I.          General Classifications of Property and Rights—“Real” and “Personal” Property: The Civil Code generally classifies property as either “real” or “personal”: “Property is either: (1) real or immovable; or, (2) personal or movable.”  
           

In practice, however, a variety of other terms are used and subsumed within these two basic categories:

A.        Real property: Real property consists of four components: “(1) Land; (2) [t]hat which is affixed to land; (3) [t]hat which is incidental or appurtenant to land; (4) [t]hat which is immovable by law ... ”

 

                        1.         Land: Land” is the “material of the earth ... includ[ing] free or occupied space of an indefinite distance upwards as well as downwards, subject to limitations upon the use of airspace.

                        2.         Fixtures: Fixtures” are a part of the real property, defined as things “affixed to land, imbedded in it, permanently resting upon it or permanently attached to what is thus permanent.

                        3.         Appurtenances: Appurtenances are also part of real property, defined as things deemed to be incidental or appurtenant to land when it is by right used with the land for its benefit ... ...riparian water rights, being appurtenant to land, are an interest in real property.

                        4.         Hereditaments and tenements: The words real property are coextensive with lands, tenements, and hereditaments.”   Hereditaments, corporeal and incorporeal, chattels, tenements and rents, issues and profits: These terms are frequently used in transactional documents, with often overlapping definitions:

          

B.         Personal property: Personal property is every kind of property that is not real ... 
The transfer of various kinds of personal property may or may not be contemplated in a sale of real property. Therefore, it is essential to enumerate the specific personal property items to be included in any purchase agreement.

C.         Conveyancing instruments

                        1.  Deed for real property: The instrument used to convey title to real property is a deed.” A deed is an executed conveyance and operates as a present transfer of the real property.  The deed may be either a grant deed,” quitclaim deed or tax deed.

1.                                  .           Grant deed: A grant deed contains the grantor's implied covenant that he or she (i) has not conveyed the same estate, or any right, title or interest therein, to any person other than the grantee; and (ii) such estate is, at the time of execution of the conveyance, free from encumbrances done, made, or suffered by the grantor or any person claiming under the grantor.  The grantee takes title to the property subject to all existing encumbrances (such as a deed of trust) whether or not the deed so provides.

           

1.                                              Quitclaim deed: A quitclaim deed transfers or releases to the transferee whatever present right or interest the grantor has in the described property. Unlike a grant deed, a quitclaim deed carries with it no express or implied covenants.  Thus, if the grantor holds no interest in the property, a quitclaim deed conveys nothing.

           
                                    c.         Tax deed: Where property that has defaulted to the state for failure to pay assessed taxes is sold at a tax sale,” the purchaser receives a tax deed from the tax collector upon payment of the full purchase price.
 
                        2.         Bill of sale or assignment for personal property: Personal property is typically conveyed by a bill of sale or assignment. A bill of sale is used to convey tangible personal property, while an assignment is used to convey intangible personal property.

 

D.        Intangible Property:   Definition: “Intangible property is that which has no intrinsic or marketable value, but is merely representative evidence of value—e.g., goodwill, rights to use certain tradenames, contracts, stocks and bonds, promissory notes, choses in action, etc.  Tangible property is personal property, but constitutes rights not related to physical things.

E.         Fixtures: The statutory definition of a “fixture, is not always easy to apply. In practice, courts utilize three fundamental tests to ascertain whether an item of personal property has become so affixed to the land as to become part of the real property (and hence, a fixture)
 
F.         Subterranean and Air Space Rights: A fee interest in land includes ownership of the “surface and everything permanently situated beneath or above it.”

 

H.         Property Ownership, Operation and Maintenance Contracts: Contracts pertaining to the use, ownership and operation of real property to be sold may be significant in number and substance. Such contracts do not necessarily encumber the realty or a new owner's interest (i.e., they are not covenants running with the land”; even so, they may be desirable for the buyer to assume. For example, property management agreements, landscaping contracts, air conditioning service contracts, contracts for laundry facilities, janitorial service contracts, and a host of other service contracts might properly be the subject of the “property” to be transferred.

I.          Covenants Running With the Land: Certain covenants, contained in grants of real property, are appurtenant to such estates, and pass with them, so as to bind [subsequent owners] ... Such covenants are said to run with the land. A covenant is said to run with the land if it binds not only the person who entered into it, but also later owners and assigns who did not personally enter into it.
 
J.          Any agreement for sale of real property: The statute of frauds (CC  1624(a)(3), above) applies to any agreement for the sale of real property—even to a settlement agreement for the sale of real property.

 

K.        Sale between partners/joint venturers included: There is a line of authority recognizing that oral agreements among partners or joint venturers relating to real property are not within the statute of frauds.

 

L          Letters of Intent, Memoranda and Other Informal Instruments: A “letter of intent” is often used in real estate transactions but the term has no inherent legal significance. In practice, “letter of intent” generally refers to a writing documenting the parties' preliminary understanding of desire to enter into a future contract. The purpose is not to bind the parties to their ultimate contractual obligations but simply to provide the framework (the basic “deal points”) from which they will negotiate toward a binding contract; or to provide a guideline to assist the attorneys in preparing a binding agreement.

 

M.         Comprehensive Purchase and Sale Agreements: A comprehensive purchase and sale agreement drafted by an attorney (or use of a preprinted form agreement, filled out and amended by counsel,  is the preferred method of documenting the purchase contract. If an escrow will be used, the purchase agreement should include escrow instructions, thus eliminating the need to prepare subsequent escrow instructions.

 

N.        Special Rules Governing Home Equity Sales Contracts-Residential Property Purchases Pending Foreclosure: The Home Equity Sales Contract Act (the “Act, CC §§ 1695–1695.17) governs purchases of residential property during the pendency of a foreclosure proceeding (i.e., at any time after a notice of default has been recorded against a residential real property consisting of one-to-four family dwelling units, one of which is owner-occupied as a principal residence).

 

                        1.         The Legislature enacted this statutory scheme in response to “fraud, deception, and unfair dealing” by purchasers of “home equity” interests from homeowners in foreclosure. “During the time period between the commencement of foreclosure proceedings and the scheduled foreclosure sale date, homeowners in financial distress ... are vulnerable to the importunities of equity purchasers who induce homeowners to sell their homes for a small fraction of their fair market values through the use of schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.”

 

                        2.         “Equity purchasers”: An “equity purchaser” within the meaning of the Act is any person who acquires title to a residence in foreclosure, except as noted below .CC § 1695.1;
The Act  regulates not only “archetypal predators” (business persons preying on distressed homeowners), but all equity purchasers as defined; except for persons exempted by statute, “the Act applies to all persons who purchase a residence subject to an outstanding notice of default, regardless of whether the purchaser routinely engages in such transactions, and regardless of whether the distressed buyer initiates the negotiations“ (emphasis in original)]

 

                        3.         Exceptions: A purchaser of a residence in foreclosure is not an “equity purchaser” subject to the Act if he or she acquires title:
                        • For the purpose of using the property as a personal residence;
                        • By deed in lieu of foreclosure of any voluntary lien or encumbrance of record;
                        • By deed from a trustee acting under a regularly conducted foreclosure sale;
                        • At any sale of property authorized by statute;
                        • By court order or judgment; or
                      • From a spouse (or registered domestic partner, see Fam.C. § 297.5(a)), blood relative or blood relative of a spouse/domestic partner. [CC § 1695.1(a)(1)-(6); The Act's exceptions are “narrowly construed.

II.  Examples of  Sources and Kinds Financing

            A..       General Financing Sources: Financing may be obtained in any of the following ways:

                        1.         Third-party financing: In a third-party financing transaction, the buyer procures its loan from a third party (typically, but not necessarily, an institutional lender).

 

                        2.         “Institutional” vs. “private” lenders: The term “institutional lender” refers to an entity such as a bank, savings and loan association, insurance company, large pension fund, real estate investment trust, or the like which regularly engages in the business of making real property secured loans. These lenders are distinguished from “private lenders” who are not regularly in the lending business.

                        3.         Government loans: Occasionally, real property purchases are funded by government loans.

           
                        4.         Seller financing: “Seller financing” occurs when the seller takes a portion (or, conceivably, all) of the purchase price in the form of a loan to the buyer, which is secured by the property being sold. Seller financing is sometimes called “purchase money financing” .

                        5.         Existing financing: The buyer may elect to take over an existing loan encumbering the property by either (1) purchasing the property “subject to” the existing loan; or (2) specifically “assuming” the existing loan.

                        6          Combination financing: Some financing transactions are a combination of the above alternatives; e.g., a portion of the purchase price comes from a third party loan and another portion is supplied by seller financing.

 

III.       Security for Promissory Note    The borrower's obligations under the promissory note are almost always secured by the property purchased with the loan proceeds.

            A.        Deed of Trust: In California, the instrument most commonly used to secure a promissory note given for a real property loan is a deed of trust. It effectively gives the creditor (lender) a lien on the secured property (also referred to as the collateral) to satisfy the obligation under the note if it is not paid.

 

            B.         Mortgage compared: A promissory note can also be secured by a “mortgage” on the property which, like a deed of trust, gives the creditor a lien on the security (the real property collateral) to satisfy the borrower's obligation. [See CC §§ 2920, 2947—any interest in real property capable of being transferred may be mortgaged
However, deeds of trust are the preferred security instrument in real property loan transactions because they provide the lender broader remedies upon the borrower's default. Significantly, under a deed of trust the lender has the remedy of nonjudicial foreclosure, by way of a “private power of sale”); that remedy is not available under a mortgage. Because a trustee conducts the private nonjudicial foreclosure sale, there are three parties to a deed of trust (see below), whereas a mortgage involves only two parties (the lender and borrower).

IV.       Real Property  Foreclosure and Antideficiency Laws

            A.  Residential Foreclosure Prevention Laws and Programs: In 2008–09, Congress enacted an exhaustive body of consumer protective legislation meant to reduce the rise in residential foreclosures and stabilize property values. The Federal Reserve Board has issued related consumer protection regulations  and, in 2009, the U.S. Treasury Department instituted residential mortgage modification and refinancing programs to assist distressed homeowners. State law too was revised to help stave off the mounting foreclosure crisis in California.

                        1.         California Perata Mortgage Relief Act (interim requirements re notice of default for certain residential loans)

                        2.         California Foreclosure Prevention Act (interim requirements re notice of sale for certain residential loans.

 

                        3.          Housing and Economic Recovery Act of 2008 (HERA): The Housing and Economic Recovery Act of 2008 (HERA, Pub.L. 110–289, 122 Stat. 2654) was signed into law July 30, 2008.

                        4.         HOPE for Homeowners Act of 2008 (HOPE): HERA spawned the HOPE for Homeowners Act of 2008 (HOPE), a voluntary program authorizing the FHA to refinance homeowners into 30–year fixed rate FHA mortgages. From October 1, 2008, until September 30, 2011, the principal balance and interest rate for eligible homeowner mortgages is reduced through refinancing into affordable FHA-insured loans based on current property values. [Pub.L. 110–289, §§ 1401 & 1402]  To qualify, a homeowner's existing mortgage must have originated on or before January 1, 2008. In addition, the homeowner must, among other things, be unable to afford his or her current mortgage payments, as defined, have a mortgage debt-to-income ratio greater than 31% as of March 1, 2008, and certify the home is his or her primary residence and that he or she has not intentionally defaulted on the subject mortgage loan.
The principal loan amount cannot exceed 90% of the appraised value of the subject property, or 37% of the dollar amount limitation in effect for 2007 under the Federal Home Loan Mortgage Corporation Act. In addition, homeowners must share equity and any future appreciation in the subject property with the FHA.

                        5.         Servicemembers Civil Relief Act: HERA enhanced the statutory foreclosure protections afforded servicemembers. Significantly, an action to foreclose on a servicemember's secured real property that is filed during, or within nine months after, the servicemember's military service period may be stayed, as defined, for a period of time “as justice and equity require.” Moreover, any sale, foreclosure or seizure of the real property is invalid if made during, or within nine months after, the servicemember's service period. 50 App. USC § 533(b), (c) (amended Pub.L. 110 § 289, § 2203(a)) (12/31/10 “sunset” date)]

                        6.         Helping Families Save Their Homes Act of 2009: The Helping Families Save Their Homes Act was signed into law May 20, 2009. Its purpose is to prevent mortgage foreclosures and enhance mortgage credit availability. Among other things, the Act authorizes mortgage loan servicers to modify loans and engage in other loss mitigation activities consistent with guidelines issued by the Secretary of the Treasury. It also provides a servicer “safe harbor” for mortgage loan modifications and amends various provisions for refinancing mortgage loans under the HOPE program  [See Pub.L. 111–22, 123 Stat. 1632, § 201–202]
           
            The Act recommends that the Department of Justice establish a nationwide mortgage fraud task force and that a foreclosure moratorium be instituted for first mortgages secured by the borrower's principal dwelling until such time as foreclosure mitigation provisions (e.g., the HOPE program) have been implemented and determined operational. [Pub.L. 111–22, 123 Stat. 1632, §§ 301 & 401]

                        7.         Making Home Affordable Refinance Program: The Making Home Affordable Refinance Program was developed by the U.S. Treasury Department and implemented in March, 2009. It assists homeowners who are current on their mortgage (and those unable to refinance because of declining property values) to refinance into more affordable loans. The program, scheduled to end June, 2010, applies only to first mortgages that do not exceed 105% of the current market value of the property.

                                    To qualify, a homeowner must be the owner occupant of a one-to-four-unit property and current on his or her mortgage. In addition, the loan must be owned or securitized by Fannie Mae or Freddie Mac.  (Fannie Mae and Freddie Mac each have tollfree telephone numbers and Web sites to provide information on loans they own or securitize.)

                        8.         Home Affordable Modification Program (HAMP): The Home Affordable Modification Program (HAMP) was developed by the U.S. Treasury Department as part of the Making Home Affordable Refinance Program (above). HAMP works in tandem with the HOPE program , allowing homeowners who are behind on their mortgage payments to modify the terms of their first mortgage by lowering monthly payments to 31% of their gross income. This level is achieved by reducing the interest rate to as low as 2% and extending the term of the loan or deferring payment on part of the principal. The program includes the use of short sales and deeds in lieu of foreclosure if a borrower cannot complete the modification process.
             
                                    A critical eligibility requirement is that default in payment by the borrower be reasonably foreseeable. Servicer participation in HAMP is voluntary; however, Fannie Mae, Freddie Mac and financial institutions receiving assistance under the Financial Stability Plan are required to implement the plan. The program is scheduled to end December 12, 2012.         B.         Foreclosure Remedies

                        1.         Election of foreclosure remedies: Commencement of a judicial or nonjudicial foreclosure does not by itself result in an election of remedies. In fact, a beneficiary under a deed of trust may initiate either remedy or institute both concurrently without consequence.  However, once the beneficiary takes a judicial foreclosure to judgment or completes a nonjudicial foreclosure by trustee's sale, the beneficiary effectively elects its remedy, thereby forfeiting the other.

                        2.          Trustor/debtor defense: The election of remedies defense may be raised in a subsequent foreclosure proceeding only by the trustor or debtor from the original foreclosure action. Nonparties are in no position to complain about the manner or means of actual foreclosure.

                        3.         . Nonjudicial trustee's sale: Provided the deed of trust includes appropriate enabling language, upon the borrower's default, the beneficiary can compel the trustee to conduct a private power of sale foreclosure. This kind of foreclosure sale does not involve any court proceeding, nor any judicial supervision whatsoever. Although it is subject to statutes restricting and regulating exercise of the power of sale, a nonjudicial foreclosure remedy is a right authorized solely by contract between the lender and trustor (embodied in the deed of trust) and thus is exempt from procedural due process challenge under the federal and state constitutions.
                                   
                        4.         Legislative purpose: The comprehensive statutory scheme governing nonjudicial foreclosures (CC § 2924 et seq.) has three purposes: “(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.”

            For Additional Information regarding mortgage information to prevent foreclosure, see Loan and Banking section.

            C.        Foreclosure Sale.
                        1.   Trustee's deed; purchaser's title.  The successful bidder at a private foreclosure sale acquires title on execution and delivery of the trustee's deed.  The purchaser's title dates back to the date that the security instrument was executed and is generally free and clear of all subsequent or subordinate encumbrances and interests.  The title is also free and clear of the interest of the debtor or his or her successor since that interest is foreclosed by the sale.   The purchaser's title is generally not conditional on any rights of redemption as these are terminated by the sale.  The purchaser also receives the improvements and fixtures on the premises, whether installed before or after the foreclosed instrument was executed.  However, the title does remain subject to prior or superior encumbrances and interests.  The purchaser's title may also be subject to junior tax liens if proper notice has not been given. 

                        2.  Possession of the Property.  The purchaser at the trustee's sale is entitled to immediate possession of the property.  If the debtor or his or her successor remains in possession, the purchaser may bring an unlawful detainer action to recover possession. Some courts have held the purchaser need only prove acquisition of title at the sale.  The only defense is that the sale was not conducted in compliance with the terms of the statute  and of the security instrument.

            D.  Unlawful Detainers: Summary proceedings and limitation of issues. 
                        1.  Termination of tenancy.  An unlawful detainer occurs when a tenancy terminates but the tenant remains in possession of the premises or real property without the permission of the landlord.  An unlawful detainer action is a summary proceeding to evict the tenant and recover possession of the real property. It is statutory in origin, and entitled to precedence over most civil actions on the court calendar.
                        2.  Right to Possession.  Since the primary feature of an unlawful detainer remedy is an expedited procedure for the recovery of possession of real property wrongfully detained, both parties are deprived of forms of assistance otherwise available. The landlord's rights and remedies provided by statute are in lieu of his or her common law rights that included the right to enter and expel the tenant by force. The sole issue before the court is the right to possession, and a counterclaim or a cross-complaint is generally not permitted. Although affirmative defenses are generally not admissible, the following exceptions have been allowed:
                        (a) implied warranty of habitability.
                        (b) retaliatory eviction.
                        (c) landlord's failure to comply with local rent control ordinances.
                        (d) racial discrimination.
                        (e) equitable defenses, generally.

                        3.  Expedited procedures and reduced time frames.  Courts are required to give unlawful detainer proceedings precedence over all other civil actions in setting the matter for hearing or trial, and in hearing the matter.  Accordingly, all procedures are expedited. For example, the tenant's response to a summons in an unlawful detainer action must be returned within five days of service including Saturdays and Sundays rather than the customary 30 days allowed by the Code Civil Procedure.  Further, unless the parties agree to an extension of time, the court must set a contested action for trial for not later than the 20th day following the date the request for setting is made.
            Additionally, the parties may waive a speedy resolution of the issue of possession in favor of an extensive adjudication of their conflicting claims. In that case, a full and fair litigation will result in a judgment conclusive on the issues material to the proffered affirmative defense.
            Although the sole issue may be the right to possession of premises, a judgment in an unlawful detainer for a landlord usually includes possession of premises, forfeiture of the rental agreement, rent up through the end of the three-day notice to pay rent or quit, damages (amount of money due from end of notice period to date of trial) and attorney's fees and costs.
            Because the purpose of an unlawful detainer action is to recover possession, there will be no unlawful detainer if the tenant surrenders the premises before the proceeding is commenced, even if surrender is not within the three-day notice period.   A tenant often vacates the day before the trial. Once the tenant vacates and possession is no longer at issue, the case becomes a normal civil matter rather than a summary unlawful detainer action.  As a practical matter, turnover of possession by the tenant ends the lawsuit in the opinion of most landlords. Once a tenant has vacated a residential premises it is very difficult to collect money. Therefore, the landlord simply dismisses the case having gained possession.  However, termination of the lease by abandonment does not deprive the landlord of contract remedies for breach of lease.