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Short Sale Process

October 30, 2014 by Realty411 Team Leave a Comment

A short sale occurs when a borrower sells a property for less than what they still owe on their mortgage. The lender forgives the remaining balance on the loan when the house is sold. Both the borrower and lender avoid going through the formal foreclosure process by using this type of sale, although it may have a negative effect on the borrower`s credit, in a similar way to that of a foreclosure.

Find an Agent

Lenders traditionally require a real estate agent in a short sale transaction. The borrower must first find an agent to start the process. Since short sales are more complicated than typical real estate deals, the seller should look for agents who have experience in short sales in the home market. Errors could cost the borrower the short sale, as the lender`s requirements and deadlines must be met for final sale approval.

Prove Eligibility

The borrower must show that they can`t pay their mortgage to get short sale approval. Eligibility guidelines for a short sale vary by lender and loan type, but the borrower usually has to document their inability to pay the mortgage to get lender approval.

The agent and seller prepare a package to submit to the bank. The short sale package usually includes a formal authorization letter, which lets the agent talk to the lender and a financial statement from the seller. The seller has to provide pay-stubs, income tax return copies, bank statements and a letter explaining their financial hardship.

The agent will include a list of recent sales of similar properties in the area or a local market analysis. They are also responsible for submitting a preliminary closing statement that shows the itemized costs of the sale, such as title expenses.

Find a Buyer

The seller, along with their agent, is responsible for showing and marketing the home in a short sale. They must find a buyer within the time period the lender has approved, such as six months. If the seller doesn`t find a buyer and complete the deal before time runs out, the lender may go forward with a foreclosure.

Offer Acceptance

Once a seller accepts an offer, the agent must prepare the paperwork necessary to confirm the terms of the deal between the buyer and seller and submit the offer for approval from the lender. Exact requirements differ by lender, but the agent usually has to provide the buyer and seller`s purchase agreement and proof of the buyer`s financing, such as a pre-approval letter from the buyer`s bank. The agent must submit the lender`s short sale package with a set of forms the lender requires to approve the sale, at the same time.

At this point, the ball is in the lender`s court. The lender has its own internal approval guidelines regarding short sales. The buyer and seller must wait for final approval. Depending on the lender, approval can take weeks or months. Once the lender issues the short sale approval letter, the deal can close.

A borrower who is thinking about a short sale should try to save their home first. Debt information services, such as nationaldebtrelief.com, may help a borrower who is struggling with a lot of unsecured debts, such as credit card bills.

Making Your Home or Rental Eco-Friendly

October 30, 2014 by Realty411 Team Leave a Comment

Creating an eco-friendly home or rental is all about conserving energy and reducing the amount that you use. Not only will an eco-friendly home save you money on utility bills, but it will also increase the overall value of your home if you ever decide to sell.

Home Energy Audit

If you are really concerned about conserving energy in your home, consider having a home energy audit. Depending on your budget, you can either conduct the audit yourself or hire a professional to do it. Having a home energy audit will essentially locate all of the areas in your home that don’t conserve energy as well as they should. This includes everything from air leaks and insulation to appliances and electrical systems.

Heating and Cooling Systems

Invest in an efficient heating and cooling system and keep up on maintenance. It’s likely that half of the energy used in your home is for heating or cooling purposes. The more efficient your systems are the less energy will be wasted when you are heating or cooling your home. Having central heating and air is by far more efficient than baseboard heaters and window air conditioners. To keep your systems running at their best make sure to schedule regular air conditioning and heating maintenance services.

Efficient Windows

Upgrade windows-old windows are often single pane and aren’t well sealed. Upgrading the windows on your home can have a huge impact on its overall efficiency. Energy efficient windows, while a little pricier, allow less heat to escape in the winter and prevent heat from coming inside during the summer. They also help to reduce glare from sunlight.

Skylights

Skylights provide more natural light so you won’t have to use as much electricity when it comes to lighting your house. There are a lot of different options and price ranges when it comes to skylights so do some research to decide what is best for you home.

Low-Flow Toilets

Low flow toilet systems-Low flow toilets are becoming the standard when it comes to bathroom needs. If you live in an older home, it is likely that you are literally flushing money down the toilet. Some older toilet models use up to 3.5 gallons of water per flush while low flow models use 1.6 gallons or less. Considering the cost of water, low-flow toilets can save more than $110 a year according to the United States Environmental Protection Agency.

About the Author:

Jason Wall is an HVAC technician with over 23 years of experience. His free time is usually spent watching a baseball game or grilling up some steak. He writes for Griffith Energy Services which provides air conditioning services and heating maintenance.

What is Real Estate Wholesaling?

October 30, 2014 by Realty411 Team Leave a Comment

Real Estate wholesaling is a highly lucrative but low risk way to invest in the real estate market. Wholesaling enables you to make quick cash profits from a property without actually ever having to take ownership of it. Wholesaling is as simple as finding an appropriate property; getting it under contract and then assigning it to one of the cash buyers you have waiting for your latest deal. With wholesaling you never have to get financing, deal with banks or manage the property.

Finding Cash Buyers

The quality and size of your list of cash buyers will be crucial to your success as a real estate wholesaler. By having a good sized list of cash buyers, you will be able to quickly wholesale your property and move onto your next deal. You can negotiate with confidence when you locate a property to buy, because you know you will be able to easily wholesale it for more money.

There are different types of cash buyers who will be interested in buying your property for cash. The most common type is rehabbers, who will take the property, renovate it and then sell it for closer to its market value. Another group is income investors, typically with large rental property portfolios who are looking to add new properties.

One of the easiest ways to find cash buyers is to place an advertisement in your local newspaper which states that you have a property for sale for under market value and is perfect for renovation. Make sure to include your phone number.

When a buyer calls, take their details including their name, phone and fax number, and email address. Add these details to your database so that you are easily able to contact them when you find a property to sell.

If this is your first deal, then obviously you won’t actually have anything to sell them right now. Instead, tell the cash buyers that the advertised property is gone, but that you are working on another deal. Ask them if it would be ok if you called them when the details are finalized. Because they are in the market for discounted properties, they will almost always agree. Remember, by locating properties at below market prices, you are performing a valuable service for them.

Locating Discounted Properties

The next thing you will need to do is find discounted properties. The key to finding discounted properties is that the current owner must be motivated to sell. A motivated seller will want to get rid of the property as soon as possible. Common motivations include needing to relocate for a new job, a death in the family, divorce, financial pressures, or landlords who no longer want to manage a property. It is important that there is equity in the property because they need to be able to offer it to you at a price below market value.

To find these motivated sellers you need to have a systemized marketing strategy. Your marketing strategy is what will bring the motivated sellers to you. This marketing strategy must be executed on a consistent basis so that you have steady stream of leads. If you do this, you will find that you have no problem in finding potential leads.

Here are some strategies you can use to find motivated sellers:

Direct Mail Advertising: Direct mail advertising is an excellent way to find motivated sellers if you have a small budget to work with. You can purchase a list of property owners and have your mail delivered to only people on that list. On the post card you will explain that you are cash buyer and to contact you if they are interested in selling.

Bandit Signs: Chances are you have already seen a bandit sign before. They are usually yellow and say things like “We buy houses for cash, 555-5555”. To be successful with bandit signs you need to be persistent and place your signs in as many places as possible. That said, be aware of local laws restricting where you put the signs.

Classifieds: Classified advertisements in your local newspaper or in websites like Craigslist are a low cost way to find potential sellers. This type of marketing doesn’t usually bring in a huge amount of leads, but if you run your ad consistently, it will deliver results.

The Contract

In order to lock up your deal you need to have your motivated seller sign a sales contract. On the line where it says to place the buyers name you want to put “and/or assigns” after your own name. This will allow you to assign it to your cash buyer later on.

You will also need to place down a cash deposit to make the contract binding. You want to have this as low as possible, so that you don’t have a lot to lose if you are unable to find a buyer for the property.

Simultaneous Closing vs. Double Closing

The two main ways of closing a wholesale real estate deal, are the Simultaneous Closing and Double Closing. To describe the difference between these types of closing, we will use an example:

Party A: Is the current owner of the property
Party B: Is the wholesaler (you)
Party C: Is the cash buyer

Double Closing: With double closing, you (party B) will you use your funds to purchase the property, then immediately after the purchase, initiate a transaction between you and party C, which closes out the sale. So the process goes:

A–>B Property is purchased using your funds (cash or borrowed)
B–>C Property is immediately sold to the cash buyer

Simultaneous Closing: With a simultaneous close you will ask your cash buyer to wire the funds into the escrow account of the title company you are using. Here party B will use party C’s funds in order to close the A –> B transaction. At the exact same time B –> C transaction is closed also using the funds in escrow.

This is possible because when the title company prepares the two closing documents, they will see that there are adequate funds to close the property. This means that you do not personally need to wire any money into the escrow account.

While simultaneous closing has obvious advantages, it has become more difficult due to new laws and some title companies restricting this type of closing.

Conclusion

Wholesaling real estate may appear complex at first but you will find the process is actually relatively simple once you have conducted a couple of transactions. It also requires minimal capital and risk, compared to traditional real estate investing.

The Credit Crisis: From Asset Deflation to Inflation

October 30, 2014 by Realty411 Team Leave a Comment

asset inflation — © puckillustrations/Fotolia

Since the official start of the ongoing Credit Crisis (www.thecreditcrisis.net) back in the Summer of 2007, real estate values have experienced wide ranging price swings. With real estate investments, the primary cause of a “boom or bust” cycle for property values is typically related to the available supply of money to get us in and out of the deals as quickly and efficiently as possible.

When money is tight due to higher rates and more challenging bank underwriting guidelines, then property values tend to fall. If money is easier when interest rates are lower and underwriting guidelines are more flexible, then home prices tend to rise in value.

After 2001, the Federal Reserve allegedly attempted to try to stimulate the U.S. economy, housing market, and stock market by taking short term interest rates down to 1% over the next few years. As a result of the low short term rates, adjustable rates and sub-prime credit mortgage loans amortized up to forty (40) years became quite popular between 2001 and 2007.

As a result of the combination of interest rates near historical lows in 2002 through early 2007, home values increased significantly in most parts of the USA. In fact, many home values actually doubled in price during the period of just a few years. Many investor “flippers” were buying, fixing, and flipping homes to other home buyers or investors while pocketing tens to hundreds of thousands of dollars of profit for just a few months of work.

Derivatives: When Trillions Later Equal Zero or Negative

Regardless of the alleged reasons for the start of the Credit Crisis, defaulted sub-prime mortgages represented less than 1% of all non-performing loans worldwide. The bulk of the non-performing debt was related to derivatives such as Credit Default Swaps (CDS). A CDS is really just a “glorified bet” in that the seller of the CDS will compensate the buyer in the event of a loan default or “trigger event.” As such, a CDS is a kind of a hybrid of an insurance and financial instrument.

At their supposed market peak, derivatives like CDS, Interest Rate Options Derivatives, and other complex financial instruments which “derive” (hence the “derivatives” name origin) their perceived value from underlying investments or financial bets such as the future directions of interest rates, reached a potential market value of over $1,500 trillion. This alleged $1,500 trillion value of primarily unregulated derivatives dwarfs all other assets worldwide combined by a multitude of times.

When the value of the derivatives began to implode after less and less buyers of these complex and risky investments wanted to take the risk to buy them, then the Credit Crisis began to worsen shortly after August of 2007. In fact, multiple large banks, investment banks, and insurance companies either completely imploded or were on the verge of collapsing prior to any government or Central Bank bailouts partly because their investments in non-performing derivatives exceeded the combined value of all of their other investments at the time. Additionally, many banks only had a tiny fraction of cash assets on hand as compared to their derivatives investments exposure.

As the financial markets began to “freeze up” due to the imploding and seemingly worthless trillions of dollars of derivatives, then lenders began to figuratively “slam their brakes” on making loans to consumers and small to medium sized businesses. This lessened supply of available capital coupled with the near insolvency of many of the largest U.S. financial institutions, led to much tighter underwriting guidelines and higher interest rates.

Just a few years prior to the official start of the Credit Crisis in 2007, the Federal Reserve had raised short term interest rates a total of seventeen (17) separate times in just a matter of a few years trying to possibly artificially suppress the rampant appreciation of home prices. This rapid escalation of home prices was related to the incredibly low interest rates and much more flexible and easy loan qualification guidelines back then with loan products such as “No Doc”, “EZ Doc”, “Stated Income”, “Stated 5/1 Fixed”, “Option Pay ARMS” (adjustable rate mortgages with upwards of four (4) + monthly payment options), and credit lines or 2nds up to very high combined loan to value ranges (CLTVs) without any proof of income in many cases.

Tragically, many U.S. homeowners who chose adjustable rate mortgages for their first or second mortgage loans, their monthly payments may have later recast or doubled in payment amounts after their underlying adjustable index rates increased significantly in the final few years prior to the 2007 start of the “Credit Crisis” which only worsened in the Fall of 2008. In fact, the near financial implosion of the world’s financial markets during the week of September 29^th, 2008, as even stated by Fed Chairman Ben Bernanke in front of Congress in the Spring of 2009, was perhaps the most critical and notorious week in the history of world financial markets.

As mortgage payments began to increase or double in payments, foreclosure filings then increased significantly across America. More foreclosures, in turn, led to declining property values in neighborhoods nationwide, and the deflationary asset spiral worsened in 2008, 2009, and 2010 as median priced home values declined by 30%, 40%, and 50%+ in both prime and not so prime areas, unfortunately.

Japan vs. the USA: “Pop” goes the Asset Values

In the 1980s, Japanese real estate values skyrocketed partly due to a booming export industry related to lots of high tech gadgets. As the insanity of the market peak reached the upper limits in the 1980s before the Japanese real estate bubble went “pop”, the Imperial Palace (the Emperor of Japan’s main residence situated on over 1.3 square miles) was once valued by some financial analysts as being worth more than ALL real estate combined in the state of California during the same time period.

This comparison of all combined California real estate values as compared with only a 1.3 square mile Imperial Palace region in Tokyo is quite shocking when one considers all of the prime and expensive coastal real estate between San Diego and San Francisco which includes affluent regions such as Malibu, Pacific Palisades, Huntington Beach, Newport Beach, La Jolla, Santa Barbara, Big Sur, Carmel, and other expensive regions along the not so cheap California coast.

During the “Japanese Asset Price Bubble” time period between 1986 and 1991, stock values on the Nikkei index rose tremendously too. The asset bust which followed the “Asset Price Bubble” lasted for more than a full decade as both stocks and real estate values plummeted during this “Lost Decade.” Just like here in the USA, Japan’s financial leaders tried to take their interest rates as close to zero as possible in order to try to stimulate the stocks, bond, and real estate markets once again.

The Nikkei 225 stock index for the Tokyo Stock Exchange, which is Japan’s version of the U.S. Dow Jones index, hit an absurdly high level of almost 39,000 on December 29, 1989 during the peak of the Japanese Asset Bubble Boom. On March 10^th, 2009, the Nikkei index fell to a low near just 7,000 which is almost 82% below the market peak almost twenty years earlier in 1989. In early May 2013, the Nikkei index is closer to 14,000.

As a comparison to the boom and bust cycles of the U.S. stock market in recent years, today’s Dow Jones index levels are in the 15,000 range. It was just a few years ago back on March 9, 2009 that the Dow reached a Credit Crisis low of 6,443. How in the world did the Dow Jones more than double in value with a weak job market? The answer is called “Quantitative Easing.”

Japanese home prices increased approximately 160% over the period of just six (6) years shortly before their housing bubble burst in the early 1990s. By comparison, the median priced home in the United States appreciated almost 130% over a similar six (6) year time period between 2000 and 2006. It was the combination of cheap and easy money which helped fuel both housing booms.

Our ongoing six (6) year long Credit Crisis (2007 – 2013) has potentially been even more severe of a market downturn than even The Great Depression (1929 – 1939). As it pertains to real estate values back near their market peaks in 1929, after years of “The Roaring 20s” economic boom which boosted both stocks and real estate prices, home values only fell about 26% during the depths of the economic depression in the 1930s.

A major reason why home values did not drop as much as the 30% to 50%+ market drops from their peaks in recent years is that homeowners in the 1920s typically had to invest 50% down payments in order to qualify for a 5-year mortgage which ballooned or came all due and payable in 60 months. In the earlier years of this 21^st Century, 100% loans were very popular so the banks usually had more financial exposure and risks associated with residential properties.

If the property values appreciated significantly shortly after the acquisition of the home, apartment building, or industrial storage building, then the property owner kept all of the future equity as profits. On the other hand, if the values dropped so significantly at a later date and the mortgage debt exceeded the current property values, then many property owners just “walked away.” The rampant escalation of foreclosures nationwide, in turn, then led to massive price declines for homes, raw land, hotels and motels, office and medical buildings, and other types of properties.

Here Comes Inflation to the Rescue

The past several years, many economists have whispered or shouted “We don’t want the USA to go into a deflationary spiral like Japan back in the 1990’s.” Japan’s peak boom real estate prices and subsequent bust was equivalent to about a 64%+ price decline. In turn, American peak real estate prices fell 30 – 50% + for many homes, and upwards of 1,000%+ price declines for many land deals during the ongoing Credit Crisis.

What is the antidote to a deflationary asset spiral? The answer is INFLATION. How does America, and other nations worldwide, help create more inflation for asset prices like stocks and real estate when wages are either stagnant or continuing to decline right along with seemingly higher unemployment figures? One of the main answers is related to taking interest rates down toward near ZERO levels like they also have tried in Japan.

When 30 year mortgage rates hover in the 3% and 4% rate ranges right along with 5 to 10 year fixed commercial property mortgages (i.e., apartments, industrial, office, retail) for prime properties, then borrowers may better qualify for much higher loan amounts. Increased loan amounts then, in turn, leads to increased sales prices.

The numerous financial bailouts and strategies implemented by the Federal Reserve, and other Central Banks worldwide, along with various governments have tried to create even more money “out of thin air” in order to both try to drive interest rates downward even more as well as try to increase asset prices. Programs such as “Quantitative Easing” (or “create money out of thin air to buy up stocks, bonds, and real estate mortgages”) have succeeded in driving up the U.S. Dow Jones stock index above 15,000, gasoline prices up to $4 to $5 + partly since oil is traded in “Petrodollars” (“Oil for Dollars”), and increased inflation for consumer goods like groceries, clothing, and other items right along with home prices.

Buy Discounted Assets with Cheap Money, & Let Inflation Improve their Values

Between 2012 and 2013, home prices have increased between 6% and 30%+ in various regions of the USA due to the near record low mortgage rates, declining supply of available homes for sale partly due to many 3^rd party investors purchasing the foreclosed properties before they become available for sale to the general public on the MLS (Multiple Listing Service), and more motivated individual and institutional investors in search of finding yields greater than their negative net returns offered by their banks’ savings account rates now.

Inflation and deflation are both “double edged swords” depending upon which side one may be on today. For example, a U.S. Dollar created one hundred years ago in 1913 was worth a true Dollar. That same U.S. Dollar, after factoring in 100 years of inflation, may now be worth just 3 to 4 cents, sadly.

On the other hand, the median priced home in the U.S. back in the early 1950s was worth approximately $17,000. Depending upon the location of that same home today, it may now be worth $200,000 (inland) to $1 million + (coastal). While inflation may be the enemy of a currency, it may also be a great ally and friend to investments like real estate.

After the Great Depression ended in 1939, those savvy investors who had either cash or access to cash were able to find some exceptional real estate investment deals for a fraction of their market values just a few years later. Many families were able to create the bulk of their families’ generations of wealth by buying their discounted investments either during the depressed economic time periods or shortly thereafter.

Let’s hope that the financial markets continue to improve so that more real estate investors will soon benefit as well just like so many investors have in the U.S. stock market in recent years as the Dow Jones has more than doubled in value since early 2008 in spite of a questionable economy. Historically, commercial real estate cycle booms tend to follow the recovery of residential real estate by 12 to 18 months so hopefully commercial real estate recovers much sooner as well which may then help improve our job market.

Author: Rick Tobin

Look for Rick’s ebook on Amazon Kindle: The Credit Crisis Deals: Finding America’s Best Real Estate Bargains.

Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date.

Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.

You can visit Rick Tobin at RealLoans.com.

Reesio—Where Innovation Meets Practicality

October 30, 2014 by Realty411 Team Leave a Comment

Reesio, along with some of the most valuable partners in the real estate industry, invites you to attend RealTech SF 2013. Taking place on April 30^th at the Fairmont Hotel in exhilarating San Francisco, this event is a must-attend- affair if you want to be in the know about the new and savvy real estate technology trends and products. With an amazing line up of guest speakers, to include Paul Levine, the CEO of Trulia, Kathleen Philips, General Counsel at Zillow and Steve Pacinelli, the Vice President of Real Estate Events at Realtor.com, as well as many more, this event is the equivalent to any of the humongous tech exhibitions held around the world, but is specifically for those in the real estate industry: real estate agents and brokers, real estate investors, real estate appraisers, mortgage companies, real estate inspectors…anyone involved in any of the real estate transactions you may conduct on a day-to-day basis.

Reesio was designed BY real estate agents FOR real estate agents, which is just one reason why you would be doing yourself and your clients a great disservice if you do not take the time to find out what Reesio can do to save you time and money. What happens when you save time and money? You make more—plain and simple. And that is what Reesio will do for you.

Reesio has developed a comprehensive solution to the mounds of paperwork and time-consuming tasks that bog down everyone involved in any type of real estate transaction. Investors, agents, home buyers and sellers, and everyone else involved in the process, from appraisers to inspectors to lenders will benefit from what Reesio has to offer.

reesio team — Reesio Team: Jonathan Mui, Uyen Tran, Mark Thomas and John Irving Dulay

Founded by Mark Thomas, Uyen Tran, and Jonathan Mui, these entrepreneurs have put together a development team with skills particularly relevant to the real estate industry. They saw the need, recognized the antiquated and cumbersome system currently in place and developed the technology that will change the way the real estate industry does business; the way you do business.

The Reesio dashboard enables you to do away with your Dropbox, Evernote, E-Signature and excess Email accounts. From the Reesio dashboard you can send messages, store and share an unlimited number of documents and even set up tasks for yourself and others to complete. Gone will be the never-ending telephone calls to ensure everything is getting done in a timely manner. Everything is centralized and in one place with the paperwork automatically tagged for a specific transaction and with you in total control as to who has access to what and when. To put it really simply: Reesio is like having a really efficient office assistant…one that is ALWAYS at work, ALWAYS on time and ALWAYS on top of what needs to be done.

In fact, how many times have you said to yourself “There are not enough hours in the day.” or “I’d give my right arm to have a clone.”? Consider Reesio your “mini-me”. Reesio saves, on average, 19 hours on every single real estate transaction you complete. What could YOU do with 19 extra hours today, tomorrow and every day thereafter? Most of Reesio’s clients use this extra time to generate more income, while others choose to take life a little bit easier by making time for the family, getting a weekly massage or pursuing a hobby that makes them happy. Whatever you do with the time and money Reesio saves you—is up to you. The point is this: Reesio frees up time that you would not otherwise have; time for whatever you choose to use it for!

Reesio is, simply put, an automated solution for all parties involved with buying or selling a property and is ridiculously affordable! You can even try it for free! After your test drive, you then have the option to pay monthly; canceling your subscription at any time, or you can save even more by paying annually. And there is absolutely no limit to the number of documents you can create, upload, share and e-sign, or to the number of people you can include in the process.

Get started for free here https://www.reesio.com/, or sign up to attend @ https://www.reesio.com/realtech.

Prescriptive Easements in California

October 30, 2014 by Realty411 Team Leave a Comment

Introduction

Imagine discovering one day that your neighbor, a complete stranger, or even the public at large has acquired the right to use part of your property without paying you a dime. Through what is known as a prescriptive easement, over a period of time others could gain the right to access, cross, or otherwise use a portion of your land without your consent. The rationale behind prescriptive easements is that long-time users of property can acquire a legal interest at the expense of property owners who have slept on their rights.[1]

Elements of a Prescriptive Easement

In California, a user of land may establish a prescriptive easement by proving that his or her use of another’s land was: (1) continuous and uninterrupted for five years; (2) open and notorious; and (3) hostile.[2]

The first two requirements are relatively straightforward. “Continuous” use means that the use occurred over a five-year period on occasions necessary for the convenience of the user. In some circumstances, even occasional or seasonal use is sufficient.[3] For example, one court granted a prescriptive easement over a road that was used to access hunting grounds only during hunting season.[4]

Use of property is “open and notorious” when it provides actual or constructive notice to the owner.[5] This means only that the use of the land is sufficiently visible that anyone who bothered to view it would be able to discover it. Generally, the use will be considered “open and notorious” so long as it is not hidden or concealed from the property owner.

In most cases involving prescriptive easements, the most difficult element to prove is hostility. A use of land qualifies as “hostile” if it is done without the permission of the owner. Whether the use of land qualifies as permissive can be a fact-intensive inquiry. Some older cases also focus on whether the use was made under a “claim of right,” which was sometimes interpreted as requiring proof of subjective intent on the part of the trespasser. However, the modern view rejects this additional “state of mind” requirement and looks simply to whether the owner has consented to the use of the property.[6]

Ways to Prevent Prescriptive Use

Perhaps the most important thing for a property owner to understand about prescriptive rights is how to prevent them from being acquired in the first place. There are several ways to ensure that a trespasser’s use of land does not mature into a prescriptive easement.

Somewhat counter-intuitively, often the best way to keep someone from gaining an adverse interest in your property is to give them permission to use it. The traditional method in California is to post a sign on the property that reads as follows: “Right to pass by permission, and subject to control, of owner: Section 1008, Civil Code.”[7] The signs may be posted either at each entrance of the property or at intervals of 200 feet or less along its boundaries.[8] If the signs are removed by trespassers or otherwise, they must be replaced at least once per year.[9] While this approach prevents acquisition of prescriptive rights, the drawback is that the property owner is publishing permission to pass, and therefore might actually encourage rather than prevent third parties from using it.

To prevent the general public from acquiring an easement, owners of coastal properties (land that lies within 1,000 yards of certain coastal waters) have the additional option of recording a notice of consent pursuant to California Civil Code, section 813. Significantly, however, recording such a notice will not prevent an individual trespasser’s prescriptive rights from ripening unless the notice is also served on a specific individual by registered mail.[10] Here again, the drawback is that the coastal property owner must allow the public to access the land in question. Owners of non-coastal properties do not need to record a notice of consent to prevent the general public from acquiring an easement in their land because there is already statutory protection under California Civil Code section 1009 preventing public easements/implied dedications over non-coastal land.

A third option is simply to provide express permission to the individual(s) using the land. Here, however, the property owner can later run into problems proving the use was permissive rather than hostile. To minimize risks, property owners should obtain and record a written agreement from each person using the property (including successors to the original user(s)) stating that: (1) any use of the owner’s property is by permission of the owner only; and (2) such permission is subject to revocation by the owner at any time in the owner’s sole and absolute discretion.

A fourth option is to physically prevent or interrupt any adverse use of the property by constructing a gate, wall or other barrier, or continuously monitoring adverse use. The downside to this approach is that interruption of the five-year period requires that the prescriptive use actually terminate. In other words, simply constructing a fence, changing a lock, or erecting a wall will not prevent the acquisition of a prescriptive easement if the adverse user picks the lock, climbs the wall, or hops the fence. Additionally, the construction of the physical obstacle could conceivably be used as evidence by the trespasser against the owner of the property that the use was, in fact, not permissive.

An Emerging Pitfall: Equitable Easements

Even if a property owner successfully prevents a trespasser from gaining prescriptive rights in his or her property, in some cases the trespasser may nevertheless be entitled to an equitable easement. An equitable easement may exist where (1) use of the property qualifies as “innocent,” and (2) the court balances the relative hardships of the parties and finds that the burden associated with loss of use by the trespasser is substantially greater than the hardship to the owner caused by the continuance of the easement.[11] “Innocent” merely means that the party is acting with a good faith belief that they have a right to maintain the easement. That belief can be based on reasonable reliance on the property owner’s acts or inaction, or even a justified belief in an existing prescriptive right![12] Thus, a user of land who “just misses” perfecting easement rights via prescription (by, for example, failing to establish the element of hostility) might still acquire an equitable easement in the very same property.[13]

Scope

Finally, understanding the potential scope of a prescriptive (or equitable) easement further underscores why its prevention is important. Once an easement is established, courts may allow an increase in the degree of the use of the easement.[14] Permissible increases in degree of use might include the number of people using the easement, provided the increase in use was a reasonably foreseeable development.[15] In contrast, courts rarely allow changes in the manner or type of use of the easement.[16] Thus, for example, most courts would probably not allow pedestrian use to increase in scope to vehicular use.

Conclusion

Prescriptive easements can arise in a wide variety of circumstances, and the law views every piece of real property as unique.[17] Thus, property owners should diligently monitor their property and carefully consider all available options for protecting and enforcing their real property rights.[18]

[1] Restatement (Third) of Property: Servitudes § 2.17 cmt. c (2000).

[2] Warsaw v. Chicago Metallic Ceilings, Inc. (1984) 35 Cal.3d 564, 570-72; Felgenhauer v. Soni (2004) 121 Cal.App.4th 445, 449-50.

[3] Weideman v. Staheli (1948) 88 Cal.App.2d 613, 616 [occasional use sufficient]; Harrison v. Bouris (1956) 139 Cal.App.2d 170, 173 [used no less than 10 times per year].

[4] Twin Peaks Land Co. v. Briggs (1982) 130 Cal.App.3d 587, 592.

[5] Connolly v. McDermott (1984), 162 Cal.App.3d 973, 977; see also Hails v. Martz (1946) 28 Cal.2d 775, 778.

[6] Aaron v. Dunham (2006) 137 Cal.App.4th 1244, 1249 [‘adverse use’ means only that owner has not expressly consented to use]; Felgenhauer v. Soni (2004) 121 Cal.App.4th 445, 447 [claim of right simply means that property was used without permission of landowner; claimant need not believe he or she is legally entitled to use of easement]. See 16-91 Powell on Real Property § 91.05[1][a] [defining ‘hostile’ as term of art referring to acts, not state of mind, and noting that despite some troublesome early cases, hostility does not imply animosity, ill will, or bad faith].

[7] Cal. Civ. Code § 1008.

[8] Id.

[9] See County of Los Angeles v. Berk (1980) 26 Cal.3d 201, 229.

[10] Cal. Civ. Code § 813.

[11] Tashakori v. Lakis (2011) 196 Cal.App.4th 1003, 1008; Linthicum v. Butterfield (2009) 175 Cal.App.4th 259, 262.

[12] Brown Derby Hollywood Corp. v. Hatton (1964) 61 Cal.2d 855, 859-860 [finding that acts of defendant, who insisted that he had prescriptive right to build on land, could be innocent if based on good faith belief in prescriptive or other existing right].

[13] See, e.g., Miller v. Johnston (1969) 270 Cal.App.2d 289, 303-08; Field-Escandon v. DeMann (1988) 204 Cal.App.3d 228 at pp. 237-39; Linthicum, at 265-66; Tashakori, at 1008.

[14] Hill v. Allen (1968) 259 Cal.App.2d 470 [expanding scope of prescriptive easement created over road by 1 residence to include use by up to 25 residences].

[15] Id., at 484.

[16] Bartholomew v. Staheli (1948) 86 Cal.App.2d 844, 849-850 [prescriptive user who gained easement rights over road for farming purposes could not thereafter use road to reach nudist colony and pleasure resort].

[17] Reese v. Wong (2001) 93 Cal.App.4th 51, 57.

[18] The comments and opinions expressed in this article are intended for informational purposes only and do not constitute legal advice. You should not act or rely on any information contained in this article without first seeking the advice of an attorney.

About the Authors

Lou Segreti, Troutman Sanders, San Diego, has extensive experience representing both plaintiffs and defendants in complex litigation matters, including real property disputes, in federal and state courts. He recently served as lead trial counsel and obtained a judgment in his client’s favor in a novel easement dispute involving several issues of first impression under California law.

Mike Whitton, the Managing Partner of Troutman Sanders’ San Diego office, advises and counsels public and private companies, real estate investment trusts, and lending and financial institutions on a variety of sophisticated real estate and business transactions. His transactional practice focuses on large-scale joint ventures, portfolio acquisitions, real estate development, and debt and equity financing and restructuring.

Andy Puls, Troutman Sanders, San Diego, represents local and national clients in a variety of commercial contexts, including breach of contract claims, business torts, real property disputes, and insurance coverage. He also served as trial counsel in a dispute regarding a prescriptive easement. Andy was named a ‘Top Young Attorney’ by the San Diego Daily Transcript in 2012.