Posted by hkCA on June 03, 1999 at 20:04:01:
Elmer,
So you’re the one spreading all the nasty rumors on this site. I just knew it couldn’t have been Bill! (lol)
hkCA
Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by Bill Gatten
Posted by Bill Gatten on June 02, 1999 at 16:31:59:
OK, here’s one for your L/O story collection. 'Involves two couples named Party X and Party Y and a Lease Option.
The facts (as they were told to me by party X about twenty minutes ago):
Once upon a time in a far away land… Temecula, California 06/02/99?
In 1997 (6/97) Party X Lease Optioned SFR to Party Y at $181,000 (they originally had signed and accepted a PACTrust™ offer, but decided on a Lease Option instead, due to an added $1,500 in costs of trust set up, documentation and Escrow… they did, however, insist upon title and hazard insurance…)
The Lease option expired six month ago on 12/98 (at which time the house was now worth $235,000 with a balloon payment on the first which is Due in August of this year)
At the termination of the option period, Party Y made no attempt to purchase or seek financing, as they had a BK on their record and wanted to wait out the two year requirement for obtaining financing. While they were waiting, they were subsequently hit with a bank Foreclosure on their former residence? a house they had owned prior to entering the L/O with Mr. and Mrs. X (which L/O they entered into order to reduce monthly house payments by $1,000). At the time of closing, Party X knew nothing of Party Y’s ownership of this other house or the Foreclosure.
In April of this year the subject property was placed on the market for sale. Party Y was notified of the impending sale and told they could buy the property for $15,000 under the appraised value, even though they hadn’t even tried to exercis their option. Party Y said OK and made an offer at that amount, which offer was accepted by Party X. However, Party Y was unable to qualify for a loan due to their BK and Foreclosure and a series of late credit card payments. The best deal they could get was a lender who would loan a max of $176,240 (75% LTV) due to the BK and Foreclosure?but, alas, they (Party Y) have no money (i.e., no credit, no cash and … warts).
Party Y goes to Joe Attorney who immediately ties the property up with a lis pendens and goes to court to sue for his clients right to purchase at the original option price ($181,000). Apparently a relative was willing to loan them (Party Y) what they needed for a down payment on the 75% deal if they could get the house for the $181,000 (the original L/O amount).
One Honorable (not to mention fair and equitable) Judge Kenneth Ziebarth, Temecula , Calfiornia, Riverside County, issued a judgement and award in favor of Party Y, declaring that Party X had entered the transaction with Y knowing about Y’s BK and has conspired to get the property back when Party Y leanred that they had another 6 months to go on waiting out the BK (even though it was clearly the Foreclosure, which happened later and the string of lates, charge-offs and repos that stopped the lenders dead in their tracks).
The Judge’s apparent rationale was that Party Y entered the L/O in good faith, and was told by Party X’s Realtor that party X wouldn’t mind a bit if they waited the extra 6 months to exercise their option (notwithstanding the fact that Party X had said no such thing). The Judge stated that since Party Y had the BK and the Foreclosure on the their records (not to mention the late payments), it was only logical that they would not be able to qualify and acquire the property on time, and that it was unfair of the Optionors to hold the Optionees to such a rigid contractual arrangement in view of their plight.
Party Y is now directed by court order to: A. sell to party X at $181,000, B. pay party Y’s court costs and legal fees of $13,000 (on top of their own $11,000 in attorney’s fees), C. repay party Y’s original $4,000 Option Fee ($3,660), D. repay to Party Y all monies paid to the Home Onwer’s Association over the time they were in the property, and E… repay all monthly amounts collected over Fair Market Rents (about $200 per month for the term of the agreement)
All this in addition to the fact that Party Y was late on their L/O payments by nearly 30 days five times, and that they were told by every lender they contacted that no one would touch them with the Foreclosure on their record.
Go figger. Does this sound like “The Night of the Living Mooches,” or what?
Best of everything.
Bill
Can site the title of the case? - Posted by Jim
Posted by Jim on June 07, 1999 at 05:29:06:
Bill,
Can site the title of the case?
Thanks
You sure he was a real judge? - Posted by hkCA
Posted by hkCA on June 03, 1999 at 17:36:42:
Bill,
Interesting story. I tried to get more info regarding this case but I ran into a roadblock: A list of active judges for the State of California as of February 1999 shows no judge by that name. You can research this at:
http://www.courtinfo.ca.gov/courts/trial/
Either I’m missing something or your source of info is flawed. If you can provide more details on how to get more in-depth information about this case, I think it would be of interest to everyone. Something sounds fishy here.
hkCA
Re: Here’s One The L/O Books. - Posted by JPiper
Posted by JPiper on June 03, 1999 at 13:15:19:
Bill:
Quite a story?..but I’m with Irwin?.I doubt if we know all the facts.
I would have to wonder just what Party X actually knew at the inception of this deal. Did party X ever pull a credit report? Because if they did, it would have revealed the bankruptcy. It would have further revealed the existence of a mortgage. Did party X never talk to party Y?.never take an application? Most applications ask questions about things like “has applicant ever filed for bankruptcy”. Applications ask questions regarding existing liabilities. Did party Y fail to disclose these items on an application? If party Y misrepresented himself on an application I suspect a court would have taken this fact into consideration.
Perhaps party X failed to run a credit report, failed to have an application filled out. Did that relieve party X from the responsibility for simple prudence that most landlords/owners would have exercised? My opinion would be that party X SHOULD have known about the existence of a bankruptcy and a mortgage?.and SHOULD have exercised at least some elementary care prior to entering into this contract. Further, there was a Realtor involved. The Realtor presented NO financial information on the prospective tenant? I don’t believe that one?..but if they didn’t wouldn’t the Realtor be open to a claim?
Did party X conspire against party Y? Party X evidently says they didn’t?.but it wouldn’t be the first time that an optionor DID conspire to defeat an optionee’s option?..especially when there a decent amount of money at stake. Did Party X inform their Realtor that they would accommodate an extension if needed? Again, we hear that party X didn’t do this?..and if so the Realtor made a false representation. This would give party X a claim against the Realtor.
I also agree with Rob. Courts can and do rule in ways that sometimes seem incredible. And along with Rob, I have referred to this many times. One wonders what type of contract was used here, how it read. One of the considerations that I believe is important (and for the lawyers here forgive me if I refer to this somewhat incorrectly) is what my attorney refers to as the laws of equity. Using one sided contracts that either give no rights to one of the parties, or remove much of what would be considered “fair and equitable” in a contract is almost always a mistake in my view?..and in the view of my attorney. Unfortunately, sometimes what we DO see are contracts that are totally one-sided, and totally unfair to one of the parties. When that party is deemed by the court to be unsophisticated, or if his attorney makes that claim, this can result in huge problems. Going to extreme lengths to make certain that a tenant/buyer understands the nature of an agreement, and that the agreement is equitable IS important?.ESPECIALLY if you end up in court.
Finally one wonders why party X is paying party Y’s legal costs. This is not the way courts operate here. “Loser pays court costs” is not a principle used here according to my attorney, a factor leading to increased numbers of lawsuits in my opinion. The return of option money and rent credits? I would guess that these are to be applied to the purchase. I DOUBT that a court would BOTH recognize a VALID option under these circumstances, and THEN require an action which would seem CONTRADICTORY to the basic nature of the option. If I were a betting man I would have to believe that you don’t have the full facts here?..but again, I have to agree with Irwin. IF ALL the facts that you have relayed are true, this would be an easy appeal in my view.
JPiper
Re: Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by Rob FL
Posted by Rob FL on June 03, 1999 at 12:21:09:
I think I had mentioned a few weeks back that when it goes to court, you can have your agreement, whether it be a mortgage, trust, lease, or whatever say anything it wants to, and depending on how the judge wants to interpret it that day he can say “I know your agreement says 2+2=4 and I know that the whole world knows that 2+2=4 but today I want 2+2=5. Have a nice day.” I guess this is why the courts are so clogged with appeals. So many judges who think that just because they passed the bar and were an ambulance chaser when in private practice, that now as a judge they are a general practicioner.
X’s story is full of holes. - Posted by Irwin
Posted by Irwin on June 03, 1999 at 07:05:28:
Bill:
How well do you know X? The reason I ask is that his story has some holes in it.
First, X said that the dispute apparently arose in April of this year. How could a suit, filed in April 1999 have been filed, pleaded, discovery completed and tried by June 2, 1999? I doubt that it’s possible anywhere in the U.S.
A lot of hours were spent by both attorneys considering the fees. When did CA adopt the loser pays fees rule? Or did the l/o option agreement call for the landlord to pay the tenants attorney fees in case of a dispute? That would be a pretty strange document.
How could Y pay $13,000 in attorney fees when he had to borrow $5,000 to cover the difference between the loan amount and his option price?
There could be any number of other reasons for a ruling that is this bizarre.
l. The judge was a) drunk, b) insane c) bribed d) prejudiced (in the extreme) against X e) all of the above.
2. X didn’t relay the same facts to you that were put in evidence before the judge. If the facts are really as X represented them, the he should have his attorney appeal this ruling, which is clearly in error and will undoubtedly be reversed by a court of appeals. Sure, it will cost X a lot of money, but so what? At the rate this property is increasing in value, an appeal would be a solid investment.
But again Bill, I’m very skeptical about this having happened the way it was told. I’d have to have been there myself in order to believe it.
Re: Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by Mark NrthCA
Posted by Mark NrthCA on June 03, 1999 at 04:56:55:
Hello Bill…
Just curious about how the PACTrust would have helped in this situation? I have read a little about the PACTrust but still dont understand all the positives and negatives of using it. Since I am interested in Lease Options was wondering if Party Y had used the PACTrust then what would have happened if anything?
Sincerely Mark
Alas…The Pacific Heights of Lease Options! - Posted by raelynn mitchell
Posted by raelynn mitchell on June 02, 1999 at 23:05:16:
Never thought I’d see anything worse than Pacific Heights! (Interesting thing…Pacific Heights movie setting is California, too.)
Re: Proof Positive… - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 02, 1999 at 17:24:46:
…that you can learn all you can about the law, get solid legal advice, do everything correctly, and still end up getting completely blown out of the water when the matter reaches court.
The judge, in essence, reduced the agreement to a lease at market rent and forced reimbursement of any other monies collected. However, he allowed the option to extend forever, with no consideration owed. One-sided judgement if I EVER saw one, and seems to ignore any legal rights of party X.
If you can avoid court through settlement, seriously consider it!
Stacy
Re: Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by FJW
Posted by FJW on June 02, 1999 at 17:14:01:
OUCH! And they call that the justice system.
Your summation is suppose to be all party X TO Y, right?
Why didn’t X refuse L/O and find someone else for PACTrust? Also, I must be missing something…Couldn’t $3660 be used to set up PACTrust?
FJW
Re: Can site the title of the case? - Posted by Bill Gatten
Posted by Bill Gatten on June 07, 1999 at 13:56:34:
Jim.
I’m reposting the information today (the more refined version)… as it’s such an interesting case, that everyone should know about it.
I wasn’t given the case number, but it was adjudicated in arbitration by Judge Kenneth Ziebarth, Ret. (who is still sitting… in San Juan Capistrano, Ca.). The case was handled in San Bernardino, Ca. and recorded in Riverside County, Ca. and is still winding down. The judgement was for the Optionor being forced to sell the property to the Optionee at the original option price, even though the Optionee had clearly failed to exercise the option when it was due (12/98). The judgment also included reasonable attorneys’ fees. The attorney for the plaintiff was the firm of Tyler and Dorsa in Temecula, Ca., and the attorney for the def. was Kimball, Tyree and St. John in San Diego. It also now appears that the Optionor is going to have to refund all monies the Optionees paid out over the term for HOA Dues and Hazard insurance, because such costs were not enumerated as obligations in the original agreement.
Bill
Re: You sure he was a real judge? WELL…NO… - Posted by Bill Gatten
Posted by Bill Gatten on June 03, 1999 at 19:41:57:
The guy is apparently an Arbitrator and not a judge.
Did you ever post something on CRE and wish to h*** you had thought about a while first?
Elmer Jorgenson
(Who never heard of anyone named Bill Gatten, BTW)
Re: NOW I LOOK STOOPID. JUMPED TOO FAST. MOVING TO SAMOA. - Posted by Bill Gatten
Posted by Bill Gatten on June 03, 1999 at 19:13:19:
Jim,
You are right. I jumped too quickly on this one. There wasn’t near enough time for her to have gone through all of this; and certainly California is not a loser pays all state (though I would vote for it to be in a gnat’s blink).
I’m packing up and leaving. Reputation shot.
Bill
Sorry…
Bill
Re: X’s story is full of holes-I AGREE. - Posted by Bill Gatten
Posted by Bill Gatten on June 03, 1999 at 18:52:01:
You know…you’re absolutely right!
I hadn’t thought about it long enough before I posted. Forgive me. The lady called in a huff, and told me the story amid choking paroxysms of grief, and I thought: Man! I gotta get this baby posted… I’m really on to something here.
Of course, the loser doesn’t pay attorney’s fees in California (though if they did, there’d be a lot less litigation); and of course there was not nearly enough time for all of the legal action described to have transpired. All points well taken (and I so hoped this would bring me popularity and notoriety… dag nab it!).
The broker involved in the deal was supposed to have called me yesterday and didn’t…I’m beginning to smell a needle in someone else’s woodpile here (for lack of a better mixed metaphor).
Bill
Re: Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by Bill Gatten
Posted by Bill Gatten on June 03, 1999 at 19:36:26:
However,
One benefit of the PACTrust™ (were this to have been a real deal, anyway) is that the parties can’t screw around with each other like this re. litigation issues: as the Corporate 3rd Party Trustee holds full legal and equitable title. And within the contract there is clearly no “Option to Purchase,” no “Bargain Buy-Down,” no “Bargain Buy-Out,” no “Option Fee,” and no consideration for the Resident Beneficiary to do anything but lease the property on a triple net basis for a specific term.
In a PACTrust™, the Resident can’t claim an Equity Position or a Promised Equity position in order to thwart or forestall Foreclosure or Eviction. Neither would it ever be in a position to put the seller in this kind of a spot (re. being forced to honor a forgone “Option Date”).
At the end of a PACTrust™ Agreement the property is sold by the Trustee. Period. If the resident beneficiary wants to stay in it, he has to qualify for a loan and buy it (first refusal) for FMV less whatever the trust owes him at the time. Otherwise it goes on the market and is sold (by the trustee) to anyone who will pay Fair Market Value as agreed upon by the beneficiaries. If they were not to so agree, then it is agreed that an MAI appraisal will be ordered and paid for by the dissenting party; and it is further agreed that the beneficiaries will use that appraisal as the asking price).
Bill
Re: Here’s One The L/O Books. Lunatic Goof-Ball Attains Judgeship in CA. - Posted by Bill Gatten
Posted by Bill Gatten on June 02, 1999 at 19:26:23:
Yup… less.
Its just that in the begining of every transaction all the faces are bright and shiny and everyone is on the Love Boat together. It’s only later that things start getting ugly, and they begin wondering why they didn’t buy the insurance policy.
Bill