership and belongs to the property which benefits from its use.

easement in gross An easement which belongs to an individual and is not appurtenant to a property.

ingress and egress Access to a property by its owner directly from publicly dedicated streets or by using their right to traverse a portion of another’s land using an easement.

Chapter 40: Easements: running or personal 277

be transferred by the easement holder to another person by a writing — unless the transfer of the easement in gross is prohibited by a provision in the document creating the easement.3

A property owner has no automatic right, and cannot acquire a prescriptive right, to air, light or an unaltered view over neighboring properties.

However, a property owner can hold an easement created by a grant which restricts a neighbor’s ability to erect or maintain any improvement which interferes with the owner’s right to air, light or view. The easement might be the result of conditions, covenants and restrictions (CC&Rs) which blanket several properties with use restrictions, such as restrictions on height.

Easements for light, air and view can only be established by written agreement between neighboring owners, not by implication or prescription.4

A relatively recent type of easement is the solar easement. Solar easements were established with the intent of encouraging the productive use of solar energy systems as a matter of public policy.

A solar easement granted in a written instrument needs to state:

• the measured angles by which sunlight is to pass;

• the hours of the day during which the easement is effective;

• the limitations on any object which would impair the passage of sunlight through the easement; and

• the terms for terminating or revising the easement.5

Solar easements are similar to easements of light, air or view since they restrict an owner’s ability to maintain any improvements interfering with a neighbor’s solar energy system.

A conservation easement is a voluntary conveyance of the right to keep the land in its natural, scenic, historical, agricultural, forested or open- space condition. It is conveyed by an owner of real estate to a conservation organization or government agency. A conservation easement can be created in the form of an easement or CC&R, by use of a deed, will or other instrument to convey the easement.6

Conservation easements are perpetual in duration and thus are binding on all successive owners of the property burdened by the conservation easement.7

3 LeDeit v. Ehlert (1962) 205 CA2d 154

4 Petersen, supra

5 Calif. Civil Code §801.5

6 CC §815.1

7 CC §§815.1, 815.2(b)

Easements for light, air or view

Solar easements and shady neighbors

solar easement An easement restricting an owner’s ability to maintain improvements interfering with a neighbor’s solar energy system.

conservation easement A voluntary conveyance of the right to keep land in its natural or historical condition to a conservation organization or government agency.

Conservation easements

278 Real Estate Principles, Second Edition

An easement is the right of one property owner to use the property of another. An easement creates a relationship between two parcels of real estate as it benefits one property whose owner is entitled to use the easement, and burdens another property subject to the easement.

An easement is classified as either an appurtenant easement or an easement in gross. An appurtenant easement belongs to and benefits adjacent property and runs with the land. An easement in gross belongs to an individual, not land, and is a personal right.

Property owners can hold an easement restricting a neighbor’s ability to interfere with the owner’s right to air, light or view. Specifically, solar easements restrict an owner’s ability to maintain any improvements interfering with a neighbor’s solar energy system.

A conservation easement is a voluntary conveyance of the right to keep land in its natural, historical, or open-space condition to a conservation organization or government agency.

appurtenant easement .............................................................. pg. 276 conservation easement ............................................................. pg. 277 dominant tenement ................................................................... pg. 276 easement ....................................................................................... pg. 275 easement in gross ....................................................................... pg. 276 ingress and egress ....................................................................... pg. 276 servient tenement ...................................................................... pg. 276 solar easement ............................................................................. pg. 277

Chapter 40 Key Terms

Quiz 8 Covering Chapters 37-43 is located on page 613.

Chapter 40 Summary

Chapter 41: Creating an easement 279

After reading this chapter, you will be able to:

• understand how an easement is created in favor of one parcel of real estate and as a burden on another parcel;

• apply the requirements for creating an implied easement and an easement of necessity; and

• distinguish a prescriptive easement from a claim of adverse possession.

Learning Objectives

Creating an easement

Chapter

41

The basic method for creating an easement is by a writing. Any document which may be used to convey a legal interest in real estate may be used to create an easement.

An easement can be created between the benefitting and burdened properties in an:

• easement agreement;

• will;

• grant deed;

• easement deed;

• quitclaim deed;

• lease;

By grant, reservation or implication

easement by necessity

implied easement

prescriptive easement Key Terms

For a further discussion of this topic, see Chapter 14 of Real Estate Legal Aspects.

280 Real Estate Principles, Second Edition

• order of the court; or

• covenants, conditions and restrictions (CC&Rs).

While the document creating an easement does not have to be recorded, an unrecorded easement is no longer enforceable when the owner of the burdened property sells it to a buyer who is not charged with knowledge of the easement, called a bona fide purchaser (BFP).

An easement is created in a conveyance either by:

• grant; or

• reservation.

For example, the owner of adjacent parcels of real estate may sell one parcel to a buyer and further grant the buyer an easement over the parcel retained by the owner.

Alternatively, an owner of adjacent parcels may sell a parcel, and in the grant deed conveying the parcel to the buyer, reserve to themselves an easement on the parcel conveyed for the benefit of the parcel the owner retained.

An easement can be created by conduct without any prior agreement between the owner and the user, called an implied easement.

Implied easements exist when the circumstances surrounding an owner’s division of their property and sale of a portion of the property imply the owner (grantor) and the buyer (grantee) intended either:

• the grant of an easement on the portion retained by the owner; or

• the reservation of an easement by the owner on the portion sold.1

For an implied easement to exist, the easement needs to be reasonably necessary for the beneficial use of the parcel whose owner is seeking to establish the easement.

The terms “reservation” and “exception” in conveyances of real estate are used to distinguish whether the legally described reservation (easement) or exception (ownership) is:

• created as a burden on the property conveyed for the beneficial use of another property, such as an easement by reservation; or

• retained from the parcel conveyed as property of the seller, an exception for land which is not transferred on the conveyance of a portion of a larger parcel.

Regardless of how an implied easement is created, it is always a burden on one parcel of land for the benefit of another parcel.

1 Calif. Civil Code §1104; Palvutzian v. Terkanian (1920) 47 CA 47

Conduct creates an implied easement

implied easement An easement created by the conduct of parties without prior agreement.

Easement or fee title

conveyed by deed

Implied is appurtenant

Chapter 41: Creating an easement 281

Thus, an implied easement is always an appurtenance allowing the owner of the property benefitting from the easement to use the property of another which is burdened by the easement.

Most disputes over implied easements occur after the property burdened by the easement has been deeded out to one or more new owners.

To be entitled to an implied easement, the owner claiming the implied easement is to establish their right of use in another property existed when one of the parcels was conveyed to a buyer by the common owner of both parcels.

An easement by necessity is a variation of an implied easement. The demand for an easement by necessity arises when property is landlocked. Access to and from a public roadway across all adjacent properties is denied in landlocked property for the lack of the ability to create an easement by agreement or prior conduct.

Since public policy favors the productive use of land, an easement by necessity will be created when property is landlocked.2

However, to establish an easement by necessity, the user needs to:

• show strict necessity; and

• defend against any claim that the property was intended to be landlocked.

Strict necessity requires the easement to be the only possible means of access.3

Consider a property owner who has used a roadway on an adjoining property to access their vacation home for over five years. The owner has never received permission from the neighbor to use the roadway.

The neighbor sells their property to a buyer who informs the owner they can no longer use the roadway.

The owner claims their open and continuous use of the road to access their property for more than five years entitles them to a right-of-way easement over the adjoining property.

Is the owner entitled to a roadway easement over the adjoining property owned by the buyer?

Yes! A prescriptive easement is established by the adverse use of another’s property for a period in excess of five years.4

An easement created by prescription is similar to acquiring land by adverse possession. [See Chapter 43]

2 Reese v. Borghi (1963) 216 CA2d 324

3 Zunino v. Gabriel (1960) 182 CA2d 613

4 Thomson v. Dypvik (1985) 174 CA3d 329

Easements by necessity

easement by necessity An easement providing access to a landlocked property.

Prescription: easement by adverse use

prescriptive easement The right to use another’s property established by the adverse use of the property for a period in excess of five years without a claim of ownership.

282 Real Estate Principles, Second Edition

The basic method for creating an easement is by a writing. Easements are created in a conveyance either by grant or reservation.

The terms reservation and exception in conveyances of real estate are used to distinguish if an owner is reserving an easement for themselves over the property conveyed, or excepting a portion of a parcel from conveyance on the sale.

Implied easements exist when the circumstances surrounding an owner’s division of their property and sale of a portion of the property imply the owner and buyer intend either the grant of an easement for the buyer or the reservation of an easement for the owner.

An easement by necessity is a variation of an implied easement and arises when property is landlocked. In order to establish an easement by necessity, the owner must show strict necessity and defend against any claim that the property was intended to be landlocked.

A prescriptive easement is established by the adverse use of another’s property for a period in excess of five years. A prescriptive easement is distinct from adverse possession in that a prescriptive easement provides the right to use another’s property without a claim of ownership or payment of property taxes.

easement by necessity .............................................................. pg. 281 implied easement ....................................................................... pg. 280 prescriptive easement ............................................................... pg. 281

Chapter 41 Summary

Chapter 41 Key Terms

The difference is prescription establishes the right to the mere use of another’s property, whereas adverse possession is an actual taking of exclusive possession under a claim of ownership and the payment of property taxes.

To meet the legal requirements for acquiring an easement by prescription, the adverse use needs to be:

• obvious enough to give the owner of the property notice of the use;

• a continuous and uninterrupted pattern of use;

• a use unauthorized by the owner of the property;

• used under a claim of right; and

• used for a period of five-or-more years without the owner acting to terminate the adverse use.

The five-year requirement of uninterrupted use continues on the transfer of the benefitting property to a new owner as long as the new owner continues the same unauthorized use of the burdened adjoining property established by the previous owner, called tacking.

Quiz 8 Covering Chapters 37-43 is located on page 613.

Chapter 42: Termination of easements 283

After reading this chapter, you will be able to:

• identify how an easement burdening a property is extinguished by release, merger, destruction, forfeiture, prescription or abandonment; and

• distinguish the attributes of each method of extinguishment.

Learning Objectives

For a further discussion of this topic, see Chapter 15 of Real Estate Legal Aspects.

Termination of easements

Chapter

42

abandonment

forfeiture

merger

Key Terms

An existing easement can be extinguished. Once extinguished, the easement no longer affects the burdened property as an encumbrance on its title.

Methods used to extinguish an easement include:

• release of the easement by a deed from the owner of the property holding the appurtenant right to the easement;

• merger by the acquisition of fee title to both the benefitting and burdened properties by the same owner;

• destruction of the burdened property which permanently prevents any further use of the easement;

• forfeiture due to the easement holder’s abuse of their easement rights;

Extinguishing an easement

284 Real Estate Principles, Second Edition

• prescription due to the burdened property owner’s continuing interference with the easement; and

• abandonment by the conduct of the easement holder showing they do not intend to use their easement rights.

An owner of property benefitting from the use of an easement may voluntarily terminate it by releasing the easement to the owner of the burdened property.

The release can be accomplished by the use of a quitclaim or grant deed in favor of the owner of the burdened property, signed by the owner of the property holding the appurtenant right to use the easement.

A merger of legal interests comprising the servient and dominant tenement rights and obligations in two properties due to common ownership of both properties extinguishes an easement.

A merger occurs when the same owner acquires fee title to both the benefitting and burdened properties.

An owner cannot have an easement over their own property for the benefit of their own property. Thus, the easement is automatically extinguished on the common ownership of both the properties.1

However, no merger occurs when the owner of burdened property acquires a fractional interest in title to the benefitting property as a co-owner since the owner is not the sole owner of both properties.2

Additionally, acquiring a lien such as a trust deed encumbering either the benefitting or burdened property by the owner of the other property is not a merger of interests.

An easement is terminated by the destruction of the burdened property. Nonexistence of the burdened property renders the use of the easement impossible.

Consider an easement to use a stairway in an adjoining building. When the building burns down, the easement is extinguished since the owner is not required to rebuild the stairway.3

An easement is terminated by forfeiture when the easement holder exceeds their authorized use of the easement by placing an excessive burden on the property encumbered by the easement.

1 Calif. Civil Code §805

2 Cheda v. Bodkin (1916) 173 C 7

3 Cohen v. Adolph Kutner Co. (1918) 177 C 592

Release by deed to burdened property

Merger as an extinguisher

merger The termination of an easement when one owner acquires fee title to both the property benefitting from and the property burdened by an easement.

Extinguished by destruction

of property

Forfeiture for exceeding authority

Chapter 42: Termination of easements 285

For example, consider a subdivider who owns land entitling them to use a right-of-way easement over a neighbor’s property for access.

Later, the subdivider divides the property into several residential lots. For access, the subdivider constructs a road on the neighbor’s property within the legally described easement to a public road. Here, the increased use of the easement constitutes an excessive burden on the property it encumbers, and thus the easement is extinguished by forfeiture.4

An easement can be established by the adverse use of another’s property. Likewise, an easement can be extinguished by the burdened property owner’s use of the area within the easement which permanently interferes with their neighbor’s ability to use the easement.

An adverse use which terminates an easement is any act by the burdened property owner which permanently obstructs the beneficial use enjoyed by the holder of the easement.

Consider a subdivider who sells an unimproved parcel of land, granting the buyer a right-of-way easement for ingress and egress over an adjoining parcel. Later, the subdivider constructs a concrete block wall on the common boundary line which blocks any use of the easement by the buyer.

More than five years after the block wall was constructed, the buyer of the parcel benefitting from the easement seeks to quiet title to the right of way.

Here, the obstruction of the easement is an adverse use by the subdivider of the property burdened by the easement. Thus, the easement is extinguished since the subdivider totally interfered with the use of the easement for a period of five years.5

An easement can also be terminated through abandonment by the easement holder. The termination of an easement by abandonment is not easily established.

The easement holder’s actions need to demonstrate a clear intent to permanently abandon all future use of the easement, never to use it again.

4 Crimmins v. Gould (1957) 149 CA2d 383

5 Glatts v. Henson (1948) 31 C2d 368

forfeiture The termination of an easement when the easement holder exceeds their authorized use of the easement by placing an excessive burden on the property encumbered by the easement.

Prescription creates and destroys

Abandonment – never to use again

abandonment The termination of an easement when the easement holder’s actions demonstrate a clear intent to permanently abandon all future use of the easement. [See RPI Form 581]

286 Real Estate Principles, Second Edition

An existing easement can be extinguished, no longer affecting the burdened property as an encumbrance on its title.

Methods used to extinguish an easement include:

• release of the easement by a deed from the owner of the property;

• merger by the acquisition of both the benefitting and burdened properties by the same owner;

• destruction of the burdened property;

• forfeiture due to the easement holder’s abuse of their easement rights;

• prescription due to the burdened property owner’s continuing interference with the easement; and

• abandonment by the conduct of the easement holder showing they never intend to use their easement rights again.

abandonment .............................................................................. pg. 285 forfeiture ....................................................................................... pg. 285 merger ............................................................................................ pg. 284

Chapter 42 Key Terms

Chapter 42 Summary

Quiz 8 Covering Chapters 37-43 is located on page 613.

Chapter 43: Trespass: a violation of possession 287

After reading this chapter, you will be able to:

• identify the different types of trespass; and • understand the remedies a rightful occupant has against

trespassers.

Learning Objectives

Trespass: a violation of possession

Chapter

43

A trespass is any wrongful and unauthorized entry onto real estate in the possession of another.

Thus, a trespass is fundamentally an interference with another’s possession of real estate. It is distinct from any interference with title or an ownership interest.1

Anyone in possession of the property, such as the fee owner, a life estate owner, a tenant or even a person in wrongful possession, has the right to stop a trespass.2

A fee owner can even trespass on the property they own in fee simple when the property is in the legal possession of another person, such as a tenant.

1 Brenner v. Haley (1960) 185 CA2d 183

2 Allen v. McMillion (1978) 82 CA3d 211

Ejectment, liabilities and title risks

trespass Any wrongful and unauthorized entry onto real estate in the possession of another.

actual money losses

adverse possession

ejectment

nominal money losses

misdemeanor

trespass

Key Terms

For a further discussion of this topic, see Chapter 11 of Legal Aspects of Real Estate.

288 Real Estate Principles, Second Edition

When an entry is not privileged, it is considered a trespass. A trespasser incurs civil liability for the monetary amount of any losses or injury they cause to the occupant’s person, real estate or personal property.

Conversely, damage to the fee owner’s property caused by the person who is in rightful possession, such as a tenant, is not a trespass. If the damage is caused by someone in rightful possession, it constitutes waste since they have impaired the property’s value.3

An owner may bring an action for trespass against a trespasser even when the trespasser caused no actual injury by his presence in the owner’s property. If no injury has occurred, the owner may only recover nominal money losses from the trespasser. Nominal money losses are awarded when a wrong has taken place but has not resulted in a money loss.4

To recover actual money losses for a trespass, a rightful occupant needs to sustain a real, actual loss. Actual money losses recoverable for a trespass are based on:

• injury to the real estate;

• lost use of the property;

• personal injury; and

• injury to the occupant’s personal property.

A trespass does not require the trespasser’s direct physical presence on the property. A trespass can result from an indirect entry into another’s property, sometimes called trespass on the case.

For example, one can be liable on a trespass for losses caused by activities such as:

• depositing dirt or debris on another’s property;5

• leaving toxic waste on another’s property;6

• leaving personal property on real estate belonging to another;7

• diverting a river or surface waters across another’s property;8

• starting a fire and negligently allowing the fire to move onto a neighbor’s property;9 or

• allowing one’s animals to wander across another’s property.10

Besides recovering money losses, an owner can obtain a court ordered injunction to stop a person who is a continuing trespasser.

3 Smith v. Cap Concrete (1982) 133 CA3d 769

4 Staples v. Hoefke (1987) 189 CA3d 1397

5 Armitage v. Decker (1990) 218 CA3d 887

6 Mangini v. Aerojet-General Corporation (1991) 230 CA3d 1125

7 Herond v. Bonsall (1943) 60 CA2d 152

8 Salstrom v. Orleans Bar Gold Mining Co. (1908) 153 C 551

9 Elton v. Anheuser-Busch Beverage Group, Inc. (1996) 50 CA4th 1301

10 Montezuma Improvement Co. v. Simmerly (1919) 181 C 722

Trespasser liability for harm done

nominal money losses Monetary recovery when no injury has occurred.

actual money losses Monetary losses recovered for injury to the real estate, lost use of the property, personal injury or injury to the occupant’s personal property, also called damages.

Indirect trespass

Injunction to abate a

trespass

Chapter 43: Trespass: a violation of possession 289

A single isolated trespass is not a basis for an injunction. However, if seeking money losses would not prevent a trespass from being repeated in the future, the rightful occupant can obtain an injunction against the trespasser.11

In addition to liability for property damages, a trespasser may also incur criminal liability. Trespassing becomes a misdemeanor when the trespasser:

• refuses to leave the property on foot or in a vehicle when requested by the owner, the owner’s agent, a person in lawful possession of the property, or a law enforcement officer acting on request from the person entitled to possession;12

• enters and occupies the property without the rightful owner’s consent;13

• refuses to leave a transient occupancy establishment (hotel/motel/ vacation property) on the request of the owner or manager;14

• enters a private dwelling;15 or

• enters industrial property (such as an oil field, a gas or electric plant or a railroad yard) where posted signs forbid trespassing.16

A crime is not committed by merely entering another’s property, except when the property is a private residence or posted industrial property.

An owner’s first course of action when confronted with a trespasser is to simply request the trespasser to leave. If the trespasser does not leave when requested, they commit a misdemeanor.17

An owner may not forcibly eject a trespasser. To discourage disturbances of the peace caused by self-help, California law allows both tenants and trespassers to recover losses from the landlord or property owner for forcible entry and detainer — a forcible interference with an individual’s peaceful possession of a property, even if that individual’s possession is wrongful.18

An owner may only recover possession of their property from a trespasser through a court action, except when the trespasser is a transient occupant who failed to depart as agreed. The type of action brought to recover property depends on the type of possession held in the property.

For example, the action to recover possession of a property from a tenant in default on their lease obligations is referred to as an unlawful detainer (UD). In the case of a trespasser occupying property, the legal remedy is an ejectment action.

11 Standard Lumber Co. v. Madarys Planing Mill (1921) 54 CA 107

12 Calif. Penal Code §602(k), (n)

13 Pen C §602(m)

14 Pen C §602(s)

15 Pen C §602.5

16 Pen C §554

17 Pen C §602(l)

18 CCP §§1159, 1161, 1172

Criminal trespass on refusal to leave

misdemeanor A lesser crime punishable by a fine and/or county jail sentence.

Removing trespassers by ejectment

ejectment A civil action to recover possession or title to land from someone wrongfully in possession.

290 Real Estate Principles, Second Edition

Quiz 8 Covering Chapters 37-43 is located on page 613.

Ejectment is similar to a UD action but has less stringent proof of trespass requirements. The trespasser in an ejectment action, unlike the tenant in a UD action, never had legal possession of the property for an owner to have the trespasser legally removed.

In an action to eject a trespasser, an owner (or other occupant) needs to prove they have a superior right to possession of the property. The owner may then obtain a court order for the removal of the trespasser from their property, called a writ of possession. The court order is carried out by the sheriff, not the owner.19

A trespasser who occupies property without the consent of the owner can be ejected by a court order at any time and charged with a misdemeanor.20

However, a trespasser can acquire title to the entire property by adverse possession if they can maintain exclusive possession of the property as a trespasser for a period of five years. To establish title by adverse possession, the trespasser’s possession needs to be open and known to the owner, and the trespasser is to pay all property taxes.21

19 CCP §715.010

20 Pen C 602

21 Gilardi v. Hallam (1981) 30 C3d 317

Adverse possession and owner inattention

adverse possession A method of acquiring title to real estate owned by another by openly maintaining exclusive possession of the property for a period of five years and paying all property taxes.

A trespass is any unauthorized entry onto real estate in the possession of another. A trespasser incurs civil liability for the monetary amount of any losses or injury caused to the occupant’s person, real estate or personal property. If no injury has occurred, the occupant may recover nominal money losses from the trespasser.

A trespasser may incur criminal liability if they do not leave when requested since the trespass becomes a misdemeanor. When a trespasser does not leave when requested, the owner may recover possession of their property through a court action, except for a transient occupant who failed to depart as agreed. The type of action brought to recover property depends on the type of possession held in the property.

A trespasser may also acquire title to the property by adverse possession.

actual money losses ................................................................... pg. 288 adverse possession ..................................................................... pg. 290 ejectment ...................................................................................... pg. 289 nominal money losses ............................................................. pg. 288 misdemeanor ............................................................................... pg. 289 trespass .......................................................................................... pg. 287

Chapter 43 Summary

Chapter 43 Key Terms

Chapter 44: Nuisance: offensive, unhealthful or obstructive 291

After reading this chapter, you will be able to:

• identify what constitutes a nuisance per se;

• apply the balancing of the rights of neighboring property owners to determine whether a nuisance exists;

• distinguish between a nuisance and trespass;

• understand the different remedies available in the instance of a permanent or continuing nuisance.

Nuisance: offensive, unhealthful or obstructive

Chapter

44

A nuisance is anything which:

• is offensive to the senses;

• is injurious to health; or

• obstructs the use of property.1

Simply, a nuisance is any activity which interferes with an owner’s use and enjoyment of their property, including conditions which are unhealthy or offensive to the senses. A nuisance is broadly interpreted to encompass a wide variety of activities.

1 Calif. Civil Code §3479

nuisance An action which is injurious to health, offensive to the senses, or obstructs the use and enjoyment of surrounding property. [See RPI Form 550 §6.7 and 552 §7.3]

continuing nuisance

nuisance

nuisance per se

permanent nuisance

public nuisance

Learning Objectives

Key Terms

Interference with use and enjoyment

For a further discussion of this topic, see Chapter 12 of Legal Aspects of Real Estate.

292 Real Estate Principles, Second Edition

An activity becomes a nuisance based on either:

• a statutory provision identifying conduct that is a nuisance per se; or

• a balancing of the conflicting rights and interests of the neighboring property owners.

A nuisance per se is any activity specifically declared by statute to be a nuisance. If an activity is a statutory nuisance, it can be ordered stopped by a court without proof of its harmful or offensive effect.

The list of nuisances per se is wide and diverse, including:

• fences of excessive height unnecessarily exceeding ten feet, called spite fences;2

• the illegal sale of controlled substances;3

• fire hazards;4 and

• swimming pools which do not comply with statutory health and safety standards.5

Conversely, some activities are declared by statute not to be nuisances.

Activities done or maintained under the express authority of a statute, called statutory authority, cannot be nuisances. For example, the activities of a commercial agricultural processing plant are maintained under statutory authority and cannot constitute a nuisance.6

To determine whether a nuisance exists when an activity is not classified as a nuisance per se, a balancing of the rights of the neighboring property owners is applied.

Every owner is entitled to use their property for any lawful purpose. However, an owner is limited in their conduct since their permitted use may not unreasonably interfere with the right of others to use and enjoy their property.7

An owner’s use of their property often creates some degree of inconvenience for the occupants of neighboring properties. However, to constitute a nuisance, the inconvenience created by an owner’s use needs to be serious enough to be an improper interference with another’s use and enjoyment of their property.

A nuisance may be a public nuisance, a private nuisance or both.

A public nuisance is a nuisance which affects an entire segment of the public, such as a neighborhood.8

2 CC §841.4

3 CC §3479

4 Calif. Public Resources Code §4171

5 Calif. Health and Safety Code §116060

6 CC §§3482, 3482.6

7 CC §3514

8 CC §3480; Calif. Penal Code §370

Nuisance per se by statute

nuisance per se Any activity specifically declared by statute to be a nuisance, such as construction of fences of excessive height or the illegal sale of controlled substances.

Balancing rights:

inconvenient or improper

Public vs. private

nuisance

Chapter 44: Nuisance: offensive, unhealthful or obstructive 293

Stopping a public nuisance is the responsibility of state or local government authorities.

Officials may seek to:

• abate or enjoin the nuisance;

• recover money damages; or

• bring criminal misdemeanor charges against the offender responsible for the nuisance.9

A private property owner may not stop a public nuisance unless the public nuisance especially obstructs the owner’s use of their property, making the interference a private nuisance as well.10

For a private owner to abate a public nuisance by an injunction, they need to sustain injuries to themselves or their property which are different in kind from the interference or injuries sustained by the public at large.

The remedies for a public or private nuisance are:

• abatement, by suppression or termination of the interference;11 and

9 Pen C §372

10 CC §3493

11 CC §3495

public nuisance A nuisance affecting an entire segment of the public.

Remedies of suppression of money

Nuisance and trespass are closely related. The two categories overlap since both involve injury to or interference with the property rights of another. The distinction is based on whether a physical entry onto another’s property occurs.

Trespass requires a physical entry on another’s property which can be direct or indirect — i.e., the trespasser can either personally enter the property or deposit materials indirectly, such as dirt and debris from construction activity.

In contrast, a nuisance is an outside interference with an owner’s or tenant’s use and enjoyment of their property resulting from a condition or activity which physically remains outside the property.

Thus, trespass is based on an interference with the possession. A nuisance is an interference with the enjoyment of property since it affects the senses of the occupants.

For instance, noise is a nuisance to occupants of another property if the noise is loud, annoying and continuous. Noise is not a trespass since no physical invasion of property occurs, except for sound waves which affect the senses, not the property. The noise creates no interference with the possessory rights in another’s property and thus is not a trespass.

However, the distinction between nuisance and trespass does not mean the categories are mutually exclusive. Nuisance is broadly defined by statute as anything which is injurious to health or obstructs the use of property, regardless of whether the condition exists on or off the affected property. Thus, an invasion of property which qualifies as a trespass is also a nuisance if the trespass rises to an unhealthful or offensive condition.

Nuisance vs. trespass

294 Real Estate Principles, Second Edition

• an injunction and money losses in a civil action.12

An owner has the right to take self-help actions to end a private nuisance affecting their property if they can do so without creating a disturbance of the peace or causing injury.13

For instance, self-help abatement of a private nuisance typically occurs when an owner cuts off the limbs of a neighbor’s tree which encroach onto the airspace of their property. [See Chapter 39]

A civil action to end a nuisance involves seeking an injunction to stop the activity or condition creating the nuisance, money losses from those responsible for the nuisance, or both.

The money losses an owner seeks to recover for a neighbor’s nuisance are based on either:

• actual money losses for injury or loss of value to the owner’s real estate, or for injury to the owner; or

• intangibles, such as emotional distress and personal discomfort.

The type of money losses an owner can recover for property damage caused by a nuisance depends on whether the nuisance is permanent or continuing. A permanent nuisance exists when the nuisance cannot be abated at a reasonable cost and by reasonable means.14

Conversely, a continuing nuisance exists if the nuisance can be reduced or terminated at any time and at a reasonable expense.

The money losses inflicted by a permanent nuisance are determined at the time the permanent nuisance is created. Losses inflicted by a continuing nuisance are limited to the actual injuries suffered prior to termination of the nuisance.15

A permanent nuisance cannot be abated at a reasonable expense or by reasonable means. Thus, an owner’s only remedy is a recovery of money losses. The money losses are calculated based on the diminished value of the owner’s property caused by the nuisance.

For instance, a building on a neighbor’s property encroaches on the adjacent owner’s property. The encroachment is a permanent nuisance since it perpetually obstructs the use and enjoyment of the owner’s property and cannot be removed at a reasonable cost to the neighbor.

In balancing the rights of the adjacent owner and the encroaching neighbor, the cost to the neighbor to abate the nuisance by removing the encroaching improvements far exceeds the loss of the owner’s use. Thus, the owner is

12 CC §§3501, 3493

13 CC §3502

14 Mangini v. Aerojet-General Corporation (1996) 12 C4th 1087

15 Spar v. Pacific Bell (1991) 235 CA3d 1480

Permanent or continuing

nuisance

permanent nuisance A nuisance which cannot be abated at a reasonable cost and by reasonable means.

Permanent nuisance remedies

Chapter 44: Nuisance: offensive, unhealthful or obstructive 295

entitled to monetary compensation for the lost use of the portion of their property hindered by the encroachment, but cannot abate the encroachment itself.16

In the case of a permanent nuisance, an owner can recover money losses equal to the permanent decline in the property’s value caused by the nuisance.

However, recovery for a continuing nuisance cannot include lost property value since the nuisance can be entirely eliminated. The condition causing the diminished value will no longer exist once the nuisance is removed. Thus, no permanent loss in value occurs to be recovered.17

The primary remedy for a continuing nuisance is an abatement to remove the nuisance or an injunction ordering the nuisance to be stopped.

In addition to an injunction, other money losses which can be recovered by the owner are limited to:

• the lost use of the property until the nuisance is abated, such as rental value;

• the costs incurred to remedy the damage done by the nuisance to the owner’s real estate;

• the cost of cleanup or repairs necessary to eliminate the nuisance; and

• any expenses incurred due to personal injury or emotional distress caused by the nuisance.

Under the statute of limitations, an action on a permanent nuisance is required to be brought within three years after the nuisance becomes permanent.

In the case of a continuing nuisance, a new cause of action accrues and the three-year statute of limitations begins to run anew each day the nuisance continues, or when further damage is inflicted on the property.

16 Christensen v. Tucker (1952) 114 CA2d 554

17 Alexander, supra

Continuing nuisance remedies

continuing nuisance An ongoing nuisance that can be entirely eliminated by those adversely affected by the activity or condition.

Statute of limitations on recovery

296 Real Estate Principles, Second Edition

A nuisance is anything which is offensive to the senses, injurious to health or obstructs the use of property.

A nuisance per se is any activity specifically declared by statute to be a nuisance. Conversely, when an activity is not a nuisance per se, a balancing of the rights of neighboring property owners is applied to determine whether a nuisance exists.

A nuisance may be classified as public or private. A public nuisance affects an entire segment of the public and is the state or local government’s responsibility to stop. An owner may take actions to reduce or end a private nuisance affecting their property if they can do so without creating a disturbance of the peace, called self-help abatement.

The type of money losses an owner can recover for property damage caused by a nuisance depends on whether the nuisance is permanent or continuing. For permanent nuisances, the owner may be entitled to money losses based on the diminished value of the owner’s property caused by the nuisance. Recovery for a continuing nuisance cannot include lost property value since the nuisance can be entirely eliminated. The primary remedy for a continuing nuisance is an abatement to remove the nuisance or an injunction ordering the nuisance to be stopped.

continuing nuisance ................................................................. pg. 295 nuisance ........................................................................................ pg. 291 nuisance per se ............................................................................ pg. 292 permanent nuisance .................................................................. pg. 294 public nuisance ........................................................................... pg. 293

Chapter 44 Summary

Chapter 44 Key Terms

Quiz 9 Covering Chapters 44-48 is located on page 614.

Chapter 45: Boundary disputes 297

After reading this chapter, you will be able to:

• understand the agreed-boundary doctrine; and • the elements needed to establish a boundary line under the

agreed-boundary doctrine.

Boundary disputes

Chapter

45

Consider a parcel of real estate divided into two equally sized parcels by a recorded survey. Later, a fence is erected between the parcels but not located on the common boundary line, causing one parcel to appear physically larger than the other.

Multiple years later, the owner of the smaller parcel sells their land. The new owner hires a surveyor to determine the location of the boundary between the properties.

The survey sets the boundary at the location described in recorded documents. The survey shows the fence is not located on the legally described boundary between the adjacent properties.

The new owner of the smaller parcel seeks to recover possession of the land between the fence and the boundary.

Doctrine of agreed-to boundaries

agreed-boundary doctrine

lot line adjustment

statute of limitations Key Terms

Learning Objectives

For a further discussion of this topic, see Chapter 9 of Legal Aspects of Real Estate.

298 Real Estate Principles, Second Edition

The neighboring owner of the larger parcel claims the fence is the agreed boundary since it is reasonable to infer the previous owners agreed the location of the fence to be their common boundary.

The owner of the smaller parcel claims the agreed-boundary doctrine does not apply since a recorded legal description of the boundary is available and the true boundary is thus known and can be located.

Is the owner of the smaller parcel correct in relying on the legal description of the property to establish the actual boundary location?

Yes! The doctrine of title by agreed boundaries, commonly referred to as the agreed-boundary doctrine, does not apply since:

• the exact boundary location can be readily located; and

• the owner of the larger parcel defending the fence as the boundary cannot show the prior owners were uncertain as to the true boundary description and then, to resolve their uncertainties of location, agreed the fence would mark the boundary.1

To establish a boundary line under the agreed-boundary doctrine, the following facts need to exist:

• uncertainty as to the boundary’s exact location;

• an agreement between the owners to set the boundary line; and

• acquiescence to the boundary line for a period of at least five years; or

• a substantial loss would be suffered due to a change in the location of the boundary line to the legally described location.2

The agreed-boundary doctrine was developed during a time when less advanced surveying techniques made it too difficult or expensive to locate the boundary line described in the deeds.

Thus, the more practical way to set a boundary line in rural and relatively unpopulated areas was often for owners of adjacent parcels to agree between themselves on the location of a common marker, such as a fence, to set the agreed boundary.

However, surveying techniques have significantly improved. Now, if a deed is clear and a competent surveyor is available, the true boundary line can easily be established to eliminate the uncertainty of the boundary’s location. Thus, the ancient agreed-boundary doctrine has been reduced to the status of a legal last resort.

In the absence of an oral or written agreement between an owner and their neighbor to set the boundary line at some place other than a documented deed line, the boundary line described in their deeds remains as the boundary.3

1 Bryant v. Blevins (1994) 9 C4th 47

2 Ernie v. Trinity Lutheran Church (1959) 51 C2d 702

3 Armitage v. Decker (1990) 218 CA3d 887

agreed-boundary doctrine When owners of adjacent properties uncertain over the true boundary agree to establish the location of their common lot line and acquiesce to the boundary line for at least five years.

Elements of ancient

doctrine

Chapter 45: Boundary disputes 299

Once owners of adjacent properties uncertain over the true boundary agree to establish the location of their common lot line, the location they set replaces the legal line provided either:

• a five-year statute of limitations has run; or

• a substantial loss would result from the boundary line being moved to the legally described location.

Uncertainty over the exact location of a boundary line may arise in a number of circumstances.

For example, where natural markers, such as trees, boulders or a creek, were used to mark a boundary line, the location of the markers may have changed or disappeared over time.

Section posts and other surveyor’s monuments which indicate boundary lines are also subject to earth movement, climatic changes and human activity. Also, the legal descriptions for parcels of real estate may be conflicting or simply fail to correctly set a boundary line, or may not coincide with another line or boundary.

An actual dispute over a boundary’s location need not exist between the owners of adjacent parcels. Instead, owners are to merely be in doubt over the location of the true boundary and agree to the location of the boundary when they set it.

Usually, it is not the original owners who have a dispute over title or possession based on the agreed-to boundary line, it is the later owners.

However, when the boundary line in a recorded deed is readily ascertainable by a surveyor, the description in the record controls, unless the landowner defending the location of the line as the common boundary provides proof the boundary line as located settles an actual, not implied, boundary dispute.4

An agreement to mark a boundary line may be oral, written or result from the conduct of neighboring property owners.

Oral or written agreements on the boundary’s location are called express agreements since they are not implied.

Written agreements are the most efficient since they formally document the mutual intentions of both owners. However, they usually exist only in the case of a lot line adjustment map. However, unlike the conveyance of real estate, owners do not have to put their boundary agreement in writing for it to be enforceable.

With the setting of an agreed boundary, neither owner is conveying real estate to the other. Instead, the owners are agreeing to what land constitutes their own property.5 4 Bryant, supra

5 Young v. Blakeman (1908) 153 C1st 477

Agreeing to the boundary

Uncertain boundaries

Agreement to make certain

300 Real Estate Principles, Second Edition

Owners need to acquiesce to the agreed boundary for a period of at least five years. This five-year period is the statute of limitations for the recovery of real estate.6

The statute of limitations requires the adjacent owners to resolve a dispute within the five-year period. If disputes are not settled within this period, the claims are put to rest. Thus, an owner who fails to object to a boundary dispute during the statute of limitations period is presumed to have agreed to the boundary set by the adjacent property owner.

However, an exception to the five-year rule arises if substantial loss will be caused by the movement of the agreed boundary to the true lot line.

The agreed-boundary doctrine has limitations. The doctrine cannot be used to convey property. Further, the agreed-boundary doctrine can only set a boundary, the exact location of which is unknown to the adjacent owners without a survey or litigation.

Any attempt to convey a portion of a lot to the owner of an adjacent property by use of the agreed-boundary doctrine violates the statute of frauds which requires a writing documenting the intent to convey land. Thus, the agreed- boundary doctrine cannot be used to make lot line adjustments in which adjacent owners move an existing line, the location of which is known to them.

6 Calif. Code of Civil Procedure §318

The element duration

statute of limitations A period of time establishing the deadline for filing a lawsuit to resolve a dispute.

Limitations of the doctrine

lot line adjustment When adjacent property owners move an existing property line.

Under the agreed-boundary doctrine, owners of adjacent properties uncertain over the true boundary can agree to establish the location of their common lot line. The location they set replaces the legal line provided either a five-year statute of limitations has run or a substantial loss would result from the boundary line being moved to the legally described location.

An agreement to mark a boundary line may be oral or written or result from the conduct of neighboring property owners. The agreed-boundary doctrine cannot be used to convey property, nor can it be used to make lot line adjustments to move an already existing line.

agreed-boundary doctrine ...................................................... pg. 298 lot line adjustment .................................................................... pg. 300 statute of limitations ................................................................ pg. 300

Chapter 45 Key Terms

Quiz 9 Covering Chapters 44-48 is located on page 614.

Chapter 45 Summary

Chapter 46: A deed as transfer 301

After reading this chapter, you will be able to:

• describe the components a deed needs to contain to convey an interest in real estate;

• understand the exceptions to the requirement for a signed writing to transfer an interest in real estate; and

• who is capable of conveying and receiving an interest in real estate.

A deed as transfer

Chapter

46

Real estate is conveyed when title is transferred from one individual to another.1

The transfer of an interest in title to real estate contained in a writing is called a grant or conveyance, no matter the form of writing.2

A deed is itself the grant which transfers title to property.3

Title by deed passes either:

• voluntarily by agreement with the owner, as in a sale in the open market or foreclosure on a trust deed or assessment bond; or

1 Calif. Civil Code §1039

2 CC §1053

3 Hamilton v. Hubbard (1901) 134 C 603

A deed by any name is a grant

grant The transfer of an interest in title to real estate.

adverse possession

common description

fee simple

grant

grant deed

grantee

grantor

legal description

quitclaim deed

Learning Objectives

Key Terms

For a further discussion of this topic, see Chapter 18 of Legal Aspects of Real Estate.

302 Real Estate Principles, Second Edition

• involuntarily without agreement, such as the enforcement of a creditor’s judgment or tax lien.

No matter the form of writing, the individual conveying real estate is called the grantor. The individual acquiring title is called the grantee.

Ownership of possessory interests in real estate include:

• a fee simple;

• a life estate;

• a leasehold estate; and

• an estate at will.

Fee simple ownership is presumed to pass by a grant of real estate, unless a lesser possessory interest is stated, such as an easement, life estate or leasehold interest.4

A fee simple interest in real estate is the absolute ownership of the possessory rights in the real estate for an indefinite duration.

To be valid, a deed needs to:

• be in writing;

• identify the grantor and the grantee;

• contain a granting clause stating the grantor’s intention to convey;

• adequately describe the real estate involved;

• be signed by the grantor; and

• be handed to and accepted by the grantee. [See Form 404 accompanying this chapter]

Form deeds used in real estate transactions conform to these validity requirements by containing words of conveyance, and contain provisions for the identification of the parties and a description of the real estate. They are also of suitable size and format to permit the document to be notarized and recorded. [See RPI Form 404 and 405]

To be valid, the transfer of an ownership interest in real estate needs to be in writing, except for:

• an estate at will or a lease for a term not exceeding one year;5

• an executed (partially or fully performed) oral agreement under which the buyer takes possession of the property and makes payments toward the purchase price or makes valuable improvements on the property; or

• adverse possession.

4 CC §1105

5 CC §1091

grantor A individual capable of conveying an interest in real estate.

fee simple The absolute ownership of possessory rights in real estate for an indefinite duration.

Creating a valid deed for conveyancing

A deed in writing, with

exceptions

Chapter 46: A deed as transfer 303

An executed oral agreement for the transfer of real estate ownership will be enforced either under the doctrines of specific performance or estoppel. The application of both doctrines is unaffected by whether the property is being sold under an oral agreement to a buyer for consideration, or given to a donee by gift.

To establish title by adverse possession, an occupant needs to show:

• their possession is based on a claim of right or color of title;

• they have occupied the property in an open and notorious way which constitutes reasonable notice to the record owner;

• their occupancy is hostile and inconsistent with the owner’s title;

• they have been in possession for a continuous and uninterrupted period of at least five years; and

• they have paid all taxes assessed against the property during their occupancy.6 [See Chapter 45]

An occupant’s ownership by adverse possession based on a claim of right avoids the statute of frauds writing requirement. To obtain title by adverse possession based on a claim of right, the occupant has, by the nature of adverse possession, no written documentation or evidence of title. Essentially, the adverse possessor is a trespasser in possession of the owner’s property without any good faith belief they hold title to the property.7

Thus, in the case of adverse possession by a claim of right, the owner of the property has not orally conveyed title to the real estate to the occupant. The occupant is a trespasser until their conduct on the property, time in possession and payment of all property taxes meet the requirements for them to obtain a court ordered transfer of title by adverse possession.

Alternatively, title by adverse possession based on a color of title usually occurs when the occupant’s title is based on a defective deed.

A grantor of property needs to be capable of conveying an interest in real estate at the time the deed is signed for the deed to be an enforceable conveyance.8

To be capable, the grantor at the time the deed is signed needs to:

• be of sound mind;

• possess their civil rights; and

• be an adult at least 18 years of age.9

6 Calif. Code of Civil Procedure §§318 et seq.

7 Brown v. Berman (1962) 203 CA2d 327

8 CC §38; Calif. Family Code §6701

9 CC §1556

Title by claims of adverse possession

adverse possession A method of acquiring title to real estate owned by another by openly maintaining exclusive possession of the property for a period of five years and paying all property taxes.

Grantor qualifications as capable

304 Real Estate Principles, Second Edition

However, an exception exists to the “18 or over” age qualification. An emancipated minor is considered an adult capable of transferring an interest in real estate.10

The grant provision in a deed needs to identify each person who is conveying an interest in the property in the grant provision of the deed. If a conveyance such as a deed is signed by a person who is not named as the grantor, the deed does not convey that person’s interest in the property.

The identity of the grantor in the provision containing words of conveyance needs to be certain, determined by an examination of the entire deed, not just the signatures.11

For example, a deed identifies several individuals as grantors in the grant provision and the document contains their signatures. However, the list of grantors named in the deed’s grant provision is incomplete to convey full title. Several unnamed individuals also have an ownership interest in the property.

Further, the signatures on the grant deed include all the individuals who are co-owners of the property — even though some are not named as grantors in the grant provision.

In this instance, the deed transfers only the ownership and title held by those owners named as grantors in the grant provision in the deed. The deed by its wording does not show the necessary intent to convey title by the unnamed owners who were not listed as grantors and also signed the deed.12

On recording, the county recorder will only index as grantors those persons listed in the grant provisions since only they conveyed their interests in the real estate.

While the grantor needs to have the capacity to convey title, any existing person (individual or entity) may take and hold title to real estate as the grantee.13

A child or an incompetent person has the capacity to receive and hold title as a grantee even though that person does not have the legal capacity to convey the same property.14

A deed needs to identify the grantee. For example, a seller accepts a buyer’s purchase agreement offer. The seller concurrently signs a deed and hands it to the broker as the seller is leaving the country. However, the space for the name of the grantee is left blank. The broker is not instructed to enter the buyer’s name as the grantee. The broker, as instructed, delivers the deed to the buyer without entering the buyer’s name.

10 Fam C §7050(e)(3)

11 Childs v. Newfield (1934) 136 CA 217

12 Roberts v. Abbott (1920) 48 CA 779

13 CC §671

14 Turner v. Turner (1916) 173 C 782

Grantor identification

in deed

The grantee as any person

grantee An individual acquiring an interest in title to real estate.

Chapter 46: A deed as transfer 305

Is the deed which does not name the grantee a valid transfer of title?

No! A deed which does not identify a grantee is void. The identity of the grantee needs to be sufficient to identify with certainty the individual to whom the seller intends title to be passed.15

Additionally, a deed is considered valid if the individual identified as the grantee takes title under a fictitious name by which they are also known or have assumed for the purpose of receiving title.

15 Tumansky v. Woodruff (1936) 14 CA2d 279

Form 404

Grant Deed

306 Real Estate Principles, Second Edition

However, if the fictitious name is established for the purpose of committing a fraud against the grantor, the grantor may set aside the deed as voidable.

Sometimes an unintentional error misnames the grantee in a recorded deed, such as by misspelling the grantee’s name. A deed with a misnamed grantee is still a valid conveyance of the real estate.

Another deed from the same grantor to the grantee named with the correct spelling of the grantee’s name will not correct the error, nor will re-recording the original deed with an amendment containing the grantee’s correct name. The recording of a corrective deed falls outside the chain of title in the grantor-grantee index since the grantor no longer has any interest to convey. The grantor has already conveyed their title, albeit to a grantee with an erroneously spelled name.16

A grantor who has conveyed title cannot do so again even as an attempt to convey title to the same grantee.

Editor’s note — Title companies are only concerned the grantor on a deed is the same person who took title under the incorrect name. Title companies will generally accept a deed conveying title which identifies the grantor by both their correct name and the incorrect (misspelled) name under which they originally took title as a grantee.

The actual words of conveyance in a deed depend on whether the deed used is a grant deed or a quitclaim deed. [See Form 404 and 405 accompanying Chapter 48]

A grant deed is used to pass a fee simple interest in real estate from the grantor to another individual, unless a lesser interest is stated in the deed. While no precise words of conveyance are necessary, use of the word “grant” in the granting clause, without noting a lesser interest in the description of the property, indicates the conveyance of a fee simple interest in the described property. [See Form 404]

Alternatively, a quitclaim deed is intended to convey whatever interest, if any, the grantor may hold in the real estate. The words of conveyance historically used in a quitclaim deed are “remise, release and otherwise quitclaim.”

However, only the word “quitclaim” is required as the word of conveyance. The word “grant” is not used in a quitclaim deed since no implied warranties are included with a conveyance under a quitclaim deed. However, the parties to a quitclaim deed are referred to as the “grantor” and the “grantee.” [See Form 405 accompanying Chapter 48]

16 Walters v. Mitchell (1907) 6 CA 410

Words of conveyance for a fee or

less

grant deed A document used to pass a fee simple interest in real estate from the grantor to another individual, unless a lesser interest is stated. [See RPI Form 404]

quitclaim deed A document used to convey whatever interest, if any, the grantor may hold in the real estate. [See RPI Form 405]

Chapter 46: A deed as transfer 307

A deed conveying property needs to sufficiently describe the property being conveyed. The description in the deed is necessary so the property can be reasonably located. If the property cannot be located from the description, the conveyance is void.17

The description of a parcel in a deed needs to be sufficient to allow the real estate conveyed to be identified and located with reasonable certainty by a surveyor.18

Facts not stated in the deed, known as extrinsic evidence, may only be used when an ambiguity arises as to the description of the property conveyed.

However, extrinsic evidence may not be used to supply the deed with a missing description or correct a defective description.

For example, real estate is conveyed by a deed describing the property as the “Occidental Mill Site, containing 4.95 acres, being a fraction of lot 2...” The use of the real estate’s common name in the deed is sufficient to locate the boundaries and identify the real estate being conveyed.19

Additionally, a deed which describes real estate by its street address, such as “879 Riverside Avenue, Riverside, CA 92507,” will be considered sufficient to identify the real estate located at the street address, sometimes called a common description or common address.20

However, the deed best includes the property’s legal description or a map designation, such as a parcel or lot number, which contains the metes and bounds description needed to locate with certainty the parcel being conveyed.

Thus, the real estate can be described by reference to other documents, such as a subdivision map as it contains the metes and bounds description of the parcel. The document referenced in a deed is incorporated into the deed as the source of the metes and bounds description of the property conveyed.21

To transfer real estate by a deed, the deed needs to be signed by the grantor named in the deed.22

A deed can also be signed on behalf of the grantor by the grantor’s agent if the agent is authorized in writing to convey the property on the grantor’s behalf. The agent is called an attorney in fact and is operating under a power of attorney.23 [See Figure 1, Form 447]

17 Scott v. Woodworth (1917) 34 CA 400

18 Best v. Wohlford (1904) 144 C 733

19 CC §1092

20 Brudvig v. Renner (1959) 172 CA2d 522

21 Edwards v. Lewis (1938) 25 CA2d 168; see Figure 1

22 CC §1091

23 CC §1091

Describing the property conveyed

common description Description of real estate by its street address. Also known as a common address.

legal description The description used to locate and set boundaries for a parcel of real estate.

The grantor’s signature

308 Real Estate Principles, Second Edition

Additionally, a deed can be signed in the name of the grantor by an amanuensis as orally instructed by the grantor. An amanuensis is an individual who has the oral authority of the grantor to sign a grant deed by their own hand on behalf of the grantor.

Unlike an attorney in fact who is an agent with discretionary authority to determine whether they are to enter into a deed without prior approval from the grantor, an amanuensis has a purely ministerial duty. The amanuensis signs a document as instructed without exercising personal discretion or judgment.

Figure 1

Form 447

Power of Attorney

Chapter 46: A deed as transfer 309

The individual conveying real estate is called the grantor. The individual acquiring title is called the grantee.

The transfer of title to real estate contained in writing is called a grant or conveyance. To be valid, a deed needs to:

• be in writing;

• identify the grantor and grantee;

• contain a granting clause stating the intention to convey;

• adequately describe the real estate so it can be reasonably located;

• be signed by the grantor or signed on behalf of the grantor by the grantor’s agent; and

• be handed to and accepted by the grantee.

A transfer of an ownership needs to be in writing to be valid, except for:

• an estate at will;

• a lease not exceeding one year;

• an executed oral agreement in which the buyer takes possession of the property; or

• adverse possession of the property.

A grant deed is used to pass a fee simple interest in real estate from the grantor to another individual, unless a lesser interest is stated in the deed. A quitclaim deed conveys whatever interest, if any, the grantor may hold in the real estate.

A grantor of property needs to be capable of conveying an interest in real estate at the time the deed is signed for the deed to be enforceable.

adverse possession ..................................................................... pg. 303 common description .................................................................. pg. 307 fee simple ...................................................................................... pg. 302 grant ............................................................................................... pg. 301 grant deed ..................................................................................... pg. 306 grantee ........................................................................................... pg. 304 grantor ........................................................................................... pg. 302 legal description ......................................................................... pg. 307 quitclaim deed ............................................................................ pg. 306

Chapter 46 Summary

Chapter 46 Key Terms

Quiz 9 Covering Chapters 44-48 is located on page 614.

Notes:

Chapter 47: Grant deed vs. quitclaim deed 311

After reading this chapter, you will be able to:

• understand the use of a grant deed to pass a fee simple interest in real estate;

• recognize the implied covenants of grant deeds; • determine when implied covenants in a grant deed run with the

land and affect all later grantees/owners; and • distinguish when a quitclaim deed is to be used to terminate any

interest in real estate described in the deed which may be held by the grantor.

Learning Objectives

For a further discussion of this topic, see Chapter 19 of Real Estate Legal Aspects.

Grant deed vs. quitclaim deed

Chapter

47

encumbrance

grant deed

implied covenant

quitclaim deed

reformation

remote grantee

Two types of deeds are commonly used to convey a real estate interest. These are:

• grant deeds; and

• quitclaim deeds.

To pass a fee simple interest in real estate, only the word “grant” needs to be used in the conveyance. No other precise words of conveyance are necessary in a deed to convey a fee simple ownership.1

1 Calif. Civil Code §1092

The granting clause

grant deed A document used to pass a fee simple interest in real estate from the grantor to another individual, unless a lesser interest is stated.

Key Terms

312 Real Estate Principles, Second Edition

The word “grant” contained in the conveyance provision in a grant deed indicates the conveyance of a fee simple interest to another individual, unless the deed states a lesser interest is conveyed. [See RPI Form 404; see Chapter 46]

A quitclaim deed customarily uses the words “remise,” “release” or “quitclaim,” but does not contain the word “grant.” However, only the word “quitclaim” needs to be used to convey all interest held in the property by the grantor. [See Form 405 accompanying this chapter]

A quitclaim deed conveys only the grantor’s interest in a property, if any exists. A quitclaim deed can also be used in lieu of a grant deed to pass fee simple in the described real estate.

The words used to convey property are evidence of the future role an individual conveying title undertakes after the deed has been signed and delivered.

Thus, to convey real estate with covenants relating to the interest conveyed, a grant deed is used.

To simply convey any interest in real estate without an assurance the individual holds that interest conveyed, a quitclaim deed is used.

The covenants, sometimes called warranties, implied in a grant deed include:

• the interest conveyed in the real estate has not been previously conveyed to another, except as disclosed in the grant deed; and

• the real estate has not been further encumbered by the grantor, except as disclosed in the grant deed.2

Grant deed covenants are implied. Thus, they are not separately bargained for as provisions to be included in the grant deed conveyance.

If a grant deed covenant is breached by a grantor (seller), the grantee (buyer) may recover their money losses from the grantor for the breach of the implied covenant, as though the covenant had been written into the grant deed.3

Real estate encumbrances include:

• taxes;

• assessments;

• conditions, covenants and restrictions (CC&Rs); and

• all liens, voluntary or involuntary, attached to the real estate.4

Encumbrances are the subject of the implied warranty against encumbrances in the grant deed, since they burden title and depreciate its value.

2 CC §1113

3 CC §1113

4 CC §§1113, 1114

Grant deed covenants are

implied

implied covenant An implied warrant the grantor has not previously conveyed or encumbered their interest in the real estate.

The covenant against

encumbrances encumbrance A claim or lien on title to a parcel of real estate, such as property taxes, assessment bonds, trust deeds, easements and covenants, conditions and restrictions (CC&Rs).

Chapter 47: Grant deed vs. quitclaim deed 313

Encumbrances include:

• CC&Rs, such as use restrictions running with the land;

• building restrictions;

• a reservation of a right of way;

• an easement;

• an encroachment;

• a lease; and

• a pending condemnation action.5

5 Evans, supra

Form 405

Quitclaim Deed

314 Real Estate Principles, Second Edition

To avoid liability arising out of the implied covenants in a grant deed, the deed needs to state the title conditions (encumbrances) created by the seller during their ownership. These conditions are or are not agreed to by the buyer in the purchase agreement.

The implied covenants in a grant deed are waived by the buyer and do not apply when the seller and buyer agree to the contrary in the purchase agreement. In this instance, the buyer and seller list all the title changes made by the seller in the grant deed.

Implied covenants are only for the personal benefit of a buyer, not future owners, referred to as remote grantees. The implied covenants in a seller’s grant deed to a buyer do not impose a condition on title and do not run with the land.

Thus, being personal to the seller and buyer, the implied covenants in a grant deed may only be enforced by the grantee named in the deed. Implied covenants cannot be enforced by future remote grantees who acquire the buyer’s interest at a later date.

Conversely, covenants running with the land, such as CC&Rs and easements, bind all future owners (remote grantees) of the property. Covenants running with the land are binding on future owners whether they take title by deed or court order as covenants running with the land affect title.

For a covenant to run with the land and affect all remote grantees, the seller creating the covenant needs to state in their conveyance that successors (remote grantees) are bound by the covenants and restrictions imposed on the property as contained in the deed.6

Title conditions bargained for and agreed to in the buyer’s purchase agreement are merged into the grant deed accepted by the buyer on closing. [See RPI Form 150]

Thus, when a title condition, such as a reservation of an easement by a seller, is agreed to in the purchase agreement, it is to be restated in the grant deed if the condition is to become enforceable by the seller.

The title condition agreed to in the purchase agreement is extinguished on closing by the merger of the bargained for title condition into the grant deed. Thus, the grant deed becomes the sole remaining basis for enforcement of either the buyer’s or seller’s rights to title.

After closing, a purchase agreement provision affecting title is only enforceable if it is implied or stated in the grant deed.

6 CC §1468

Covenants restricted or

limited

Covenants personal

to grantor/ grantee

remote grantee A future owner of real estate who later takes title to a property, also known as a successor.

Purchase agreement

merges into deed

Chapter 47: Grant deed vs. quitclaim deed 315

However, if a title condition, covenant or CC&R is agreed to in the purchase agreement, but is erroneously omitted when escrow prepares the grant deed, the grant deed can be ordered corrected by a court, a legal process called reformation.

Once the grant deed is corrected to include the omitted title condition, the condition is then enforceable since it is present in the grant deed.7

If a buyer of real estate receives an ownership interest less than fee simple, the grant deed needs to explicitly state the lesser interest being conveyed to the buyer.

For example, to convey a life estate, the grant deed states the grantee is to hold the property until the grantee’s (or some other individual’s) death, at which point the title will revert back to the grantor or the grantor’s successors. [See Chapter 46]

A quitclaim deed terminates any interest in the real estate described in the deed which may be held by the grantor.

Unlike a grant deed, a quitclaim deed does not carry with it the implied covenants contained in a grant deed. A quitclaim deed operates to release to the grantee all interest the grantor may hold in the property.8

Thus, a quitclaim deed passes whatever title, legal or equitable, the grantor possessed when signing and delivering the quitclaim deed, activity known as execution.

While a quitclaim deed is not intended to assure the conveyance transfers full fee simple ownership, the grantor who holds fee title and signs and delivers a quitclaim deed convey fee simple ownership of the property, including all the benefits of holding fee simple title.9

7 CC §3399

8 Platner v. Vincent (1924) 194 C 436

9 Spaulding v. Bradley (1889) 79 C 449

reformation A legal process to correct an omission or error in a grant deed by court action.

Conveying lesser estates than the fee

Quitclaim deeds: you have what I had

quitclaim deed A document used to convey whatever interest, if any, the grantor may hold in the real estate.

316 Real Estate Principles, Second Edition

Quiz 9 Covering Chapters 44-48 is located on page 614.

Grant deeds and quitclaim deeds are commonly used to convey a real estate interest.

Grant deeds contain implied covenants. The implied covenants in a grant deed warrant:

• the interest conveyed in the real estate has not previously been conveyed to another; and

• the real estate has not been further encumbered by the grantor.

To avoid liability arising out of the implied covenants in a grant deed, the deed needs to state the encumbrances on title created by the grantor (seller) during their ownership. These encumbrances are or are not agreed to by the grantee (buyer) in the purchase agreement.

Implied covenants are only for the personal benefit of a buyer and are not binding on future owners, known as remote grantees. Thus, implied covenants do not impose a condition on title and do not run with the land. For a covenant to run with the land and affect all future owners, the grantor must state in their conveyance that successors are bound by the restrictions imposed on the property.

Title conditions agreed to in the purchase agreement are merged into the grant deed accepted by the buyer on closing. If a title condition or restriction is agreed to in the purchase agreement but erroneously omitted from the grant deed, the deed can be corrected by a court and then enforced.

A quitclaim deed passes whatever title, legal or equitable, the grantor possessed when signing and delivering the quitclaim deed. Thus, unlike a grant deed, a quitclaim deed does not carry with it the implied covenants contained in a grant deed.

encumbrance ............................................................................... pg. 312 grant deed ..................................................................................... pg. 311 implied covenant ....................................................................... pg. 312 quitclaim deed ............................................................................ pg. 315 reformation .................................................................................. pg. 315 remote grantee ............................................................................ pg. 314

Chapter 47 Summary

Chapter 47 Key Terms

Chapter 48: Delivery, acceptance and validity of deeds 317

After reading this chapter, you will be able to:

• describe the acts and conditions which constitute the delivery and acceptance of a deed;

• avoid the improper practice of using a grant deed as a security device to assure repayment of a debt;

• understand the purpose for recording a grant deed; and • distinguish between a void deed and voidable deed.

Learning Objectives

Delivery, acceptance and validity of deeds

Chapter

48

A grant deed conveying real estate transfers ownership from the owner as the grantor to the grantee when the deed is delivered. The signing of a deed by the grantor naming another person as the grantee is not enough to divest the owner of their title to the real estate. Delivery of the signed deed is required to transfer ownership.

Delivery refers to two separate acts:

• the grantor’s present intent to convey title, not just the act of physically handing the deed to the grantee; and

• the grantee’s acceptance of the grant deed as an immediately effective conveyance.

While the grantor may intend to convey title when they hand over the deed, if the grantee does not accept the deed, the deed will not be considered delivered and a conveyance does not occur.

A recording is prudent, not a necessity

constructive delivery

documentary transfer tax

security

void deed

voidable deed

Key Terms

For a further discussion of this topic, see Chapter 20 of Legal Aspects of Real Estate.

318 Real Estate Principles, Second Edition

However, the grant deed does not need to be recorded to deliver title to a new owner (or to alter a vesting between two or more persons). However, recording perfects the ownership received against third-parties, such as existing but unknown off-record interests.

The delivery of a deed is inferred when the grantee receives or has possession of the deed. The deed may also be considered delivered without the grantee having or holding actual possession of the deed. When a grantee is not physically handed the deed, a constructive delivery of the deed may still have taken place.

Constructive delivery of a deed to the grantee occurs when:

• the deed is understood by the grantor and the grantee to be delivered by an agreement when the grantor signs the deed; or

• the deed is delivered to a third-party for the benefit of the grantee, and the grantee or an agent of the grantee demonstrates the grantee’s acceptance of the deed.1

Consider an owner as grantor who hands a grantee a deed as a gift. The owner orally advises the grantee the deed is not to be effective until the owner dies. If the grantee dies first, the deed is to be returned to the owner.

The owner dies and the grantee records the deed. Heirs of the owner assert they own the real estate, claiming the deed was not delivered and therefore invalid since the owner did not intend for the deed to convey ownership at the time the deed was handed to the grantee.

The grantee claims the deed is a valid conveyance of the real estate since delivery took place when the owner personally handed the grantee the deed – which the grantee accepted subject to the delayed transfer condition.

Was the deed a valid conveyance of the real estate?

No! To be a valid delivery, both the owner and the grantee need to intend for title to the real estate to be conveyed concurrent with the handing of the deed to the grantee. The owner of the real estate needs to intend for the document used to convey the real estate to operate as a deed to immediately divest the owner of title.

Since the owner intended the deed to become operative only upon their death, the use of a deed is an improper probate avoidance device. Thus, the deed is void and conveys nothing.

A deed handed to the grantee cannot act as a will or revocable inter vivos (living) trust agreement to transfer property on the death of the owner. A will and an inter vivos trust agreement are testamentary documents which take effect after they are signed and upon the owner’s death. Thus, the owner does not give up control or ownership of the property until their death.

1 Calif. Civil Code §1059

Constructive delivery inferred

constructive delivery Delivery of a deed occurring when the deed is understood by the grantor and grantee to be delivered by agreement, or when the deed is accepted by a third-party for the benefit of the grantee.

Grantor’s intent to

convey

Chapter 48: Delivery, acceptance and validity of deeds 319

Conversely, a deed is a document used to immediately pass fee simple title (or other estate). If the grantor does not intend to pass fee simple (or other estate) on handing the deed to the grantee, no actual delivery takes place and the deed is void.2

A grant deed is typically used with the intent to pass full legal title to the described property when it is handed to the grantee or recorded by the grantor. [See RPI Form 404]

However, when a grant deed is intended to convey title to a lender as security for the repayment of a debt, in spite of its wording of conveyance, the grant deed does not transfer the right of ownership.

A grant deed given to provide a creditor with the property as security, also known as collateral, is a mortgage-in-fact. Thus, a lien is imposed on the property in favor of the lender by receiving a grant deed, similar in purpose to a trust deed lien.

Brokers and their agents who arrange mortgages are to use a trust deed as the security device which attaches the debt as a lien on real estate. Using a grant deed as a security device is improper practice. A grant deed is generally equated to the grantor’s intent to convey all rights and title in the property to the named grantee.

A trust deed does not convey any ownership rights in the property to the lender. Rather, a trust deed imposes a lien on the property in favor of the lender to secure the owner’s performance of a money obligation. On executing a trust deed, the owner retains all ownership rights to the secured property, which is not the case when using a grant deed for its intended purpose.

A grantee is presumed to have accepted a deed if the grant is beneficial to the grantee.

Additionally, a deed is presumed to be accepted and the conveyance complete if the deed is:

• physically handed to the grantee;3 • recorded by the grantee;4 or • in the grantee’s possession.5

A deed does not need to be recorded to convey real estate. A deed that is delivered conveys an interest in real estate even when the deed is incapable of being recorded.

A deed capable of being recorded with the county recorder includes:

• identification of the person requesting the recording;

2 In re Estate of Pieper (1964) 224 CA2d 670

3 California Trust Co. v. Hughes (1952) 111 CA2d 717

4 Drummond v. Drummond (1940) 39 CA2d 418

5 California Trust Co., supra

Grant deed as a mortgage- in-fact

security Collateral for a debt in the form of a lien imposed on property.

Acceptance by the grantee

320 Real Estate Principles, Second Edition

• identification of the person to whom the document will be returned by the county recorder;6 and

• the address where tax statements are to be sent by the county tax collector.7 [See RPI Form 404]

Failure to identify the person requesting the recording of the deed, where the deed is to be sent after recording, or where the local real estate tax statements are to be sent does not affect the validity of the deed. Nor does this affect the constructive notice to others implied by recording the deed.8

The deed submitted for recording needs to also include the amount of the documentary transfer tax to be paid. The deed will not be recorded by the recorder unless the documentary transfer tax is paid at the time of the recording. An additional transfer tax may be charged by the city, county or both.9

Once recorded, a deed constitutes a change of ownership which may subject the property to reassessment. Thus, the recording of a deed is accompanied by a change of ownership statement which the recorder hands to the county assessor.10

If the deed submitted to the county recorder does not include a change of ownership statement, the recorder will record the document and either:

• include a change of ownership form with the return of the recorded deed; or

• provide the assessor with the identification of the recorded document which was not accompanied by the change of ownership statement.11

Void and voidable are similar concepts. However, they are distinguishable by the date they affect the validity of a deed, and thus, the rights of those who relied on the deed.

Void deeds are unenforceable at all times and never convey an interest in real estate. This is referred to as void ab initio — without legal effect from the beginning.

If title is claimed under a void deed, any claim of ownership under the deed fails – even if a further grantee purchases the property in good faith without any notice of a defect in title or in the deed held by the grantor.

Examples of void deeds include:

• a deed handed directly to the grantee, not a third party, with the intent it is not to be effective until the owner’s death;12

6 Gov C §27361.6

7 Gov C §27321.5

8 Gov C §§27321.5, 27361.6

9 Calif. Revenue and Taxation Code §§11901 et seq.

10 Gov C §27280; Rev & T C §480

11 Gov C §27321

12 Estate of Pieper, supra

documentary transfer tax A tax imposed on a recorded document when real estate is transferred.

Recording the grant deed

Void vs. voidable

void deed A deed that is unenforceable and conveys no interest in real estate.

Chapter 48: Delivery, acceptance and validity of deeds 321

• a deed signed and delivered by a seller under the age of 18;13

• a deed materially altered without the grantor’s consent;14 or

• a forged deed.15

A voidable deed, unlike a void deed, is a deed which is valid and enforceable after delivery until it is challenged due to a defect and declared invalid by court order.

Examples of voidable deeds include:

• a deed obtained through false representations;16

• a deed obtained through undue influence or threat;17 or

• a deed from a grantor of unsound mind, but not entirely without understanding, made before the grantor’s incompetency to convey has been adjudicated.18

Unlike void deeds, a voidable deed is enforceable by a bona fide purchaser (BFP) or encumbrancer who acquires an interest in the property in reliance on the title held by the grantee under a deed which is voidable but has not yet been challenged as invalid.

13 Calif. Family Code §6701

14 Tannahill v. Greening (1927) 85 CA 714

15 Meley v. Collins (1871) 41 C 663

16 Seeger v. Odell (1941) 18 C2d 409

17 Campbell v. Genshlea (1919) 180 C 213

18 CC §39

Voidable deeds

voidable deed A deed that is valid and enforceable until it is challenged due to a defect and declared invalid by a court order.

322 Real Estate Principles, Second Edition

A deed conveys real estate from the grantor to the grantee when the deed is delivered. Delivery is based on:

• the grantor’s intent to convey title; and

• the grantee’s acceptance of the grant deed as an immediately effective conveyance.

The grant deed does not need to be recorded to deliver title. Recording simply puts future buyers or encumbrancers on notice of the transfer. Once recorded, a deed constitutes a change of ownership which may subject the property to reassessment.

The delivery of a deed is inferred when the grantee has possession of the deed. Constructive delivery occurs when:

• the deed is understood by the grantor and the grantee to be delivered by an agreement when the grantor signs the deed; or

• the deed is delivered to a third-party for the benefit of the grantee, and the grantee or an agent of the grantee demonstrates the grantee’s acceptance of the deed.

When a grant deed is intended to convey title to a lender as security for the repayment of debt, the grant deed becomes a mortgage-in-fact and transfers no right of ownership to the lender.

A grantee is presumed to have accepted a deed if:

• the grant is beneficial to the grantee;

• the deed is physically handed to the grantee;

• the deed is recorded by the grantee; or

• the deed is in the grantee’s possession.

Void deeds are unenforceable at all times and never convey an interest in real estate. A voidable deed is valid and enforceable until it is challenged due to a defect and a court order declares the deed invalid.

constructive delivery ................................................................ pg. 318 documentary transfer fax ......................................................... pg. 320 security .......................................................................................... pg. 319 void deed ....................................................................................... pg. 320 voidable deed .............................................................................. pg. 321

Chapter 48 Summary

Chapter 48 Key Terms

Quiz 9 Covering Chapters 44-48 is located on page 614.

Chapter 49: The right of survivorship among co-owners 323

After reading this chapter, you will be able to:

• apply the community property presumption when title to property is vested jointly in the names of a married couple;

• create a joint tenancy vesting based on the four unities in title; • explain the right of survivorship and how it is severed; • advise on how to clear title of a deceased joint tenant’s ownership

by an affidavit; and • recognize the tax aspects of a joint tenancy vesting.

Learning Objectives

The right of survivorship among co-owners

Chapter

49

A vesting is a method of holding title to real estate. Differences in the types of title vestings present different consequences for persons who have interests in property.

Title to real estate in California is held in one of four basic vestings:

1. joint tenancy — Ownership of fractional interests in real estate by two or more individuals each holding an equal share with the right of survivorship. When a joint tenant dies, their interest is eliminated and the surviving joint tenants share the remaining ownership equally. Joint tenants take title together on the same deed, at the same time, hold equal shares in the ownership of the property, and each has the right to possess the entire property, known as the four unities.

vesting A method of holding title to real estate, including tenancy in common, joint tenancy, community property and community property with the right of survivorship.

What is vesting?

community property

fully stepped-up cost basis

joint tenancy

ratify

right of survivorship

set aside

vesting

Key Terms

For a further discussion of this topic, see Chapter 27 of Legal Aspects of Real Estate.

324 Real Estate Principles, Second Edition

2. tenancy in common — Tenants in common may have varying percentages of ownership in a property, may take title at different times, and have centralized rights of possession. If a joint tenant conveys their interest in the property to another person, that person takes title as a tenant in common. A tenant in common may will their interest in the property to others on their death since a tenancy in common interest carries no right of survivorship with it.

3. community property — All property acquired by a married couple in California during a marriage is presumed to be community property, unless acquired as the separate property of either spouse. Under the community property vesting, the ownership interests are equal.

4. community property with right of survivorship — Identical to the community property vesting but with the inclusion of words creating the right of survivorship. On the death of a spouse, the surviving spouse automatically becomes the sole owner of the property.

Continue below for illustrations of the different types of vestings in application.

Consider a married couple who, with the assistance of their agent, locate real estate they intend to purchase. They will use monies accumulated during their marriage and a new purchase-assist mortgage to pay the purchase price.

The agent, as part of their due diligence on any property acquisition, asks the couple how they want to take title on the close of escrow. The couple wants the property to be vested in both of their names, as a married couple, with the right of survivorship.

On the death of a spouse, the couple wants the surviving spouse to automatically become the sole owner of the property, avoiding probate procedures.

Recognizing the community property aspect of their funds accumulated during marriage, the agent advises the couple they need to take title as:

• “a married couple as community property with right of survivorship”; or

• “a married couple as joint tenants.”

The agent explains the two vestings are identical for future conveyancing since:

• both vestings may be severed before death by either spouse to provide for an alternative distribution of each spouse’s ownership interest to others by will, a trust agreement or another vesting of their interest; and

• on death the title is cleared of the deceased spouse’s interest by the surviving spouse recording an affidavit declaring the death of the deceased spouse and attaching a certificate of death.1 [See RPI Form 460; see RPI Form 461]

1 Civil Code §682.1(a); Calif. Probate Code §210

Vesting reflects

estate planning

right of survivorship The right of surviving joint tenants or a spouse to succeed to the entire interest of the deceased co-owner.

Chapter 49: The right of survivorship among co-owners 325

However, mindful of the tax consequences for the surviving spouse, the agent recommends the couple vest title to the property as community property with right of survivorship. Like the tax consequences of a joint tenancy vesting by spouses, the surviving spouse is assured a fully stepped- up cost basis for the community property.

In this example, the agent’s advice to vest the property as “community property with right of survivorship” satisfies the couple’s estate planning needs for holding title to the property. Likewise, since the property was acquired during the marriage, it is considered community property even if the couple vested the property in their names as joint tenants.

Additionally, the couple intends to avoid probate procedures on the death of a spouse. Both right of survivorship vesting avoids enforcement of any contrary provisions in the will of the deceased since no interest remains under either vesting to be transferred by will or otherwise after death.

For the surviving spouse, a community property vesting with right of survivorship is superior to a simple community property vesting. This is the case even though a simple community property vesting without the right of survivorship also transfers the property to the surviving spouse if the deceased dies intestate (with no will) or testate (with a will) stating the surviving spouse takes the property.

On a simple community property vesting, if no one contests the surviving spouse’s right to become the sole owner of the deceased spouse’s interest in the property, the surviving spouse needs to wait 40 days following the death before the property can be sold, leased or encumbered.

After 40 days, an affidavit by the surviving spouse is recorded to clear title by declaring the death and attaching a death certificate.2 [See RPI Form 461]

A joint tenancy recommendation by the agent produces the same transferability and tax results as does the community property vesting with right of survivorship. They function identically before and after death.

However, joint tenancy provides spouses with more flexibility by allowing for avoidance of some community debts during the marriage and on death. This avoidance of debts incurred solely by one spouse is not available under either community property vesting.3

Although most joint tenancies are created between a married couple, a joint tenancy can exist between non-married persons. Conversely, community property vestings are only available to married couples or registered domestic partners.4

2 Prob C §13540

3 CC §682.1

4 Calif. Family Code §297.5

community property All property acquired by husband or wife during a marriage when not acquired as the separate property of either spouse.

Community property with right of survivorship

The four unities

joint tenancy An ownership interest in property concurrently received by two or more individuals who share equally and have the right of survivorship.

326 Real Estate Principles, Second Edition

Additionally, the number of joint tenants is not limited to two, as is a married couple’s ownership of community property interests. Using one deed, any number of co-owners can take title to real estate as joint tenants. The only ownership condition is that the joint tenants take equal ownership interests in the property.

Traditionally, the creation of a joint tenancy requires the conveyance of four unities:

• unity of title, meaning the joint tenants take title to the real estate through the same instrument, such as a single grant deed or court order;

• unity of time, meaning the joint tenants receive their interest in title at the same time;

• unity of interest, meaning the joint tenants own equal shares in the ownership of the property; and

• unity of possession, meaning each joint tenant has the right to possess the entire property.5

Today, a joint tenancy vesting is loosely based on these four unities. For example, a joint tenancy is currently defined as ownership by two or more persons in equal shares. Thus, the joint tenancy co-ownership incorporates the unity of interest into its statutory definition.6

Similarly, a joint tenancy needs to be created by a single transfer to all the co-owners who are to become joint tenants. Thus, the historic unity of title (same deed) and unity of time (simultaneous transfers) required under common law have been retained in one event. Typically, this is accomplished by the recording of a conveyance transferring title to all the joint tenants.

A joint tenancy ownership in real estate may be created by any of the following transfers if the conveyance states the co-owners take title “as joint tenants”:

• a transfer by grant deed, quitclaim deed or assignment, from an owner of the fee, leasehold or life estate, to themselves and others;

5 Swartzbaugh v. Sampson (1936) 11 CA2d 451

6 CC §683

Creating a joint tenancy

Joint tenancy: John Doe and Jane Doe, married couple as joint tenants.

Community property: John Doe and Jane Doe, married couple as community property with right of survivorship.

Community property: John Doe and Jane Doe, married couple as community property.

Tenants in common: John Doe, a married man as to an undivided one-half interest, and Jane.

Doe, a married woman as to an undivided one-half interest, as tenants in common.

Separate property of one spouse: John Doe, a married man as his separate property.

Married couple: wording the grant deed vesting

Chapter 49: The right of survivorship among co-owners 327

• a transfer from co-owners vested as tenants-in-common to themselves; or

• a transfer from a married couple holding title as community property, tenants-in-common or separately, to themselves.7

For the small percentage of joint tenants who are not a married couple, typically family members or life-long friends, a valid joint tenancy is created when all co-owners take title under the same deed as joint tenants, without stating their fractional ownership interest in the property.

Their actual fraction of ownership, if severed or transferred to others, is a function of the number of individuals who took title as joint tenants. For example, five co-owners as joint tenants each holds a one-fifth or 20% fractional ownership interest.

A joint tenancy vesting adds nothing to the legal aspects of the ownership interest held in real estate by each co-owner. Whether the interests held by the co-owners are separate property or community property, a joint tenancy vesting neither enlarges nor reduces the nature of the ownership interest.

However, the necessary incident of a joint tenancy vesting is the right of survivorship, legally referred to as jus accrescendi. The right of survivorship is a case law doctrine which is triggered by the death of one joint tenant.

Thus, the joint tenancy vesting, by the incident of its right of survivorship, becomes operative only on the death of a joint tenant, at which point the right of survivorship extinguishes the deceased’s interest and leaves the remaining joint tenant(s) with the entire ownership interest they held as joint tenants. The right of survivorship is a mere expectancy held by each co-owner and is not a property right.

Ultimately, on the death of all other joint tenants, the last survivor becomes the sole owner of the interest in the property originally owned by all the joint tenants.

On a dissolution of the marriage, all property acquired jointly by a married couple during the marriage, no matter how vested, is presumed to be community property for purposes of division.8

Further, the community property presumption for married couples does not only come into play when a couple divorces. All property acquired by a couple or by either spouse during marriage is considered community property, unless the couple clearly states their contrary intention to own their individual interests in the real estate as separate property.9

7 CC §683

8 Fam C §2581

9 Fam C §760

A joint tenant’s right of survivorship

Vesting alone does not transmute community property

328 Real Estate Principles, Second Edition

As community real estate, both spouses need to consent to the sale, lease for more than one year or encumbrance regardless of how it is vested.10

If one spouse, without the consent of the other, sells, leases for more than one year or encumbers community real estate, the nonconsenting spouse may either ratify the transaction or have it set aside.

The nonconsenting spouse has one year from the recording of the nonconsented-to transaction to file an action to set aside the transaction.

When real estate held in a joint tenancy vesting is separate property — as when the joint tenants are not a married couple, or when a married couple in writing agree their interests are separate property — each joint tenant can sell or encumber their interest in the real estate without the consent of the other joint tenant(s).

Additionally, when the joint tenancy in real estate represents separate property, a joint tenant may lease out the entire property since a lease is a transfer of possession, and each joint tenant has the right to possession of the entire property.11

However, consider a married couple who owns community property real estate as joint tenants. One spouse enters into an agreement to lease the property for a term over one year, which the other spouse does not sign.

Under the joint tenancy rule, either joint tenant alone may lease the property. However, under the community property rule (which applies to property acquired during marriage), both spouses need to execute a long-term lease agreement with a term greater than one year.

Every co-owner vested as a joint tenant or as community property with the right of survivorship has the right to unilaterally sever the right of survivorship. The severance by a co-owner terminates the right of survivorship in that co-owner’s interest.

The separate or community property nature of the co-owner’s interest in the property remains the same after severing the right of survivorship from the co-owner’s interest.

A co-owner unilaterally severing their right of survivorship is not required to first give notice or seek consent from the other co-owner(s).12

To sever the vesting, the co-owner prepares and signs a deed from themselves “as a joint tenant” or “as community property with right of survivorship” back

10 Fam C §1102

11 Swartzbaugh, supra

12 Riddle v. Harmon (1980) 102 CA3d 524

Conveying community

property

ratify The later adoption or approval of an act performed on behalf of a person when the act was not previously authorized.

set aside To annul by court order a document transferring an interest in real estate.

Encumbering and leasing

joint tenancy property

Severing right-of-

survivorship vestings

Chapter 49: The right of survivorship among co-owners 329

to themselves. On recording the deed, the right of survivorship is severed by having merely revested the co-owner’s interest. The deed revesting title is to include a statement noting the transfer is intended to sever the prior vesting.13

Recording is necessary to terminate another joint tenant’s right of survivorship.

The unilateral severance of a joint tenant’s interest needs to either be:

• recorded in the county where the property is located before the death of the severing joint tenant; or

• recorded within seven days after the joint tenant’s death if executed and notarized within three days before the joint tenant’s death.14

Additionally, the joint tenancy may be severed by agreement of the joint tenants. If a written agreement to sever the joint tenancy is signed by all the joint tenants, recording or notarization is not required.15

All the preceding rules for recording a severance apply fully to the severance deed of a spouse seeking to terminate the right of survivorship held under the community property vesting.16

The unilateral severance of a joint tenancy terminates the right of survivorship. Without the existence of the right of survivorship, each co- owner disposes of their interest in the property on death as they wish, such as by will or inter vivos trust, or by the severance itself.

Although the sale of a joint tenant’s separate property interest in real estate severs the joint tenancy, a lease or encumbrance of the property by a joint tenant does not.

All the procedures for severing a joint tenancy are fully available for a married couple to sever the community property vesting which includes the right of survivorship.17

When co-ownership of property is vested as a joint tenancy, the death of a joint tenant automatically extinguishes the deceased joint tenant’s interest in the real estate. This leaves the surviving joint tenant(s) as the sole owner(s).

However, the deceased joint tenant’s interest in the property needs to be cleared from the title before the surviving joint tenant(s) will be able to sell, lease or encumber the property as the sole owner.

The new ownership interest of the surviving joint tenant(s) is documented by simply recording an affidavit, signed by anyone, declaring the death of a joint tenant who was a co-owner of the described real estate.18

13 CC §683.2(a)

14 CC §683.2(c)

15 CC §683.2(d)

16 CC §682.1

17 CC §682.1

18 Prob C §210(a)

Recording requirement for severance

Clear title on death by affidavit

330 Real Estate Principles, Second Edition

The interest in the property held by the deceased spouse as community property with right of survivorship is extinguished by the same affidavit procedure used to eliminate the interest of a joint tenant, except the surviving spouse or their representative is the only one authorized to make the declaration. [See RPI Form 461]

Once the affidavit is notarized, recorded and indexed, anyone conducting a title search on the property will have notice of the joint tenant’s death since the deceased joint tenant is indexed as a grantor. Thus, the surviving joint tenant becomes the sole owner of the property due to the right of survivorship.

A spouse can unilaterally sever the joint tenancy and community property with right of survivorship vestings by:

• executing and delivering a deed that conveys legal title to a third party;

• executing a deed to themselves;

• executing a written severance of joint tenancy; or

• executing a written instrument that evidences an intent to sever.19

Additionally, the community property interest of a spouse who executes a deed to themselves to sever the title and eliminate the right of survivorship remains community property. Community property cannot be transmuted to separate property without the consent of both spouses or a court order.

A severance deed to oneself terminating the right of survivorship is not sufficient by itself to avoid passing the property to the surviving spouse on death for community property vested as either community property with right of survivorship or in joint tenancy.

A will needs to also be prepared or a living trust established naming the person intended to receive the spouse’s community property interest on death.

Otherwise, since it is community property, the property will pass by intestate succession to the surviving spouse as though the severance of the vesting had never occurred.20

Taxwise, the main question raised for a married couple when the surviving spouse becomes the sole owner of what was community property is: What is the surviving spouse’s cost basis in the property as the sole owner after the death of the other spouse?

The surviving spouse who becomes the sole owner of community real estate receives a fully stepped-up cost basis to the property’s fair market value (FMV) on the date of the death which terminated the community property vesting.

19 CC §683.2(a)

20 Prob C §13500

Controlling the vesting of

one-half

Joint tenancy tax aspects

fully stepped-up cost basis The tax basis of community property a surviving spouse receives on the death of a spouse is stepped up to the property’s fair market value (FMV) on the date of death.

Chapter 49: The right of survivorship among co-owners 331

Thus, the surviving spouse is entitled to a fully stepped-up cost basis in the real estate previously owned by the community without concern for whether the property was vested as community property (with or without the right of survivorship), as joint tenants or in a revocable inter vivos (living) trust.

State law controls how marital property is characterized for federal tax purposes. Federal law is unconcerned with the form in which title is taken to community property.21

Thus, the real estate owned by a married couple (unless vested as tenants in common) is considered community property for federal income tax purposes. Accordingly, a surviving spouse entitled to the property receives a fully stepped-up cost basis to the property’s FMV on the date of the other spouse’s death.

21 IRS Revenue Ruling 87-98

The interest in the property held by the deceased spouse as community property with right of survivorship is extinguished by the same affidavit procedure used to eliminate the interest of a joint tenant, except the surviving spouse or their representative is the only one authorized to make the declaration. [See RPI Form 461]

Once the affidavit is notarized, recorded and indexed, anyone conducting a title search on the property will have notice of the joint tenant’s death since the deceased joint tenant is indexed as a grantor. Thus, the surviving joint tenant becomes the sole owner of the property due to the right of survivorship.

A spouse can unilaterally sever the joint tenancy and community property with right of survivorship vestings by:

• executing and delivering a deed that conveys legal title to a third party;

• executing a deed to themselves;

• executing a written severance of joint tenancy; or

• executing a written instrument that evidences an intent to sever.19

Additionally, the community property interest of a spouse who executes a deed to themselves to sever the title and eliminate the right of survivorship remains community property. Community property cannot be transmuted to separate property without the consent of both spouses or a court order.

A severance deed to oneself terminating the right of survivorship is not sufficient by itself to avoid passing the property to the surviving spouse on death for community property vested as either community property with right of survivorship or in joint tenancy.

A will needs to also be prepared or a living trust established naming the person intended to receive the spouse’s community property interest on death.

Otherwise, since it is community property, the property will pass by intestate succession to the surviving spouse as though the severance of the vesting had never occurred.20

Taxwise, the main question raised for a married couple when the surviving spouse becomes the sole owner of what was community property is: What is the surviving spouse’s cost basis in the property as the sole owner after the death of the other spouse?

The surviving spouse who becomes the sole owner of community real estate receives a fully stepped-up cost basis to the property’s fair market value (FMV) on the date of the death which terminated the community property vesting.

19 CC §683.2(a)

20 Prob C §13500

Controlling the vesting of

one-half

Joint tenancy tax aspects

fully stepped-up cost basis The tax basis of community property a surviving spouse receives on the death of a spouse is stepped up to the property’s fair market value (FMV) on the date of death.

Although most joint tenancies are created by married couples, a joint tenancy can exist between non-married persons and is not limited to two individuals. Traditionally, the creation of a joint tenancy requires the conveyance of four unities:

• unity of title;

• unity of time;

• unity of interest; and

• unity of possession.

Community property vestings are only available to a married couple or registered domestic partners. All property acquired jointly by a married couple during marriage, no matter how vested, is presumed to be community property, unless the couple clearly state their intention to own their individual interests as separate property.

Both spouses need to consent to the sale, lease for more than one year or encumbrance of community real estate regardless of how it is vested. When real estate held in a joint tenancy is separate property – or when a couple state their interests are separate property – each joint tenant can sell or encumber their interest in the real estate without the consent of the other joint tenant.

The right of survivorship is provided under both a community property with right of survivorship vesting and a joint tenancy vesting. The death of a joint tenant automatically extinguishes the deceased joint tenant’s interest in the real estate. However, the deceased joint tenant’s interest

Chapter 49 Summary

332 Real Estate Principles, Second Edition

in the property needs to be cleared from the title before the surviving joint tenant will be able to sell, lease or encumber the property as the sole owner. The new ownership interest of the surviving joint tenant is documented by recording an affidavit declaring the death of the joint tenant.

A surviving spouse is entitled to a fully stepped-up cost basis in the real estate previously owned by the community without concern for whether the property was vested as community property, as joint tenants or in a revocable inter vivos (living) trust.

community property ................................................................. pg. 325 fully stepped-up cost basis ....................................................... pg. 331 joint tenancy ................................................................................ pg. 325 ratify ............................................................................................... pg. 328 right of survivorship ................................................................. pg. 324 set aside ......................................................................................... pg. 328 vesting ........................................................................................... pg. 323

Chapter 49 Key Terms

Quiz 10 Covering Chapters 49-54 is located on page 615.

Chapter 50: The lis pendens 333

After reading this chapter, you will be able to:

• recognize the nexus between a recorded lis pendens describing a parcel of real estate and the litigation it references asserting a claim to an interest in title or right to possession of the real estate;

• understand the interference a recorded lis pendens has on the owner’s ability to convey clear title; and

• explain an expungement of a lis pendens as the remedy for clearing title of the litigation so the property can be conveyed and title insurance issued.

Learning Objectives

The lis pendens

Chapter

50

Lis pendens is Latin for pending litigation. More commonly, a lis pendens is called a Notice of Pending Action. In practice, a recorded lis pendens puts all persons on constructive notice that the title or right to the possession of real estate is in litigation.

The purpose of recording a lis pendens is to preserve a person’s rights to the real estate until the dispute with the owner is resolved. Thus, buyers who acquire an ownership interest in property after a lis pendens describing the property has been recorded take their interest in the property subject to someone else’s (the claimant’s) right.

Without a recorded lis pendens or physical possession of the real estate, the person who claims an interest in title or the right to possession runs the risk

lis pendens A notice recorded for the purpose of warning all persons that the title or right to possession of the described real property is in litigation.

absolutely privileged publication

expungement

lis pendens

specific performance action

Key Terms

Clouding the title with a notice

For a further discussion of this topic, see Chapter 31 of Legal Aspects of Real Estate.

334 Real Estate Principles, Second Edition

the owner will encumber or convey the property to another buyer, lender or tenant who is unaware someone else already holds an interest in the property.

A lawsuit needs to affect title or the right to possession of real estate to support the recording of a lis pendens.1

Lawsuits affecting title or possession of real estate include:

• specific performance of an unclosed transaction or rescission of a closed transaction;2

• judicial foreclosure of a trust deed lien by a lender;3 • foreclosure of a mechanic’s lien by a construction contractor;4 • cancellation of a grant deed or other conveyance by a prior owner;

• fraudulent conveyance to be set aside as voidable by creditors;5 • evictions and suits concerning unexpired leaseholds brought by

tenants or leasehold lenders;

• termination or establishment of an easement between neighboring property owners;6

• government declaration that a building is uninhabitable;

• ejectment of an unlawful occupant other than a tenant from real estate by an owner;

• partition or sale of the real estate by a co-owner;

• quiet title;

• eminent domain actions;7 and

• divorce proceedings involving real estate.

A lis pendens is also permitted in the following lawsuits over real estate:

• actions by adverse possessors to determine claims to title;8 • actions to re-establish lost land records;9 • actions to determine adverse interests in any liens or clouds on real

estate arising out of public improvement assessments;10 • actions by purchasers or the state to quiet title to tax-deeded property;11 • actions by innocent improvers of real estate against owners or lenders

of record;12

1 Code of Civil Procedure §405.20

2 Wilkins v. Oken (1958) 157 CA2d 603

3 Bolton v. Logan (1938) 30 CA2d 30

4 Calif. Civil Code §8461

5 Hunting World, Incorporated v. Superior Court (1994) 22 CA4th 67

6 Kendall-Brief Company v. Superior Court of Orange County (1976) 60 CA3d 462

7 CCP §1250.150

8 CC §1007

9 CCP §751.13

10 CCP §801.5

11 Calif. Revenue and Taxation Code §3956

12 CC §1013.5(b)

Title or possession to

real estate

Real estate lawsuits

Chapter 50: The lis pendens 335

• actions on an improvement bond;13 and

• actions terminating or establishing an easement, except for a public utility easement.14

To record a lis pendens, the lis pendens is required to:

• identify the parties to the lawsuit; and

• give an adequate description of the real estate.15

While the object of the lawsuit and its effect on title or possession of real estate does not need to be stated in the lis pendens, the objective of the lawsuit is to be stated in the lis pendens for it to be considered an absolutely privileged publication.16

Editor’s note — An absolute privilege covers any publication during a judicial proceeding which is authorized by law, including a lis pendens. A publication made under absolute privilege bars a slander of title action against the person wrongfully claiming an interest in the property.

A technical legal description of the property subject to litigation is not required as long as the property can be sufficiently identified.

A lis pendens is properly of record when it is filed and indexed in the county recorder’s office of the county where the property is located.17

Recording and indexing a lis pendens constitutes constructive notice to all persons about the existence of a dispute over title or possession of a property. Any buyer, lender or tenant who is later conveyed an interest in the property is bound by the final resolution of the dispute.

Title companies usually refuse to insure title when a lis pendens is recorded which involves a specific performance action. Without title insurance, buyers will not buy, lenders will not lend and tenants will not occupy the property.

However, a lis pendens in a buyer’s specific performance action does not interfere with a title company insuring a lender’s trust deed which secures a debt in an amount less than the price the buyer will be paying for the property.18

As a result, property subject to specific performance actions by buyers is often rendered unmarketable while the lis pendens remains in effect.

13 Calif. Streets and Highways Code §6619

14 CCP §405.4(b)

15 CCP §405.20

16 CC §47(b)(4)

17 CCP §405.20

18 Behniwal v. Mix (2007) 147 CA4th 621

The lis pendens process

absolutely privileged publication Any statement made as part of a legislative, judicial or other official proceeding authorized by law, barring a slander of title action.

Notice by recording and indexing

Title insurers and specific performance actions

specific performance action Litigation to compel performance of an agreement.

336 Real Estate Principles, Second Edition

The purpose of recording a lis pendens is to preserve a person’s rights in a parcel of real estate until the dispute with the owner is resolved. A lawsuit needs to affect title or the right to possession of real estate to support the recording of a lis pendens.

The lis pendens is required to identify the parties to the lawsuit and give an adequate description of the real estate. Further, the objective of the lawsuit is to be stated in the lis pendens for it to be considered an absolutely privileged publication. The privilege bars a slander of title action against the person wrongfully claiming an interest in the property.

A lis pendens is considered recorded when it is both filed and indexed in the county recorder’s office of the county where the property is located. The recording constitutes constructive notice to all persons about the existence of a dispute over title or possession of a property.

After a lis pendens has been recorded, anyone with an interest in the property affected may file a motion asking the court to expunge the lis pendens. Expungement removes from title any restrictions sought to be imposed on title or to possession by the lawsuit.

absolutely privileged publication ......................................... pg. 335 expungement ............................................................................... pg. 336 lis pendens .................................................................................... pg. 333 specific performance action .................................................... pg. 335

Chapter 50 Summary

Chapter 50 Key Terms

Quiz 10 Covering Chapters 49-54 is located on page 615.

The tremendous value of the lis pendens to litigating buyers is its ability to preserve the buyer’s right to purchase the property. The recording of a lis pendens often persuades a hedging seller to perform.

Accordingly, the potential for abuse of the lis pendens procedure to cloud title of an owner’s property is readily apparent.

Any time after a lis pendens has been recorded, anyone with an interest in the property affected may file a motion asking the court to remove the lis pendens from the record, called expungement.

An order expunging a lis pendens removes from title any restrictions sought to be imposed by the lawsuit on the transfer of the property.19

19 CCP §405.61

Expungement of a lis

pendens

expungement A court order removing from title to real estate the effect of a recorded lis pendens regarding litigation asserting a claim to title or possession of the property.

Chapter 51: Preliminary title reports 337

After reading this chapter, you will be able to:

• explain the function of a preliminary title report; and • distinguish between a preliminary title report and an abstract of

title.

Preliminary title reports

Chapter

51

A preliminary title report is intended to disclose the current vesting and encumbrances which may be reflected on the public record affecting a property’s title. Encumbrances reflected on a preliminary title report include:

• general and special taxes;

• assessments and bonds;

• covenants, conditions and restrictions (CC&Rs);

• easements;

• rights of way;

• liens; and

• interests of others.

A preliminary title report, also known as a prelim, is not a representation of the condition of title or a policy of title insurance. Unlike an abstract of title, a prelim cannot be relied on by anyone and imposes no liability on the title company.

preliminary title report (prelim) A report constituting a revocable offer by a title insurer to issue a policy of title insurance, used by a buyer and escrow for an initial review of the vesting and encumbrances recorded and affecting title to a property.

An offer to issue title insurance

abstract of title

date-down search

preliminary title report

Learning Objectives

Key Terms

For a further discussion of this topic, see Chapter 21 of Legal Aspects of Real Estate.

338 Real Estate Principles, Second Edition

A title insurer has no duty to accurately report title defects and encumbrances on the prelim, shown as exceptions in the proposed policy.1

A prelim is no more than an offer to issue a title insurance policy based on the contents of the prelim. Further, the offer may be modified by the title company at any time before the policy is issued.2

The closing of purchase escrows is contingent on the buyer’s approval of items in the prelim to set the conditions of title consistent with the expectations of the buyer on entering into a purchase agreement. The buyer, their agent and escrow review the report for defects and encumbrances on title inconsistent with the terms for the seller’s delivery of title set in the purchase agreement and escrow instructions. They also look for title conditions which might interfere with any intended use or change in the use of the property contemplated by the buyer.

Escrow relies in part on items approved and disapproved in the prelim to carry out its instructions to record grant deeds, trust deeds, leaseholds, or options which are to be insured.

Typically, escrow instructions call for closing when the deed can be recorded and insured, subject only to taxes, CC&Rs and other encumbrances as agreed and approved in the instructions.

Ultimately, it is the escrow officer who, on review of the prelim, advises the seller of any need to eliminate defects or encumbrances on title which interfere with closing as instructed.

The prelim, and a last-minute date-down search of title conditions, are used by escrow and the title insurer to reveal any title problems to be eliminated before closing and, as instructed, obtain title insurance for the documents when recorded.

The title insurer’s date-down of the prelim prior to closing may turn up title defects or encumbrances not included in the prelim. These occur by error on the part of the insurer or by a recording after the preparation of the prelim. In any case, the title company may withdraw its offer under the prelim. The title company then issues a new prelim, offering to issue a policy on different terms.

Prelims were once compared to abstracts of title. An abstract of title is an accurate, factual representation of title to the property being acquired, encumbered or leased. Thus, an abstract of title may be relied on by those who order them as an absolute representation of the conditions of title.3

An abstract of title is a statement of facts collected from the public records. An abstract is not an insurance policy with a dollar limit on the insurer’s

1 Siegel v. Fidelity National Title Insurance Company (1996) 46 CA4th 1181

2 Calif. Insurance Code §12340.11

3 Ins C §12340.10

No duty to accurately

report

Escrow reliance

date-down search A further search of the public records performed by a title insurer after preparing a preliminary title report and immediately prior to issuance of a policy of title insurance.

abstract of title A representation issued by a title company as a guarantee to the named person, not an insurance policy, listing all recorded conveyances and encumbrances affecting title to the described real estate.

Prelim vs. abstract of

title

Chapter 51: Preliminary title reports 339

liability as is set in a policy of title insurance. The content of an abstract is intended by the insurance company to be relied upon as fact. Thus, the insurer is liable for all money losses of the policy holder flowing from a failure to accurately state all conditions of title in the abstract they issue.4

4 1119 Delaware v. Continental Land Title Company (1993) 16 CA4th 992

A preliminary title report (prelim) is a report furnished by a title insurance company in connection with an application for title insurance disclosing the current vesting and encumbrances reflected on the public record. A title insurer has no duty to accurately report all title defects and encumbrances on the prelim.

A prelim is not a representation of the condition of title and cannot be relied on by anyone. Thus, a prelim is no more than an offer to issue a title insurance policy based on the contents of the prelim and any modifications made by the title company before the policy is issued.

Prelims are distinct from abstracts of title. Abstracts of title are written statements which may be relied on by those who order them as an accurate, factual representation of title to the property being acquired, encumbered or leased.

abstract of title ............................................................................. pg. 338 date-down search ....................................................................... pg. 338 preliminary title report ............................................................ pg. 337

Chapter 51 Summary

Chapter 51 Key Terms

Quiz 10 Covering Chapters 49-54 is located on page 615.

Notes:

Chapter 52: Title insurance 341

After reading this chapter, you will be able to:

• explain how a policy of title insurance indemnifies a person who acquires an interest in real estate against a monetary loss caused by an undisclosed encumbrance on title;

• differentiate between the various types of title insurance policies and endorsements available, such as those presented by the California Land Title Association (CLTA) and the American Land Title Association (ALTA);

• comprehend the six operative sections of a title insurance policy; • observe the dollar limitations placed on coverage provided under

the policy exclusions; and • understand the process of settling a claim.

Learning Objectives

Title insurance

Chapter

52

A policy of title insurance is the contract under which a title insurance company reimburses or holds harmless a person who acquires an interest in real estate against a monetary loss caused by an encumbrance on title that:

Identifying an actual loss

abstract of title

encumbrance

exception

exclusion

preliminary title report (prelim)

proof-of-loss statement

Schedule A

Schedule B

title insurance

Key Terms

For a further discussion of this topic, see Chapter 22 of Legal Aspects of real Estate.

342 Real Estate Principles, Second Edition

• is not listed in the title insurance policy as an exception to coverage; and

• the insured policy holder was unaware of when the policy was issued.1

Thus, a policy of title insurance is a form of indemnity insurance. Title insurance policies are issued on one of several general forms used by the entire title insurance industry in California. The policies are typically issued to:

• buyers of real estate;

• tenants acquiring long-term leases; and

• lenders whose mortgages are secured by real estate.

As an indemnity agreement, a title insurance policy is a contract. The terms of coverage in the policy set forth the extent of the title insurance company’s obligation, if any, to indemnify the policy holder for money losses caused by an encumbrance on title.2

Almost all losses due to the reduction in the value of real estate below the policy limits arise out of an encumbrance. An encumbrance is any condition which affects the ownership interest of the insured.

The word “encumbrance” is all encompassing. Any right or interest in real estate held by someone other than the owner which diminishes the value of the real estate is considered an encumbrance.

Encumbrances on title include:

• covenants, conditions and restrictions (CC&Rs) limiting use;

• reservations of a right of way;

• easements;

• encroachments;

• trust deeds or other security devices;

• pendency of condemnation; and

• leases.3

Physical conditions on the property itself are not encumbrances affecting title. Accordingly, title insurance policies do not insure against open and notorious physical conditions which exist on the property.

A buyer is always presumed to have contracted to acquire property subject to known and visible physical conditions on the property which impede its use or impair its value. In the case of encumbrances, recorded or not, no such presumption exists.

1 Calif. Insurance Code §12340.1

2 Insurance Code §12340.2

3 Evans v. Faught (1965) 231 CA2d 698

Encumbrances unknown,

undisclosed encumbrance A claim or lien on title to a parcel of real estate, such as property taxes, assessment bonds, trust deeds, easements and covenants, conditions and restrictions (CC&Rs).

Property improvement and use not

covered

title insurance A form of indemnity insurance issued by a title insurance company which holds harmless the named insureds against monetary loss caused by an encumbrance not listed in Schedule B of the policy and not known by the insured when the policy was issued.

Chapter 52: Title insurance 343

A title insurance policy is not an abstract of title which warrants or guarantees the nonexistence of title encumbrances. Instead of receiving a guarantee of title conditions, the named insured on the policy is indemnified up to the policy’s dollar limits against a money loss caused by a title condition (encumbrance) not listed as an exception or exclusion in the policy. [See Chapter 51]

Under a title insurance policy, the title company only covers the risks of a monetary loss caused by an encumbrance which is not listed as an exception or exclusion to coverage, and was unknown to the named insured at the time of closing. Thus, the title company has no obligation under a policy to clear title of the unlisted encumbrance.

A title insurance company issuing a policy of title insurance has two underwriting options when its title search reveals an encumbrance affecting title:

• list the encumbrance in a preliminary title report (prelim), requiring the parties to either eliminate it or accept it as an exception to coverage in the policy of title insurance to be issued; or

• insure against the encumbrance by writing over the encumbrance — i.e., not listing it as an exception — and assuming any risk of loss connected to it.

When title companies write over a known encumbrance, they usually demand an indemnity agreement from the person responsible for eliminating the encumbrance. This encumbrance typically takes the form of a money lien, such as a mechanic’s lien, money judgment or blanket encumbrance. Thus, the title company can recover for a third-party guarantor if a claim by the insured is later paid due to the encumbrance.

Additionally, a title policy is not a representation – guarantee – of the nonexistence of encumbrances that are not listed in the policy. If an encumbrance is not known to the named insured, such as the buyer or lender, and is not listed as an exception in the policy, an insured’s claim against the insurer for money in excess of the policy limits cannot be based on the insurer’s negligent preparation of the encumbrances excluded from coverage. Similarly, a claim on an erroneous prelim cannot be based on negligent preparation. [See Chapter 51]

However, a title insurer might intentionally write over encumbrances at the request of a seller. If the buyer is not notified the encumbrance exists, the insurer is liable for actual losses in excess of the policy coverage. In this instance, the insurer breached the implied covenant of good faith and fair dealing imposed on title companies as a duty owed to the insured.4

Title insurance is purchased to assure real estate buyers, tenants and lenders the interest in title they acquire is what they bargained for.

4 Jarchow v. Transamerica Title Insurance Company (1975) 48 CA3d 917

Underwriting only indemnifies a loss

abstract of title A representation issued by a title company as a guarantee to the named person, not an insurance policy, listing all recorded conveyances and encumbrances affecting title to the described real estate.

preliminary title report (prelim) A report constituting a revocable offer by a title insurer to issue a policy of title insurance, used by a buyer and escrow for an initial review of the vesting and encumbrances recorded and affecting title to a property.

Introduction to title policy forms

344 Real Estate Principles, Second Edition

All policies of title insurance on Schedule A set forth:

• the property interest the insured acquired;

• the legal description of the insured property;

• the date and time coverage began;

• the premium paid for the policy; and

• the maximum total dollar amount to be paid for all claims settled.

In addition to the policy exclusions, a policy’s coverage under its “no- encumbrance” insuring clause is further limited by Schedule B exceptions in the policy.

The exceptions section contains an itemized list of recorded and unrecorded encumbrances which are known to the title company and affect the insured title. While the existence of these known encumbrances is insured against in the insuring clauses, they are removed by Schedule B as a basis for recovery under the policy.

An ALTA policy includes a set of pre-printed exceptions setting forth risks assumed by the insured buyer, tenant or lender.

Lastly, a policy of title insurance includes a conditions section. The conditions section outlines the procedures the insured policy holder needs to follow when making a claim for recovery under the policy. Also set forth are the settlement negotiations or legal actions available to the title company before paying a claim.

Several types of title coverage are available, including:

• a California Land Title Association (CLTA) standard policy;

• an American Land Title Association (ALTA) owner’s extended coverage policy;

• an ALTA residential (ALTA-R) policy; and

• an ALTA homeowner’s policy.

The CLTA standard policy is purchased solely by buyers, carryback sellers and private lenders.

The CLTA standard policy insures against all encumbrances affecting title which can be discovered by a search of public records prior to issuance of the policy. Any encumbrance not recorded, whether or not observable by an inspection or survey, is not covered due to the CLTA policy exclusions and standard exceptions.

Schedule A data

Exceptions to coverage

Schedule B Exceptions from coverage, both standard and itemized, by the title insurance policy.

exception Any encumbrances affecting title and any observable on-site activities which are listed as risks assumed by the insured and not covered by a policy of title insurance under Schedule B.

Claims and settlements

Owner’s policies for buyers

The CLTA standard policy

A policy of title insurance is broken down into six operative sections, including:

• the risks of loss covered, called insuring clauses, which are based on a completely unencumbered title at the time of transfer;

• the risks of loss not covered, comprised of encumbrances arising after the transfer or known to or brought about by the insured, called exclusions, which are a boilerplate set of title conditions;

• identification of the insured, the property, the vesting, the dollar amount of the coverage, the premium paid and the recording, called Schedule A;

• the recorded interests, i.e., any encumbrances affecting title and any observable on-site activities which are listed as risks agreed to and assumed by the insured and not covered by the policy, called exceptions, which are itemized for all types of coverage in Schedule B;

• the procedures, called conditions, for claims made by the named insured and for settlement by the insurance company on the occurrence of a loss due to any encumbrance on title which is not an exclusion or exception to the coverage granted by the insuring clauses; and

• any endorsements for additional coverage or removal of exclusions or pre-printed exceptions from the policy.

Coverage under the broadly worded insuring clause of a policy of title insurance indemnifies the named insured for risks of loss related to the title due to:

• anyone making a claim against title to the real estate interest;

• the title being unmarketable for sale or as security for financing;

• any encumbrance on the title; and

• lack of recorded access to and from the described property.

All title insurance policies contain an exclusions section. The exclusions section eliminates from coverage those losses incurred by the insured buyer, tenant or lender due to:

• use ordinances or zoning laws;

• unrecorded claims known to the insured, but not to the title company;

• encumbrances or adverse claims created after the date of the policy;

• claims arising out of bankruptcy or due to a fraudulent conveyance to the insured;

• police power and eminent domain; and

• post-closing events caused by the insured.

exclusion Risks of loss not covered under a policy of title insurance, comprised of encumbrances arising after the transfer or known to or brought about by the insured.

Schedule A Identification of the property interest insured, the legal description of the insured property, the date and time coverage began, the premium paid for the policy and the total dollar amount to be paid for all claims settled.

Insuring clauses

Exclusions from

coverage

Chapter 52: Title insurance 345

All policies of title insurance on Schedule A set forth:

• the property interest the insured acquired;

• the legal description of the insured property;

• the date and time coverage began;

• the premium paid for the policy; and

• the maximum total dollar amount to be paid for all claims settled.

In addition to the policy exclusions, a policy’s coverage under its “no- encumbrance” insuring clause is further limited by Schedule B exceptions in the policy.

The exceptions section contains an itemized list of recorded and unrecorded encumbrances which are known to the title company and affect the insured title. While the existence of these known encumbrances is insured against in the insuring clauses, they are removed by Schedule B as a basis for recovery under the policy.

An ALTA policy includes a set of pre-printed exceptions setting forth risks assumed by the insured buyer, tenant or lender.

Lastly, a policy of title insurance includes a conditions section. The conditions section outlines the procedures the insured policy holder needs to follow when making a claim for recovery under the policy. Also set forth are the settlement negotiations or legal actions available to the title company before paying a claim.

Several types of title coverage are available, including:

• a California Land Title Association (CLTA) standard policy;

• an American Land Title Association (ALTA) owner’s extended coverage policy;

• an ALTA residential (ALTA-R) policy; and

• an ALTA homeowner’s policy.

The CLTA standard policy is purchased solely by buyers, carryback sellers and private lenders.

The CLTA standard policy insures against all encumbrances affecting title which can be discovered by a search of public records prior to issuance of the policy. Any encumbrance not recorded, whether or not observable by an inspection or survey, is not covered due to the CLTA policy exclusions and standard exceptions.

Schedule A data

Exceptions to coverage

Schedule B Exceptions from coverage, both standard and itemized, by the title insurance policy.

exception Any encumbrances affecting title and any observable on-site activities which are listed as risks assumed by the insured and not covered by a policy of title insurance under Schedule B.

Claims and settlements

Owner’s policies for buyers

The CLTA standard policy

346 Real Estate Principles, Second Edition

Additionally, the CLTA standard policy (as well as the ALTA policy) protects the insured against:

• the unmarketability of title or the inability to use it as security for financing;

• lack of ingress and egress rights to the property; and

• losses due to the ownership being vested in someone other than the buyer.

All title insurance policies provide coverage forever after the date and time the policy is issued. Coverage is limited to the dollar amount of the policy, which is generally adjusted for inflation. Coverage is further limited by the exclusions, exceptions and conditions on claims.

The CLTA standard policy (as well as the ALTA policy) contains Schedule A exclusions to coverage which bar recovery by the buyer or joint protection carryback seller for losses due to:

• zoning laws, ordinances or regulations restricting or regulating the occupancy, use or enjoyment of the land;

• the character, dimensions or location of any improvement erected on the property;

• a change in ownership or a parceling or combining of the described property by the insured buyer;

• police power, eminent domain or violations of environmental protection laws, unless a notice or encumbrance resulting from the violation was recorded with the county recorder before closing;

• encumbrances known to the insured buyer or lender which are not recorded or disclosed to the title company;

• encumbrances which do not result in a monetary loss;

• encumbrances which are created or become encumbrances after issuance of the policy;

• encumbrances resulting from the buyer’s payment of insufficient consideration for the property or delivery of improper security to the lender also insured under the policy; and

Policy exclusions

Figure 1

Form 150 Excerpt

Purchase Agreement (One-to-Four Residential Units)

Chapter 52: Title insurance 347

• the unenforceability of the insured lender’s trust deed lien due to the lender’s failure to comply with laws regarding usury, consumer credit protection, truth-in-lending, bankruptcy and insolvency.

The CLTA standard policy contains pre-printed exceptions listed in the policy as Schedule B, also called standard exceptions or regional exceptions. It is the inclusion of these pre-printed boilerplate exceptions which makes the CLTA policy a standard policy.

An ALTA owner’s policy does not contain pre-printed exceptions, only the typewritten exceptions listing the encumbrances which are known to the title company and affect title to the property.

The pre-printed standard exceptions in Schedule B of the CLTA standard policy eliminate coverage for losses incurred by the buyer due to:

• taxes or assessments not shown in the records of the county recorder, the county tax collector or any other agency which levies taxes on real property;

• unrecorded rights held by others which would have been discovered by the buyer on an inspection of the property or inquiry of persons in possession;

• easements or encumbrances which are not recorded and indexed by the county recorder;

• unrecorded encroachments or boundary line disputes which a survey would have disclosed; and

• recorded or unrecorded, unpatented mining claims or water rights.

A lower premium is charged to issue a CLTA policy since the title company undertakes a lower level of risk for indemnified losses due to the CLTA pre- printed exceptions, as compared to the extended risks covered by the more expensive ALTA owner’s policy.

Most policies issued today are of the ALTA variety since the CLTA policy format with pre-printed standard exceptions does not provide protection for unrecorded encumbrances or claims to title.

The ALTA owner’s policy provides greater coverage than the CLTA policy. If the pre-printed exceptions are included in Schedule B and attached to the ALTA policy, the policy becomes an ALTA standard policy, comparable in cost and coverage to the CLTA standard policy since unrecorded encumbrances will not be covered.

As the ALTA owner’s policy covers off-record matters not covered under the CLTA standard policy, prior to issuance of a policy, the title company may require:

• the parcel to be surveyed; and

• those in possession of the property to be interviewed or estopped.

Pre-printed exceptions

The ALTA owner’s policy and survey

348 Real Estate Principles, Second Edition

The exclusions section of an ALTA owner’s policy is identical to exclusions in the CLTA policy, except for additional exclusions relating to an insured lender or carryback seller. The ALTA owner’s policy is not issued to secured creditors. More precisely, a joint protection ALTA policy is never issued.

For buyers of parcels of real estate containing one-to-four residential units, an American Land Title Association Residential (ALTA-R) policy is available in lieu of the ALTA owner’s or homeowner’s policies. Parcels insured include lots and units in common interest developments (CIDs), such as condominiums.

The ALTA-R is referred to by the title companies as the “plain language” policy. Thus, the ALTA-R is written with wording which avoids legalese. Also, the ALTA-R policy contains a user-friendly table of contents and an owner’s information sheet which outlines the policy’s features.

The coverage, exclusions and exceptions in the ALTA-R policy are similar to the ALTA owner’s policy. In addition, the ALTA-R policy covers losses due to:

• mechanic’s liens incurred by someone other than the buyer; and

• the inability of the buyer to occupy the property if the residence violates the CC&Rs listed in the Schedule B exceptions in the policy or existing zoning.

The premium for an ALTA-R policy is priced lower than the premium for an ALTA owner’s policy. This is due to the fact that the ALTA-R policy is usually issued only on parcels in an existing subdivision or CID which has no known problems with easements, encroachments or legal access.

A homeowner’s policy exists to provide more coverage than the ALTA owner’s or the ALTA-R policies.

Before an ALTA homeowner’s policy will be issued by a title insurer, two requirements need to be met:

• the property needs to be improved with a one-to-four unit family residence; and

• the buyer needs to be a natural person, not an entity such as a corporation, limited liability company (LLC) or partnership.

In addition to the risks covered by the ALTA owner’s and ALTA-R policies, the homeowner’s policy covers several risks to ownership which may arise after closing, including:

• the forging of the buyer’s signature on a deed in an attempt to sell or encumber the buyer’s property;

• the construction on an adjoining parcel of a structure which encroaches onto the buyer’s property, excluding a boundary wall or fence;

• the recording of a document which prevents the buyer from obtaining a secured mortgage or selling the property;

The ALTA residential

policy

The ALTA homeowner’s

policy

Chapter 52: Title insurance 349

• claims of adverse possession or easement by prescription against the buyer’s property; and

• claims by others of a right in the buyer’s property arising out of a lease, contract or option unrecorded and unknown to the buyer at the time of closing.

The ALTA homeowner’s policy also covers losses arising out of a lack of vehicular and pedestrian access to and from the property. Other owner’s policies only cover losses resulting from the lack of a legal right to access, not a practical means of access which is covered by the ALTA homeowner’s policy.

Also covered by the ALTA homeowner’s policy are losses incurred due to many other risks which may exist at the time of closing, including:

• the correction of any pre-existing violation of a CC&R;

• the inability to obtain a building permit or to sell, lease or use the property as security for a mortgage due to a pre-existing violation of a subdivision law or regulation;

• the removal or remedy of any existing structure on the property if it was built without obtaining a building permit, excluding a boundary wall or fence;

• damage to existing structures due to the exercise of a right to maintain or use an easement;

• damage to improvements due to mineral or water extraction;

• the enforcement of a discriminatory CC&R;

• the assessment of a supplemental real estate tax due to construction or a change of ownership or use occurring before closing;

• an incorrect property address stated in the policy; and

• the map attached to the policy showing the incorrect location of the property.

Encumbrances relating to the insured title and known to the title company will be itemized in the policy as additional exceptions which limit coverage. The exceptions are reviewed by the buyer and buyer’s agent in a prelim before closing and issuance of a policy.

The ALTA homeowner’s policy contains the same exclusions from coverage stated in the ALTA-R policy, plus an exclusion for any building code violations, unless notice of the violation has been recorded with the county recorder.

Many title insurance companies use the ALTA homeowner’s policy as their default policy which is used if a specific title policy is not requested by escrow. The premium for the policy is approximately 10% more than the CLTA owner’s policy.

Losses due to other risks

350 Real Estate Principles, Second Edition

A lender or carryback seller has options when calling for title insurance. The lender or carryback seller may either:

• be named as an additional insured on a CLTA standard joint protection (JP) title insurance policy with the buyer; or

• request a separate ALTA mortgage policy as a only named insured.

The JP policy enables one or more individuals or entities to be named as insured. Thus, in addition to the owner’s standard CLTA title coverage, the JP policy provides coverage for a trust deed held by a lender or carryback seller.

The JP policy indemnifies the lender or carryback seller against losses arising from risks such as:

• the invalidity or unenforceability of the insured creditor’s trust deed lien;

• the priority of a lien or other encumbrance which was not listed in the policy exceptions; and

• the invalidity or unenforceability of an assignment of the insured trust deed when the assignment is listed in the exceptions as affecting the trust deed.

If a loss covered by a JP policy occurs, the named insureds who suffer from the loss share in any recovery up to the dollar limit of the policy. The recovery is subject to disbursements based on their priority or pro rata interest between them in title.

No windfall occurs since title policies only indemnify an insured against the insured’s actual monetary loss. If there is no loss of value, there is no basis for recovery.

Most policy limits are established based on the value of the property, and as part of that value, the mortgage amount. Accordingly, once a policy loss has been paid to an insured owner, lender or carryback seller, the amount of coverage under the policy is reduced.

Those insured under the CLTA standard policy, ALTA owner’s policy or ALTA-R policy include the name of the insured in Schedule A. They also include the name of those who succeed to the interest of the named insured by operation of law, not by purchase.

If title is to be transferred to another vesting, concurrently or within a few months, the title company is requested to include that vesting as a named insured by endorsement.

A policy covering an owner does not cover a buyer who purchases the insured property from the owner. A new policy needs to be obtained, unless the seller holds a binder and uses it to request the title insurer issue a policy naming the buyer as the insured.

The CLTA standard joint

protection policy

No windfall recovery

Who is insured?

Chapter 52: Title insurance 351

To begin the claims process on becoming aware of an encumbrance covered as a loss by the policy of title insurance, the insured promptly gives the title insurance company written notice of claim.

Upon being notified of the claim, the title company has 15 days to:

• acknowledge receipt of the claim or pay the claim;

• provide the insured with all forms, instructions, assistance and information necessary to prove the claim; and

• begin any investigation of the claim.5

Further, the insured needs to provide the title company with a proof-of-loss statement within 90 days after incurring the loss.

The title company may require the insured party to make available records, checks, letters, contracts, insurance policies and other papers related to the claim.

After receipt of the 90-day proof-of-loss statement, the title insurance company has 40 days to accept or reject the claim, in whole or in part.6

On accepting a claim, the title company may handle the claim in one of several ways, including:

• pay policy limits, plus any authorized costs, attorney fees and expenses incurred by the insured;

• pay the loss incurred by the insured, plus costs, attorney fees and expenses;

• negotiate a settlement;

• bring or defend a legal action on the claim; or

• for an insured lender, purchase the mortgage from the lender for the amount owed by the borrower, plus any authorized costs, attorney fees and expenses incurred by the insured lender.

The conditions section of a title insurance policy limits the amount the title company is required to pay to settle a claim made by an insured.

For owners, the title company may settle a claim by paying the lesser of:

• the full dollar amount of the policy; or

• the reduction in value of the insured’s ownership interest caused by the title defect or encumbrance missed by the title company and not listed in the policy exceptions.

For lenders, the title company may settle a claim by paying the lesser of:

• the full dollar amount of the policy;

• the impairment or reduction in value of the security interest due to the title defect or encumbrance not listed in the policy exceptions; or

• the amounts due on the unpaid mortgage at the time of the loss caused by a defect or encumbrance not listed in the policy exceptions.

5 10 Calif. Code of Regulations §2695.5(e)(1-3)

6 10 CCR §2695.7(b)

Settling a claim

proof-of-loss statement A statement submitted to the title insurance company by the insured referencing the encumbrance discovered after they were issued the policy, the amount of the loss and the basis for calculating the loss.

Extent and limitation of liability

352 Real Estate Principles, Second Edition

The title company will not pay a claim:

• if the title company is able to remove the encumbrance from title;

• until any litigation over the encumbrance has become final; or

• if the owner or lender settles the claim without written permission of the title company.

All claim payments made by the title insurance company, except payments made for costs, attorney fees and expenses, reduce the dollar amount of coverage remaining under the title policy.

A policy of title insurance is the means by which a title insurance company indemnifies a person who acquires an interest in real estate against a monetary loss caused by an encumbrance on title that is not listed in the policy and the insured was unaware of when the policy was issued.

A policy of title insurance includes six operative sections including:

• the risks of loss covered;

• the risks of loss not covered, called exclusions;

• identification of the insured, called Schedule A;

• the recorded interests, called exceptions and listed in Schedule B;

• the procedures for claims made and any endorsements for additional coverage; and

• any endorsements for additional coverage or removal of exclusions or pre-printed exceptions from the policy.

Several types of title coverage are available, including:

• a California Land Title Association (CLTA) standard policy;

• an American Land Title Association (ALTA) owner’s extended coverage policy;

• an ALTA residential (ALTA-R) policy; and

• an ALTA homeowner’s policy.

abstract of title ............................................................................. pg. 343 encumbrance ............................................................................... pg. 342 exception ...................................................................................... pg. 344 exclusion ....................................................................................... pg. 344 preliminary title report (prelim) ............................................ pg. 343 proof-of-loss statement ............................................................. pg. 351 Schedule A .................................................................................... pg. 344 Schedule B .................................................................................... pg. 345 title insurance ............................................................................. pg. 342

Chapter 52 Summary

Chapter 52 Key Terms

Quiz 10 Covering Chapters 49-54 is located on page 615.

Chapter 53: Automatic and declared homesteads 353

After reading this chapter, you will be able to:

• advise a homeowner whether they qualify to voluntarily sell and protect the equity in their residence from creditor seizure;

• differentiate between an automatic homestead and a recorded declaration of homestead and the protections afforded under each;

• determine the specified dollar amounts of net equity homestead protection available; and

• understand the components of a recorded homestead declaration.

Learning Objectives

Automatic and declared homesteads

Chapter

53

A homestead is the dollar amount of equity in a homeowner’s dwelling the homeowner qualifies to exempt from creditor seizure. The dollar amount of the homestead held by the homeowner in the equity in their home has priority on title over most judgment liens and some government liens.

Two types of homestead procedures are available to California homeowners:

• the declaration of homestead, which is recorded [See Figure 1, RPI Form 465];1 and

• the automatic homestead, also called a statutory homestead exemption, which is not recorded.2

1 Calif. Code of Civil Procedure §704.920

2 CCP §704.720

homestead The dollar amount of equity in a homeowner’s principal dwelling the homeowner qualifies to shield as exempt from creditor seizure. [See RPI Form 465]

abstract of judgment

declaration of homestead

homestead

quiet title Key Terms

For a further discussion of this topic, see Chapter 33 of Legal Aspects of Real Estate.

The owner’s homestead interest in title

354 Real Estate Principles, Second Edition

Both homestead arrangements provide the same dollar amount of home- equity protection in California. However, a homeowner needs to record a declaration of homestead to receive all the benefits available under the homestead laws. These benefits allow homeowners the right to sell, receive the net sales proceeds up to the dollar amount of the homestead and reinvest the funds in another home. [See Figure 1]

Neither the declared nor the automatic homestead interfere with:

• voluntary liens previously or later placed on title to the property by the homeowner, such as trust deeds; and

• involuntary liens given priority to the homestead exemption under public policy legislation; or

• the homeowner’s credit ratings or title conditions.

Some involuntary liens and encumbrances are given priority by statute and are enforced as senior to the amount of the homestead exemption, including:

• mechanic’s (contractor’s) and vendor’s (seller’s) liens;

• homeowners’ association (HOA) assessments;

• judgments for alimony or child support;

• real estate property taxes; and

• Internal Revenue Service (IRS) liens.

Involuntary liens that are subordinate and junior to the homestead amount include:

• Franchise Tax Board personal income tax liens;

• Medi-Cal liens; and

• judgment creditor’s liens.

An automatic homestead is always available on the principal dwelling occupied by the homeowner or their spouse when:

• a judgment creditor’s abstract is recorded against the homeowner and attaches as a lien on the property; and

• the occupancy by the homeowner continues until a court determines the dwelling is a homestead.3

The automatic homestead exemption applies to the equity in:

• a real estate dwelling (and its outbuildings);

• a mobilehome;

• a condominium;

• a planned development;

• a stock cooperative;

• a community apartment project together with the land it rests on; or

• a houseboat or other waterborne vessel used as a dwelling.4

3 CCP §704.710(c)

4 CCP §704.710(a)

Recording yields full

benefits

declaration of homestead A document signed by a homeowner and filed with the county recorder’s office to shield the owner- occupant’s homestead equity from seizure by creditors. [See RPI Form 465]

Automatic and declared homesteads

Chapter 53: Automatic and declared homesteads 355

Conversely, a recorded declaration of homestead applies only to real estate dwellings. Thus, mobilehomes which are not established as real estate on the property tax records and houseboats are not protected by a recorded homestead.

To qualify a property for the homestead exemption, the homeowner needs to use the homesteaded property as the principal residence for themselves and their family.

The dollar amount of home equity protection a homeowner qualifies to preserve is the same under either the automatic homestead or a recorded declaration of homestead.

Homeowners qualify for one of three dollar amounts of net equity homestead protection:

• a $75,000 equity for an individual homeowner with no dependents;

• a $100,000 equity for a head of household; or

• a $175,000 equity for homeowners who are age 65 years or older, disabled, or age 55 years or older with an annual income of less than $15,000 or a combined gross annual income of no more than $20,000 if married.5

5 CCP §704.730

Amount of equity protected

The recorded homestead declaration includes:

• the name of the homeowner declaring the homestead;

• a description of the property homesteaded; and

• a statement that the declared homestead is the principal dwelling in which the homeowner resides on the date the homestead is recorded. [Calif. Code of Civil Procedure §704.930(a); see Form 465]

The declaration needs to be signed, notarized, and recorded to take effect. [CCP §704.930]

The homestead declaration may be signed and recorded by any one of several individuals, including:

• the owner of the homestead;

• the owner’s spouse; or

• the guardian, conservator, or a person otherwise authorized to act for the owner or the owner’s spouse, such as an attorney-in-fact. [CCP §704.930(b)]

An individual’s personal residence that is vested in the name of a revocable inter vivos (living) trust, or other type of title holding arrangement established for the benefit of the homeowner, can also be declared a homestead by anyone who has an interest in the property and resides there. [Fisch, Spiegler, Ginsburg & Ladner v. Appel (1992) 10 CA4th 1810]

Declaring a homestead as asset preservation

356 Real Estate Principles, Second Edition

A judgment creditor with a recorded abstract of judgment always needs to first petition a court for authorization to sell a homesteaded property and collect on a money judgment. The court then determines whether the owner’s net sales equity in their home is a dollar amount greater than the amount of the owner’s homestead exemption. If it is, the creditor may proceed to judicial foreclosure on their judgment lien by an execution sale.6

A home with a net equity less than the homestead amount leaves nothing for the creditor to sell and receive too apply to the debt owed under the judgment. However, the sale of a homesteaded dwelling can be forced by a creditor if a net equity exists beyond the amount of the homestead the homeowner holds in the property.

If the homeowner has not recorded a declaration of homestead on the property, they need to prove their residency in the dwelling qualifies the property for the automatic homestead exemption.7

A creditor may be permitted by the court to force the sale of the debtor’s home. However, the court will first exclude the dollar amount of the automatic homestead from the anticipated net sales proceeds to determine if any funds remain to apply on the judgment. If so, the dollar amount of the homestead received by the homeowner on the sale is protected from the creditor’s attachment during a six-month reinvestment period following the sale.

Further, an automatic homestead exemption is provided on the replacement residence to protect the reinvested funds.8

6 CCP §704.740(a)

7 CCP §704.780(a)(1)

8 CCP §704.720(b)

abstract of judgment A condensed written summary of the essential holdings of a court judgment.

Combating a creditor’s attempt to

sell the home

Automatic homestead is

a shield

Figure 1

Form 465

Declaration of Homestead

Chapter 53: Automatic and declared homesteads 357

However, if the replacement home acquired is in the same county where the judgment lien is recorded, the lien will attach to the new residence (subject to the owner’s homestead exemption) the instant title is transferred into the homeowner’s name.

A homeowner who voluntarily sells their residence when title is subject to a creditor’s lien cannot use the automatic homestead exemption to protect the sales proceeds from being taken by the judgment creditor.

In contrast, a declaration of homestead recorded prior to the recording of the judgment lien allows the homeowner who voluntarily sells their home to first withdraw their homestead amount from the net sales proceeds before the judgment creditor receives any funds.

Although an insufficient net equity may exist barring the judgment creditor from forcing a sale of the home, the homeowner claiming only an automatic homestead exemption may not use a quiet title action to remove the lien and sell the home, unlike what is accomplished under a declared homestead.

Once recorded, a declaration of homestead lasts until:

• the homestead owner records a declaration of abandonment of the homestead; or

• the homestead owner records a new declaration of homestead on another residence.9

If a homeowner decides to sell their home which is subject to a declared homestead when title to their home has become clouded with a creditor’s lien, the homeowner may either:

• negotiate a release of the lien with the creditor; or

• clear title to the home through a quiet title action based on the priority of their declaration of homestead.

After title is cleared and the homeowner sells their property, they have six months to reinvest the homestead proceeds in another home. If the proceeds are reinvested in a new residence within six months, the new residence may then be declared a homestead by recording a new homestead declaration.

When the homeowner records a new homestead declaration on their replacement residence, the recording relates back to the time the prior homestead was recorded.10

Homestead equity exemption amounts are increased from time to time. If the amount changes after the creditor records their abstract of judgment, the amount of exemption, even on the new replacement residence, is the amount that was in effect when the abstract of judgment was recorded, not the later increased amount.

However, if the homeowner does not invest the proceeds of the sale in a new homestead within six months, and the proceeds are still in the State of California, the exempt proceeds from the sale can be attached by the judgment creditor. 9 CCP §§704.980, 704.990

10 CCP §704.960

quiet title A court action to remove a cloud and establish title to a property.

Duration of a recorded homestead

358 Real Estate Principles, Second Edition

A homestead is the dollar amount of equity in a homeowner’s dwelling the homeowner qualifies to exempt from creditor seizure. Two types of homestead procedures are available to California homeowners: the automatic homestead and the declaration of homestead.

The dollar amount of the homestead held by the homeowner has priority on title over most judgment liens and some government liens. Homeowners qualify for one of three specified dollar amounts of net equity homestead protection with either type of homestead.

When a creditor is permitted by a court to force the sale of a debtor’s home, the automatic homestead protects the amount of the net sales proceeds up to the dollar amount of the homestead from the creditor’s attachment during a six-month reinvestment period from the close of escrow.

However, a homeowner needs to record a declaration of homestead to receive all the benefits available under the homestead laws. In contrast to an automatic homestead exemption, a recorded declaration of homestead coupled with a quiet title action allows the homeowner to remove judgment liens attached to their title. A declaration of homestead allows homeowners to voluntarily sell their home, receive the net sales proceeds up to the dollar amount of the homestead and reinvest the funds in another home.

Once recorded, a declaration of homestead lasts until the homestead owner records a declaration of abandonment of the homestead or the homestead owner records a new declaration of homestead on another residence.

abstract of judgement ................................................................ pg. 356 declaration of homestead ......................................................... pg. 354 homestead .................................................................................... pg. 353 quiet title ...................................................................................... pg. 357

Chapter 53 Summary

Chapter 53 Key Terms

Quiz 10 Covering Chapters 49-54 is located on page 615.