Legal Question in Real Estate Law in California

Re: Seller grants easement to 3rd party while home in escrow

If I understand the questions correctly, the easement was granted and recorded in writing with the County after the property was sold to you but before escrow closed and you do not know whether the third party was aware of the sale and the title insurance company issued a final title report not showing an easement that had been recorded.

I may not be correct because of the complications, but it seems that you were not at the close of escrow a bona fide purchaser without notice of the easement. So the issue becomes when do you have to be a bfp, at the time of the contract or the close of escrow. I would think it might be at the close of escrow. But did the seller have the right to convey an easement when he knew he had agreed to sell the property to someone who did not know of the easement and would either not buy the property or not at that price if he knew of the easement. What he did was a fraud so could probably be set aside.

You should immediately contact the title insurance company because they appear liable for not catching the recording of the easement. They should work it out by paying the third party for the easement and then going after the seller. They should check to see whether the easement purchaser had notice of the sale of the underlying property. Also, is there anything in the CC&R's that prohibits easements?

Hopefully attorney specializing in real estate will also comment and correct any of my errors. You might want to take to the easement holder as to why they want to use it and what knowledge did they have when they bought it.

Re: Seller grants easement to 3rd party while home in escrow

You have an action against the seller. When did you discover the easement? Contact me directly 19 years experience.

Re: Seller grants easement to 3rd party while home in escrow

This sounds like a bar exam question on real property law. A couple of omitted facts would make analysis easier. First, was the easement recorded? If so, when? On the date it was granted, or later? Second, what was the date of the "later title report" you mention? Before the closing? Either the timely recording of the easement or its appearance on a title report before COE would be a problem for you; the first because the recording is notice to the world, and the second because it will probably be an exception to coverage under your title policy.

Did the seller have the right to grant the easement after contracting to sell the property? Almost certainly not! (Any situation I can dream up where the seller would have the right to do this would also require his prior disclosure of that right.) Do you have a remedy? That's more problematic, due to the statutes of limitations (e.g., three years for fraud, from the time the fraud was or should have been discovered).

Another item you don't mention is whether you acquired the property by grant deed or quitclaim. If it were a grant deed, then Civil Code section 1113 would apply, and the seller would be warranting that prior to the conveyance of the property, he had not conveyed the same estate, or any right, title or interest therein, to any person other than you. I am researching the limitations period on implied warranties of title and will get back to you on that.

I'm also thinking of theories upon which the easement itself could be declared void by a court, i.e., that by entering into a contract of sale with you, that the seller rendered himself powerless to convey an easement to another. There may be an argument along these lines based upon an "equitable conversion" of title or some such theory. Again, I'll submit a follow-up answer if I find anything of possible value.

Re: Seller grants easement to 3rd party while home in escrow

As I mentioned in my prior reply, I'm getting back to you with some additional research results.

I think your goose is cooked as far as sueing anyone for fraud, breach of the implied covenants in Civil Code section 1113, or the like; the statute of limitations for fraud is three years and for breach of an implied covenant in a grant deed (1113), Miller & Starr's treatise on California real estate law surmises that the limitation would be four years (3 Cal. Real Est. 8.10, 3rd ed.) but states that there is no clear authority and it might be as little as two years.

However, as I mentioned there is a theory in real property law called "equitable conversion" which holds that as soon as there is an absolute and unconditional contract for sale, the equitable title to the real property passes from the seller to the buyer; at that point the seller has (a) bare legal title and (b) a lien on the purchase money, and buyer has equitable title. I looked at about a half dozen cases to try to find one indicating whether a seller with bare legal title after an equitable conversion can convey an interest to a bona-fide acquirer without notice of the contract of sale (i.e., the alleged easement holder) but did not find one. I seem to recall that I have seen some decisions under which the deed or other instrument creating the easement would be absolutely void whether the easement holder was without notice or not, but I can't recall where, and unfortunately I can't devote any more time to research on a freebie.

If you end up hiring a lawyer, be sure to suggest the possibility that the easement grant is void under the doctrine of prior equitable conversion of the seller's interest.

Again, the controlling factors here are the sequence of events (in which you probably had record notice of the easement before the closing) and the passage of time. Your future attorney will need to go over the time line with you in detail.

Re: Seller grants easement to 3rd party while home in escrow

The seller retained title until escrow closed. A deed that is deposited into escrow is not considered delivered to the buyer until all the conditions of the escrow are met. If the conditions are not satisfied, the deed is not delivered and eventually the escrow is revoked.

While you were in escrow, title to the property remained in the seller. The seller had the power to grant express easements. An easement is not necessarily the same as a CC&R. Your title company should have provided you with a final title report, showing the easement, which is performed immediately prior to closing. If your title company failed to disclose the easement, and you are just now finding out about it, you must determine whether or not you have a claim under the title insurance policy.

Very truly yours,

Re: Seller grants easement to 3rd party while home in escrow

All these attorneys have given you useful information. Our CA attorney in Orange Co. is well versed in CA real estate law and can assist you with this if you wish.