Thursday, September 27, 2007

Why Does 6132 Exclude Real Property Devises

I wrote earlier about Probate Code Section 6132, which recently took effect. Section 6132 permits a will to refer to a writing, even a later writing, in the devise of personal property. The intent of this law is to make sure a testator's intent is followed when the will is written this way. So why just personal property, and not real property?



The transfer of real property, whether by devise, bequest, or other means, is subject to the statute of frauds and is also held to a higher level of scrutiny than other assets. For example, the document has to be in writing and has to be certain.



It can't be "I deed to Joe the back 40 acres, with the house and well on it." If it were that simple (or complicated, depending on how you look at it), there would be lots of 'splaining to do. So the California legislature, likewise, has not allowed a "later writing" exception to the drafting of wills to include real property. It would be much too confusing if the writing was not clear. For example, if the later writing turned out to be an option to purchase, which left many vague details as to payment terms, exercise of the option or whatever, there would be great uncertainty as to how the real estate was to be transferred, or even to whom. This example is just one of many that could complicate an estate administration. The legislature doesn't provide that a later writing is sufficient for the transfer of real estate, only for personal property.

Personal Property Can Be Devised by a later Writing

Probate Code Section 6132 took effect in January of 2007. This section allows a will to refer to a writing that is not yet in existence in the course of devising personal property from the testator to another. That's right. The writing doesn't even have to exist yet. I find that a little odd because if the writing never materializes or does so in an ambiguous manner, the entire devise will be in doubt. The purpose of 6132, however, is to allow the true intent of a testator to be recognized in some situations. Such as when the testator has not decided what to do with certain personal property, such as furniture, or jewelry, or collections.

But 6132 does not apply to all situations. Most importantly, Section 6132 does not apply to real property devises. I'll get into the reasons, valid reasons, next.

Wednesday, September 26, 2007

To Trust in Another: The Constructive Trust

The constructive trust. To most it's just another legal term that confuses the average person. Lawyer speak. But I think it's important for anyone in the real estate or title industry to understand. A constructive trust is essentially a term to refer to the manner in which one individual (the trustee) holds legal title for another individual (or individuals). This arrangement often comes up when one person takes legal title for another because, for example, the beneficiary could not qualify for a loan to buy the property. (There are many other reasons why one person would take title for another, such as in a partnership to develop or manage real property.) Even though the title holder, is well, on title, the beneficial owner is the true owner, and the title holder is merely a constructive trustee. If the "trustee" disagrees that there is such an arrangement, a complaint is often filed, and there are many factors that a court will look at in deciding whether there is a constructive trust. (The court will have to determine what the intent of the parties was at the time the title was put in the "trustee's" name.) One factor is who made the payments for the mortgage or perhaps property taxes. Another factor is why the title was placed in the defendant's name.

A similar type of trust is a resulting trust. I'll post about this one later. Both types of trusts are important to understand in today's real estate environment.

Tuesday, September 25, 2007

Another Mortgage Fraud Bust

Huge mortgage fraud indictments handed out today in Sacramento. I'm personally not familiar with this case or any of these named defendants, but the general nature of the actions these men took is quite common in today's real estate environment. What amazes me is how these people thought they would get away with it. Two words: paper trail.

I've always believed, and said, that real estate, unlike many other assets, makes people greedy. Greedy to the point that they often turn on family members and trusted friends all in the name of real estate. And they often ignore the obvious, that sooner or later their greed will catch up to them in the form of missed loan payments, forged deeds, and other fraudulent tactics.

Thursday, September 20, 2007

Scams, Scams, Scams

Looks like there is one investigation after another into fraudulently obtained loans. Elk Grove is seeing a big one now. Modesto has seen a few. The truth is, there are many more of these "scams" that haven't even come out yet. Our firm represents a few of the defrauded homeowners.

Many of these buyers were lured into rescue loans by artists, who tricked them into literally signing their homes over, or signing deeds of trusts, in order to avoid foreclosure. The homeowner thinks he or she is simply making lease payments for awhile, and the money would go toward the loan. Meanwhile, the rescue artists/loan officers tap out the equity in the homes and leave the homeowner (sometimes a renter) with a growing interest rate and mortgage burden.

Oh, the lease payments. Do you really think the "landlord" paid this money toward a mortgage?

Wednesday, September 19, 2007

More Family Solutions

I'll use the term family here to include "related-by-marriage", since this is often the case where two (or more) people have different ideas about what to do with property in their name. Usually, an in-law would like the property sold, while another person, with more of an emotional connection to the property, would like to keep it. One solution here would be an option agreement whereby one family member would have a certain amount of time to buy the land. If he or she fails to do so, then everyone could partition it. If there are two or more people with an interest in the land, the option could be given to one person first, or a bidding procedure could be implemented. Probate courts often see a similar type of bidding procedure.

Don't look at these ideas as the only solutions. There are many more. But as I posted earlier, at least the options are in the family's control before a probate is opened.

Tuesday, September 18, 2007

Family Dispute Solutions

As I spoke of yesterday, there are many solutions to a family squabble over who should, or will, hold title to real estate. In fact, each family has different characteristics which dictate what's best for everyone. If there is a concern about one family member not having good enough credit to buy property that he or she will be entitled to, and other family member's can and are willing to hold title in their name, some attorneys would recommend that the title can be held as a "constructive trustee", that is, someone who holds legal title for the benefit of another. Is this a good solution? Sometimes. Depends on the persons involved. Make sure it's in writing. Make sure there is language which covers contingencies. For example, what if the beneficial owner doesn't want the property later or gets in trouble and cannot take over the title. Who gets it then? And how? And is the beneficial compensated for his or her forebearance? There are many questions to answer, but if the language in a trust agreement is clear to everyone, and is complete, a potentially ugly arrangement can be addressed before it becomes a problem. More scenarios and solutions later.

Monday, September 17, 2007

Family disputes over the title to property often become an issue only when it has to,--when someone passes away and a title issue needs to be resolved. At this point the dispute can get ugly and expensive for everyone. But like most matters, the solution to the dispute usually can be reached if the problem is addressed BEFORE a court is involved.

For example, say a mother or father, or both, are on title with a child, but not all the children. The other kids are, well, o.k. with this, because they're supposed to receive money from the family business or from some other source.

Problem is, child #1 isn't sure that this arrangement is what everyone else thinks it is, and the written agreement (usually there isn't one) doesn't spell out the entire arrangement very well. If and when something happens to the parent(s), the children have to deal with this issue. An issue they knew about when their folks were around and they could have resolved this around the table.

I'll post more about the possible solutions later, but needless to say, it's much easier to pull the grant deed out and get the family together now. Even if different attorneys are needed to negotiate the whole thing.