In Estate of Felder, the California Second Appellate District upheld the award of $48,000 as damages for a buyer's withdrawal from the purchase of real property in a probate sale. The $48,000 was the amount of the buyer's deposit.
California Probate Code section 10350 allows the seller to recover damages from a buyer who pulls out of a transaction involving real or personal property after the court has approved the sale. The damages can include the difference between the original buyer's purchase price and the price the property later sold for, plus expenses made necessary by the purchaser's breach, and other "consequential" damages. The court here held that the first buyer's breach caused a total of over $55,000 in damages. The court ordered that the buyer forfeit his $48,000 to cover the damages caused by the breach, even though the actual damages were higher.
The buyer appealed, claiming that the court had no authority to order the forfeiture of the deposit. The Court of appeals upheld the lower court's order, noting that "The estate was entitled to retain the entire $48,000 as statutory damages and not as a deposit."
If you are involved in a probate sale of real property, you can get damages if your buyer withdraws after you have received court approval of the sale. If you are buying property subject to a probate court approval, BEWARE, you could be on the hook for serious damages if you cancel after the court has approved the sale.
Showing posts with label investing. Show all posts
Showing posts with label investing. Show all posts
Friday, October 10, 2008
Tuesday, June 24, 2008
Recent Case Law Update
This is something I haven't done much of, but I think is important. So here goes.
California Antideficiency Statute Does Not Apply to "True" Guarantors
California passed antideficiency statutes during the Depression. They are codified in California Code of Civil Procedure sections 580a, 580b, 580d and 726. The law basically says that if you go into default on your home mortgage, for example, and the bank sells the property in a foreclosure sale for less than what you own on the mortgage, the bank cannot get a judgment against you personally for the difference (or "deficiency").
William and Janyce Hustwitt were guarantors of a loan to their irrevocable Investment Trust, secured by a trust deed for certain real property in Newport Beach, California. The Trust defaulted and the lender, which was actually another trust, foreclosed on the property. The lender sold the property for about $388,000 less than what was owed on the loan, and then sued the Hustwitts for the deficiency under their guaranty agreements. The trial court awarded the deficiency amount, plus interest, to the lender.
The Hustwitts appealed on the grounds that the antideficiency law applies to guarantors, and that in any event they were not "true"guarantors because they were too closely related to the debtor (which was their Investment Trust) as beneficiaries and trustees of the trust.
The appeals court didn't buy it. California law is clear that the antideficiency statute does not apply to guarantors. The antideficiency statute is intended to protect debtors. A guarantor is a separate and independent obligation from that of a debtor. The antideficiency laws do not protect the guarantors.
The appeals court also didn't buy the Hustwitt's argument that they were not "true" guarantors. Sometimes a debtor (or "principal obligor") will take on additional liability as a guarantor of the debt. Courts in California have held that this does not create any additional obligation on the part of the debtor, and that they are therefore not "true" guarantors. Thus, the antideficiency statutes would still apply, and the fact that the debtor is also a guarantor is irrelevant.
Here, the Investment Trust that held the property was an irrevocable trust with a corporate trustee. Although the Hustwitts were the settlors of the trust, they were only secondary, and not primary beneficiaries. The court held that this arrangement removed them from personal liability for the trust's obligations, and also limited their beneficial enjoyment of the property. The court concluded that they were "true" guarantors, and that the antideficiency statute did not apply.
The upshot of this case is that, although irrevocable trusts are a great tool for limiting your liability in and exposure to certain downsides, they are not a "get out of jail free" card. You cannot have it both ways - being protected from the liability of an obligor while taking advantage of certain protections afforded an obligor.
The case is Talbott v. Hustwitt and it was decided in the Fourth Appellate District of California (Orange County). You can read the entire decision here.
California Antideficiency Statute Does Not Apply to "True" Guarantors
California passed antideficiency statutes during the Depression. They are codified in California Code of Civil Procedure sections 580a, 580b, 580d and 726. The law basically says that if you go into default on your home mortgage, for example, and the bank sells the property in a foreclosure sale for less than what you own on the mortgage, the bank cannot get a judgment against you personally for the difference (or "deficiency").
William and Janyce Hustwitt were guarantors of a loan to their irrevocable Investment Trust, secured by a trust deed for certain real property in Newport Beach, California. The Trust defaulted and the lender, which was actually another trust, foreclosed on the property. The lender sold the property for about $388,000 less than what was owed on the loan, and then sued the Hustwitts for the deficiency under their guaranty agreements. The trial court awarded the deficiency amount, plus interest, to the lender.
The Hustwitts appealed on the grounds that the antideficiency law applies to guarantors, and that in any event they were not "true"guarantors because they were too closely related to the debtor (which was their Investment Trust) as beneficiaries and trustees of the trust.
The appeals court didn't buy it. California law is clear that the antideficiency statute does not apply to guarantors. The antideficiency statute is intended to protect debtors. A guarantor is a separate and independent obligation from that of a debtor. The antideficiency laws do not protect the guarantors.
The appeals court also didn't buy the Hustwitt's argument that they were not "true" guarantors. Sometimes a debtor (or "principal obligor") will take on additional liability as a guarantor of the debt. Courts in California have held that this does not create any additional obligation on the part of the debtor, and that they are therefore not "true" guarantors. Thus, the antideficiency statutes would still apply, and the fact that the debtor is also a guarantor is irrelevant.
Here, the Investment Trust that held the property was an irrevocable trust with a corporate trustee. Although the Hustwitts were the settlors of the trust, they were only secondary, and not primary beneficiaries. The court held that this arrangement removed them from personal liability for the trust's obligations, and also limited their beneficial enjoyment of the property. The court concluded that they were "true" guarantors, and that the antideficiency statute did not apply.
The upshot of this case is that, although irrevocable trusts are a great tool for limiting your liability in and exposure to certain downsides, they are not a "get out of jail free" card. You cannot have it both ways - being protected from the liability of an obligor while taking advantage of certain protections afforded an obligor.
The case is Talbott v. Hustwitt and it was decided in the Fourth Appellate District of California (Orange County). You can read the entire decision here.
Wednesday, April 30, 2008
Investing Prudently Amid Turmoil
Regardless of how a trust is structured, a trustee has a fiduciary duty to invest the trust assets. With all the chaos in the markets these days (look here for the gloom), a trustee may be inclined to look at their mattress as the safest investment vehicle. As any student of the markets knows, however, there are always opportunities amid the crises.
Take stocks, for example. While the Dow has dropped about 10% from its all-time high of 14,279.96 on October 11, 2007, it is only down 2.4% from where it was a year ago. And the U.S. isn't the only place to invest money. European stocks have been pounded over the past year, but the markets in South America, South Africa, Hong Kong, Indonesia and India have all performed very well (this doesn't however take into consideration any erosion of returns cause by the declining dollar, which is another float in the parade of horribles).
Commodities, which include oil, corn and gold, are almost universally way up. It's impossible to know when anything is at the top of its price, but I think it is safe to say that the current upward price pressure cannot last much longer. Once the prices get too high, demand will fall off, and the prices will begin to drop. There is already some indication that demand for gasoline, which is comfortably over $4.00 a gallon here in California and is the only reason anyone cares about the price of oil, is beginning to fall. Commodities such as corn, soy and other food crops will probably be the object of government intervention at some point if their prices don't level off, and there is some amount of speculation built into their price because of their potential as an alternative to oil as a fuel source.
What is a trustee to do? Don't panic, you are a trustee after all. Look to the professionals. Ask your financial advisor for help. If you don't have one, get one. Make sure the trust allows you to hire an advisor and to pay them out of the proceeds of the trust. It's part of your job as a trustee.
I could go on about how and where to look for opportunities. They are out there. If you are a fiduciary, it is important to surround yourself with a trusted financial advisor who can help navigate these waters, which seem filled with sharks, icebergs, alligators, and what have you.
The mattress is never as good as it looks, anyway.
Take stocks, for example. While the Dow has dropped about 10% from its all-time high of 14,279.96 on October 11, 2007, it is only down 2.4% from where it was a year ago. And the U.S. isn't the only place to invest money. European stocks have been pounded over the past year, but the markets in South America, South Africa, Hong Kong, Indonesia and India have all performed very well (this doesn't however take into consideration any erosion of returns cause by the declining dollar, which is another float in the parade of horribles).
Commodities, which include oil, corn and gold, are almost universally way up. It's impossible to know when anything is at the top of its price, but I think it is safe to say that the current upward price pressure cannot last much longer. Once the prices get too high, demand will fall off, and the prices will begin to drop. There is already some indication that demand for gasoline, which is comfortably over $4.00 a gallon here in California and is the only reason anyone cares about the price of oil, is beginning to fall. Commodities such as corn, soy and other food crops will probably be the object of government intervention at some point if their prices don't level off, and there is some amount of speculation built into their price because of their potential as an alternative to oil as a fuel source.
What is a trustee to do? Don't panic, you are a trustee after all. Look to the professionals. Ask your financial advisor for help. If you don't have one, get one. Make sure the trust allows you to hire an advisor and to pay them out of the proceeds of the trust. It's part of your job as a trustee.
I could go on about how and where to look for opportunities. They are out there. If you are a fiduciary, it is important to surround yourself with a trusted financial advisor who can help navigate these waters, which seem filled with sharks, icebergs, alligators, and what have you.
The mattress is never as good as it looks, anyway.
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