Legal Question in Real Estate Law in California

Re: Real Estate Dilema

Stop and think: Why didn't your "friend" buy the property himself, particularly if he was going to make the payments? Likely he did not have the credit and could not qualify for the loan, AND/OR, he did not want to be responsible on the loan because if the payments are not made, then the person whose credit is ruined is the borrower--you. All agreements respecting real property must be in WRITING to be enforceable, and your agreement is verbal. You may still be able to sue him for fraud, etc., but it is likely that he cannot satisfy the judgment in any event. Worse, you may well have made false representations in your loan application to the lender; for instance, did you say you were going to live in the property? When there are false statements in applications to a federal lender, there can be serious consequences, both criminally and civilly. A lender has the ability to not only foreclose and take the property back, but they can also sue for a deficiency judgment if the property is not worth the amount owed on the loan. If I were you and were on title, I would get a locksmith to change the locks, take over possession and try to rent it out in order to cover the loan payment. Also, I would get new "friends."

Re: Real Estate Dilema

Your question was asked on Sunday 4/1 and a mortgage payment technically due that day could probably be made 4/2 without penalty. Further, I don't know how you determine whether a payment has been made on Sunday; it may have been made electronically and not yet posted, for example.

Nevertheless, this is a side issue. Whether or not this payment is made in timely fashion, you seem to be stuck in a deal that was unwisely made and is about to go very sour.

You have omitted a couple facts that would be useful to know. How much of a down payment did you make, if any? Who is the borrower on the loan (I assume it must be you)? What kind of lender is involved? Has the loan been "sold," so that payments would go to someone other than the original lender? Do you have title insurance? Does any written document reflect aspects of your deal with your friend, such as a loan application or escrow instructions? Who sold the house, and why? Are there tenants in the house, or is it vacant?

I am tempted to say that your deal is a partnership, and therefore the terms of the agreement don't need to be in writing, and the two of you would be in a fiduciary relationship. However, the deal seems to lack one essential ingredient of a partnership, the intention to share profits. If you are getting a flat fee of $10,000, this may knock your deal out of the partnership category. In some respects, you are better off if your relationship is NOT a partnership, but merely a contract.

Please note that some lenders will not accept payments from strangers to the loan (non-borrowers).

If you were indeed co-owners (joint tenants or tenants in common), the failure to give you keys would probably be considered an ouster and you would be entitled to regain possession under Civil Code 843 procedures.

OK, I think you are going to need a lawyer. The lawyer should gather all the facts, including the answers to the questions above, and then re-assess your legal situation. Probably the next step is for you and your lawyer to contact your "friend" and do a reality check, hopefully ending up with (1) misunderstandings straightened out, and (2) the terms of the deal reduced to a signed writing.

If this doesn't work smoothly, and I'd say the chance of that is less than 50-50, you may have to file suit to rescind the contract on the ground of fraud or failure of consideration. When a court declares the contract rescinded and void, you will be the owner (as you are now), but free of any lingering obligation to give up all the profits when the house is rehabbed and sold. You'll just be stuck with a mortgage payment, rehab costs and no $10,000, and you'll be in the real estate speculation business whether you wanted to be or not.

Re: Real Estate Dilema

I've read Ms. Deming's response to your question, and would like to add a few thoughts to my previous answer, which was shortened somewhat due to the LawGuru limit of 3,000 characters per answer posting.

She is 100% right about how this friend has taken advantage of you, and you ought to have been suspicious and so forth.

The requirement of a writing with respect to real estate deals only applies to agreements to transfer an interest in real property or leases for longer than one year (Civil Code section 1624(a)(3)), and a few other situations not applicable here. The only part of your deal potentially affected by the writing requirement is the part where you are to sell it and give up the appreciaton. If this is unenforcable, that would be to your advantage, it seems; you could theoretically sell whenever you chose and keep the profit, since the contrary provisions of your oral agreemment would be unenforcable.

However, there are many exceptions to the general rule requiring a written contract, and this deal very well may fall into one or the other. For example, when an oral contract is partly performed, as this one would be when the time to sell the house came, a court could find that part performance required your adherence to the terms of the oral agreement.

Further, if the court determined that the arrangement was a partnership, which I think would be an improper holding, but it could happen, then an oral partnership agreement would be found and enforced, including provisions relating to ownership and sale of the house. A house can become partnership property even though the partner who owns it "of record" does not execute a deed to the partnership.

Depending upon your personal circumstances and upon whether a careful analysis of the profit potential warrants it, I think your best strategy might be to get a lawyer to help you rescind the contract with the friend, in effect to boot him out of the deal, and bear all the costs and reap all the profits yourself. This might be the best way out of a bad deal even if the restoration and sale of the house isn't profitable, because there are so many potential problems of continuing to stay in this deal with a questionable friend.