Articles Posted in Real Estate Law

photo-fixer-upper-lawsuit-300x200If you are a partner in a business you have a fiduciary relationship with your fellow partners. That relationship means that partners owe each other fiduciary duties which a partner must abide by when acting on behalf of a business. Two former partners of a Texas real estate company claim their former third partner bought them out knowing the business would soon be much more valuable because it would be featured on a cable TV show and didn’t tell them before the purchase was finalized. The plaintiffs accuse Chip Gaines of HGTV’s Fixer Upper defrauded them in the process.

The fiduciary duty between partners includes several different duties, including the duty to act in the utmost good faith and fair dealing, and the duty of loyalty. A violation of a fiduciary duty could be putting the individual’s interests over that of the business. A common type of breach of fiduciary duty occurs when a business partner learns of an opportunity in his work as a partner and takes advantage of that opportunity for his personal benefit without first notifying or receiving the consent of his other partners. Plaintiffs could argue that’s the case here.

The two former partners of Gaines in the creation of the Magnolia Real Estate Company claim he bought them out without telling them in 2013 that HGTV will be broadcasting the show nationally “and that the show would prominently feature the ‘Magnolia’ brand name,” reports KWTX. The show features Gaines and his wife renovating various properties (fixer uppers).

In the lawsuit filed in state district court in Waco, Gaines’s two former partners, lawyers John L. Lewis and Richard L. Clark, seek more than $1 million in damages and non-monetary relief. Gaines’ attorney told KWTX the lawsuit was “meritless” and that it’s “disappointing” to see the plaintiffs were trying to “take advantage of the hard work and success of Chip and Joanna Gaines.” Lewis, Clark and Gaines were equal partners founding the Magnolia Real Estate Company in 2007.

The lawsuit states,
• For their first six years, the company operated in Waco with a single real estate agent.
• Gaines worked out a deal with HGTV for the “Fixer Upper” program without telling his partners and that he planned on featuring the Magnolia brand name.
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photo-China-fueled-real-estate-boom-300x225One of Lost Angeles’ biggest real estate developments is small potatoes compared to other projects the developer has worked on in China. Metropolis, a $1 billion mixed-use project next to the 110 Freeway, is unprecedented for L.A. but familiar to Winston Yan. He’s an architect and executive for the developer, Chinese real estate giant Greenland and chief technical officer for its U.S. subsidiary. He told the Los Angeles Times, he’s seen similar projects in Beijing and Shanghai.

Los Angeles is familiar territory for foreign developers but none are building like the Chinese are today. Chinese developers including Greenland, Oceanwide and Shenzhen Hazens are spending billions in the city, adding thousands of residential units in skyscrapers that are fundamentally changing the city’s skyline.

Potential residents are not necessarily locals. Many future homebuyers are expected to come from China where many are looking to the apparent safety of foreign real estate to diversify their wealth. This trend has been increased by China’s slowing economy.

photo - partition refereeIf you are a part owner of a piece of real estate you may have disagreements with your fellow owners about what should be done with it. If these disagreements are serious enough the best option may be to sell the property and the owners can go their separate ways. One way this can be done is through a court ordered partition referee.

The referee’s job is to get past the differences and the problems the owners may have with each other and implement a court order to sell the property. He or she needs to determine the value of the property, sell it at a fair price and distribute the proceeds according to instructions by the judge.

Disagreements between the property owners may be caused by the property itself and what to do with it now and/or in the future or there may be other differences that spill over onto the property. Business partners or shareholders may disagree about the overall management of a company that happens to own some real estate.

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photo - OC home salesThe Orange County housing market continues to do well for sellers, buyers not so much. The Orange County Register reports that for the 22 business days ending February 9 the county’s median selling residential home price was $620,000, an increase of 8.8% compared to last year. There were 2,481 Orange County residential properties sold over the last year, an increase of 12.9% from the prior year ago.

To put this in perspective,

  • The nationwide average home value is $184,000 and through the end of January the median home price was $218,867, according to the real estate website Zillow. It states that the country’s home values have increased less than half the rate of Orange County’s increase, 4.2% over the past year.
  • Statewide 393,340 homes were sold in February 2016, up 6.4% from the same time last year, according to the California Association of Realtors (CAR). The state’s median home sales price in February was $446,460.

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photo - 3 defendants EB5 fraudThree corporate defendants found themselves in a situation where no one wants to be: trying to convince a federal judge they shouldn’t be held in contempt. The August 30 hearing in the U.S. District Court for the Central District of California is the latest chapter in a case brought by the U.S. Securities and Exchange Commission (SEC) concerning an alleged $27 million fraud scheme.

The money allegedly came from at least fifty Chinese nationals seeking eligibility for permanent resident status through the EB-5 investor program. It allows foreigners investing anywhere from $500,000 to $1 million in a commercial U.S. enterprise, saving or creating at least ten jobs in the process, to have legal status in the country for two years with the potential for permanent legal status in the future.

The Beverly Proton Center, the Pacific Proton Therapy Regional Center, LLC, and the Pacific Proton EB 5 Fund, LLC, through their attorneys told the judge they lack access to the Continue reading

photo - fraud remediesAn ongoing fraud case involving an apparently fake plan to build cancer treatment center located in Montebello, funded by Chinese nationals seeking to take advantage of the EB-5 visa program, is an example of investment fraud. Normally fleeced investors lose money. These individuals also lost an opportunity to obtain at least temporary legal residency status in the country as well.

Investors who have been defrauded can take legal action against those who have stolen their money. How difficult this may be depends on the facts of the case and the applicable laws, which could be state and/or federal laws. Common hurdles in these cases beyond carrying the burden of proving fraud occurred is finding where the money went and then getting it back.

If the allegations against Charles Liu, Xin Wang and three corporate defendants are true, this would be a case of fraud by intentional misrepresentation. While investors were told their Continue reading

photo - small bankConfronted with evidence of fraud by one of its employees, a small New York City bank did the right thing. They reported it to state banking regulators and provided prosecutors with more than 900,000 documents. Bank management later learned they were the ones being investigated and later charged with184 criminal counts. The story of Abacus Bank, as told by the New York Times, is a warning to any business where fraud is uncovered.

Abacus Bank’s six branches and 150 employees largely serve immigrant communities in New York, New Jersey and Philadelphia. Its founder Thomas Sung, is an immigrant himself. In 2009 his daughter Vera Sung, a bank director, reviewed documents at a mortgage closing and saw that extra checks were cut to pay the borrower.

She asked the loan officer, Ken Yu, about them and witnessed a heated conversation between Yu and the borrower. After talking with the two, Sung became suspicious and cancelled the mortgage. Yu was later fired and Abacus investigated all the loans Yu was involved in and tried to verify borrower information. After the investigation bank regulators were contacted.

The day of the closing started the bank’s five and half year trip through the criminal justice system. “We thought (prosecutors) were going to help us resolve a crime against the bank,” Vera Sung was quoted as saying. “We did not have an attorney early on. We cooperated with them, not realizing we were the target.”

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photo - easement implied licenseAn easement is a legal right by one party to enter and access another person’s property for a specific purpose. Because of such an easement, depending on the circumstances, you may be able to use property not belonging to you, or someone else may come upon your property and you would have no legal recourse to remove them. Two property owners became involved in a dispute over use of an easement which ended up in a California appellate court, which made its decision earlier this year.

An easement existed to provide access and utilities crosses an adjacent property via a driveway. Those owning the rear property improved the easement with pavement, plantings, irrigation and lighting. The owners of the front property did not object to this work and the improvements are maintained for many years. The arrangement worked well until both property owners sold their homes.

Greg Franc bought the front property, James Richardson bought the rear property. Six years after Franc bought the property, twenty years after the improvements were first put in, he demanded that Richardson remove the improvements. He cut electrical and irrigation lines along the driveway then had has attorney write a letter to the Richardsons demanding action. They responded with a lawsuit.

  • Franc claimed the improvements exceed the purpose of the easement (access for utilities and for the Richardsons) and the rear property owners never had express permission of the front property owners to make the improvements.
  • Richardson argued that the acquiescence to the improvements by the prior owner as well as the expense and effort in improving and maintaining the easement by both the current and previous rear property owners establish an irrevocable license to continue to maintain the easement improvements.

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2013_04_02__5058If you are a co-tenant in a commercial lease and the rent isn’t paid, can the landlord seek complete recovery from each of the co-tenants? The answer is no in one 2014 case, which found that once the landlord got a judgement for all the damages from one co-tenant, no further recovery could be made against another.

DKN Holdings LLC had a lease with three co-tenants, Faerber, Neel and Caputo for space at a shopping center in Murieta in 2004. The lease had a ten year term which stated all three parties had joint and several liability to pay the rent (any of them could be held liable for the total rent). Three years later the agreement was changed to increase the space leased.

Three months later Caputo sued DKN to rescind the lease due to fraud and other causes of action, setting loose counter claims by DKN against all three co-tenants. DKN sought rent payments from all three but served legal papers only on Caputo (by its actions deciding not to pursue the other two). In 2011, Caputo lost the case, DKN was awarded $2.8 million in damages and Faerber and Neel were dismissed from the case because they weren’t served with the complaint. DKN later sued the two seeking the $2.8 million.

Faerber asked the judge to dismiss the case, claiming DKN was improperly splitting the case. The judge agreed, dismissing the case and ordering DKN to reimburse Faerber for attorney’s fees. DKN appealed, but the appellate court upheld the trial court decision.

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photo - PPA comparisonPonzi schemes are fraudulent investment arrangements where instead of money being invested legitimately, it’s used to pay those engaged in the fraud as well as earlier investors. As long as the money continues to flow in, the scheme stays afloat. When the incoming money stops, since there was no actual investment, the scheme implodes.

The CEO of Irvine based Pacific Property Assets (PPA) Michael Stewart is facing eleven federal criminal charges at the U.S. District Court in Santa Ana. The charges claim that PPA changed from a legitimate real estate company into a Ponzi scheme, according to the Orange County Register.

  • Apartment rentals couldn’t cover the company’s costs so profits were made due to increased property values, allowing for sales at a profit and mortgage refinancing that reflected new equity in the buildings.
  • As the economy soured in 2008, the sales and refinancings dried up. That money was allegedly made up by obtaining money from investors through false claims about returns and collateral for loans.
  • By the time PPA’s operations ground to a halt and ended up in bankruptcy court in 2009, investors and banks holding mortgages were out about $115 million.

Stewart claims he operated the business in good faith and, like many other businesses, was simply the victim of a downturn in the economy.

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