Real estate litigation often presents straightforward and manageable cases, as litigation goes. There are usually clear legal rules that apply and the determinative factual issues tend to be limited. Litigation will commonly arise in connection with real estate contracts and can involve different possible remedies.
Breach of Contract
If a party to a real estate contract fails to perform an important obligation under the terms of a contract, the other party to the contract may bring an action for damages, seeking an award of money. A claimant must be able to prove, that the damages claimed occurred as a legal result of the failure of performance by the other party and were reasonably foreseeable or within the contemplation of the parties at the time of making the contract. Real estate contracts usually contain an attorney fees clause that provides for recovery of the attorney fees incurred in bringing an action on the contract. The prevailing standardized real estate purchase contracts now require a party to first attend a mediation and attempt to reach a settlement of any dispute before any legal action is taken, or else the right to potentially recover attorney fees will be lost. Under this compulsion, it is best to engage in a mediation of some kind before proceeding.
If the dispute is not settled at mediation, a party then may proceed with further legal action, with a right to recover attorney fees if successful. This may be an action filed in the courts or it must be an arbitration, depending on what the parties have agreed to in executing the contract. In pursuing these kinds of contractual cases it must always be recognized that attorney fee clauses are a two-way street. Only the winning party is entitled to recover attorney fees. The losing party will have to pay their own attorney fees and the attorney fees awarded to the winning party. This can be a lot of money. The risks involved with real estate contract cases have to be evaluated and the cases managed in a way to avoid getting deep into situations with unjustified risk. But, where the facts are favorable and the evidence is available, a successful case may achieve recovery for all damages and an award for all of the attorney fees and costs incurred in bringing the case.
Specific Performance of Contract
Sometimes money damages will just not do when the goal of a contract is to purchase a particular property and the seller has breached the contract. In these cases it may be possible to have the court enforce the contract and compel the seller to complete the sale of the property under the contract. This contractual remedy is called “specific performance” of the contract. These kinds of cases arise with some regularity in a hot market. A seller may decide the property has become much more valuable by the time a buyer under a purchase contract is ready to complete the transaction. Sellers will find a justification and attempt to cancel the contract so they can turn around and sell the property for a higher price. Sometimes the buyer will create a situation where the seller actually has grounds to cancel because of some delay or failure to act by the buyer. Relatively minor issues that would be overlooked in a normal sale may be seized upon to justify a cancellation when the seller is motivated to withdraw from the deal.
Specific performance actions must be filed as soon as the breach occurs. If the seller is able to complete a sale to a new buyer who is not knowingly involved in a scheme with the seller to defeat the first contract, it will be impossible for the first buyer to recover the property from the second buyer. If a specific performance action is promptly filed, the plaintiff can record a “notice of pending action” with the county recorder that will give notice to any later buyer of the first buyer’s pending claim and preserve the first buyer’s rights to the property. The “notice of pending action” is a California statutory term for a long established form of legal notice traditionally known as a “lis pendens.” A lis pendens can be very powerful and effective because it prevents the seller from selling or even refinancing the property until the lawsuit for specific performance is decided.
Because a lis pendens is such a powerful pre-trial remedy that completely ties the seller’s hands before the buyer has proven a case, it was historically subject to abuse as a means of pressuring a settlement. A buyer with a weak specific performance case could bluff and exert great leverage on a seller, simply because of the power of the lis pendens. For these reasons, the legislature changed the traditional laws. The current laws concerning a notice of pending action require a buyer who has filed for specific performance to make a very strong showing of the likelihood of success in the case, at the very beginning of the case. Unless the buyer can present sufficient evidence to show a high likelihood of success in the case, the buyer will not be allowed to maintain the lis pendens, the notice of pending action recorded against the property.
For these reasons, an action for specific performance must be carefully considered. If the seller challenges the lis pendens and the buyer cannot convince the court that there is a high likelihood of success in the case, the lis pendens will be “expunged,” or removed from the official records of the county recorder. At that point, not only will the seller be free to sell the property and put it out of the buyer’s reach, the buyer may owe substantial attorney fees to the seller as a result of the failure to demonstrate a high likelihood of success when challenged.
A buyer must have a clear and certain purchase agreement and must have fully performed on his or her part, in order to prevail in a specific performance case. The contract must also be fair. The rules concerning specific performance cases are strictly enforced by the court. Because specific performance is an equitable remedy, it will be a decision by the court, and not by a jury, as to whether specific performance should be granted. But, where the facts do support a buyer’s position, specific performance can be an effective remedy that allows a buyer to complete the purchase of the property under a contract. A successful party in a specific performance action may also be able to recover for all attorney fees and costs incurred in bringing the action.
Rescission of Contract
In some cases a party may be allowed to rescind a contract, meaning that the party is relieved of any obligations under the contract. But this remedy is only available under very limited circumstances. Generally speaking, a contract is not easily or casually rescinded simply because one party has had a change of mind and attempts to offer justifications for backing out. In most cases, a deal is a deal. The limited grounds on which a contract may be rescinded include the incapacity of a party, or where a party has been the victim of undue influence or fraud. Where the facts support a rescission it can be a very effective remedy that can foil devious schemes.
Real Estate Fraud Cases
While fraud may sometimes arise in connection with a contract and can sometimes justify the rescission of a contract, fraud is not a contract action. But where the facts put in question a party’s good faith intentions in entering a contract, an action for fraud and deceit may be brought as a companion claim to a breach of contact action. The deceit may be simply a lack of an intention to perform the contract when entering the contract. More generally, fraud arises from situations in which the other party makes false representations about material issues, or fails to disclose material facts.
Damages for Fraud
The right to recover damages for fraud is broader than the basis for recovering damages under a contract. But, since fraud is not a contract action, there is generally no right to recover attorney fees in an action based on fraud. Where there is very clear evidence of fraudulent intent and oppressive conduct, however, it may be possible to obtain an award of punitive damages in addition to damages for losses resulting from the fraud. Punitive damages are awarded only if it is first determined that the other party engaged in bad conduct falling under the defined legal terms of “malice, fraud or oppression.” Punitive damages are meant as a punishment and a deterrent for wrongful conduct. The amount of punitive damages is set by taking into consideration the extent of wrongful conduct, the harm caused and the financial resources of the other party.
Cancellation of Deeds
The cancellation of deeds and other legal instruments is a legal remedy that is appropriate in cases where a deed or other instrument is obtained by fraud and deceit, by undue influence, or in situations where the party who signed the deed lacks sufficient capacity. Deeds and other conveyances act to divest a person of their interests in property. The cancellation of a deed nullifies the improper transfer and immediately restores the property to the original owner, as if the conveyance never happened. But, this remedy is not effective where the perpetrator of the improper transfer has already transferred the property to another innocent person in a bona fide sale. A lis pendens must be promptly recorded in any action to cancel a deed, to prevent the further transfer of the property while the case is pending.
Cancellation of a deed is also the appropriate remedy in the case of a forged deed. A forged deed is a complete nullity and conveys no interest. Forged deeds, and any subsequent transfers, must be cancelled as soon as possible and not left unchallenged.
When two or more persons own a piece of real estate together, the property can only be sold if all owners agree to sell. In situations where one person wants to sell and another person refuses to sell, the person desiring to sell can file a partition action to force the sale of the property. Where larger parcels of land are involved, a partition action can actually request the physical division of the property between or among the owners. In that case, based on testimony concerning the physical characteristics of the property, the court will be asked to determine a fair physical division of the land, so that each part is of comparable value. A partition action for a physical partition of a property is a rare bird these days, at least in urban areas. In most instances, because of the size and nature of a property, it is not practical or legally possible to physically divide a property. When there is no practical way to physically divide a property, partition means that the court will order the sale of the property and the division of the net sale proceeds among the owners according to their respective interests in the property.
Unless the co-owners of a property have signed a contract agreeing to sell only at certain times or under certain conditions, there is no defense to a partition action. A co-owner who wants the property sold will be entitled to an order for the sale of the property. For this reason, in most partition actions, people eventually face the inevitable and settle the case. Otherwise, the court may appoint a referee to market and sell the property, at substantial expense, in addition to the usual broker’s commissions. Furthermore, if the case is decided by the court, the owner initiating the partition action may request and receive reimbursement for the attorney fees and costs incurred, to be paid from the sale proceeds, before the proceeds are divided and distributed among the owners, on the grounds that the attorney fees and costs benefited all owners.
Property Line Disputes
Fights between neighbors along property lines are most unfortunate and regrettable disputes that occur with some regularity. Serious and threatening situations can develop involving very aggressive conduct that requires police intervention. Other times, hostilities are acted out through aggressive litigation. Property owners will angrily fight in court to assert their exclusive rights over a six to eight inch strip of land on the far side of their garage that they have no access to, out of concern that their neighbors are taking advantage of them and using their land. These kinds of disputes involve high strung emotions. There is a great need in these situations for de-escalation, intervention and settlement. The actual underlying issues must be dealt with in a business-like way. Having a fight with one’s next door neighbor is a self-defeating proposition. In most cases, greater harm is done to the enjoyment, tranquility and the sanctuary of a person’s own home by the on-going dispute itself than by the original offense or perceived offense by the neighbor. But, with all the good advice in the world, the parties may be unable or unwilling to settle their dispute and the issues must be litigated.
Broadly speaking, “title” to real property refers to the name of the owner on the deed and the other language of the deed that establishes the particular legal capacity of the ownership. There are a variety of ways an owner can hold title that have different legal consequences. In this broad sense we say that a person “holds title” or “has title” or is “on title” to the property. Title is ownership. When one purchases real property, the question will come up – “How are you going to take title?” There are a number of possibilities.
At another level, title is a legal ownership status conferred by being a successor to a series of undisputed previous owners of the property. A deed means very little unless it is in the “chain of title.” Otherwise it is a “wild deed,” and a worthless piece of paper. Title companies provide a service of assuring buyers of property with a policy of title insurance that their seller is the true owner and has “good title” to the property being sold. Title companies are willing to provide title insurance and accept the risk because they have studied and compiled information on recorded deeds for decades and they make an informed judgment about the seller’s chain of title.
Slander of Title
The value of real property depends on the owner having title, meaning clear title or “marketable title.” But, sometimes there are defects in title, a “cloud on title.” There can be inherent defects in an owner’s claim under the chain of title. A person’s title may also be tainted when some other person records a document that potentially burdens or invades some right of the owner and title claimant. When the words or actions of another person cast doubt on an owner’s title, and diminish the value and marketability of a property, the owner may have grounds to bring an action for money damages based on “slander of title.”
In any situation in which there has been a challenge to a person’s title or doubt has in some way been cast on a person’s title, the matter can be put to rest and clear marketable title can declared by the court in an action “for quiet title” or “to quiet title.” If, after a trial, the court is satisfied with the evidence of title, and enters a judgment quieting title to real property in a person’s name, a certified copy of the judgment can be recorded with the county recorder. The recording of the judgment has a curative effect on any doubts about ownership and the person then has clear and marketable title and a title company will rely on the recorded decree to issue title insurance.