​​This case is something that a lot of readers who are tenants can surely relate to. It’s a situation that arises surprisingly often, in fact, if you’ve ever been a tenant, then I’m sure you can relate to this case on some level. Long story short, it deals with a landlord who wrongfully withheld security deposits from his tenants, and I can tell you now that it did not end too well for him!
 
Here’s a brief procedural history on what happened: On August 15, 2003, Edward Alcoser, Stiliani Antonakis, Sue Jacky, and Suzannee Kronisch, on behalf of themselves and class representatives filed a complaint against Thomas, alleging that he had engaged in various practices “designed to deprive tenants of their security deposits… and to deter tenants from claiming the deposits and asserting their rights.” The class consisted of approximately 200 people defined as “former tenants who moved out od rental units owned by Thomas in Alameda county… and who did not receive a refund of all or any part of their security deposit.”
              
On September 3, 2008, the trial court denied a motion for summary judgment filed by Thomas. On November 4, 2008, the jury returned verdicts in Plaintiff’s favor and fixed class damages at $183, 018.87 and found that Thomas had acted in bad faith with respect to the statutory claim, as well as with malice, oppression or fraud in defrauding the class. On November 5, 2008, the jury awarded $5,490,566.10 in punitive damages against Thomas.
 
On January 13, 2009, Thomas filed a motion for a new trial, and it was granted in part. The trial court entered its order on the motion for new trial, reducing compensatory damages to $130, 819.31 and reducing prejudgment interest from $220,248.50 to $63, 679 and reduced the punitive damages award to $1 million. It required the plaintiffs to elect between the punitive damages and statutory damages.
 
 On June 30, 2009, the trial court granted in part plaintiff’s motion for attorney fees and costs. The court awarded Plaintiffs a total of $1,664,777.48 in attorney fees and costs. Three consolidated appeals followed.
 
Brief Facts:
 
Thomas owned around 150 residential units in Alameda County. The units are managed by ELM, his property management company. Thomas generally required his tenants in Alameda County to pay a security deposit equal to 1.25 multiplied by one month’s rent. He also had a practice of conducting a move in inspection of the rental units at the beginning of each tenancy. The inspection included the filling out of a form in which a tenant could list any deficiencies with the unit.  After a tenant moved out, Thomas’s practice was to write a letter detailing any deductions he intended to take from the security deposit. He also took photographs of a vacated unit if he had any claim of tenant caused damage.
              
Thomas also used a computer program called YARDI that is designed for property management businesses. The YARDI files contain a record of all the money Thomas spends on his properties by unit. However, the reports do not distinguish the amount spent on tenant-caused damage only, though they could have been designed to do so. In fact, there was even an expert witness who went by the name of Robert Miller who testified that Thomas’ policies regarding many of the charges applied to the security deposits were not within the standards of the industry. A comparison of the costs estimated in letters sent to 157 tenants, as against actual amounts spent as shown by the YARDI reports, revealed that while $502,461.37 was claimed as damages, only $215,057.72 was actually spent on repairing the affected units. Further, the amount attributable to tenant caused damages was unknown as the YARDI reports do not segregate tenant-caused expenditures from expenditures for routine maintenance.
 
Discussion:
 
The element of reliance:
               For a claim of fraud to be successful, the plaintiff must be able to show that he relied on statements made by the Defendant. (Alliance Mortgage. Co v. Rothwell, (1995) 10 Cal. 4th 1226, 1239.) “Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction. (Id.)
              
The problem here was that this particular case was a class action suit, so Thomas’s main argument was that the finding of reliance was not supported by substantial evidence. To back up his claim, he used the fact that not every single tenant in the class action was brought in to testify that they had read the lease provision regarding the security deposit, and thus had relied on his statements. However, the court was quick to shoot down his argument. The court cited to Code of Civil Procedure § 382 that authorized class actions “when the question is one of a common or general interest of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.” Thus, the court said that it would defeat the purpose of class action, in which certain plaintiffs are chosen to represent a class, if every single member of the class were individually required to appear in court to prove every element of the class action claims.
 
The court also drew on custom to show that there was substantial evidence that all tenants had, in fact, relied on the defendant’s statements. It was arguable that that the tenants in the same building owned by the Defendant shared details of their individual lease including recovery of deposits. Additionally, the fact that members of this class engaged in conduct designed to recover deposits, such as cleaning and improving the unit, demonstrated their motive to obtain a refund of deposit fees, creating a presumption of reliance by the class. And finally, the fact the court held that the tenants were also made aware of the security deposit provision when they paid their security deposits as a condition of their tenancies. Thus, there was substantial circumstantial evidence of reliance in this case.
 
Jury instructions:
 
 The second issue that Thomas brought up was that the jury instructions that were given out regarding the damages section was faulty. The instruction that was handed to the jury at trial was as such: “To determine the amount of damages, you must: Determine the amount of the security deposits that the class gave to Thomas… and subtract the amount of deposits that the named plaintiffs and the class did receive in return. The resulting amount is the class’ damages.” Thomas argued that this instruction was incomplete as it improperly included the entire deposit as part of the compensatory damages, with no allowance for valid deductions. However, the court, once more, disagreed with Thomas.
 
To support its decision, the court cited Grandberry v. Islay Investments, (1995) 9 Cal. 4th 738. In that case, the court held that when a landlord violated §1950.5 (which deals with the withholding of security deposits), “the right to retain all or part of the security deposit… has not been perfected and he must return the entire deposit to the tenant.” (Id at 745) Thus, the jury instruction that was given at trial was not erroneous.
 
The court also held that even if the jury instruction could be said to be flawed, it would have deemed to have been waived. This is because when the trial gives an instruction “which is an incorrect statement of law, the party harmed by that instruction need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal.” (Suman v BMW Of North America Inc., (1994) 23 Cal. App. 4th 1, 9.) However, “when a trial court gives a jury instruction which is correct as far as it goes but which is too general or too incomplete for the state of the evidence, a failure to request an additional or a qualifying instruction will waive a party’s right to later complain on appeal about the instruction which was given.” (Id.)
 
Punitive damages:
Thomas also appealed the punitive damages award as he thought that it was too excessive. In response to this, the court used a multi factor test to review the issue of damages “de novo.” The factors were: (1) the degree of reprehensibility of the defendant’s misconduct, (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
 
Reprehensibility:
What really became the last nail in Thomas’s coffin was the fact that, at trial, Thomas acknowledged that many of his tenants were financially vulnerable. So this made his actions particularly reprehensible, at least to the judges who heard this case. Further, his conduct was regular and ongoing, repeated multiple times over a substantial period of time. This demonstrated a pattern of unlawful conduct towards his many tenants. Additionally, the judges also found that Thomas systematically committed intentional fraud in a way that was calculated to deter former tenants from pursuing their legal remedies, supporting a finding of intentional malice, trickery or deceit.
 
Ration of Punitive Damages to Actual Harm:
The court found that the ratio between the two was not of “breathtaking proportions.” The ratio here was 8 to 1, and that ratio was upheld by Simon v San Paolo U.S Holding Co. Inc., (2005) 35 Cal. 4th 1159.) Thus, the court had no problem approving this ratio.
 
 
 
Comparable Civil Penalties:
 In determining the reasonableness of a punitive damages award, courts also “compare the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct.” (Suman v BMW Of North America Inc., (1994) 23 Cal. App. 4th 1.) However, the court said that it would serve no purpose to limit a punitive damages award to an arbitrary ratio of no more than the actual damage. Thus, the court declined Thomas’ argument that the punitive damages award was too excessive.
 
Conclusion:
 
So, what are the takeaways from this case? When it comes to the landlord, it pays to be diligent with your accounting and to itemize every single repair that was caused by your tenant. Furthermore, you can only deduct expenses that were related to tenant caused damage and not just general upkeep. Additionally, shady tactics like trying to discourage your tenants from pursuing any legal action against you will only come back to haunt you in the form of punitive damages!
 
As for tenants? If you think your claim is too small to have anything actually come of it, don’t be shy to talk to other tenants in your building to see if they’ve suffered from the same unlawful practice. You just might be able to get a class action suit going! 

As an American, I have a genetic predisposition to cheering for the underdog. So when an elderly woman hustles Wells Fargo out of nearly half a million dollars, I think “Awesome.” And that’s pretty much what happened in this case. A fun opinion, with some novel arguments by counsel for Wells Fargo, this case also represents the intersection of archaic property holding schemes and sloppy loan processing. To cap it off, Justice Mosk’s closing paragraph is essentially a mic-drop citation to the California Maxims of Jurisprudence (Civil Code §§ 3509-3548) where he tells Wells Fargo that because you suck at your job, the heirs in question should not suffer.

The cast of characters are as follows.

·      Lawrence Peterson, the original owner of the property in question.

·      Jacqueline Peterson, Lawrence’s second wife and beneficiary of a life estate.

·      Mark & Paul Peterson, Lawrence’s sons and the plaintiffs in this matter.

·      Wells Fargo, the lender and defendant.

Lawrence bequeathed a life estate to Jacqueline in his will which allowed her to live in the property for the rest of her life. Lawrence died in 1986. The will contained additional provisions regarding Jacqueline’s power over the property. Jacqueline had the power to sell the property but the proceeds would be split three ways between her, Mark, and Paul. If she died before selling the house, the house would pass to Mark and Paul, in equal shares.

In 2008, Jacqueline obtained a loan from Wells Fargo for $410,000. Wells Fargo secured the loan with a deed of trust. In 2010, Jacqueline dies. When she dies, the mortgage payments to Wells Fargo stop. Wells Fargo then records a notice of default and election to sell, putting Mark and Paul on notice of their claim. Mark and Paul then bring an action against Wells Fargo for quiet title and cancellation of the instrument as to the deed of trust. On summary judgment, the trial court cancelled the deed of trust and notice of default and ordered the house to pass to Mark and Paul in fee simple, free of encumbrances.

The basic problem here is that Wells Fargo did not conduct a thorough title search prior to issuing the loan. If they had, they would have presumably seen an executor’s deed from the estate to Jacqueline imposing the life estate. In fact, any time property is transferred through probate great care should be taken to review the will and the order to ensure that there is no confusion as to what type of interest was transferred. The problem presented by the life estate is that Jacqueline did not have the power to encumber it with a deed of trust because that would "...create an estate that will extend beyond the duration of the life estate..." Slip Opinion, Pages 6-7. Essentially, the property was not hers to encumber, rendering the deed of trust void. Hence, this appeal.

It appears that they only relied on the last transaction in the title search, which occurred in 2003. What happened there was that Jacqueline illegally conveyed to herself a fee simple interest in the property in conjunction with a loan from a different lender. The timing of the filings is odd. Jacqueline’s grant deed to herself was recorded on the same day as the deed of trust benefitting the lender, California National Bank i.e. January 8, 2003. One take on this is that Jacqueline fooled California National Bank by recording an illegal grant deed. However, California National Bank would have conducted a title search and seen the executor’s deed prior to issuing the loan. Thus, they would have known the nature of the interest held by Jacqueline. Also, she executed the grant deed on the same day that she borrowed the funds and signed the grant deed i.e. January 2, 2003. This suggests that California National Bank put all these documents in front of her and then recorded them all simultaneously a few days later. Probably, they looked at the executor’s deed, didn’t understand it, and had Jacqueline sign a grant deed to herself in order to firm up title for the underwriter to approve the loan.

Wells Fargo first argues that Jacqueline received a fee estate subject to a condition subsequent with the subsequent conditions being the sale of the property, her remarriage, or her death before remarriage or sale. The court quickly disregards this sophistry and takes them back to law school by explaining the nature of a life estate, noting that: “Giving Jacqueline a rent-free residence during her lifetime established a life estate because that is a limitation on the duration of her estate, not a condition on the use of the property.” Slip Opinion, Page 10.

Wells Fargo next argues that the deed of trust executed in their favor was actually a sale of the property. This is another whopper. Basically, they argue that the deed of trust conveys the property to Wells Fargo because it transfers title to the trustee under the deed of trust. Taking them back to law school, Justice Mosk places a page long citation to a 1922 California Supreme Court case  (Bank of Italy etc. Assn. v. Bentley 12 (1933) 217 Cal. 644, 656-657 in case you were wondering) explaining the effect and nature of deed of trust and concluding that “although Wells Fargo acquired technical legal title to the Property through its trust deed, such acquisition did not constitute a permissible sale of the Property under the Probate Order.” Slip Opinion, Page 11-12.

Wells Fargo then goes for the Hail Mary. They argue that the probate order granting the property to Jacqueline actually gave her a hybrid 1/3 fee interest, 2/3 life estate because she could have sold the property during her lifetime and received 1/3 of the sale proceeds. Justice Mosk’s response is, essentially, “Do you even lawyer, bro?” The court notes that nothing in the probate order supports this contention. Next subject.

Wells Fargo’s final argument is one in equity, in that their loan should be construed as an advance against the 1/3 sale proceeds. Here is the mic-drop:

“Wells Fargo or its agent failed properly to determine that Jacqueline had a life estate and not fee interest in the Property prior to loaning her money. Plaintiffs were not involved in the loan. Wells Fargo or its agent, and not innocent third parties, should bear any loss resulting from Wells Fargo’s loan to Jacqueline. (Civ. Code, § 3543 [“Where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer”].)”

Boom shakalaka

First off, is the concept of the homestead. Although this may conjure up images of Little House on the Prairie or The Oregon Trail (which I played on a green screen Mac back in the day FYI), a homestead is simply someone’s principal place of residence (i.e. where they actually live) on the date that a judgment is recorded against them in the county where the home is located. Code of Civil Procedure § 704.710(c).

Second, is the declaration of homestead. The declaration of homestead is simply a document by the homeowner stating that a particular piece of property is his primary residence. CCP §§ 704.910–704.990. The specific requirements are that the document identify the homestead owner, describe the property that is claimed as the homestead, state that the property is the person’s principal place of residence, contain a statement that the facts stated are true, be acknowledged before a notary, and recorded with the county recorder. CCP § 704.930.

Third, what are the advantages of the homestead declaration? In order to explain the advantages, it is important to state the two types of homestead protections that are available when a judgment creditor seeks to force the sale of a judgment debtor’s home.

The first is called the statutory homestead exemption and the second is called the declared homestead exemption. The statutory exemption does not require the homeowner to do anything other than assert the exemption in the event of a forced sale.

The declared homestead exemption requires the homeowner to file a homestead declaration. In the event of a forced sale of the home, a certain amount of the equity will be reserved for the homeowner to use in the purchase of a new home. The funds will remain beyond the reach of the judgment creditor for 6 months while the judgment debtor looks for a new home. CCP §§ 704.710(c), 704.720(b), 704.960. In the event of a forced sale, the statutory exemption and the declared homestead work the same way.

The difference arises when the judgment debtor seeks to voluntarily sell the home while a judgment is recorded or if the judgment debtor declares bankruptcy. If the judgment debtor sells his home while there is a recorded abstract of judgment, his homestead exemption is treated as a junior lien to that of the judgment creditor. This also applies in the event that the judgment debtor records a homestead declaration after the recordation of the abstract of judgment, by which time it is too late.

To explain, imagine our homeowner as follows:

• 30-year-old male
• No disabilities
• Owns a home with a fair market value of $500,000 with $100,000 in equity
• $500,000 judgment recorded against him
  

He learns that if the home is sold through a foreclosure sale he may not obtain the fair market value of the home so he decides to sell it before the judgment creditor forces the sale. For our purposes, imagine that he could sell it for $500,000. If he were to sell, without filing a homestead declaration or filing a late homestead declaration, the judgment creditor would be able to capture all $100,000 of the equity from the sale. This is because the statutory homestead exemption only protects against forced sales, not voluntary sales. However, if our homeowner were to have filed a homestead declaration then the judgment creditor would only receive $25,000 from the sale, as the homestead exemption for our homeowner is $75,000. In the vent that the home could not be sold for more than pre-existing encumbrances and the homestead exemption (such as if the home could only be sold for $475,000 in the above example) then the court may not order the sale of the home. CCP § 704.800.

Essentially, the judgment will only encumber the amount of equity after all other encumbrances and exemptions are applied. A “judgment lien may … attach to a declared homestead in the amount of any surplus over the total of prior liens and encumbrances plus the amount of the homestead exemption.” Fidelity Nat’l Title Ins. Co. v Schroeder (2009) 179 CA4th 834, 844 citing CCP § 704.950(c) and Smith v. James A. Merrill, Inc. (1998) 64 Cal.App.4th 94, 99.) Thus, any equity over the amount of the exemption and mortgage is fair game.

·      Another benefit of the declared homestead is that it is still valid even if the property is transferred into a revocable living trust. Fisch, Spiegler, Ginsburg & Ladner v Appel (1992) 10 Cal.App.4th 1810. As a side note, the Fisch case presents an interesting issue where the law firm that prepared a trust for the defendant and counseled the defendant to record a homestead declaration on the property in trust, subsequently obtained a judgment against the defendant. Id. The law firm claimed that no homestead exemption was available to the defendant because the property was held by the trust, not the individual defendant. The appellate court ultimately affirmed the finding of a homestead exemption in the subject property because the defendant held a reversionary interest in the property, a recognized property interest for homestead purposes. Thus, homeowners can rest safe knowing that they can have their property in trust and receive some financial relief via a homestead declaration. Bear in mind that only a natural person can obtain the benefit of the homestead exemption i.e. a real, human being. This means that if you transfer title to a corporation or an LLC then that home will be ineligible for a homestead exemption. California Coastal Comm’n v Allen (2008) 167 Cal.App.4th 322, 329.

While there are many benefits of the homestead declaration beware of homestead filing services that promote the homestead declaration as a miraculous defense against all creditors foreclosing on your home. I have included a link to the California Department of Consumer Affairs website which has a very informative guide on homestead filing services and some of the outrageous claims they make in order to gull homeowners into purchasing their services.

The homestead declaration is a basic component of any asset protection plan. Because they both involve the structuring of the way an individual holds property, a homestead declaration should occur as a normal part of estate planning, as well. By recording this document you can ensure that if you suffer the slings and arrows of outrageous economic fortune, you can still preserve a small portion of your equity to use on a subsequent home. If you wish to prepare and record your own homestead declaration, the Sacramento County Law Library has a decent sample. Just make sure that when you notarize the document, the acknowledgment has the new warning required to be on all acknowledgments. Otherwise, the recorder will reject it.

There is a whole lot going on this case. First, is the “alleged” abuse perpetrated by the son upon his parents. Second, are the perils of trust deed investing. Third, are the consequences of sloppy drafting in a motion for summary judgment. 


It is hard to tell if this case is a tragedy or an elaborate scheme on the behalf of the Plaintiffs/Appellants. In a nutshell the Plaintiffs claim that their son forged their names on a loan and a deed of trust related to their property in Bakersfield. The loan goes into default in 2005 and the Salazars tell the lender that the loan was a forgery. Payments continue. For some reason, in 2009, the Salazars start paying the loan even though they claim it is the result of forgery.  Three years go by and the Salazars decide that maybe they should not be paying this loan. They file an action for declaratory relief and quiet title on the grounds that the note and deed are forgeries.

Big surprise, defendants counter with a defense of the statute of limitations, waiver, and ratification because the payments by Plaintiff were made pursuant to a forbearance agreement between Plaintiff and the lender. They also cross-complain. But, in an additional twist, the daughter of Plaintiffs signs the Salazars' names on the forbearance agreement. As will be discussed, this created significant problems for the lender down the road.

The main issue in the case is whether the initial notice of default in 2005 disturbed Plaintiff’s possession sufficient to start the statute of limitations on the quiet title action.  This is important because the “statute of limitations does not bar an action to quiet title by an owner in undisturbed possession of the land ....” (Mayer v. L&B Real Estate (2008) 43 Cal.4th 1231, 1238.) Since the Salazars owned the Brundage property and rented it out they were in possession of the property.

What makes this an interesting issue is that it was a matter of first impression of this state as to whether a notice of default triggers the statute of limitations on a quiet title action.

The court reasoned that the notice of default did not trigger the statute of limitations because the notice was a demand for money and not a claim as to title.

In the words of the court:

“The notices of default did not call into question the validity of plaintiffs’ control of the property by claiming plaintiffs’ possession was improper or illegal. Also, the notices of default did not indirectly question plaintiffs’ control of the property by asserting defendants were entitled to possess the Brundage Property. Rather, the notices of default presupposed that plaintiffs were the rightful owners of the Brundage Property and their ownership interest gave them an incentive to pay the amount of the indebtedness that was in default. Therefore, we conclude the notices of default did not dispute plaintiffs’ possession of the Brundage Property.”

The court does go on to say that the notice of trustee’s sale would have challenged the possession of the property, thereby triggering the statute of limitations.

The other big issue dealt with in the opinion were the defendants defenses as laid out in their separate statement of undisputed material facts.

The court takes defendants out behind the woodshed for their cutting and pasting in the same 70 paragraphs of material facts for each of their defenses. This led to the omission of important facts regarding their unclean hands, waiver, and ratification defenses. Starting with the unclean hands defense.

The defendants claim that the Salazars knew the note and deed were forged and didn’t do anything about it. The defendants failed to state material facts that the Salazars had knowledge of the forgery, remained silent and the silence resulted in prejudice to an innocent party i.e. the defendants.

Probably because the defendants did not consult an attorney, they committed two huge blunders, not counting the fact that they didn’t confirm that the correct people actually signed the note and deed. First, they worked up a forbearance agreement, which essentially waived the issue of the forged signatures and created a payment plan. This is a big problem because you cannot ratify a void contract by any subsequent act. Black Hills Investments, Inc. v. Albertson's, Inc. (2007) 146 Cal.App.4th 883, 896.

Second, defendant doesn’t ensure that Plaintiffs actually sign the forbearance agreement. Not that it would have made a difference but there is a reason the saying “once bit, twice shy” exists. You would think the lender would have learned their lesson after the underlying note and deed were forged by the Plaintiffs’ son. You would think that they wouldn’t just mail them an agreement, in English, to people who cannot read English, and then accept whatever signed document comes back to them in the mail. You would be wrong. Plaintiffs’ daughter signs her parents’ names on the agreement and mails it back to PLM. So now the lender has two problems. Ratifying a void contract and overcoming the statute of frauds and the equal dignities rule. As you can imagine, it doesn’t go so well for them. Win for the Salazars.

The defendants also try an unclean hands defense on the basis that the Salazars had a duty to disclose the forgery once they discovered it and, because they failed to do so, they should be estopped from claiming the deed and note were forgeries. Through sloppy drafting, they fail to state that they were an innocent party and that they were prejudiced by the Salazars’ silence. Once again, win for the Salazars.

Conclusion

I wonder if this was some kind of elaborate, Spanish Prisoner-style con to bilk this trust deed company. However, the fact that the Salazars paid on the note for so long argues against this. The only nefarious scheme I can come up with is that allowing the son to forge their names and having the daughter sign the forbearance agreement were both ploys to allow them to escape from the obligation in the event they couldn’t pay.  At least, I think it’s more fun that way as opposed to a corrupt son screwing over his parents, who are too decent to suspect that they shouldn’t have to pay on a forged note until years later. That’s just depressing.

It’s also a wonder how the deed was notarized in the first place. Generally, the signer has to appear in front of the notary, acknowledge their signature, and then prove their identity, either by card or witness. Civil Code § 1185. The only time the signer does not appear is when the notarization is accomplished by proof of execution by a subscribing witness. Civil Code § 1195. Looking at the notary handbook for 2005, however, it was still the case that a proof of execution could not be used with a deed of trust. Government Code § 27287.  This suggests either an incompetent or corrupt notary. It also strikes me as very careless of the lenders, who are not institutional lenders, to not be present for the signing of these documents. I get it, they don’t want to go over the Grapevine to Bakersfield from their offices in LA but they ended getting fooled twice by the same family.

We’ll see how it goes but now the lender has to take it to trial and prove either that the Plaintiffs did sign it or that their silence was prejudicial, thereby estopping them from challenging the validity of the deed of trust. Otherwise, they are going to have to pursue a cause of action for constructive trust to completion.

Testamentary Intent

Regardless of what type of will you choose, a will is invalid if it does not demonstrate present testamentary intent. (Estate of Wong (1995) 40 Cal. App.4th 1198, 1204-1205.) What does present testamentary intent mean? This was the issue in Estate of Southworth (1996) 51 Cal. App. 4th 564. Dorothy Southworth filled out a charitable donor card stating a future intent to make a gift to the North Shore Animal League. The court identified the specific language in question: “[o]n the card, the decedent circled printed option c. which states: "I am not taking action now, but my intention is [in the blank space provided she wrote] My entire estate is to be left to North Shore Animal League.” (Id. at 567.) In denying admission of the donor card, the court stated:

“…the printed language Southworth incorporated from the donor card does not evince her present testamentary intent. Instead of striking the material printed words which state "I am not taking action now, but my intention is," she chose to incorporate those words with her handwritten statement, "My entire estate is to be left to North Shore Animal League." The material printed language together with her handwriting evince a future intent; not present testamentary intent.”

The provisions of a will must be concrete and not aspirational, as the Southworth case demonstrates. Although this seems slightly obvious, what is clear and what is ambiguous may not be apparent to a lay person, further demonstrating the importance of having an attorney involved in the process of drafting the will.

Disinterested Witnesses

Generally speaking, it is the better practice to have the two witnesses not be “interested persons.” A disinterested witness is a person who will not be receiving something under the will.

Under PC § 48(a) an “interested person” includes any of the following:

(1) An heir, devisee, child, spouse, creditor, beneficiary, and any other person having a property right in or claim against a trust estate or the estate of a decedent which may be affected by the proceeding.

(2) Any person having priority for appointment as personal representative.

(3) A fiduciary representing an interested person.

Do not think that these categories are rigid rather they are flexible and vary on a case-by-case basis. (“The meaning of “interested person” as it relates to particular persons may vary from time to time and shall be determined according to the particular purposes of, and matter involved in, any proceeding.” Probate Code § 48(b).)

What’s the problem with having a witness be "interested person"? The problem is that when the will leaves something to an interested person Probate Code § 6112 “creates a presumption that the witness procured the devise by duress, menace, fraud, or undue influence.” You don’t have to be a lawyer to imagine that this is a big problem. The presence of an interested witness will not invalidate a will but that witness may be prevented from receiving what the testator left to them if they cannot show that they did not obtain the gift by duress, menace, fraud, or undue influence. If they cannot rebut the presumption, then the witness can only receive a proportion of the devise made to the witness in the will as does not exceed the witness’ share of the estate which would be distributed to the witness if the will were not admitted to probate. (Probate Code § 6112(d).) That means, whatever the witness would have received if the testator died without a will.

Fraud or Duress in the Creation of a Will

While we are on the subject, some people worry about whether an elder relative may have been forced or tricked into making a will benefiting someone. In addition to being elder abuse under Welfare & Institutions Code § 15600 et seq., such a will is invalid under Probate Code § 6104 if it was the result of duress, menace, fraud, or undue influence. Although I used the example of an elderly person, this rule applies to any person who is tricked or forced into making a will. If you suspect that a will is the product of duress, menace, fraud, or undue influence you should immediately contact an attorney.

What is a will?

Simply put, a will is document containing a person’s wishes for what is to be done with that person’s property once that person is dead. It is sometimes called a testamentary instrument or device. Testamentary in this sense simply means disposition after death. The person who writes a will is known as the testator. Any person 18 years old or older and of sound mind may create a will. (Probate Code § 6100(a).)

There are three types of wills: a witnessed will, a holographic will, and a statutory will. A witnessed will is any will that is written, contains language demonstrating testamentary intent, and is signed by the testator and two witnesses. Probate Code § 6110. A  holographic will is one that does not comply with the requirements for a witnessed will but is still valid “whether or not witnessed, if the signature and the material provisions are in the handwriting of the testator.” Probate Code § 6111. The classic image of dying person handwriting on a note pad their last wish is an example of a holographic will. A statutory will is a fill-in-the-blanks form created by the California legislature, that still must be signed by the testator and two witnesses. It is essentially a hybrid between a typed and handwritten will. A copy made be obtained on the State Bar of California’s website.

Formal Requirements for a Will

A will must be in writing. (Probate Code § 6110.) Simply saying to a group “I want my chopstick collection to go to Nikki.” is not enough. A will must also be signed by one of three people. It can be by the testator, that is, the person writing the will. It can be by someone else who is in the testator’s presence and is signing the will under the direction of the testator. This situation can come up when the testator is in the hospital and is too weak to sign for themselves. In such a case, they can direct a nurse or visitor to sign the will for them. Last, a conservator can sign the will if pursuant to a court order.

A will must have two individuals as witnesses who sign the will. The individuals must be physically within close proximity and witness either the signing of the will by the testator or “the testator’s acknowledgment of the signature or of the will” and understand that the document that are signing is the will is the testator’s will. Probate Code § 6111.

Holographic Wills

The exception to the witness requirement is when the testator creates a holographic will. Although this brings up mental pictures of something the characters in Star Wars would create before flying into the Death Star, a holographic will is a will that is hand written and signed by the testator. This will also has its own requirements. First, the testator must put the date that he/she created and signed the will. Second, the signature and the “material provisions” of the will must be in the handwriting of the testator. (Probate Code § 6111.) A holographic will doesn’t need to be completely hand written. A fill-in-the-blanks will from Office Depot will be valid provided that the provided that the “material provisions” of the will are in the handwriting of the testator. You may be wondering what the material provisions of a will are. Essentially, they are the provisions of the will that actually dispose of property. A provision that states “Chopstick collection to Nikki” would be a material provision because it dictates what to do with the chopstick collection. Pre-printed language related to location or the preamble, will not invalidate the rest of the will. (Estate of Black (1982) 30 Cal.3d 880.) The courts and legislature recognize that the creator of a holographic will most likely have no legal education and will not be aware of many of the requirements for executing a will. Because of this, the courts take the policy of "liberality in accepting a writing as an holographic will." (Estate of Baker (1963) 59 Cal.2d 680, 683). Because this type of will is created by people with no legal education and under unusual circumstances, it is not advised that people base their estate planning on such documents.

Testamentary Intent

Regardless of what type of will you choose, a will is invalid if it does not demonstrate present testamentary intent. (Estate of Wong (1995) 40 Cal. App.4th 1198, 1204-1205.) What does present testamentary intent mean? This was the issue in Estate of Southworth (1996) 51 Cal. App. 4th 564. Dorothy Southworth filled out a charitable donor card stating that she intended to make a gift to the North Shore Animal League. The court identified the specific language in question: “[o]n the card, the decedent circled printed option c. which states: "I am not taking action now, but my intention is [in the blank space provided she wrote] My entire estate is to be left to North Shore Animal League.” (Id. at 567.) In denying admission of the donor card, the court stated:

“…the printed language Southworth incorporated from the donor card does not evince her present testamentary intent. Instead of striking the material printed words which state "I am not taking action now, but my intention is," she chose to incorporate those words with her handwritten statement, "My entire estate is to be left to North Shore Animal League." The material printed language together with her handwriting evince a future intent; not present testamentary intent.” (Id.)

The provisions of a will must be concrete and not aspirational, as the Southworth case demonstrates. Although this seems slightly obvious, what is clear and what is ambiguous may not be apparent to a lay person, further demonstrating the importance of having an attorney involved in the process of drafting the will.

Disinterested Witnesses

Generally speaking, it is the better practice to have the two witnesses not be “interested persons.” A disinterested witness is a person who will not be receiving something under the will.

Under Probate Code § 48(a) an “interested person” includes any of the following:

• (1) An heir, devisee, child, spouse, creditor, beneficiary, and any other person having a property right in or claim against a trust estate or the estate of a decedent which may be affected by the proceeding.
• (2) Any person having priority for appointment as personal representative.
• o   (3) A fiduciary representing an interested person.
  

Do not think that these categories are rigid rather they are flexible and vary on a case-by-case basis. (“The meaning of “interested person” as it relates to particular persons may vary from time to time and shall be determined according to the particular purposes of, and matter involved in, any proceeding.” Probate Code § 48(b).)

What’s the problem with having a witness be interested? The problem is that when the will leaves something to an interested person Probate Code § 6112 “creates a presumption that the witness procured the devise by duress, menace, fraud, or undue influence.” You don’t have to be a lawyer to imagine that this is a big problem. An interested witness will not invalidate a will but that witness may be prevented from receiving what the testator left to them if they cannot show that they did not obtain the gift by duress, menace, fraud, or undue influence. If they cannot rebut the presumption, then the witness can only receive a proportion of the devise made to the witness in the will as does not exceed the witness’ share of the estate which would be distributed to the witness if the will were not admitted to probate i.e. by the rules of intestacy. (Probate Code § 6112(d).) In that aftermath of a loved one's death, this is the last problem a grieving family would want to deal with.

Fraud or Duress in the Creation of a Will

While we are on the subject, some people worry about whether an elder relative may have been forced or tricked into making a will benefiting someone. In addition to being elder abuse under Welfare & Institutions Code § 15600 et seq., such a will is invalid under Probate Code § 6104 if it was the result of duress, menace, fraud, or undue influence. You may be surprised to know that an "elder" is anyone living in the state of California who is 65 years old or older. (Welfare & Institutions Code § 15610.27.) That is not very old at all. Thus, it is advisable that anytime an individual is an elder per the statute, an attorney should be consulted to avoid any subsequent accusations of elder abuse. Additionally, if a beneficiary of the will is one of the classes of individuals listed under Probate Code § 21380 (e.g. the testator's nurse, employee, or friend) then obtaining a Certificate of Independent Attorney Review under Probate Code § 21384 is absolutely critical in preventing a subsequent claim of elder abuse. In closing, although I used the example of an elderly person, the rules governing fraud in the creation of a will applies to any person who is tricked or forced into making a will. 

Conclusion

This concludes what a will is and what is required to make one. My next post on the subject will focus on what a will can and can not do.

​For the privilege of owning land in this great state, we property owners must pay property taxes to the county in which the property is located. As most property owners are aware, Proposition 13 governs how much a homeowner pays in taxes, essentially 1% of the assessed value of the property. This assessed value changes when there is a change in ownership of the property, such as when the property is purchased. If this property is in the Bay Area, then it is highly likely that the assessed value of the property will increase leading to a higher tax bill for the purchaser. 

However, a change in ownership can occur when a transfer results in the termination of a joint tenancy, such as when a joint tenant deeds their interest to themselves as a tenant in common. (Revenue & Taxation Code §65(a).) What is a joint tenancy, what does it mean to sever a joint tenancy and just what is a tenancy in common? Allow me to explain.

A tenancy in common and a joint tenancy are two of the four ways that multiple people/entities can hold title to a piece of real estate. The other two ways are a partnership interest and as community property between spouses. (Civil Code § 682.) For our purposes, the most important difference between a joint tenancy and a tenancy in common is that upon the death of one of the joint tenants, the other joint tenant will automatically inherit the deceased joint tenant’s interest in the property. With a tenancy in common, the deceased person’s interest will pass to whomever the decedent designated in a will or through the laws of intestacy (i.e. the laws governing when person dies without a will).

Severing a joint tenancy simply means that the joint tenancy ceases to exist and now the property is held in some other form. The two main ways to sever a joint tenancy are by the joint tenant delivering a grant deed to a 3rd party or by delivering a grant deed to themselves indicating an intent to sever. (Civil Code § 683.2(a)(1) & (2).) In either of these cases, the joint tenant is not obligated to tell the other owners that they have severed the joint tenancy.

In some cases, the severance of the joint tenancy can trigger a reassessment leading to substantially higher tax bill. Some of the ways that this can happen are discussed below.

Transferring a joint tenancy interest into a trust severs the joint tenancy and can trigger a reassessment, unless an exclusion applies. (Civil Code § 683.2; 18 Code of Regulations § 462.040(b)(1); Letter to Assessors No. 2013/044 (Sept. 5, 2013).) This can happen when unmarried parties buy land together, as joint tenants, and one or both of them transfers an interest into trust.

Another way this can happen is when siblings hold property as joint tenants that one of them may have received from a parent. This can happen because their parents granted the children a joint tenancy interest in the property as part of an estate plan. After such a transfer, the parents and the children would then be joint tenants, automatically inheriting additional interest upon the death of each subsequent joint tenant. The death of the parents will not trigger a reassessment. However, if after the death of the parents, one of the siblings decided that she did not want her interest in the property to go to her brother and deeded her joint tenancy interest to herself as a tenant in common, that would trigger a reassessment.

This was the case in Benson v Marin County Assessment Appeals Board (2013) 219 Cal.App.4th 1445. To simplify the facts of the case imagine a traditional family unit: mom, dad, and two boys, Brother 1 and Brother 2. Brother 1 became joint tenants with mom on a piece of property. After mom’s death, Brother 2 received a joint tenancy interest from Brother 1. Brother 2 then executed a grant deed from himself as joint tenant to himself as tenant in common. This severed the joint tenancy and triggered a reassessment. Brother 2 argued that Revenue & Taxation Code § 62(a)(1) states that a transfer that only results in the changing of the method of holding title is not a change of ownership. The appellate court ultimately held that the Assessor could look beyond the confines of Section 62 for guidance and concluded that because none of the original transferors (i.e. mom and dad) remained as part of the transfer in question, there was a change in ownership triggering reassessment.

If I were to speculate, I would imagine that Brother 2 decided he didn’t want Brother 1 to inherit his interest and executed a grant deed to himself, thereby creating a tenancy in common. The takeaway is that any property transfer should involve at least a phone call to an attorney to see if there is anything the transferors should know about. It also demonstrates why individuals should have a comprehensive estate plan so they can afford unnecessary reassessments that further burden their heirs. All of this could have been avoided by using a revocable trust. Upon the death of both mom and dad, the property would pass outside of probate and to the children without triggering reassessment as section 63.1 of the Revenue and Taxation Code excludes from reassessment transfers of real property between parents and children. Furthermore, if the value of the property passing to the children was worth less than $10,860,000 in 2015, it would also pass without any federal estate taxes based on the combination of mom and dad’s estate tax exemption and mom’s ability to use dad’s unused exemption. This would have been a much better outcome for Brother 2 in terms of time, taxes, and last, but not least, attorney’s fees.

As some of my clients are commercial landlords I am confronted with the question of what to do about property that the tenant has left behind at the expiration of the lease. This is a very broad subject, so I will confine this article to the subject of what happens when the tenant leaves equipment installed on the premises. The law refers to such equipment as trade fixtures. This article will first focus on what is a trade fixture in California and then on what rights the tenant and landlord have to them during the lease and upon the expiration of the lease.

What Is a Trade Fixture?

A fixture is a categorical name covering a variety of items that start out as personal property but become real property (i.e. real estate) by being affixed or otherwise attached to land or a building. Civil Code § 660 defines what it means to affix an item to the land:

“A thing is deemed to be affixed to land when it is attached to it by roots, as in the case of trees, vines, or shrubs; or imbedded in it, as in the case of walls; or permanently resting upon it, as in the case of buildings; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws; except that for the purposes of sale, emblements, industrial growing crops and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale, shall be treated as goods and be governed by the provisions of the title of this code regulating the sales of goods.” (Id.)

Think about an auto-body shop and those large booths they drive a car into in order to paint the car. These are known as paint booths and they sit in warehouses until someone buys them and installs them in their shop. If they are affixed to the property with nails, bolts, or welded to the property then these are facts that would indicate that the paint booth is a fixture.

So what makes a fixture a trade fixture? A trade fixture is "… anything affixed [to the property] for purposes of trade, manufacture, ornament, or domestic use …" (Civil Code § 1019.) Simple enough.

What Rights Does a Tenant Have to a Trade Fixture?

Tenants would probably answer this question along the lines of: “I bought the thing, it’s mine!” The general rule is stated in Civil Code § 1013, which states that “[w]hen a person affixes his property to the land of another, without an agreement permitting him to remove it, the thing affixed … belongs to the owner of the land…” Unless there is a legal exception or an agreement, the property belongs to the landlord.

To a certain extent, the law protects tenants by allowing them to remove trade fixtures. Civil Code § 1019 states “[a] tenant may remove from the demised premises, any time during the continuance of his term, anything affixed thereto for purposes of trade, manufacture, ornament, or domestic use…” (Id.) To restate, while the lease is still in effect and the tenant is performing under the lease, they may remove trade fixtures installed on the property. This right is subject to three exceptions outlined below.

What Rights Do Landlords Have in Trade Fixtures?

There are three exceptions to the rule in Civil Code § 1019 as to when trade fixtures become the property of the landlord: when the tenant leaves the fixture behind after the termination of the lease (Rinaldi v. Goller (1957) 48 Cal.2d 276, 282), when the removal of the property would harm the premises, and when the property becomes an integral part of the premises. (Civil Code § 1019.) As with most things, these exceptions may be modified by contract. This article will assume there is no modification by contract.

The first exception arises out Civil Code § 1019 in that the tenant has the right to remove the fixture any time “during the continuance of his term…” As stated by the California Supreme Court, “[o]nce the term of the lease ends and the tenant surrenders the premises, trade fixtures not previously removed are deemed abandoned and become the property of the landlord.” (Rinaldi v. Goller (1957) 48 Cal.2d 276, 282.) Furthermore, if the lease is terminated for nonpayment of rent (or any other breach of lease) and the landlord obtains a right of reentry, then the tenant has forfeited their right to remove the fixture. (Id. at 282-283.)

The second exception is fairly self-explanatory. If removing the fixture will injure the premises, then removal is prohibited.

The third exception is a bit more nebulous. To continue the example from earlier, determining whether a paint booth had become “permanently affixed to and an integral part of the real property” thereby becoming the property of the landlord was the issue in Hessell v. Healey (1955) 131 Cal. App. 2d 144. In that case, the court decided that the paint booth at issue had become the landlord’s property because the evidence indicated that the “paint spray booth was installed with a new concrete base and with a new roof for the portion protruding from the building, by welding in a number of places, by screws and bolts, and by perforations of the roof of the building and by cutting and reinforcing the rafters…” thereby becoming an integral part of the structure. (Id. at 149.)

Further, all three of these scenarios are subject to the Doctrine of Constructive Annexation which holds that “portions of equipment not attached to the realty but which are used with and essential to other portions attached to the realty constitute a unit and are constructively annexed.“ (United Pacific Ins. Co. v. Cann (1954) 129 Cal. App. 2d 272, 275 citing Southern Cal. Tel. Co. v. State Board of Equalization  12 Cal.2d 127.) As a result, a landlord may be able to acquire additional property not physically affixed to the property but essential to the use of the affixed property.

Conclusion

These three concepts demonstrate the ways in which a landlord may acquire tenant-installed fixtures. It also demonstrates why a commercial tenant who plans on installing significant pieces of equipment in a property that they lease should consult with an attorney, before they install any equipment, regarding their rights to the equipment as they may wind up “gifting” the property to the landlord at the end of the lease.

As to landlords, they should consult with an attorney at a few critical junctures: anytime a tenant proposes to install major equipment on the leased premises, when a tenant proposes to remove major equipment from the leased premises, and when the tenant leaves any major equipment behind following the termination of a lease. This can ensure a seamless transition from one tenancy to another and (hopefully) prevent needless litigation.

I am contacted regularly by prospective clients who tell me that they want “Just a will.” They are inevitably surprised to learn that a will does not avoid probate and that if their assets are worth more than $150,000, their heirs will have to undergo the entire probate process, without the availability of the simplified affidavit procedure under Probate Code § 13200. Here is a link to the Alameda County Probate Court's website where they have provided a great FAQ explaining the process.

While I am glad that these individuals are beginning to think about their future and their loved ones, this is such a common misconception that I felt compelled to write about it on my blog. The following will be a multi-part article where I will explain what a will is, what it does and what it doesn’t do.

Back to the main point of this article, a common misconception is that a will can avoid the probate process. This is wrong. Under Probate Code § 7001 “[t]he decedent’s property is subject to administration under this code, except as otherwise provided by law, and is subject to the rights of beneficiaries, creditors, and other persons as provided by law.” 

This means that all property held in your name at the time of death has to be administered by the probate court. What’s not in your name? Property that is in trust, as the trust is the owner of the property. Other types of property (known as non-probate assets) will pass by law outside of probate. A common example is when people hold joint title to real estate, joint bank accounts, or anything that has a beneficiary designation such as life insurance, 401(k)’s, or certain securities. If your desire is to completely avoid probate and you have more than $150,000 in assets, then you will need a trust.    

Online services that promise to give you a will or some other “standard” document offer a false sense of savings and are generally speaking a false economy, that is, they save money up front but can lead to vastly expensive or tragic consequences down the road. 

This is because the one size fits all approach does not take into account the client’s specific situation which may have nuances that escape this formulaic approach, leaving you exposed to all kinds of unforeseen consequences. 

The advantage of an attorney is that you have an actual person taking into account your unique situation and crafting a document that suits your needs, not the masses. If your situation truly is simple, then what you will pay an attorney will be relatively low.

The other advantage of an attorney, is that you have built a relationship that you can rely upon to bounce ideas off of or pose questions. Everyone has had the experience of calling in for customer support and having to slog through a never-ending maze of prompts and choices, when all you have is a simple yes or no question. An attorney cuts through all that. You get to talk to an actual person. And, if it is truly a simple issue, you will have saved a lot of time and frustration with a simple phone call or email. I am not the first person to write about the problem with online legal services so I encourage you to research for yourself some of the consequences and shortcomings of those services.