Though a property owner may prefer not to consider it, there are rights which an individual is entitled after using a property for a particular period of time despite the fact that they do not own said property. Legally, when an individual uses a property without the permission of the owner it is known as adverse possession. California has a variety of protections for both property owners and squatters that ensure that these circumstances can be litigated fairly and effectively.
For those engaged in adverse possession the law is highly specific. Depending on the type of property and the manner of its use, the failure of a property owner to take action against a squatter can eventually lead to the latter claiming legal ownership of the property. Though the requirements vary widely, they generally include paying property taxes continuously for 5 years.
Property owners have few means of recourse other than litigation, as the courts must establish conclusively that the squatter has no authentic claim to the property before eviction can be pursued. Such claims commonly include tenant’s rights, or a situation where the claimant can prove that they provided monetary compensation, goods or services to the property owner in exchange for use of the property. Even an implied oral or written contract with the owner could be valid. If this can be established any attempt at eviction would have to proceed in accordance with local landlord-tenant law.
Prescriptive easement is a commonly encountered relative of adverse possession. Generally it entails intermittent use of a section of a property for a particular purpose without the consent of the owner, such as an unpaved driveway to one’s property that runs across another property for some distance. Like adverse possession, the key to any claim is continuous unchecked use for a period of time, otherwise it is simply trespassing. However, the major difference is that the claimant does not have to pay property taxes and other parts of the property can be used and resided upon by the owner during the claimed period of continuity.
Two weeks ago today, I was standing in front of Judge Styn in San Diego Superior Court expecting to get a one-week bench trial underway. This was after we had waived our jury the prior Friday when San Diego had suspended jury trials due to the Coronavirus. Judge Styn is 79 years old and the San Diego Courts were shut down the following day. For most of us, we’ve only been living with the impact of this virus for just two weeks, but for small businesses, so much has changed over those two weeks.
This article attempts to provide some resources for small businesses and individuals as we all navigate this global health crisis. Things are changing rapidly, but this article is current as of today and has a lot of useful information for small businesses.
We are in the middle of what is going to be a very difficult time for small businesses. With a focus on bankruptcy and real estate, our practice has been busy with calls from business owners (landlords, tenants, lenders) who are all grappling with issues never before seen and seeking answers to questions they have never faced before. On the Debtor side, the early calls focus on companies that were mostly on very unstable ground before they got to us. COVID-19 is the proverbial straw that broke the camel’s back for these companies. For creditors and landlords, the preliminary calls have not yet been defaults, but, rather, game plans for work arounds and updates for new laws concerning evictions and foreclosures.
The biggest impact of the Coronavirus is to retail businesses and restaurants. At a fundamental level, 90% of retailers are shut down completely and fast food is the only restaurant that can even operate in this environment. Retailers employ 15.6 million people in this country while and another 16 million are in retail. Together, they make up approximately 20% of the workforce of this country. The vast majority of those people are currently unemployed and there are many looming questions as to whether those businesses are going to be able to survive the downturn.
It goes without saying that we are in the early stages and any fallout will largely depend on how long this process takes. California’s “Stay At Home” order issued by Governor Newsom was issued on March 19, 2020 and, as of the date of this writing, all signs suggest that it will be in place through the end of April, at least; but there is a huge difference between six weeks and 12 weeks in terms of the economics of this situation and the impact it will have on businesses and business owners alike.
As the crisis further develops, new orders, mandates and regulations will likely be issued, and we will try and update you with these as they are released. The hope for businesses is that California can strive to stay ahead of the fallout and provide as much as clarity on the situation, for better or worse, as the matter unfolds.
The Courts and the Stay at Home Order:
The San Diego Superior Court closed on March 17th and will continue to be closed through April 3rd. There will be no jury trials until at least May 22nd and all existing jury trial dates have been continued 60 days. While certain emergency services are available, it is widely expected that the April 3rd date will be extended for at least another two weeks as San Diego is entering into an acceleration phase for the disease. This is especially likely as the federal government has now advised that the current social distancing guidelines remain in place through April 30, 2020.
What this means is that the Courts are essentially inaccessible through most of April. What is already an overburdened system will be backlogged by another 2 months of cases making access to the judicial system that much more difficult and expensive.
Federal Courts have not yet suspended operations, at least not in the 9th circuit. Some oral arguments have been postponed, but the Bankruptcy Court has issued an order allowing for telephonic appearances for all oral arguments and a number of orders to allow filings to continue. In large part because the federal system has transitioned to an electronic system over two decades ago, they appear to have been well positioned to allow for appropriate social distancing without a complete cessation of activity.
Mortgages and Covid-19:
With 2008 in very recent memory, the federal government and banks are gearing up for a number of missed payments, whether its commercial or residential. Fannie Mae and Freddie Mac have announced programs for loan forbearance for both residential and commercial mortgages for up to 12 months. One of the challenges from a borrower’s perspective is determining whether your loan is owned by one these two juggernauts, as the servicing company will differ from the entity listed on the deed of trust that will likely differ from the entity who owns your loan.
To put things into perspective, the total amount of mortgage debt is estimated at $15.8 Trillion and Fannie and Freddie are estimated to have guaranteed or own somewhere around $4.4 Trillion (See also Bloomberg). The important thing is that you may be one of the 28 Million loans that may be owned by Fannie or Freddie that may make you eligible for relief. Below are some links that will help you find out if you have a Fannie Mae or Freddie Mac Loan.
California has also teamed up with the largest banks and about 200 local lenders to provide some relief. Essentially, if your lender is one of the institutions identified at the link below, the lender will grant a 90-day moratorium on payments for COVID-19 related missed payments. Additionally, any missed payments resulting from COVID-19 will not affect your credit ratings. There shall also be a 60-day moratorium from these institutions on foreclosures. A current list of participating lenders and servicing agents is below.
There are essentially two main things that will impact evictions in California in the short run. First, there is the issue of whether the Court will actually be open. For now, Courts are closed until April 3rd and I’m fully expecting them to remain closed through April 17th.
More importantly, on March 27th, the state of California has imposed a moratorium on evictions caused by Covid-19 hardships. That moratorium will be in effect until May 31st. In short, if a tenant has documentation demonstrating loss of employment or reduction in income due to the COVID-19 pandemic, then the tenant cannot be evicted for nonpayment of rent and the tenant should notify the landlord immediately. If a tenant falls within this moratorium, the tenant will have an additional six months to pay the unpaid rent. However, it is important to highlight that this is NOT a moratorium on a tenant’s obligation to pay rent if they are otherwise unaffected by COVID-19.
This is obviously a developing story and we’ll update you as we learn more. Broadly speaking, any real hardship in this environment can at least in some part be attributed to COVID-19 and, if a tenant’s employment or income has been lost from the hardship and can be documented, then the tenant should be protected under the moratorium.
Summary of the $350 Billion stimulus package:
On Friday, the federal government passed a $2 Trillion stimulus bill. While large chunks are dedicated to beefing up COVID-19 responses ($275 Billion), maintaining large businesses ($500 Billion), and direct injections to Americans in need ($560 Billion) (See https://howmuch.net/articles/breakdown-coronavirus-2t-economic-stimulus), $350 Billion has been earmarked for loans to small businesses.
That’s a lot of loans. The SBA estimates that there are 30 million small businesses in the US, which means this stimulus provides for an average of more than $10,000 per business in the US. The challenge will clearly be the administration of these loans. If you’re a small business and your vision for the next 3 – 6 months is cloudy, you need to start the application process right away. The SBA is notoriously slow at processing applications, and if you wait, you will miss the window.
The details as we understand them are as follows:
stablishes and provides funding for forgivable bridge loans;
loans will cover from February 15, 2020 and end June 30, 2020;
businesses, nonprofits, self-employed individuals, sole proprietorships, and independent contractors with less than 500 employees are eligible;
loans are capped at the lesser of $10 million or 2.5 times the total of the applicant’s average monthly payments for payroll costs for 1-year prior to obtaining the loan;
proceeds may be used for payroll costs, group health care benefits, employee salaries, commissions, compensation, interest on mortgage obligations, rent, utilities, and interest on debt obligations (approved expenses) incurred before the covered period;
no personal guarantees or collateral are required for the loans;
the loans are non-recourse so long as the proceeds are used for an approved purpose;
any balance remaining on the loan after forgiveness shall be for a 10-year term at an interest rate not greater than 4%;
loans may be eligible for forgiveness of indebtedness in an amount equal to the sum of approved expenses incurred during the 8-week period after loan origination;
forgiven loan amount may be reduced based upon the number of employees and adjustments in reduced salaries and wages;
canceled indebtedness is excluded from gross income;
provides additional funding for grants and technical assistance;
establishes limits on requirements for employers to provide paid leave; and
strengthens unemployment insurance, which could potentially add $600 per week for up to four months on top of what a state would give beneficiaries.
The loans themselves are broken down into two major types, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). Only the PPP is eligible for loan forgiveness based on maintaining a certain number of employees. The PPP must be applied for through your local bank, while the EIDL must be applied for directly through the SBA.
Matt Garrett, the CEO of TGG Accounting, just did a fantastic webinar on the stimulus package this morning. As of this email, it’s not up on TGG’s website, but I’m hopeful that it will be soon. For those looking to take advantage of the stimulus package for small businesses, this video is an excellent resource. Matt and his team are well ahead of the curve on the stimulus package and we all need to take advantage of their expertise as TGG has been extraordinarily generous in compiling, organizing and sharing their research. See: https://tgg-accounting.com/blog/
Other Bankruptcy News: Chapter 5 Bankruptcy
On February 19th, and, remarkably, completely unrelated to the Coronavirus, the federal government passed a large amendment to the bankruptcy laws that will make bankruptcy more accessible to small businesses. Welcome, the Chapter 5 bankruptcy. For practitioners, it is essentially a hybrid between a Chapter 11 and a Chapter 13 bankruptcy and businesses with less than $2.7 Million in secured debt are eligible to file.
Up until this point, filing a bankruptcy for a small business required a certain level of overhead that made it extraordinarily cost prohibitive for small businesses. It is extremely difficult to rationalize adding significant legal expense to an already overburdened business in order to justify filing a Chapter 11 bankruptcy and, as a result, it really remained only a nuclear bomb option for most small business debtors.
The new, Chapter 5 does away with much of the overhead associated with a Chapter 11 including the costs associated with maintaining a creditor’s committee and producing a disclosure statement. More importantly, the Chapter 5 allows you to “impair” creditors without a vote of those creditors so long as the distribution to them is “feasible”, does not “unfairly discriminate”, and is “fair and equitable”. Effectively, the Chapter 5 allows for a discharge over the course of time, which, while possible in a Chapter 11, was extremely difficult.
The hardest hit small businesses are retailers and restaurants. The stay at home orders have effectively shut down most of these businesses. While many costs in these types of operations are scalable, the two that are not are going to be rent and debt service.
Rent is a particular problem for restaurants and retailers. Unlike a law firm, who we are learning can function from home or pretty much anywhere, a restaurant or retailer is intimately tied to its location. What is more difficult is that, under California law, a commercial lease terminates likely at the end of a validly issued notice to pay or quit, not a judgement for possession. (See In re Windmill Farms.) What that means is that even in bankruptcy, a lease cannot be reinstated once the notice to pay or quit has expired.
Because of the nature of retail and restaurants and how COVID-19 has impacted this particular group of businesses and the “short fuse” associated with lease terminations, it is likely that we are going to see more Chapter 5 filings over the coming 12 months.
https://socal.law/wp-content/uploads/2022/02/CoronavirusandBusinesses-1-1024x576-1024x585-2.jpg5851024Ajay Guptahttps://socal.law/wp-content/uploads/2021/08/gupta-evans-ayres_brand-identity_v4-02.pngAjay Gupta2020-04-01 21:53:002022-02-14 22:31:28Small Businesses and Covid-19 on March 30, 2020
The professionals that you surround yourself with when purchasing a home all have a vested interest in your “closing the deal.” All the parties, including the broker, the mortgage salesperson, and the title company each get paid through commission. If each party is purchased this way, who is there to push the brakes and first ask if this is a smart decision? Or if the title is clean? How about if the financials make sense, or if there is an issue with the inspection that needs to be examined? Let the crucial role of the unbiased advisor be your attorney.
WHAT HOME OWNERS NEED TO KNOW
If you are a home owner who decides to rent out to tenants, there are a few items you should know. Do not become overanxious if you face the issue of a non-payment rent situation. This is actually the ideal eviction scenario. Evictions happen very quickly in California and can be viewed as only a step above the common traffic ticket. There is a separate court (depending on the dollar amount at issue) that handles the case and it can be resolved in about 30 days.
The next aspect homeowners need to understand is having a good solid lease for every period of time the tenant occupies. You should be familiar with a three day notice and a 30 day notice. If non-payment occurs, first make sure there was no physical/emotional impediment to the tenant and you have good reason to evict. Make sure to pass a notice quickly, as it communicates your seriousness and familiarity with the law.
CHANGES IN CALIFORNIA REAL ESTATE LAW
While there are clear cut laws, it is important to remember that real estate law is continuously being interpreted and evolving, and thus can leave room for some ambiguity. A good example is of my brother who had called from DC complaining about a neighbor who smoked marijuana during the early hours of the morning. The case becomes complicated because the tenant may have a legitimate reason to smoke freely in the building. He or she may possess prescription or medical permit to smoke marijuana, and if they cannot smoke within their own apartment, where are they going to medicate? If you push towards litigation, you may be seen as discriminating against individuals with a disability. You may find yourself, the landlord, negotiating between this negative interpretation and a tenant who is threatening for nuisance violations.
Candidly, the law is not clear on this issue. While California recognizes medical marijuana as a right, and something that is necessary, the federal government does not. A lot of discrimination laws originate from the Fair Housing Act and the America Disabilities Act—federal law. Some states do have specific laws that allow medical marijuana and command that landlords write this within their lease. The courts remain undecided.
https://socal.law/wp-content/uploads/2018/11/pexels-pixabay-210617-scaled.jpg17142560Ajay Guptahttps://socal.law/wp-content/uploads/2021/08/gupta-evans-ayres_brand-identity_v4-02.pngAjay Gupta2018-11-05 00:14:002022-06-22 00:39:14Why Speak to an Attorney Before Buying a Home?
As part of this year’s midterm elections, San Diegans will be confronted with two competing ballot measures focusing on what to do with the land surrounding the iconic SDCCU Stadium (formerly, Jack Murphy Stadium and Qualcomm Stadium). The first ballot measure is Measure E, otherwise known as “SoccerCity.” Measure E is sponsored by FS Investors, a privately held investment firm with offices located in La Jolla and San Mateo. The second ballot measure is Measure G, otherwise known as “SDSU West.” SDSU West is headed by a steering committee calling themselves “Friends of SDSU.” Friends of SDSU is made up principally of local San Diegans, as well as SDSU Alumni.
At a glance, the Soccer City Proposal (Measure E) and the SDSU West Proposal (Measure G) might appear very similar. Both proposals offer to tear down the current decaying structure of SDCCU Stadium and replace it with a sprawling complex that includes not only a modern sports stadium, but would also accommodate entertainment, residential, retail and office space. Both proposals also aim to create generous park spaces along the San Diego River.
Each proposal has received glowing endorsement from various important individuals and organizations. The Soccer City Proposal has been endorsed by San Diego Mayor Kevin Faulconer, whereas the SDSU West Proposal has received the endorsement of former mayor and current Chamber of Commerce President, Jerry Sanders. The SDSU West Proposal has also received bi-partisan support from liberal organizations, such asThe Sierra Club, as well as conservative organizations, such as the Lincoln Society of San Diego.
Background:
SDCCU Stadium, was the home of the San Diego Chargers from 1967 until their return to Los Angeles in 2017. Previously known as Jack Murphy Stadium or “The Murph,” the site also played host to the San Diego Padres from their inaugural season in 1969 until the completion of Petco Park in 2004. In the 51 years of the stadium’s existence, it has become a known quantity in many San Diegan’s daily lives. This is partially because of its significance as the primary colosseum for sports in San Diego and partially due to its central location in the heart of Mission Valley.
SDCCU Stadium currently sits on 166 acres of land between the 8, 15 and 805 freeways, which effectively makes the stadium the crossroads of San Diego. From Chula Vista to Mira Mesa; from La Jolla to El Cajon, most of the city of San Diego is within 20 minutes from SDCCU Stadium. It should be no surprise, then, that two rival proposals for the site have sprung up hoping to earn the voter’s approval in this year’s midterm election.
Big Picture: What’s the Difference?
When looking at the two proposals, the first thing you’ll notice is the length. The SoccerCity Proposal is over 600 pages long including all the exhibits. By contrast, the SDSU West proposal is only 12 pages long. Whereas the SoccerCity Proposal attempts to be specific and nuanced about its plans, studies and timelines, the SDSU West Proposal is vague and ambiguous as to how and when they are going to achieve their proposed goals. The SoccerCity Proposal purports to identify what, when, how and where building will take place, but the SDSU West Proposal more or less leaves those specifics to be figured out after their measure passes.
The most apparent substantive difference between the two proposals is in how each project will be funded. Proponents of SoccerCity have proudly boasted that their plan would cost zero taxpayer dollars. Specifically, the initiative stipulates, “No public funds, subsidies, public bond issues, or public or municipal financing will be used to pay for any of the development or infrastructure on the Plan Area.” Instead, financing for construction of the complex would be left to the contractors and builders who, “may use a variety of financing methods”. The funding component has unsurprisingly become a central selling point for SoccerCity as proven through the hundreds of television commercials boasting that SDSU West will cost taxpayers millions of dollars in public funding.
A nuanced analysis of the SoccerCity Proposal, however, makes it clear that it is in fact the City of San Diego that will be financing a large part of their development. Under SoccerCity’s Measure E, FS Investors and their associates would lease the land under SDCCU Stadium and the surrounding area (233 acres) from the City to the financiers of FS Investors for 99 years for “fair market value,” as of February 2, 2017. The reality is that it is the City of San Diego that would be “carrying the paper” on this transaction while the investors maintain possession just as a residential landlord does with her own property.
Perhaps the bigger issue with the SoccerCity Proposal will be in determining the “fair market value” as of February 2, 2017. Similar to the Pontiac Silverdome in Michigan, there is a strong argument that, the value of the property in question–prior to a plan for redevelopment being in place — is de minimis. SDCCU Stadium is effectively a nuisance because the costs to maintain the stadium far exceed the revenue the stadium may be drawing in. Consequently, the “fair market value” at which SoccerCity would lease the property from the City is bound to drop accordingly.
By comparison, the SDSU West Proposal directs the City of San Diego to sell the land under the SDCCU Stadium (132 acres) to San Diego State University at a price “the City Council deems fair and equitable and in the public interest.” Details on how the construction of the stadium would be financed are unknown at the moment, but the expectation is that San Diego State University will “tap California State University bonding authority.”
Proponents of SDSU West posit that there is a legitimate need for SDSU to expand its campus. SDSU has been at its current location since 1931 and has expanded significantly within that nearly 90-year period. SDSU’s current campus sits at roughly 283 acres large with a student body approximately 35,000 strong, making it the second largest university in the county behind UCSD. However, despite SDSU’s relatively large size, it’s growth has been lacking for several years, partially due to a lack of land to expand upon. Despite the fact that applications to SDSU have skyrocketed in recent years, SDSU’s admission rates have remained largely stagnant from 2007 to 2016, whereas UCSD’s admission rates have risen by approximately 36% in the same timeframeA major benefit of Prop G is that it would not only provide a new sporting stadium, but it would also provide much needed room for SDSU to expand and remain competitive. SoccerCity naturally disagrees with this position and points to several areas on or around the current SDSU site where the university can expand, but is simply choosing not to.
On SDSU West’s face, there is something comforting about having a pillar of San Diego oversee and manage the development of an area that is so central to San Diego. It is also comforting to know that the City Council would retain control of the sale price to SDSU. That said, the sale price is effectively all the City Council would control; once the land is sold to SDSU, SDSU owns it outright and the City loses much of its oversight. A further challenge, is SDSU West’s ambiguity surrounding the means for financing and the timeline, both of which are completely missing from the SDSU West Proposal.
Tell Us How You Really Feel!
I think there are certain things that lend themselves to a ballot measure. Those items are limited to discrete ideas where politics or special interests have made it nearly impossible for the representatives of the City or State to act responsibly and disinterested. For example, things that affect campaign finance, gerrymandering, giving elected officials raises, or even whether to increase or decrease taxes are all appropriate discrete issues to put directly before the electorate.
On the other hand, when the idea at issue is a development project of the scale and size of SoccerCity and SDSU West, which includes so many moving parts, a forced sale or a forced 99 year lease , a ballot measure is ridiculous. I did not read the whole 600+ page proposal by SoccerCity and neither will any of you. On the other hand, the SDSU West Proposal leaves far too much to the imagination for my comfort level.
The fact is that the City of San Diego is the entity most well-equipped with the resources and experience to oversee and develop the SDCCU Stadium, not the voters. You start by looking downtown, from the Ballpark to Little Italy; you can then expand out to the surrounding communities– the City has done this over and over again successfully. There have no doubt been set backs in certain communities, Barrio Logan and East Village for example, but those set backs are part of the City’s resume now and should not be viewed in a vacuum. Quite the opposite.
The political and financial underpinnings of each of the proposals are troubling as well. Regardless of whether you support SoccerCity or SDSU West, there will be a financial boone to either victorious party. That financial boone must be part of a process that is inclusive rather than exclusive. Put another way, neither SDSU West nor SoccerCity should garner a windfall just because they gathered a bunch of signatures.
From a personal perspective, I’m not a fan of soccer. I take the Jim Rome approach to soccer and, with all due respect to some of my close friends who may be reading this, I would rather undergo a root canal than watch soccer. That said, I am but one San Diego resident. The reality is that soccer viewership has been steadily growing and San Diego is one of the biggest soccer markets in the US, ranking 9th overall.
That said, I do question whether a stadium is necessary or even warranted in that part of the city. That area is ideally situated for a mixed use, high density residential and retail expansion. With residential rental and housing prices going through the roof, that makes a lot of sense to me. Of course, some part of the area should also be used to address the growing needs of SDSU. Whether that includes the need for a stadium in that location is still up for grabs. A stadium in East Village probably makes more sense given the infrastructure already in place. As a keystone project, it could be used to revitalize East Village and bring in new developments. It could also be used to relieve the needs of an already overcrowded convention center.
At the end of the day, I hope that the San Diego voters remember that no on both is an option. Despite what has been advertised, this is not a choice between SoccerCity (Measure E) and SDSU West (Measure G). Rather, these are two proposals being pushed forward by competing special interests, each of which simply gathered enough signatures on their idea to put it before you—the voter—on the ballot.
https://socal.law/wp-content/uploads/2022/02/Stadium-1024x576-1024x585-1.jpg5851024Ajay Guptahttps://socal.law/wp-content/uploads/2021/08/gupta-evans-ayres_brand-identity_v4-02.pngAjay Gupta2018-11-05 00:03:002022-02-14 22:31:29The Stadium Proposals: Sometimes, Nothing is Better than Something
In June, the California Secretary of State confirmed Proposition 10 as a ballot initiative that, if passed, will allow cities in California to implement rent control. With the housing shortage in California, San Diego in particular, renters have seen dramatic increases in rent that quite simply have not kept up with the cost of living. As a result, San Diego is seeing gentrification in areas not normally associated with the displacement of middle- class renters, like La Mesa and the surrounding suburbs of downtown. This displacement is what is most likely bringing Proposition 10 to the ballots this November.
Historically, middle–class workers in California were able to afford homes, which granted them stability in terms of their cost-of-living. However, with skyrocketing housing prices, even those with good jobs have found themselves struggling to get into their first home. This confluence of unaffordable housing and the gentrification of the middle- class has brought the issue of rent controls back into the public purview.
San Diego, unlike Los Angeles and San Francisco, has not implemented any rent controls. Across California, there are only 15 municipalities that have implemented rent controls prior to the acceptance of Costa Hawkins. Most rent control ordinances limit the permissible rent increase the landlord can charge if the tenant chooses to stay in the unit year over year. Rent control ordinances typically also prevent a landlord from evicting a tenant unless the landlord is planning on removing the property from the market. Finally, in some areas, even if the landlord is courting a new tenant, the landlord would be limited in the amount that he could charge the new tenant.
The implementation of rent controls will dramatically shift rights from property owners in rent controlled areas to renters who are fortunate enough to obtain housing in those areas.
The Economics:
In San Diego, the primary cause of higher rental costs is the result of the shortage of available rental units. With vacancies approaching 3%, most economists agree that San Diego’s high rental prices are a direct product of a fundamental lack of supply. Under this line of reasoning, which is the prevailing wisdom, the implementation of rent controls would simply lower the value of housing and therefore discourage investment in new housing. As the argument goes, while a select few who are in rent controlled districts would benefit, the decrease in new housing investments would cause higher rents for the remainder of San Diego’s renters.
Another line of reasoning focuses on the demand side of the equation. California’s homeownership rate is currently around 10 percentage points below the national homeownership rate, 54.6% versus 64.2%. That differential has always been true in California. Not surprisingly and directly proportionate, the rate of renters in California is about 10% higher than the rate of renters for the rest of the country, 46% compared with 36% respectively. Theoretically, by increasing homeownership rates, you would automatically decrease the number of renters in the market. Proponents of a demand side argument theorize that implementation of rent controls may decrease the value of homes for investors, but the value of homes would remain constant for primary residence holders. By shifting the value away from investors, homeownership rates will increase naturally through the conversion of rental properties to primary residence holders.
The rationale surrounding the demand side analysis is tortured on a number of levels. Most obviously, increasing homeownership rates by converting rental properties into primary residences simply decreases the number of available rental units on the rental market. While it does address the issue of gentrification for those that are able to buy homes, it does little to actually address the fact that there are more renters than houses available for them.
The argument does, however, touch on a fundamental issue that is unique to California: With such a large percentage of California’s population being renters, 10% more than anywhere else in the country, does California have an obligation to provide some stability to middle- class workers who are lifelong renters?
The Politics
The real rationale for Proposition 10 and the repeal of Costa Hawkins is grounded in politics, not economics. First, Proposition 10 itself does not implement rent controls; it simply would allow municipalities to implement rent controls at the local level. Proponents of Proposition 10 argue that areas such as San Francisco, Silicon Valley and National City all have different housing needs that should be addressed at the local level. Proposition 10 simply gives local municipalities the flexibility they need in order to meet the needs of their community and develop flexibility in community planning.
Proponents of Proposition 10 argue secondarily that housing stability should be a right as opposed to a privilege. The median household income in San Diego County in 2017 was $66,500. According to BankRate.Com, assuming 20% down and only $1,000 a month in non-housing related expense, the maximum recommended housing price is about $240,000. Meanwhile, the median home prices in San Diego rose 8.6% in April, 2018 to reach its highest level ever at $570,000.
Based on these numbers, the average middle- class worker cannot reasonably expect to ever buy a home in San Diego or in most metropolitan areas in California. Since that is our current reality, then shouldn’t local municipalities be given the option of protecting middle- class families from being displaced from their communities? Shouldn’t local government be given the tools to promote a stable and diverse community? If we value economic and racial diversity, shouldn’t a community be given the flexibility to plan for low income families through rent controls?
I struggle with these issues personally. We moved seven times in 11 years before we bought our home in 2018. Most of that was by choice, but I do know that rents went up precipitously over the same period. The one time where our landlord was selling the home we were renting, it was frustrating. As our kids are getting older, we are definitely accumulating more stuff, making the prospect of moving more daunting. Having a home now, I value homeownership, the stability it brings, and the investment in the community it allows. It would be devastating to know that I could never buy a home and I think that under those circumstances, I would want some stability in terms of my rental situation.
On the other hand, I firmly believe that the housing shortage and gentrification are supply side problems. The only practical means of bringing more housing on the market is to streamline the process of development and to increase investment into the housing market. Ultimately, the California housing market must be relied on to do what the California housing market has always done: Correct itself and bring housing back in line with what people can afford.
On balance, I take the position that Costa Hawkins should not be repealed. There are a myriad of reasons that lead to unaffordable housing in California. While each of these reasons can be separately analyzed and are topics worthy of their own articles, we have to start by looking at Proposition 13 and the relatively low effective property tax rates in California. From there, we quickly move to the development life cycle and costs of litigation. Finally, we have to look at the wealth effect and role that real estate plays in California’s economy.
Ultimately, what I am confident that we will find is that investors are competing with the middle-class for homes and driving the middle-class out of the owner occupied market and pushing them into an already flooded rental market. Further, I’m confident that the driving force behind the low owner-occupied housing rates can be traced to tax incentives that favor the investment buyer over the owner-occupied buyer.
As a result, the path to addressing middle-class gentrification is through policies that encourage higher owner-occupancy rates. While rent control may cause a small and unintended increase in owner-occupied housing rates, it really does little to help renters. Trying to address gentrification through rent control measures as allowed under Proposition 10 is just the wrong tool for the job, even if done at the local level. Instead, we must look long and hard at policies that have caused California to have the second lowest owner-occupancy rate in the country.
https://socal.law/wp-content/uploads/2022/02/qtq80-oIEhB3-1024x683-1024x585-1.jpeg5851024Ajay Guptahttps://socal.law/wp-content/uploads/2021/08/gupta-evans-ayres_brand-identity_v4-02.pngAjay Gupta2018-09-29 00:24:002022-02-14 22:31:29Prop 10: Does Rent Control Make Sense for California?
As many of you are aware, there are several changes to your taxes coming in 2018. We are, by no means, tax experts, but we have a number of people that come to us and have been asking questions. Aron Feiles, a seasoned CPA with Lauer, Georgatos & Covel has written two excellent summaries on the matter, one for individuals and one for businesses. Aron has also been helping us navigate some the more interesting tax nuances that have come up with the recent changes as they impact our practice.
Below are the links to his articles. I highly recommend that you give him a call if you have any questions about the tax plan and how it impacts you or your business.
Our firm deals with both real estate transactional issues (helping people buy) and issues that surface when there is a dispute between what one of the parties expects, and the resulting reality of the situation (disclosure issues).
The professionals you surround yourself with: the realtor, the mortgage company, the insurance company etc are each important, yet undoubtedly carry a biased interest in “closing the deal.” These partisan individuals are paid on commission, potentially coloring their judgment. Both parties in any transaction naturally want to close on terms favorable to themselves. However, an attorney’s fee is generally not based on either party’s results. Thus, the presence of counsel without a vested interest is highly beneficial. Our attorneys provide the useful legal, financial, and personal perspective to offer a fresh opinion on a transaction. We want to provide a completely competent party with a legal acumen–one not vested in merely closing on your side.
There are two types of ADR (alternative dispute resolution), which tend to confuse people: mediation and arbitration. Mediation, a negotiation process involving a neutral third party, assess whether a settlement can be reached through direct talks and is almost always a preliminary step toward litigation. Arbitration is essentially a court proceeding undertaken by private parties, i.e. there is no direct discussion, statements and evidence are presented and both parties agree to be bound by the designated arbitrator’s decision. Mediation is almost mandatory for residential real estate transactional issues (depending on the forms of purchase) and is usually part and parcel to a lawsuit. It can happen at any stage of the litigation process: before filing litigation, during litigation, or even leading up to a trial. About 90-95% of cases are going to settle. Understanding these methods and how they apply to your circumstances is crucial.
We find that the transactional side is simple when hiring a lawyer, because we can help identify the upfront cost of a deal. We factor in how much assistance is necessary and estimate the anticipated transaction cost, or the cost of doing business. We try to aim for 25 thousand USD at issue before consideration. When hiring a lawyer for transactional procedures, one does not have to worry much about price as it is generally well defined in advance.
Litigation, however, is amorphous. Disputes over less than 25 thousand dollars generally are not worth attorney fees. Unfortunately, it’s not recommended to enter small claims court for a dispute over more than 10 thousand. This makes disputes from 10 to 25 thousand difficult to resolve without outside help and thus an ideal situation to employ ADR. We recommend small claims forms (accessible to most people) instead of an attorney when you are in a dispute with less than 10 thousand USD at stake. Small claims court allows you to place your dispute before a third party and results in a quick, objectively enforced judgment on your issue.
There are two major issues to watch out for before moving forward with any of the aforementioned options: title and disclosure. More often than not, title issues result in partition action, or a mandate dividing property into individual shares between disputants. Disclosure issues involve one party failing to communicate or actively concealing relevant information from the other and can result in serious legal ramifications.
We are all familiar with the intimidating mountains of paperwork that accompany a real estate purchase, but understanding precisely what they mean is critical given the potential implications of closing such a major transaction.
Though there are a multitude of potential issues, it is important to be aware of the two most common. First of which is a lack of follow-through on either the buyer or seller’s part for any number of reasons. Second are issues of disclosure, wherein relevant information has been unreasonably withheld. For example: the plumbing is leaking, the foundation is cracked, the electrical is not to code.
If you find yourself in one of these situations or any other, it’s vital to know your options. The California Association of Realtors Residential Purchase Agreement (CARRPA) is the standard for almost all real estate transactions: about 90% utilize this form. If you do not have a very good reason or very good legal representation you should not even consider entering into an agreement without its protection. Unorthodox deals are inherently unpredictable and equally hazardous.
CARRPA offers you three primary varieties of protection:
The Liquidated Damages Clause
The Mediation Clause
The Arbitration Clause
When a buyer breaches the established contract it may be feasible to site a liquidated damage clause. However, the liquidated damage clause has a contingency period after which the transaction cannot be easily terminated. If the buyer does bow out they generally forfeit 3% of the purchase price.
In the far less common event that the seller feels the need to back out, generally in light of second thoughts or family pressures, the situation is different. Though historically, when a seller retracts their offer the buyer is likely to simply move on. As the market tightens, the instances of disputes on these grounds will undoubtedly increase.
In the event that these, or any other disputes arise, the mediation clause virtually requires that a mediation process be undertaken before any further proceedings. The party initiating the dispute is responsible for submitting a formal request for mediation after which both parties must meet with a neutral third party and attempt to resolve the issue. The arbitration clause offers a further venue for disputes to be settled outside of court and ideally prevent amassing even greater legal fees.
https://socal.law/wp-content/uploads/2022/02/finding-your-first-deal-1024x585-1.jpg5851024Ajay Guptahttps://socal.law/wp-content/uploads/2021/08/gupta-evans-ayres_brand-identity_v4-02.pngAjay Gupta2016-08-19 22:18:002022-02-14 22:35:02Before Closing a Real Estate Deal
Hard money loans do not deserve the seedy, or even criminal, reputation they have gained in the popular imagination. Though not ideal for all situations, they can provide specific advantages and are certainly not inherently predatory.
There are a variety of common, if unexpected, situations that may require a business or individual to pursue timely financial liquidity. Hard money loans, like any other borrowing method, have pros and cons. The key is to be well-informed of all your options so that you can choose that which will best address your needs. Ted Przybylek (ranchoted.com), a San Diego area lender, has years of experience with hard money loans. In the video above he relates the experience of a friend who, in the midst of a transaction, was unable to get to clear his loan due to deposits that were deemed unacceptable. With only 14 days left to close the deal, Ted’s organization was able to intervene and provide a hard money loan. Though they can certainly be a life-saver, it is important to realize that this process, like any other, must be conducted properly to avoid serious consequences.
There is a persistent belief that hard money loans are necessarily sub-prime, which naturally elicits anxiety in potential borrowers. That assumption is meritless; rather, they are high collateral loans. This simply means the recipient must own sufficient real property to back the loan. Generally speaking, hard money loans can equal roughly 65% of available collateral. For example, a million dollar property could back a hard money loan of about 650 thousand dollars. This arrangement provides the lender with a high degree of protection, which in turn helps the borrower with correspondingly low interest rates and the possibility of refinance later in the life of the loan. Mr. Przybylek has arranged loans with interest rates as low as 8%.
The following are three situations where one might consider a hard money loan:
As an investor: Though flipping real estate can be extremely profitable, by its nature it opens an investor to the risk of many unexpected issues. These problems can be mitigated through bridge financing, which provides temporary capital while the investor’s funds are tied up elsewhere.
As a business owner: Business expenses such as primary loan payments, payroll, stocking, etc. can create a climate where income varies widely from month to month. A hard money loan can stabilize a business’ access to capital.
As a private borrower: Unfortunately, the need for an average borrower to pursue a hard money loan tends to stem from their being taken advantage of by another lender. Unscrupulous lenders may issue a predatory loan intending to seize the borrower’s assets and a hard money loan may allow the borrower to avoid this.
Hard loans may be the best remedy to a difficult situation. Before such a major step it is always advisable to ply one’s personal network for less financing options with lower stakes. It is always better to avoid such situations in the first place and when in doubt you should always seek legal counsel before signing a potential dangerous loan.
It’s a story that plays out all the time: People fall behind on credit card debts, can’t pay back collectors and find themselves in a situation where they are possibly facing a lawsuit.
Studies show nearly 98% of all people who get sued for a credit card debt, take no action whatsoever. In doing so, collectors can get a default judgment against you. With that they can force payment from the debtor through wage garnishments, bank account levies, property levies, and other ways.
People generally seek out ways to resolve the matter, or figure there’s nothing left to do. Some end up filing for bankruptcy to clear the debt or pay it off over a period of time.
Doing nothing is not the answer.
If you are sued for a credit card debt take these steps to ensure you get the best possible outcome:
First identify if there were any service issues. Look at the complaint and identify who’s being sued; this should be your name.
Take notice to the date, time, and how you received the papers.
Review the claims. Read the complaint carefully to ensure that the debt belongs to you, and it will give you information about the original creditor. Look at the value of the claim. If this is something you can afford to pay off, work out a way to structure payments with the credit card company to avoid the cost of an attorney or potential litigation.
Responding in a timely manner. Defendant’s response to the plaintiff’s complaint must be filed within 30 days of being served. Seek legal help if necessary to ensure the right steps are being taken.
You aren’t legally required to have a lawyer represent you in court, but it is important to gather all necessary information and seeing if you have any valid defenses. Remember, it is up to the plaintiff to prove what they are claiming before the court.
Whether you hire an attorney or go alone, you must file papers within the period of time provided under the law. You also must appear at scheduled court hearings.
Look at whether bankruptcy is a viable option to discharge the debt.
No one wants to deal with a lawsuit for a debt, but try to keep it in perspective, and focus on resolving it with the best possible outcome. Our advice is to look at this as an opportunity to negotiate with the collector and work out an affordable solution that will benefit both parties and avoid legal parameters.
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