Unlocking the Mystique of the Lis Pendens- A Real Estate Investor’s Guide to Understanding the Mysterious Notice Called the “Lis Pendens”

By  Nate  Bernstein, Esq.   –  Managing  Counsel, LA Real Estate Law Group

In the California real estate and lending community, and especially for  non real estate attorneys (normal people !!), there is some misunderstanding and hidden mystery about what a notice of  lis pendens is, what is its function, and what is its place in the law and the world of California real estate.     This article will unravel that mystery, and will focuses on California law and some  general American legal principles that explain the substance and procedure of the notice of lis pendens.

The simple definition of a Lis Pendens is that it is a notice of a pending lawsuit that is recorded in the county where real estate is located.    The subject of the lawsuit is usually  a “real property claim,”  – a rather ambiguous phrase that means a claim about  title, ownership, and the right to possession, or the scope of an easement of the subject real property.     Every lawsuit that involves the situs of real estate is not appropriate for a lis pendens  recording and filing.   For example, if a slip and fall accident occurred on real estate, a lis pendens would not have to be recorded on the chain of title because the claim does not involve title, ownership, right to possession, or the scope of an easement of the subject property.

In addition to the “real property claim” requirement, for a lis pendens notice to “stick” to the property’s title file, the claimant must also be prepared to establish the “probable validity of the claim by a preponderance of the evidence.”    The term “probable validity of a claim” is set forth in the statutes, and defined that it is more likely than not that the claimant will obtain a judgment against the defendant on the claim.   See Cal. Code of Civil Procedure section 405.30, and see companion sections 405.31 and 405.32.

The term “Lis Pendens” is a Latin phrase that literally means “suit pending.”    Sometimes a lis pendens is synonymously called a “Notice of Pending Action.”

In the United States,  a lis pendens is a written notice that provides notice to the world that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is filed in the county recorder’s office where the real property is located.   Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question or in dispute. The pending claim and recorded notice may make the property less attractive to a buyer or a real estate secured lender.  The lis pendens provides an important notice function.   Once the notice is recorded, anyone who nevertheless purchases the land or property or who records a deed of trust secured by the real property described in the notice takes possession of it or an interest in real property that is subject to the ultimate decision of the lawsuit.

The lis pendens notice document contains the address and legal description of the property, makes reference to the litigation parties and court case number, and lets non parties know that the litigation is pending about the title to the subject property.    Non-parties may want to intervene if they have a stake in the outcome of the case.

The lis penden’s notice refers to any pending lawsuit or to a specific situation with a public notice of litigation that has been recorded in the same county where the title of real property has been recorded. This notice secures a plaintiff’s claim on the property so that a transfer, sale, mortgage, or encumbrance of the property will not diminish plaintiff’s rights to the property, should the plaintiff prevail in its case.   In some jurisdictions, when the notice is properly recorded,  lis pendens is considered constructive notice to other litigants, purchasers, transfereers, or other unrecorded or subordinate lienholders.

The clerk at the county recorder’s office will record a lis pendens upon request of anyone who claims to be entitled to do so (e.g. because the party has filed a lawsuit and wants to provide notice as per the code of civil procedure).     If someone else with an interest in the property (e.g. the owner) believes the  lis pendens is not proper, the party can then file motion in court to try to have it expunged.

The clerk at the county recorder’s office cannot decide if the recording of the lis pendens is technically lawful and legally proper. The clerk will check for mistakes as to the form of the document.  The attorney for the plaintiff or claimant should make this initial determination as to the form and appropriateness of the lis pendens.    If the lis pendens is in the proper format, the county recorder will record the lis pendens.     The judge that is presiding over the case can decide if the lis pendens recording is proper and lawful.

A lis pendens notice provides constructive notice of the pending legal action, and it serves to place a cloud on the title of the property in question until the lawsuit is adjudicated, and the notice released or the lis pendens is expunged.  A recorded lis pendens may show up on a preliminary title report or title recording analysis profile because there is a recording number associated with it.   The lis pendens is the “monkey wrench,” that is found in the bowl of oatmeal  !!   Prudent  buyers that notice the recording of the lis pendens will be unwilling to purchase land subject to a lis pendens or will only purchase the land at a steep discount. Prudent lenders will not lend money secured by the subject property.  Title insurance companies may not insure the title to such land in the future until the lawsuit is finalized: title is taken subject to the outcome of the lawsuit. Because so much real property is purchased with borrowed money, this usually keeps the owner from selling the property.    It also may prevent the owner from borrowing money secured by the property.

It is important to note that the presence of a lis pendens does not prevent or necessarily invalidate a transfer of an interest in the subject property, although it makes such a transfer subject to the result and outcome of the litigation. Thus, the owner is not prevented from selling the land for (non-borrowed) cash, pledging it as security for a speculative loan, or giving it away- however, all are subject to and will be affected by the outcome of the lawsuit that is referenced in the notice.

However, once the lis pendens is recorded, the recipient (a “purchaser” or “grantee pendente lite“) would be deemed to have notice of the litigation and might lose their title position to the property if the plaintiff’s suit prevails.

One should be cautious in recording, serving, and filing a notice of lis pendens.   In some cases recording a lis pendens is mandatory- for example for a quiet title action or an eminent domain action.  For other situations, it may not be.   A lis pendens should only be used in the proper case and factual circumstances where a real property claim is involved, and the claimant’s case has some probable validity.   For example, you should not record a lis pendens just to force a party to settle.   See, the court’s reasoning, for example, in Hilberg v. Superior Court (1989, 2^nd Dist.), 215 Cal. App. 3d 539, 263 Cal. Rptr. 675.

The California lis pendens statutes are structured to punish the wrongful, malicious lis pendens filer by shifting attorneys, costs, and damages.  The recordation of a lis pendens directly effects marketability of title and the ability to obtain real estate financing.  There is exposure to incur significant attorneys fees, costs, and damages for recording and filing an improper notice.   A relatively straightforward lawsuit can become a costly ancillary dispute when a lis pendens is not recorded in good faith and is properly challenged.

Therefore, the lis pendens statutes contain cost shifting provisions.  The court must direct that the party prevailing on any motion for expungement or other relief under Cal. Code of Civil Procedure Section 405.30-405.39  be awarded reasonable attorney’s fees and costs of making or opposing the motion, unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorneys fees and costs unjust.   See Cal. Code of Civil Procedure Section 405.38.   The court has some discretion, whether or not to award attorney’s fees and costs, and may do so swiftly if a party did not act with “substantial justification.”

RECORDING AND PROCESSING  REQUIREMENTS AND RULES FOR LIS PENDENS ACTIVITIES ARE DELINEATED IN THE CAIFORNIA CODE OF CIVIL PROCEDURE.

The definition, rules, and procedures about a “lis pendens” notice are found in California statutes, namely,    Cal. Code of Civil Procedure Sections 405-405.24. to  405.39.

For example, Cal. Code of Civil Procedure Section 405.20 provides,  “a party to an action who asserts a real property claim may record a notice of pendency of action in which that real property claim is alleged. The notice may be recorded in the office of the recorder of each county in which all or part of the real property is situated. The notice shall contain the names of all parties to the action and a description of the property affected by the action”.

Cal. Code of Civil Procedure Section 405.40 states   “ “Real property claim” means the cause or causes of action in a pleading which would, if meritorious, affect (a)  title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.”

To process a lis pendens, you need to carefully follow the instructions in the statues.  After the lis pendens is prepared and signed by the attorney of record, the  real property claimant must, prior to recordation of the notice of pendency of action, cause a copy to be mailed, by registered or certified mail return receipt requested, to all known addresses of the parties to whom the real property claim is adverse and to all owners of record of the real property affected by the real property claim as shown by the latest county assessment roll or more recent assessment information in the possession of the county assessor.   If there is no known address for service on an adverse party or owner, then as to that party or owner a declaration under penalty of perjury to that effect must be recorded instead of the required proof of service, and service on that party or owner will not be required.

The lis pendens is then recorded in the property where the real property is located.

Immediately following recordation, a copy of the notice with the recording stamp must also be filed with the court in which the action is pending. Service must also be made immediately and in the same manner on each adverse party later joined in the action. Cal. Code Civ. Proc. §405.22 Any notice of pendency of action will be void and invalid as to any adverse party or owner of record unless these requirements are met for that party or owner and a proof of service in the form and content specified in Cal. Code Civ. Proc. §1013a has been recorded with the notice of pendency of action. Cal. Code Civ. Proc. §405.23.

TYPES OF CASES REQUIRING RECORDING, SERVICE, AND COURT FILING OF A LIS PENDENS

Recording of a notice of pendency of action is required in the following types of lawsuits:

a) Quiet title action.   See Code of Civil Procedur Section 761.010(b)).

b) At the commencement of an eminent domain proceeding.  A copy of the notice must be served with the summons and the complaint.    See Code of Civil Procedure Section 1250.150.

c) At the time of filing a complaint to reestablish lost land records. See Code of Civil Procedure Section 751.13.

d) Immediately after filing a complaint for partition of real property. See Code of Civil Procedure Section 872.250 (a)-(c).

e) Within 10 days after filing the complaint in an action to determine adverse interests in, or liens or clouds upon title to real property arising out of public improvement assessments. Code of Civil Procedure Section 801.5.

f) To provide constructive notice of the pendency of an action involving a claim against the state for escheated property. Code of Civil Procedure Section 1355.

g) To give constructive notice in an action by the Attorney General to escheat real property. Code of Civil Procedure Section 1410.

h) In actions to abate a public nuisance. Health and Safety Code Section 17985.

i) Within 10 days of an action by a purchaser to quiet title to tax deeded property. Rev. Code Section 3956.

j) With the Clerk of the probate court in an action to enforce a claim rejected by an executor or administrator of a decedent’s estate. Probate Code Section 9354(b).

k) With the city or county treasurer in an action on an improvement bond. & Hy Code 6619

Obviously, some of these situations are more common than others, but you should consult an attorney to determine if a lis pendens recording is required and or the best practice in your case.

STRATEGIES FOR FIGHTING BACK AGAINST THE CLAIMANT WHO RECORDED THE LIS PENDENS  – EXPUNGMENT LITIGATION AND MOTIONS FOR POSTING AN UNDERTAKING/ BOND

Sometimes a party to litigation seeks to record a lis pendens to seek financial or legal leverage or to force a settlement in the lawsuit.  An escrow may be on hold until the legal dispute is resolved.  The recordation of the lis pendens may be unlawful if the lis pendens is filed in a lawsuit that does not involve a “real property claim,” and or the claim lacks merit.   Sometimes the facts may be merky, or the claimant may not be able to prove the probable validity of the claim.   The party that is the “subject” of the lis pendens could incur losses because the party’s title is not marketable with the lis pendens notice.   The party may not be able to sell or refinance the property.   Under certain circumstances, the opposing party may file  Motion to Expunge or a Motion for the Claimant to Post a Bond (also known as an undertaking).

A Motion to Expunge a Lis Pendens can be contentious and expensive  litigation.  California Code of Civil Procedure Sections 405.30-405.33 govern  the California rules for a Motion to Expunge a Lis Pendens.     The basic rules and procedures are fairly self-explanatory.  Your attorney should also review the case law for precedents that are on point.

Note a couple of important procedural  benchmarks: The claimant, not the moving party has the burden of proof in the Motion to Expunge.  The Court has the power to order that the party filing the lis pendens to post a bond to protect the other party.      Pursuant to Cal. Code of Civil Procedure Section 405.38, “the court also has the power to order attorneys and fees and costs to the prevailing party in a  Motion to Expunge or a Motion to Post an undertaking, unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust”.

     Governing section California Code of Civil Procedure Section 405.30 states,   “At any time after notice of pendency of action has  apply to the court in which the action is pending to expunge the notice. However, a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the party brings the motion to expunge the notice. Evidence or declarations may be filed with the motion to expunge the notice. The court may permit evidence to be received in the form of oral testimony, and may make any orders it deems just to provide for discovery by any party affected by a motion to expunge the notice. The claimant shall have the burden of proof under Sections 405.31 and 405.32.”

California Code of Civil Procedure Section 405.31 states,

     “In proceedings under this chapter, the court shall order the notice expunged if the court finds that the pleading on which the notice is based does not contain a real property claim. The court shall not order an undertaking to be given as a condition of expunging the notice where the court finds the pleading does not contain a real property claim.”

California Code of Civil Procedure Section  405.32  provides,   “In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property claim. The court shall not order an undertaking to be given as a condition of expunging the notice if the court finds the claimant has not established the probable validity of the real property claim”.

In addition to filing a Motion to Expunge, another safeguard for a party on the other end of  a lis pendens  recording bullet is to require that the claiming post a bond or “undertaking.”   Generally, at any time after a notice of pendency of action has been recorded, the court may, on motion by any person with an interest in the subject property, require the claimant to give an the moving party an undertaking as a condition of maintaining the notice in the record title.   The undertaking must be of a nature an in an amount as the court may determine to be just.   In its order requiring an undertaking, the court must set a return date for the claimant to show compliance.  Compliance is in the form of posting a bond in favor of the opposing party.   If the claimant fails to show compliance on the return date, the court must order the notice of pendency of action expunged without further notice or hearing.   See Cal. Code of Civil Procedure Section 405.33 and 405.34.

Cal. Code of Civil Procedure Section 405.33 states,   “In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the real property claim has probable validity, but adequate relief can be secured to the claimant by the giving of an undertaking. The expungement order shall be conditioned upon the giving of the undertaking of such nature and in such amount as will indemnify the claimant for all damages proximately resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim. In its order conditionally expunging the notice, the court shall set areturn date for the moving party to show fulfillment of the condition, and if the moving party fails to show fulfillment of the condition on the return day, the court shall deny the motion to expunge without further notice or hearing. Recovery may be had on the undertaking pursuant to Section 996.440.   For purposes only of determining under this section whether the giving of an undertaking will secure adequate relief to the claimant, the presumption of Section 3387 of the Civil Code that real property is unique shall not apply, except in the case of real property improved with a single-family dwelling which the claimant intends to occupy.”

VOLUNTARY WITHDRAWAL  OF A LIS PENDENS- THE EASIEST WAY TO STOP THE BLEEDING

The good news is that a recorded Lis Pendens notice is generally not a “permanent fixture” on the title profile to real property.  The easiest way to get rid of a lis pendens is for the claimant who recorded the notice to voluntarily withdraw the notice.   The Notice of Lis Pendens may be withdrawn by the party who recorded the notice of withdrawal by signing a notarized and acknowledged Notice of Withdrawal or Release of the Lis Pendens.  You should consult your attorney and a title company for the proper format and requirements to clear the title.   Please note that the statute states it must be signed by the “party,” and not the party’s attorney.  The best practice is that the party signs the Notice of withdrawal before a notary.  If the party is an individual person- the party, and not the party’s attorney must sign the release of lis pendens.  If the party is a corporation or LLC, an authorized agent or officer must sign the release of the lis pendens before a notary.  After the signing, the Notice of Withdrawal should be served on all parties that were served with the Lis Pendens, and recorded in the County where the lis pendens was recorded.

Cal. Code of Civil Procedure Section  405.50 provides,    “At any time after notice of pendency of an action has been recorded pursuant to this title or other law, the notice may be withdrawn by recording in the office of the recorder in which the notice of pendency was recorded a notice of withdrawal executed by the party who recorded the notice of pendency of action or by the party’s successor in interest.   The notice of withdrawal shall be acknowledged.”

CONCLUDING REMARKS

If you have fallen asleep at the beach or dozed off in the hot tub reading this article- don’t dispair.  The subject of “lis pendens” practice is not that exciting.  But if you do get through this article intact, you will have unraveled the mystery of the lis pendens and be able to discuss it at cocktail parties and banquets with the best of real estate professionals.

In the realm of real estate litigation, the “lis pendens” is really the “side show,” of the main event- which are the claims in the main case.  The bottom line is that recording of a lis pendens notice does provide a very important notice function to the world where a real estate dispute could effect non parties to the legal action, bona fide purchasers, and real estate lenders.

The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law,  and bankruptcy matters. The contact number is (818) 383-5759, and email is natebernstein44@gmail.com.   Nate Bernstein is a 22 year veteran Los Angeles real estate and business attorney and trial lawyer.   Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options.    He previously served as Vice President and In House trial counsel at Fidelity Title Insurance Company, a Fortune 500 company, and in house counsel at Denley Investment Management Company.      Nate Bernstein created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation.     Nate Bernstein is a local expert on real estate law and economic trends in the real estate and leasing market, business law, bankruptcy law.    Nate has personally litigated more than 40 major real estate trials, and has settled more than 200 complex real estate and business cases.  

Can My Living Trust Protect and Regulate My Children’s Inheritance? – By, Attorney Michael K. Elson

Although it is very common for people to leave their assets to their heirs outright, with no strings attached, you can set up an alternative to your heirs receiving 100% of inheritance outright.  By including testamentary trust provisions embedded within your living trust, upon your death your living trust can regulate the transfer of assets (including principal and/or income) to heirs who are prone to mismanagement, who may quickly squander their inheritance, or who may be subject to creditors or an ex-spouse.

 

Testamentary Trust Provisions

Proper testamentary trust provisions can protect dependents with special needs while also ensuring their continued qualification for government assistance and benefits.  Other benefits of a living trust containing testamentary trust provisions are ensuring family assets remain in your family, and if desired, ensuring your son-in-law or daughter-in-law will not be able to redirect your grandchildren’s inheritance to a new spouse or to children of another marriage.  The living trust can also prevent unintentional disinheriting and other hidden pitfalls associated with joint ownership.

 

What is a Testamentary Trust?

A testamentary trust is an irrevocable trust created automatically upon your death in accordance with the terms of your living trust.  Unlike the living trust which is created while you are alive, the testamentary trust springs into effect only after you die.  One of the primary benefits of a testamentary trust is that you can easily amend the testamentary trust in any way you wish while you are still alive, including changing the trustee(s), the beneficiary(ies) and/or the allocations and timing of distributions.  If your children have finally reached an age where outright distribution of assets is warranted (makes sense/desirable), or he/she is no longer married to that “crazy” spouse, or no longer has creditor issues, you can easily amend the age at which distribution will occur, or remove the restrictions altogether.  After your death, the trustee is the person who manages the trust for the beneficiary and is in charge of distributions to the beneficiary.

 

Protect Your Children

If you have minor children, the living trust will legally designate a guardian of your choice who will care for your children if you die.  While you are alive you can easily make amendments to change the guardian and the trustee of the testamentary trust.  The testamentary trust trustee and guardian can be the same person, or they may be different persons.  Over time, relationships can change, people may relocate to distant places, and needs of beneficiaries may change.  For these reasons a living trust with an embedded testamentary trust may be the perfect estate plan for your young children or adult children where total outright distribution to them may not seem prudent.  This method will protect life insurance proceeds as well, by simply naming the trust as the insurance beneficiary, or contingent beneficiary after your spouse.

Even if you do not have children, you may wish to leave some of your assets to a niece or nephew, and with testamentary trust provisions, their inheritance can be distributed over time, or withheld until a certain age.  And with a testamentary trust, as long as you are alive, you can easily change the amount of assets allocated to a beneficiary, or even change the beneficiaries altogether if circumstances warrant.  Although a testamentary trust is also commonly embedded within a will, the will would have to go through probate before the testamentary trust can spring into effect.  On the other hand, a testamentary trust embedded within a living trust entirely avoids probate.  A testamentary trust may also be referred to as a children’s trust, minors trust, or family pot trust.

Proper planning minimizes the potential for hard feelings among family members, since your intentions are clearly stated.  You will have taken steps to minimize paperwork for family members at times when family should be able to concentrate on supporting one another emotionally, rather than worrying about probate or guardianship concerns.  Estate planning is difficult to gift wrap, but truly is a great gift to your family.

Michael K. Elson is an estate planning, wills and trusts attorney located in Encino, with a satellite office in Valencia.  He provides estate, business and asset protection planning, including trusts, LLCs, corporations, probate, and trust administration and may be reached at (818) 763-8831 or by visiting http://www.LimitLiability.com This article is a broad overview of some estate planning options.  Since each person’s circumstances are unique, and there are many intricate exceptions in the law, the mere reading of the material herein does not create an attorney/client relationship between the author and the reader.

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

City is Sued for Attempting Unjustified Snooping on Rental Property – by Meriem Hubbard and Wencong Fa, Attorneys-at-Law

In a legal case that should interest rental property owners statewide, the City of Highland in San Bernardino County is being sued for trying to arm-twist landlords and tenants into allowing warrantless inspections of their homes.

In other words, the city is trying to coerce property owners and tenants into surrendering a fundamental constitutional protection: the Fourth Amendment’s guarantee that government officials cannot search private property unless they first obtain a warrant.

To be sure, the plaintiffs in this case –  property owner Karl Trautwein and the tenants in one of the homes he owns – have nothing at all to hide.  An investor with a number of homes around Southern California, Karl takes pride in maintaining all his properties to a high standard and keeping tenants satisfied.

What Karl and the tenants who are joining in the lawsuit resent is Highland’s attack on their fundamental privacy and property rights.

Indeed, in a sign of the importance of the case, they are represented by Sacramento-based Pacific Legal Foundation, the nation’s leading legal watchdog for property rights and individual liberty. Donor-supported PLF represents these plaintiffs free of charge, as with all its clients.

Karl and his tenants are victims of local government’s plan for a sweeping regime of unjustified rental-property inspections throughout the city – and its heavy-handed strategy for imposing this agenda on owners and renters.

Instead of simply responding where there have been complaints about code violations, the city adopted the goal of aggressively inspecting all 4,800 rentals within city limits, whether or not there have been complaints.

To cut corners in this overwhelming task, officials are attempting to evade the constitutional requirement to seek administrative warrants for inspections. Instead of going to a court and showing cause to receive permission to inspect inside a home, the city is attempting to bully property owners and tenants into allowing inspectors in without a warrant.

Karl and his tenants have been subjected to bullying because they would not agree to let inspectors into their home.  There have been no complaints about the property and the city has offered no evidence that it has any problems.  So Karl and his tenants object to a baseless, uncalled-for, open-ended intrusion by government bureaucrats.

City officials didn’t respond to this refusal by seeking a warrant – because there were no grounds for one.  Instead, the city resorted to threats and coercion.  Karl was charged a “re-inspection fee” and was told that his rental license would not be renewed if he continued to refuse to allow a warrantless entry.

This pressure tactic is what the law calls an “unconstitutional condition” — i.e., Karl’s rental license is being held hostage unless he agrees to the condition that he and his tenants waive their Fourth Amendment rights.  As the lawsuit points out, government cannot confront anyone with a false choice of this kind, which coerces them out of constitutional freedoms.

“With its crusade to inspect all rental properties, even those like mine without any tenant complaints, the city is wasting its resources and harassing law-abiding people,” said Karl.“Ironically, this is the kind of regulatory overkill that can reduce the supply of rental housing by causing conscientious and hard-working property owners to decide it’s not worth it.”

“There is no freedom without property rights and the privacy they protect,” he noted.  “Privacy means no one can come inside your residence unless you invite them in.  Cities have no business forcing their way into people’s homes.  The Constitution provides a way for government to enter a home — by convincing a judge to issue a warrant based on probable cause.  Highland wants to avoid the inconvenience of that constitutional requirement.”

“Violating the privacy rights of my residents without probable cause is as unnecessary as it is wrong,” he continued.  “The city should not be violating their privacy for no good reason, and it can’t be permitted to go snooping without a warrant.”

Filed in U.S. District Court for the Central District of California, the case is Trautwein v. City of Highland, et al.  More information, including the complaint, an explanatory blog post, a podcast, and a video statement, is available Pacific Legal Foundation’s website:  www.pacificlegal.org

Meriem Hubbard is a Principal Attorney with Pacific Legal Foundation and Wencong Fa is a Staff Attorney with the foundation.  They represent Karl Trautwein and his tenants in challenging Highland’s attempt to coerce them out of their Fourth Amendment rights. Donor-supported Pacific Legal Foundation www.pacificlegal.org is the leading watchdog organization that litigates for limited government, property rights, individual rights, and free enterprise, in courts nationwide. PLF represents all clients free of charge.  For more information, visit http://www.pacificlegal.org.

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

Service Dogs and Support Animals: Here is What You Need to Know! – By Dale Alberstone, Esq.

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

Flying home on American Airlines this past July on a six hour leg from Boston to Los Angeles, the woman seated next to me placed her small Poodle on the airplane’s cabin floor just in front of her feet.  After I made a few comments to her about how cute her puppy was (although it could have used a good bath), she volunteered that “Foxy” was a “service dog.”  While the lawyer in me tended not to believe that, I refrained from inquiring, “Oh really?!  What type of service does your dog perform?”

Instead, I asked her what the airline’s policy was relative to a service dog.  She replied that that if Foxy is a service dog, he could fly for free.  I then asked if American required her to show any documentation establishing that Foxy was, indeed, a service animal.  She replied, “No,” and then presented a subtle grin.

That incident has inspired me to write this month’s column so as to brief landlords and management companies as to when they must allow a dog or other animal to reside in an apartment unit.  Stated in a slightly different manner, my discussion this month addresses the circumstances by which a housing provider may enforce a “no pets” policy in a lease so as to bar the tenant or applicant from bringing in a dog, cat, pig or other four-legged creature.

That law is complex and is separately legislated by both the State of California and the Federal government, but I will clarify it as best I can.

In general, there are three types of animals in issue, namely: service animals, support animals and pets.  True service animals and true support animals are not pets.

A service animal is a dog that is trained to perform services for a person with a disability, such as guiding a blind person, alerting a deaf person to an imminent hazard, fetching dropped items, opening doors, ringing doorbells, pulling a wheelchair, activating elevator buttons, steadying a person while walking, helping a person up after a fall, and assisting someone who is having a seizure.

As defined in the federal American with Disabilities Act (“ADA”), a service animal in the context of public accommodations is defined as “Dogs individually trained to do work or perform tasks for people with disabilities.”  Common examples are guide dogs and signal dogs, which assist with sight or hearing impairments.

Under the ADA and California law, in addition to dogs, a miniature horse (which typically weighs under 100 pounds) may also qualify as a service animal for an individual with a disability if the equine has been specifically trained to perform tasks or work for the benefit of the individual’s disability.  But AOA members typically do not encounter horses, so I will not further discuss them.

A support animal (sometimes referred to as a social animal, therapy animal, companion animal, emotional support animal, and assistant animal) is an animal used to assist with therapy goals, such as animals which help alleviate emotional or social symptoms of anxiety, depression, stress and difficulties regarding social interactions.  Support animals are not specially trained.  Their presence merely improves a tenant’s inability to otherwise live independently and fully use their living environment.

In either case, the service dog or support animal must accommodate a person with a disability.  That means that the tenant (or rental applicant) must have a physical or mental impairment that limits (or in some cases “substantially” limits) one or more major life activities, or has a record of such an impairment, or is regarded as having an impairment.

Pets are domesticated animals which are kept for pleasure rather than utility.

Notwithstanding a “no pet” provision in a lease or rental agreement, a tenant with a disability who has a physical or mental impairment that limits (or in some cases “substantially” limits) one or more major life activities or has a record of an impairment, is allowed to have a service dog or support animal live in that resident’s apartment unit.  Both Federal and State law trump and nullify any lease provision to the contrary.

1. Is your dog a service animal?  If so, is your dog required because of a disability you have?  If so, what work or tasks has your animal been trained to perform?
2. Is your dog (or other animal) a support animal? If so, do you have a disability that limits one or more of your major life activities?  If so, does the disability create a need for you to have your dog (or other animal) live with you?

Bear in mind, however, the housing provider may not inquire of the tenant or applicant about the nature of the disability.  The theory is that the disability is confidential and such an inquiry might impermissibly embarrass the resident.

If the tenant or applicant who does not have an obvious disability (or a disability already known to the housing provider), requests that an animal be allowed to live in the apartment unit either as a service or support animal, the lessor may require the resident to provide documentation from a physician, psychologist or other qualified health provider that he/she has a disability and that the disability creates a need for him/her to have a service dog or support animal.

Both California law and federal law independently govern the right of a tenant to have a service dog or support animal in rental housing accommodations.  While there are differing nuances between the laws of the state and federal governments, one significant difference is that California’s definition of a disability is broader than federal law because the disability in California need only “limit a major life activity.”  It need not “substantially” limit a major life activity.  A “major life activity” includes a person’s physical, mental or social activities.

On the other hand, the Federal Housing Amendments Act of 1988 requires that the disability “substantially” limit one or more major life activities.

With respect to rental housing units in California that AOA members own or manage, they should follow the more restrictive California law which prevents them, as the landlord or management company, from excluding such an animal if the tenant’s disability merely limits (without consideration of whether it “substantially” limits) one or more of the resident’s major life activities.

If the tenant or rental applicant does not have any type of disability (as I have explained it above), then a “no animal” provision in a lease would prevent the tenant or applicant from bringing his/her dog or other animal into her unit.

Similarly, if the animal is a pet (because it does not fall within the definition of either a service dog or a support animal), then the “no animal” provision in the rental agreement may be enforced.

Finally, a housing provider may prevent a service dog or support animal from living in an apartment if (1) the animal will damage the property or is a danger to other tenants, and (2) no reasonable accommodation can be made for the tenant which would avoid those problems.

Concluding Remarks

When authoring this article, I telephoned a customer service representative of American Airlines to inquire about its policy of allowing a dog to accompany a passenger during flight.

The spokeswoman advised that if the passenger notified the airline in advance of the flight that he/she would be bringing on board a service dog, American would allow it if either (1) the passenger provided American with a written note from a healthcare professional that the dog is a service dog for the individual, or (2) the dog wears a harness and the harness is appropriately marked with a tag or placard saying “Service Dog.”

On the other hand, the representative informed me that if the dog was for emotional support, the passenger would be required to provide a letter from a healthcare provider that the comfort animal was necessary for the mental or emotional stability of the passenger.

Fortunately, in the context of service dogs, landlords and management companies are not compelled to allow canines to live in a unit merely because the tenant outfits the animal with a harness and a “Service Dog” placard.

Perhaps some of the disparate treatment of service dogs versus support animals has to do with criminal penalties.  In California, it is a misdemeanor (and thereby theoretically self-policing), punishable by 6 months of incarceration or a $1,000 fine, for an owner to tag and represent that a dog is a service dog when knowing it is not.  No such similar criminal act is committed by falsely claiming an animal is a support animal.

Finally, bear in mind that only certain limited questions can be asked of the tenant, as discussed above, and a written memorandum or letter signed by an appropriate healthcare professional can be required if the person’s disability is not apparent or otherwise known to the lessor or management company.

Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 39 years.  He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association.  He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.

Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell.  An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. You may Google “Dale S. Alberstone” for further background.          

The foregoing article was authored on August 1, 2016.  It is intended as a general overview of the law and may not apply to the reader’s particular case.  Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.

Questions of a general nature are warmly invited.  Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067.  Phone:  (310) 277-7300.

What to Do When Your Resident Files for Bankruptcy

This article originally ran in Multi Family Executive Magazine online.

A carefully negotiated pre-bankruptcy resolution can help you avoid litigation, but if you do end up in court, there are options for better protecting your interests.

By Harry Giacometti

Nearly every landlord has experienced them: tenants who don’t pay the rent.

While your valuable space is being occupied without generating income, you face the prospect of having to evict the renter—a process that can take months, or even years. You worry you may have trouble finding a new tenant who will pay the rent.

But it could be worse: the delinquent tenant could file for bankruptcy, leaving you high and dry—all the more reason to prevent a bankruptcy in the first place.

Some protective, pre-bankruptcy measures can help minimize your financial losses whenever you suspect a renter may be planning to file.

Bankruptcy Basics

First, some clarification on the types of bankruptcy available to the consumer and the injunctions that accompany bankruptcy filings:

Chapter 7 versus Chapter 13. Individuals who file for bankruptcy are “debtors” and have the choice of filing either Chapter 7, a liquidation, or Chapter 13, a repayment plan. (Chapter 11 is another option, but it’s available to those with extraordinarily high debt and is much less common.)

In a Chapter 7 filing, the debtor essentially hands all of his or her assets over to a trustee, who then decides whether to administer those assets. When a lease is involved, the tenant can assume the lease but usually can only do so if the rent is current. In a Chapter 13 filing, however, the tenant has the option of making the delinquent rent payments current over a period of time, usually no more than six months. More on this point below.

The automatic stay. One of the most important aspects of any bankruptcy filing is the “automatic stay.” This is an injunction that stops creditors from trying to collect debts from the debtor.

Essentially, once a tenant files for bankruptcy, a landlord may take no further action to collect past-due rent, continue with an eviction, or even offset a security deposit. Landlords who violate the automatic stay may suffer serious repercussions.

There are exceptions to this general rule. For example, the U.S. Bankruptcy Code allows a residential landlord to enforce a judgment for possession against a bankrupt tenant if that judgment was obtained before the bankruptcy was filed. In addition, the automatic stay doesn’t apply to tenants who have engaged in illegal drug use on the property or who have endangered the premises somehow. In any event, if there’s any doubt about whether the automatic stay applies, and to what extent, contact your bankruptcy counsel for advice.

Terminating the automatic stay. The Bankruptcy Code’s automatic stay isn’t without its limitations. For example, although the bankruptcy filing can protect a tenant’s past defaults, it won’t necessarily protect any new defaults. In other words, once a tenant has filed for bankruptcy, lease payments must be made on a timely basis going forward. If not, the landlord has good reason to ask the court to permit it to move forward with its eviction against the tenant.

The Tenant’s Options

The tenant in bankruptcy has several options available when the lease hasn’t expired or hasn’t been terminated prior to the filing.

The tenant may reject the lease. This means the tenant voluntarily agrees to vacate the premises and is therefore no longer bound by the terms of the lease.

On the other hand, the tenant may decide to assume the lease, which means the tenant can reaffirm his or her obligations under an unexpired lease. However, the Bankruptcy Code permits a tenant to do so only if the tenant is (a) current on lease payments or can “cure” any arrears in a prompt manner, and (b) gives “adequate assurance of future performance” under the lease. What does this mean and what can a landlord do to ensure that its rights are preserved?

Curing payment defaults promptly. The Bankruptcy Code requires a “prompt” cure of lease defaults but fails to define what “prompt” means. Most courts will consider payment over six months to be prompt. If the tenant proposes to cure past-due payments over a period of years, on the other hand, the court will most likely reject the proposal.

Adequate assurance of future performance. Once again, the Bankruptcy Code doesn’t define this concept; rather, it’s generally applied by bankruptcy courts on a fact-sensitive basis. Typically, courts won’t rigorously adhere to this facet of lease assumption but may give some consideration to the tenant’s financial condition, ability to pay based on income, and any offers to make prepayment of rent going forward.

When a lease is assumed, both landlord and tenant must continue to comply with all terms and conditions of the lease. Failure of the tenant to do so may be cause for the landlord to seek the court’s permission to terminate the lease.

It is also important to know when debtors must decide what option to pursue. Generally, tenants have 60 days in a Chapter 7 (liquidation) case, or up until a repayment plan is confirmed in a Chapter 13 case, to decide whether to assume or reject a lease. If these deadlines aren’t met—or aren’t extended by the court—the landlord should react quickly and move forward with a remedy.

Asserting Your Claim

Simply stated, a claim is acknowledged when a creditor files a statement with the bankruptcy court stating that the debtor owes the creditor money.

A landlord should file a claim in a bankruptcy case to protect its interests, particularly when the tenant rejects the lease. The rejection of a lease results in several possible claims by the landlord, including: (a) damages for all past-due payments under the lease as of the filing date; (b) amounts due for any unpaid charges or rent that arose after the bankruptcy filing; and (c) lease-rejection damages subject to a cap, which normally won’t exceed one year’s worth of rent due.

Landlords may also be entitled to recover other charges, including attorneys’ fees. However, these claims are afforded different priority under the Bankruptcy Code’s distribution scheme. Therefore, it is absolutely essential to consult with a bankruptcy professional to determine what claims will be paid, and in what order.

What Else Can You Do?

Because tenant bankruptcy can be costly to owners, once the tenant’s financial situation becomes clear, the owner/landlord should consider alternatives. If at all possible, you should negotiate a pre-bankruptcy resolution with a tenant in financial distress. Can the lease be modified to keep the tenant in the property (and paying rent)? Can a peaceful and consensual termination of the lease be negotiated that lets the landlord regain possession of the unit on terms that are workable for the tenant?

These and other options should be explored if at all possible. A carefully negotiated pre-bankruptcy resolution can help you avoid pitfalls if the tenant eventually does file for bankruptcy protection.

Landlords have some other options, as well, when faced with a tenant’s bankruptcy filing. Did the tenant file the bankruptcy petition in good faith? Is this the first time this particular tenant has filed? In other words, is your tenant a serial bankruptcy filer? If so, you may be able to convince the bankruptcy judge that the tenant’s sole purpose in filing was not to reorganize but simply to frustrate his or her landlord’s attempt to regain its property, thus resulting in a dismissal of the tenant’s case.

In any case, bankruptcies can be complicated, and knowing your rights when a tenant files is crucial. Having qualified counsel on board can help a landlord navigate through these difficult issues.

Electric Vehicle Charging Stations for California Landlords

By Jamie Sternberg in Law,  Reprinted with permission from  propertymanager.com

California law provides a framework for California tenants to request permission from their landlords to install electric vehicle charging stations. AB 2565 added new Civil Code §§1947.6 (residential tenancies) and 1952.7 (commercial tenancies). A summary of the law is below. The full text of these code sections is included at the end of this article.

Residential

For residential leases signed, renewed or extended on or after July 1, 2015, landlords are required to approve a tenant’s written request to install an electric vehicle charging station at the tenant’s parking space if the tenant enters into a written agreement which includes requirements regarding the installation, use, maintenance and removal of the charging station, requires the tenant pay for all modifications, and requires the tenant to maintain a $1,000,000 general liability insurance policy. The charging station and modifications must comply with all applicable laws and covenants, conditions and restrictions. The tenant is required to pay the cost associated with the electric usage of the charging station. The landlord is not required to provide the tenant with an additional parking space in order to comply with this law. This law does not apply: (1) when parking is not included as part of the rental contract; (2) to properties with fewer than five parking spaces; (3) to properties subject to rent control; (4) when 10% or more of existing spaces already have electric vehicle charging stations.

Commercial

For commercial leases executed on or after January 1, 2015, landlords are required to approve a tenant’s written request to install an electric vehicle charging station if certain requirements are met. The tenant is not allowed to install more electric vehicle charging stations than the number of spaces allocated to tenant under the lease. If no parking spaces were allocated, the tenant has the right to convert a number of spaces based on a formula which takes into account the square footage of the rented premises and the total number of parking spaces for the entire property. This law does not apply: (1) to a commercial property with less than 50 parking spaces; or (2) to a commercial property which already has 2 electric charging stations for every 100 spaces. AB 2565 is codified at Civil Code §§1947.6 (residential property) and 1952.7 (commercial property).

HOA

HOAs may not prohibit or unreasonably restrict the installation or use of electric vehicle charging stations in a designated parking space.

Full Civil Codes (PDF)

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. Before acting, be sure to receive legal advice from a lawyer. If you have questions, please contact your local KTS office. For contact information, please visit www.kts-law.com.

© 2015 Kimball, Tirey and St. John LLP