How One California Court Oddly Dealt With A Home Buy-Out and the Real Estate Crash

hl-admin Blog, Community property, Family law procedure, General divorce information, John Harding 0 Comments

Here is a real head scratcher of a decision out of Los Angeles County.  It is an unpublished opinion so it cannot be cited as precedent.  The big complaint from the court is the inadequacy of the record on appeal.  Had the appellate court been provided with all of the records for the case the opinion might have been published.  However, the Court does deal with the actual dispute — which is the house that the couple owned during the marriage, and what to do with it now after the real estate crash.  I have to conclude that the meat of the opinion, i.e., how the house is dealt with by the court, would not change.  So, here we go.

While they were married Sondra and Herman owned a home in Lancaster.  They got divorced is 2007 and Sondra was awarded the home.  She was also under court order to pay Herman $150,000 for his half of the $300,000 equity in the home.  Herman received $51,000 from Sondra in April 2007, when she refinanced the property.  It was contemplated that Herman would receive the rest of his equity share when Sondra sold the Property by June 2010.  Unfortunately the real estate market crashed in 2008.  The house is now upside down.  Sondra is now unable to sell it, and even if she could, there would not be $75,000 in profits to satisfy her debt to Herman.

Sondra asked the court to extinguish the $75,000 debt because of the real estate crash.  The trial judge refused to do that.  It did however order that Sondra could pay-off the $75,000 at the rate of $150 per month without interest.  This did not make Herman happy.  He argues that the judgment is unfair because (1) he will be 90 years old by the time the $75,000 is repaid at the current rate; (2) the court did not provide for interest; and (3) there is no provision for accelerated repayment in the event that the real estate market recovers and Sondra sells the Property profitably.  While Herman’s arguments make sense, they did not compel the trial court to rule in his favor, nor did they compel the appellate court to overrule the trial court.

The law requires that the community estate be equally divided, unless the parties agree otherwise.  (Fam. Code, § 2550.)  If the family home is a community asset, as it is here, the husband who is not awarded the home may petition to compel the spouse who remains in the home to sell the home and compensate him for his share of the community interest:  the husband’s award is illusory if there is an open-ended arrangement to allow a former wife to sell whenever (and if ever) she pleases.  (In re Marriage of Pollard (1988) 204 Cal.App.3d 1380, 1382-1386.)  When market conditions improve, Herman may petition the family law court to require Sondra to sell or refinance the Property and reimburse him entirely with interest if, in its discretion, the court deems that to be an economically sound and appropriate course.  (Ibid.; In re Marriage of Schenck (1991) 228 Cal.App.3d 1474, 1484)

I don’t know why the court refused Herman’s third argument:  (3) there is no provision for accelerated repayment in the event that the real estate market recovers and Sondra sells the Property profitably.  That seems like a very sensible, reasonable, and equitable outcome to me?  The lack of elaboration from the court is a real deficiency in the opinion.

It also seems that when the parties were negotiating their settlement they came up with an arrangement that was workable.  The real estate crash through a wrench in the plan.  Now it is doubtful Herman will ever gets his money.  What should he have done differently in light of this opinion?  He should have demanded that the property be sold in 2007; or he should have included a date certain by which it should have been sold in the settlement agreement.

Please click here to read the original Rodriguez opinion.

Please be sure to visit www.hardinglaw.com, the website for the law firm of Harding & Associates, for more information on California family law.

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