REAL ESTATE AND LAND USE LAW UPDATE April – May, 2016 By Miles J. Dolinger, Esq. Court Awards $100,000.00 in Attorneys’ Fees Against HOA Member in Dispute About Short-Term Vacation Rentals. In Almanor Lakeside Villas Owners Association v. Carson, (6th Dist. 2016) 246 Cal.App.4th 761, the court of appeal affirmed a trial court judgment awarding a homeowners’ association (HOA) approximately $100,000.00 in attorneys’ fees. The HOA filed a lawsuit against an owner/member of the HOA in order to enforce $20,000.00 in fines and related fees arising from the member’s leasing of its two properties as short-term vacation rentals, which was prohibited by the CC&Rs. The member took the position that the short-term rental prohibition was not enforceable against him because it conflicted with another term in the CC&Rs that allowed certain lots to be used for commercial purposes. The owners also argued that strict enforcement of the short-term rental prohibition was unreasonable as applied to him because his properties were historically and currently used as “lodges”, that is, vacation rentals. The owner also argued, in the alternative, that his properties were entirely exempt from any use restrictions set forth in the CC&Rs, and he filed a counter-claim against the HOA for damages based on alleged lost rents. The trial court made a two-part decision: It held that the member’s “lodges” were generally subject to the CC&Rs, but that the short-term vacation rental prohibition, along with the related fines and penalties based on that prohibition, were not enforceable against the lodges because of the obvious conflict with the section in the CC&Rs that allowed commercial uses. Even though the court found that most of the imposed fines were not enforceable, it nonetheless determined the HOA to be the “prevailing party” that was entitled to an award of attorneys’ fees against the owners. The Court of Appeal for the Sixth District affirmed the trial court’s judgment on all issues. One lesson to be gleaned from this case is that even relatively small HOA cases that involve legal interpretation of CC&R language can be expensive to litigate, and that the attorneys’ fees provisions contained in most CC&Rs significantly raise the stakes. The court’s determination of who was the “prevailing party” entitled to attorneys’ fees could easily have gone the other way and been awarded against the HOA. One way to address this outcome is for the CC&Rs to include mandatory mediation and/or arbitration provisions, and for all parties involved to be open to compromise. Plaintiff in Wrongful Foreclosure Case Need Not Allege Any Specific Harm. Sciarratta v. U.S. Bank National Association, (2016) 202 Cal.Rptr.3d 219, is another in a series of wrongful foreclosure cases working their way through the courts of appeal. In this case, the borrower, Sciarratta, was foreclosed on after becoming $15,000.00 in arrears on a $620,000.00 loan. The
borrower brought a wrongful foreclosure action against the foreclosing bank and trustee, alleging that the entity that conducted the nonjudicial foreclosure sale on her home had no interest in either the underlying debt or the subject property. The applicable rule from the case law is that where a homeowner alleges that a nonjudicial foreclosure sale was wrongful because of a void assignment—the homeowner has standing to sue for wrongful foreclosure. (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919.) Under the facts of this case, Washington Mutual (WAMU) was the original lender/deed of trust and promissory note holder. WAMU assigned its interest to JPMorgan Chase Bank, and then on April 27, 2009, JPMorgan Chase Bank assigned its interest in the loan to Deutsche Bank. Then, on November 9, 2009, JPMorgan Chase Bank purportedly assigned its interest in the loan to Bank of America, which is the bank that ultimately foreclosed. The problem was that JPMorgan Chase Bank had already assigned all of its interest in the loan to Deutsche Bank, and so JPMorgan Chase had no interest to assign to Bank of America. The court thus held the assignment to Bank of America was void. The defendant nonetheless filed a “demurrer” (essentially, an early motion to dismiss), arguing that even if the assignment to Bank of America was void, the plaintiff’s complaint should be dismissed because it failed to specifically allege that plaintiff was harmed by the mistake, that is, the borrower would have defaulted and been foreclosed on anyway. The required elements for a wrongful disclosure case are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. The trial court agreed that specific prejudice or harm should have been alleged, and it dismissed the case. However, the court of appeal reversed, holding that no prejudice or harm needs to be alleged beyond the allegedly wrongful foreclosure itself in order to state a cause of action for wrongful foreclosure in the situation where the foreclosing beneficiary's interest is void. The court explained that, “[a] homeowner experiences prejudice or harm when an entity with no interest in the debt forecloses. When a non-debtholder forecloses, a homeowner is harmed because he or she has lost her home to an entity with no legal right to take it. If not for the void assignment, the incorrect entity would not have pursued a wrongful foreclosure....The critical issue is not the plaintiff's ability to pay, but rather whether the defendant's conduct resulted in the plaintiff's harm; i.e., a foreclosure that was wrongful because it was initiated by a person or entity having no legal right to do so; i.e. holding void title.” A City’s General Plan Amendment Eliminating Minimum Residential Density Requirements Is Not Exempt From CEQA. In People for Proper Planning v. City of Palm Springs (2016), 2016 WL 3005719, an affordable housing advocacy group filed a lawsuit challenging City of Palm Springs’s adoption of a general plan amendment (GPA) removing minimum density requirements for each residential development. The trial court ruled that the GPA was exempt from environmental review under the California Environmental Quality Act (CEQA), but the court of appeal reversed on this issue.
The lawsuit alleged that the GPA was “inconsistent with the General Plan and violates Government Code [section] 65863, which prohibits cities and counties from reducing residential densities or allowing residential development of any parcel at lower residential densities absent certain findings not made here,” and that the City violated CEQA by failing to conduct any environmental review whatsoever. The City argued that the GPA was categorically exempt from CEQA under the “class 5 exemption”, which applies to projects that “consist [ ] of minor alterations in land use limitations in areas with an average slope of less than 20%, which do not result in any changes in land use or density, including but not limited to: (a) Minor lot line adjustments, side yard, and set back variances not resulting in the creation of any new parcel; (b) Issuance of minor encroachment permits; (c) Reversion to acreage in accordance with the Subdivision Map Act. See CEQA Guidelines § 15305. The City found that the GPA was exempt because its “proposed change reflects past and current practice and retains existing density maximum standards.” The City maintained that the GPA would not result in any changes in land use or density because the City’s “past and current practices” were to not enforce minimum density standards, because the change retained maximum density standards, and thus, the GPA would not result in any significant change to current conditions, i.e. the GPA would not change the current environmental “baseline”. The trial court agreed with this rationale and denied plaintiff’s petition, but the court of appeal reversed. In pertinent part, it held as follows: While we agree that the physical environmental conditions in the vicinity of the project normally constitute what is known as the baseline … we do not agree that such is the case here. Once the City adopted the General Plan in 2007, the General Plan itself provided the baseline for future projects…Here, the City is required to accommodate its share of the regional housing needs. The 2007 EIR identified closed density ranges that met this requirement. By eliminating the minimum density, the Amendment will impact the availability of high density, low and moderate income housing because high density designated parcels may now be considered for low-density development. Thus, the Amendment lowers the average density for residential areas and changes the land use regulation to the detriment of every parcel designated as residential by the General Plan, potentially causing significant cumulative impacts on the City's stock of high density, low and moderate income housing. Moreover, permitting low density residential development in areas previously set aside for high density projects will necessarily reduce the range of housing types, prices and opportunities available in the City to the frustration of the General Plan's goal of facilitating a broad range of housing types….
Highlights of Proposals for New Santa Cruz County Commercial Cannabis Cultivation Ordinance At the May 10, 2016 Santa Cruz Board of Supervisors meeting, County staff presented their recommendations for a new commercial cannabis cultivation ordinance. Those recommendations were
informed by a report of the Board-appointed Cannabis Cultivation Choices Committee (“C4”), with follow up input by some of the Supervisors. The staff report can be found at: http://santacruzcountyca.iqm2.com/Citizens/FileOpen.aspx?Type=1&ID=1189&Inline=True (See page 459 to the end, which is agenda item 53.) The staff report is fairly complicated. (For example, it states that the C4 group voted on 84 different issues.) The main subjects of the proposed ordinance will include: minimum parcel sizes, maximum permitted canopy sizes, and zoning; setbacks; exceptions; taxes and fees; and license and registration requirements. The staff report stated that the overall goals of its recommendations are “to maintain the highest degree of protection for the environment, our neighborhoods and our citizens,” to implement the goals set by the Board, which are “neighborhood preservation, environmental protection and an adequate supply of medicine,” and staff “strongly recommended that parcels that are zoned solely for residential be excluded from all commercial cannabis cultivation.” (Emphasis added.) Also, the new Santa Cruz County ordinance will be designed to dovetail with new state licensing requirements and regulations under the Medical Marijuana Safety and Regulation Act (“MMRSA”). Staff believes that maximum canopy sizes permitted under the MMRSA are not appropriate for Santa Cruz County because our county is much smaller than other nearby counties and much smaller than other high cannabis growing counties like Humboldt and Mendocino. Here are some highlights of the staff recommendations for a proposed ordinance:
Cultivators in existence as of January 1, 2016 get some preferences, including smaller minimum parcel sizes, and “provisional licenses” that would give existing cultivators up two years to conform their operations to new requirements or move to a new location; In SU and TP zones, minimum parcel sizes of 1 acre (per C4 recommendation) or 5 acres (per Supervisors), with maximum canopy sizes of 1.25% of total acreage. (This translates to maximum canopy of 2,722 SF on 5 acres.); Maximum canopies of 5,100 SF on 5-10 acres and 10,000 SF on 10+ acres; In SU zones, maximum outdoor canopy sizes as follows: o Existing cultivators: 1-5 acres: 1,000 SF or plant count TBD; 5-10 acres: 2,000 SF or plant count TBD; over 10 acres: up to 5,100 SF o New cultivators: must be over 10 acres: 1% of parcel size, or maximum 5,100 SF; Cultivation in timber production (TP) zones should be reviewed with more discretion in order to preserve timber production value and consider special environmental conditions, such as geography, accessibility, water, and fire risk; Because existing space is limited in commercial and industrial zones (C4, M1, M2, and M3), indoor cultivation in those zones should be rationed with an eye towards the long-term economic impacts of losing commercial space that could displace other types of businesses that may bring more economic development and higher wage jobs. Staff is recommending capping total, combined square footage at 100,000 SF and total, combined canopy size at 22,000 SF in for these zones in unincorporated parts of the county; No commercial cultivation within the Urban and Rural Services boundaries; No commercial cultivation in the Coastal Zone plus one mile, with exceptions CA and A zones Written consent from property to cultivate; Written consent from all users of a shared well; Cultivator or manager must live in a permitted dwelling unit on site;
Water must be provided from an approved on-site source; Generator may not be used as main power source; Registration requirement during process of environmental review, adoption of ordinance, and transition to fully-regulated marketplace (maybe as an alternative to the provisional license concept).
What do I think? I have several clients with responsible, environmentally sensitive cannabis cultivation operations in the mountains (in SU and TP zones) who will be negatively impacted by the restriction on outdoor growing area and canopy size, and who may need to move their farms if they do not satisfy the minimum lot size that is ultimately adopted. (1 acre, 5 acre, or something in between.) On the other hand, I have other non-grower clients who own residential property and/or live in these rural areas and suffer some of the negative consequences of cannabis farms. These issues include: unknowing landlords who must deal with the consequences of illegal grows by tenants; excessive use of a shared domestic well; road overuse and damage caused by large trucks; excessive traffic by workers and couriers; anxiety about the risk of robbery, violent crime and the presence of additional "security" personnel. I am a land use attorney, and I generally support reasonable land use regulations for the common good. So I tend to agree that the County should try to protect non-grower residents from the negative impacts of this new industry, that the County should try to minimize negative impacts on the natural and human environments, and that a reasonable, balanced approach is to shift some of this activity out of rural residential areas and into ag, commercial ag, and industrial areas. Regulation of a new industry necessarily involves some trial and error, so I will keep an open mind. The County appears to be making a thoughtful, well-intentioned effort to address the numerous issues involved. The next step is for County staff to actually draft a proposed ordinance, which will then need to undergo environmental review under CEQA. So realistically, we are probably 9-12 months away from the Board of Supervisors adopting a new ordinance. There will be several more opportunities for members of the public to give input on these issues, so keep yourself informed, go to public meetings and submit comments.
©2016 Miles J. Dolinger. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship.
