5 Title to Real Property 
In California, the basic principles followed governing title to real property were derived from England’s  Common Law generally implemented by case law known as stare decisis. This term is Latin for "to stand by a  decision". Stare decisis is applied as a doctrine to bind a trial court by higher court decisions (appellate and  supreme court) that become precedents on a legal question raised in the lower/trial court. Reliance on such  precedents is required of lower/trial courts until a higher court changes the rule.  
California has a 150-year history of development and evolution in the way its courts have applied legal  principles regarding the title to real property and the conveyance/transfer of the title. These legal principles also  apply to the encumbering of title to real property through mortgages or deeds of trust and to provide notice of  and to evidence monetary claims against the title in the form of liens. This history is documented by the  enactment of constitutional provisions and statutes and by a long line of case law. In the absence of some  specifically applicable constitutional or statutory provisions, the Common Law/case law prevails.  
CALIFORNIA ADOPTS A RECORDING SYSTEM  
California was admitted to the Union by the United States on September 9, 1850. One of the first acts of the  Legislature of the new state was to adopt a recording system by which evidence of title or interests in the title  could be collected and maintained in a convenient and safe public place. The purpose of establishing a  recording system was to inform persons planning to purchase or otherwise deal with land about the ownership  and condition of the title. This system was designed to protect innocent lenders and purchasers against secret  sales, transfers, or conveyances and from undisclosed encumbrances/liens. The purpose of this system is to  allow the title to the real property to be freely transferable.  
The California Legislature adopted a recording system modeled after the system established by the original  American Colonies. It was strictly an American device for safeguarding the ownership of and the encumbering  of land/property. Recording of sales, transfers, or conveyances and encumbrances/liens as part of a public  record was established to impart constructive notice. This system of recording is known as the “Race  Recording”, or as the “Race-Notice Recording” statute/law.  
Actual v. Constructive Notice  
Actual notice consists of express information of a fact. Constructive notice means notice given by the public  records. By means of constructive notice, people are presumed to know the contents of recorded instruments.  Publicly recording instruments of transfer/conveyance or to encumber/lien the title to real property imparts  constructive notice. For example, Civil Code Section 2934 enacted in 1872 states in part, “Any assignment of a  mortgage and any assignment of the beneficial interest under a deed of trust may be recorded, and from the time  the same is filed for record operates as constructive notice of the contents thereof to all persons…”. 
Which Instruments May Be Recorded  
The Government Code of California provides that, after being acknowledged (executed in front of a Notary  Public, or properly witnessed as provided by applicable law), any instrument or judgment affecting the title to  or possession of real property may be recorded. See Government Code Sections 27201, 27201.5, 27287, and  27288.  
The word “instrument” as defined in Section 27279(a) of the Government Code “…means a written paper  signed by a person or persons transferring the title to, or giving a lien on real property, or giving a right to a  debt or duty.” A similar definition is set forth in a historic 19th century case. See Hoag v Howard (1880) 55  Cal. 564-567. The definition of an “instrument” does not necessarily include every writing purporting to affect  real property. However, the term “instrument” does include, among others, deeds, mortgages, leases, land  contracts, deeds of trust and agreements between or among landowners/property owners.  
Purpose of Recording Statutes  
The general purpose of recording statutes is to permit (rather than require) the recordation of any instrument  which affects the title to or possession of real property, and to penalize the person who fails to take advantage  of recording. 
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However, existing law includes examples where recording is required as a predicate to accomplish a defined  public policy objective. One such example is Civil Code Section 2932.5 that provides, “Where a power to sell  real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment  of money …[T]the power of sale may be exercised by the assignee of the assignment if duly acknowledged  and recorded (emphasis added).”  
Another example is in Business and Professions Code Section 10233.2 regarding perfecting ownership of  promissory notes or interests therein. This Section states in part “…the delivery, transfer and perfection shall be  deemed complete even if the broker retains possession of the note or collateral instruments and documents,  provided that the deed of trust or assignment of the deed of trust or collateral documents in favor of the lender  or purchaser is recorded in the office of the county recorder in the county in which the security property  is located, and the note is made payable to the lender or is endorsed or assigned to the purchaser 
(emphasis added).”  
Because of the recording of instruments of conveyance or encumbrance/lien, purchasers (and others dealing  with title to property) may in good faith discover and rely upon the ownership of title or an interest therein.  While the Government Code does not specify any particular time within which an instrument must be recorded,  priority of recordation will ordinarily determine the rights of the parties if there are conflicting claims to the  same parcel of land/property, i.e., the title thereto or an interest therein. The instrument recorded first in the  chain of title would generally achieve priority over subsequently recorded instruments (fact issues such as  subordination or actual notice may affect priority notwithstanding recording dates). The definition of the “Race  Recording” or “Race-Notice Recording” statutes/laws is intended to describe the manner of achieving priority  in the chain of title. Generally, the person winning the race gains priority.  
The county recorder in the county within which the property is located must record instruments affecting real  property. If the property lies in more than one county, the instrument, or certified copy of the record, must be  recorded in each county in which the property is located in order to impart constructive notice in the respective  counties.  
If it is necessary to record a document written in a foreign language, the recorder will file the foreign language  instrument with a certified translation. In those counties in which a photographic or electronic method of  recording is employed, the foreign language instrument and the translation may be recorded and the original  instrument returned to the party who requested recordation. See Government Code Section 27293.  
When an Instrument is Deemed Recorded  
Generally, an instrument is recorded when it is duly acknowledged or verified and deposited in the recorder’s  office with the proper officer and marked “filed for record.” It is the duty of the recorder to number the  instrument in the order in which it is deposited, including the year, month, day, hour, and minute of its  reception, and indicate at whose request it was “filed for record.” The contents of the document are transferred  to its appropriate book or image of records upon the page or pursuant to the number endorsed on the document,  and the original document is returned to the party who left it for recording.  
The recorder indexes all recorded documents in alphabetical order according to the names of the grantors and  grantees or mortgagors or mortgagees, which terms include holders of beneficial interests in and  trustors/borrowers of deeds of trusts, and the name or nature of the document. The documents are also indexed  by date of recording and the recording reference. See Government Code 27230 et seq.  
Effect of Recording as Imparting Notice  
The courts have ruled that the benefits of a recording statute are not available to one who takes title with actual notice of a previously executed though unrecorded instrument. For example, possession of land/property by one  other than the seller is actual notice to an intending buyer sufficient to impose a duty to inquire about the  possession. Despite the recording statutes and the assurance they give about the status of title, a prudent  purchaser should inspect the premises in person or through a trusted agent.  
The obligation to inspect includes inquiring of persons in possession of the real property (e.g., a tenant or  lessee), what claim such persons have to occupy and use the property, and is there a written agreement  supporting the claim. The agreement may be a month-to-month tenancy, a leasehold or an estate for years, a  land contract of sale, an option to purchase, a lease with a first right of refusal, etc. Such a claim would be 
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imparted by actual notice because of the occupancy of the persons in possession. The agreement evidencing the  claim need not be recorded to affect the title to the real property.  
In addition to the foregoing, there are many types of unrecorded interests that a prospective purchaser may  discover during a physical inspection of property. For example, a pathway or sewer line may mean adjoining  owners have an unrecorded easement. Lumber or recent carpentry work may mean certain persons have a right  to file mechanics’ liens.  
The recording laws do not protect the party “first to record” against what may be discovered through a physical  inspection, nor do standard form title insurance policies cover the situations previously described. As  previously mentioned, the inspection of a property to be purchased or encumbered is recommended and advice  from a qualified professional is often required (e.g., lawyer, title officer, civil engineer, etc.) before proceeding  to purchasing or encumbering the land/property. The intended title insurer should be asked about extended  coverage to insure against the unrecorded interests that may be discovered by physical inspection as discussed  in this section.  
Priorities in Recording  
The California recording statutes encourage prompt recording of conveyances and encumbrances and prohibits  use of the constructive notice doctrine as an aid to proven fraud. The recording laws protect only innocent  parties.  
Certain priorities are affected by statutory provisions. For example and for the purposes of establishing priority,  existing California Law distinguishes between a mortgage and deed of trust given for the price of real property  (purchase money mortgage) from such instruments of encumbrance given to refinance or further encumber the  property (non-purchase money mortgage). The former have priority over all other liens created against the  purchaser, subject to the operation of the recording laws, and the later do not have priority over the defined  liens. Further, the priority to be established for mortgagees or deeds of trust on an estate for years in real  property (leasehold) shall be determined in the same manner as establishing the priorities of such liens against  the title of real property. See Civil Code Section 2898.  
Not all liens on real property rank in priority according to their respective dates of recording. For example, with  respect to the same parcel of property, A executed a mortgage in favor of B dated June 1 and recorded June 20.  A executed a mortgage in favor of C dated June 10 and recorded June 15. C’s mortgage will be superior in  priority to B’s only if C did not have, on or prior to June 15, notice of B’s mortgage.  
Special Lien/Encumbrance Situations  
Liens and encumbrances are discussed again later in this chapter. However, it will be helpful to note here the  impact of the recording laws on liens and encumbrances. Liens are imposed for monetary claims against the  title to real property or for the performance of an act in connection therewith. Liens are encumbrances, but there  are encumbrances that are not monetary claims, e.g., an easement. These forms of encumbrances typically  affect the condition or use of the property. It can be said that all liens are encumbrances, but not all  encumbrances are liens.  
California Law refers to mortgages and deeds of trust as functional equivalents. The historic distinctions  between the two instruments include the application of the “lien” vs. “legal title” theories (to be discussed later  in this chapter), and the use of a third party trustee with certain defined powers in a deed of trust but not in a  classic mortgage instrument. The perceived limitation of the use of the trustee in a deed of trust was eliminated  in 1986 through the enactment of Civil Code Section 2920. For the purposes of this chapter, the terms  “mortgage” and “deed of trust” are used interchangeably and for each other as functional equivalents, as  defined in current California Law.  
A lender/encumbrancer will often agree in the deed of trust (the senior instrument) to make “future advances”  as a part of a secured loan transaction. Another lien/encumbrance (for example, a junior deed of trust or a  mechanic’s lien) may intervene between the time of recordation of the lender’s senior deed of trust and the time  of a “future advance”. A question of priority is then posed regarding the sums advanced by the senior lender.  
When the terms of the senior deed of trust obligate the lender to make “future advances” (e.g., progress  payments under a construction loan), these “obligatory advances” have the same priority as the loan secured by  the senior deed of trust, regardless of intervening liens (monetary claims). See Civil Code Section 2884.
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In other cases, the senior lender may have the option of making “future advances” of money to the  borrower/trustor, but is not required to do so. These “optional advances” for priority purposes date from the  time the advance is made, unless the lender can show no actual or constructive notice of intervening liens. This  does not mean lenders are excused from checking the public record.  
The issue of “future advances” is of particular concern in loan products known as Home Equity Lines of Credit  (“HELOC”). Such loan products have become popular in the last 15 to 20 years. The advances made as part of  a HELOC loan transaction are generally “optional”, i.e., defined conditions must first be met prior to the lender  extending to the borrower/trustor additional credit. To facilitate the use of these loan products, the title  insurance industry has offered endorsements to the institutional lending community (financial depository  institutions and certain licensed lenders) maintaining for the purposes of the coverage provided the priority of  the “optional advances” to protect the interests of the lenders making HELOCs. See Civil Code Section 2884. 
Mechanics’ liens generally relate back to the time of the commencement of the construction work as a whole.  Thus, a deed of trust must be executed, delivered, accepted and recorded prior to commencement of any work  regarding the security property to assure the priority of the construction loan secured by the deed of trust over  the claims that may be made by contractors, laborers, material houses, suppliers, design professionals and the  like in the form of mechanics liens. See Civil Code Section 3134.  
Liens for real property taxes and other general taxes, as well as special county and municipal taxes and  assessments are superior in priority to the lien of any mortgage or deed of trust regardless of the date of  creation, including execution, delivery, acceptance, and recording. California Law provides that any tax or  assessment declared a lien on real property should be given priority over all other liens, including judgments,  deeds, mortgages, deeds of trust, etc. See Revenue & Taxation Code Section 2192.1.  
Provided they are bona fide encumbrances/liens, deeds of trust and mortgages recorded prior to general federal  tax liens or state tax liens are superior in priority to those liens. However, subsequent to the non-judicial  foreclosure of the security property, the IRS has asserted the priority of its tax claims are altered to a senior  position when the assets to which such claims attached become the cash available from the foreclosure  proceeds.  
Persons having priority may by agreement waive this priority in favor of others. An agreement to do this is  called a “subordination agreement.” These agreements are often executed in connection with deeds of trust to  subordinate a senior encumbrance/lien to a later recorded junior encumbrance/lien. An example is where a  landowner’s/property owner’s “purchase-money” deed of trust (securing a debt in the form of a seller “carry 
back” established at the time the security property was purchased) is subordinated by agreement to a  construction loan to finance the improvements to be made to the property.  
Without such priority of claim for payment against the real property, a construction lender would typically  decline to extend credit and, therefore, funds would not be available for the building contractor to expend time  and materials on the construction project.  
In certain loan transactions, statutory requirements are imposed regarding the use of subordination clauses.  These requirements include notice of the existence of a subordination clause, and a disclosure of the contents of  the subordination agreement. While these requirements apply to loans in the amount of $25,000 or less, they  represent good guidelines to be considered when engaging in the use of subordination clauses and agreements.  See Civil Code Section 2953.1 et seq.  
As previously mentioned, a mortgage or deed of trust given for the purchase price of real property at the time of  the conveyance of the security property has priority over all other liens created against the purchaser, subject to  operation of the recording laws. See Civil Code Section 2898. 
Two or more deeds of trust recorded at the same time (concurrently) may contain on the face of each deed of  trust (as part of an industry practice) a recital about which is intended by the parties to be first, second, or third  in priority. The recitals can be effective subordination agreements with the informed knowledge and consent of  the lenders and the trustors/borrowers (referred to as mortgagors). 
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OWNERSHIP OF REAL PROPERTY  
All property has an owner, the government - federal, state, or local— or some private party or entity (typically  referred to as persons). Very broadly, an estate in real property may be owned in the following ways:  
1. Sole or several ownership;  
2. Joint, common, or community ownership;  
 a. Tenancy in common;  
 b. Joint tenancy;  
 c. Community property; or,  
d. Partnership interests.  
3. Ownership by other lawfully created entities.  
SOLE OR SEVERAL OWNERSHIP  
Sole or several ownership is defined to mean ownership by one person. Being the sole owner, one person  enjoys the benefits of the property and is subject to the accompanying burdens, such as the payment of taxes.  Subject to applicable federal and state law, a sole owner is free to dispose of property at will. Typically, only  the sole owner’s signature is required on the instrument of transfer/deed of conveyance. See Civil Code Section  681. 
JOINT, COMMON, OR COMMUNITY OWNERSHIP  
Joint, common, or community ownership or co-ownership means simultaneous ownership of a given piece of  property by several persons (two or more). See Civil Code Section 682. The types of such ownership interests  include the following:  
Tenancy in Common  
Tenancy in common exists when several (two or more) persons are owners of undivided interests in the title to  real property. It is created if an instrument conveying an interest in real property to two or more persons does  not specify that the interest is acquired by them in joint tenancy, in partnership, or as community property.  Some instruments of transfer/deeds of conveyance clearly state the intentions of the persons acquiring are to  hold title as tenants in common. See Civil Code Section 685.  
Example: Interests of such tenants in common may be any fraction of the whole. One party may own one-tenth,  another three-tenths, and a third party may own the remaining six-tenths. If the deed to cotenants does not recite  their respective interests, the interests will be presumed to be equal.  
There is a unity of possession in tenancy in common. This means each owner has a right to possession and none  can exclude the others nor claim any specific portion for him or herself alone. It follows that no tenant in  common can be charged rent for the use of the land/property, unless otherwise agreed to by all the cotenants.  On the other hand a tenant in common who receives rent for the premises/property from a third party, must  divide such profits with the other tenants in common in proportion to the shares owned. Similarly, payments  made by one tenant in common for the benefit of all may normally be recovered on a proportionate basis from  each. These might include, among others, moneys spent for necessary repairs, taxes, and interest and principal  payments under a deed of trust.  
Subject to applicable federal and state law, a tenant in common is free to sell, transfer or otherwise convey, or  mortgage the tenant’s own interest as he or she sees fit. The new owner becomes a tenant in common with the  others. Few lenders are willing to extend credit to be secured by a mortgage or deed of trust against only the  interest of a single tenant in common. In the event of a foreclosure of their mortgage encumbrance/lien, lenders  typically do not want to end up as co-owner with other tenants in common. Because of the practical difficulties  involved in selling, transferring or otherwise conveying, or mortgaging the interest of a single tenant in  common, the tenant may be limited in his/her effort to liquidate the single interest to forcing a sale of the entire  property by filing an action before a court of competent jurisdiction known as a “partition action.”  
No right of survivorship exists for individual tenants when title is held as tenants in common. The undivided  interest of a deceased tenant in common passes to the beneficiaries (heirs or devisees) of the estate subject to 
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probate, pursuant to the last will and testament of the deceased or by intestate succession. The heirs or devisees  of the deceased simply take the tenant’s place among the other owners who continue to hold title to the property  as tenants in common. See Probate Code Section 6400 et seq.  
Joint Tenancy  
Joint tenancy exists if two or more persons are joint and equal owners of the same undivided interest in real  property. Generally, to establish a joint tenancy a fourfold unity must exist: interest, title, time, and possession.  Joint tenants have the same interest, acquired by the same conveyance, commencing at the same time, and held  by the same possession. See Civil Code Section 683.  
The most important characteristic of a joint tenancy is the right of survivorship that flows from the unity of  interest. If one joint tenant dies, the surviving joint tenant (or tenants) become(s) the owner(s) of the property to  the exclusion of the heirs or devisees of the deceased. Thus, joint tenancy property cannot be disposed of by the  last will and testament, is not subject to intestate succession, and typically does not become part of the estate of  a joint tenant subject to probate.  
Further, the surviving joint tenant(s) is/are not liable to creditors of the deceased who only hold existing  encumbrances/liens on the joint tenancy property. The words “with the right of survivorship” are not necessary  for a valid joint tenancy deed, although they are often inserted. To perfect the ownership interests of the  surviving joint tenants, severance of the joint tenancy of the deceased is to be accomplished and evidenced in  the public record.  
The creditors of a living joint tenant (as distinct form a deceased joint tenant) may proceed against the interest  of that tenant and force an execution sale. This would sever the joint tenancy and leave title in the execution  purchaser and the other joint tenant as tenants in common.  
Creating A Joint Tenancy. With limited exception, California appellate courts have accepted and enforced the  common law rule that if any one of the four unities — time, title, interest or possession — is lacking, a tenancy  in common, not a joint tenancy, exists. An exception to the general rule has been more recently applied in  connection with the time of acquisition of the title to the property. Consultation with knowledgeable legal  counsel is recommended to answer questions that may be posed by property owners regarding the establishment  of joint tenancies and the legal, practical, tax, estate planning, and other considerations involved.  
However, by statute a joint tenancy may be created:  
1. By transfer from a sole owner to himself or herself and others as joint tenants.  
2. By transfer from tenants in common to themselves or to themselves, or any of them, and others as joint  tenants.  
3. By transfer from joint tenants to themselves, or to any of them, or to others as joint tenants.  
4. By transfer from a husband and wife (when holding title as community property or otherwise) to  themselves, or to themselves and others, or to one of them and to another or others as joint tenants.  
5. By transfer to executors of an estate or trustees of a trust as joint tenants.  
See Civil Code Section 683. 
Severance. A joint tenant may sever the joint tenancy as to his or her own interest by a conveyance to a third  party, or to a cotenant. If there are three or more joint tenants, the joint tenancy is severed as to the interest  conveyed but continues as between the other joint tenants as to the remaining interests. If title is in A, B and C  as joint tenants, and A conveys to D, then B and C continue as joint tenants as to a two-thirds interest and D  owns a one-third interest, as tenant in common. If A and B only are joint tenants and B conveys to C, then A  and C would be in title as tenants in common. See Civil Code Section 683.2 
Another method is a partition action by the joint tenants. If the partition cannot be made without prejudice to  the owners, a court may order the property sold and the division of the proceeds of the sale distributed ratably  to the owners. In some circumstances, a severance will not terminate the right of survivorship interest of the  other joint tenants in the severing joint tenant’s interest. Nor, under the circumstances set out in Civil Code 
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Section 683.2, may a severance contrary to a written agreement of the joint tenants defeat the rights of a  purchaser or encumbrancer for value and in good faith and without knowledge of the written agreement.  
On death of a joint tenant, the joint tenancy is automatically terminated. Nevertheless, for record title purposes,  the following must be recorded in the county where the property is located:  
∙ A certified copy of a court decree determining the fact of death and describing the property; or  
∙ A certified copy of the death certificate or equivalent, or court decree determining the fact of death, or  letters testamentary or of administration or a court decree of distribution in probate proceedings. With  each of these alternatives, it is customary to attach an affidavit that identifies the deceased as one of  the joint tenants of the property.  
Some of the Pros and Cons of Joint Tenancy. On the plus side, the major advantage of joint tenancy is the  comparative simplicity of vesting title in the surviving joint tenant (or joint tenants). The marketable title delay  arising from probate proceedings in the form of a stay for as much as six months (or even longer) is avoided.  Although certain legal costs are ultimately involved in terminating the joint tenancy, the customary  commissions and fees payable to executors or administrators and to their attorneys may become unnecessary.  
As previously mentioned, a further advantage of joint tenancy is that the survivor holds the property free from  debts of the deceased tenant and from liens against the deceased tenant’s interest. This can work an injustice to  creditors, but a diligent creditor can usually take appropriate precautionary steps to avoid such loss, or may  have access to other assets of the decedent. On the other hand, in many situations joint tenancy is a pitfall for  the uniformed or unwary.  
The supposed advantages may be imaginary. A joint tenant may not want the other (surviving) joint tenant to  get the title free and clear; the likely saving of probate fees is at least partly offset by costs of terminating the  joint tenancy, and may be completely offset by added taxes. The probate delay is not unreasonably long, and  there may be no creditors of the estate. Moreover, the joint tenant gives up the right to dispose of his or her  interest by a last will and testament.  
Giving advice about the way to hold title to real property is ill advised and considered the unauthorized practice  of law when offered by persons who are not members of the State Bar of California. As previously mentioned,  significant legal, practical, tax, estate planning, and other issues and consequences may result from holding title  in one form or another. The advice of knowledgeable legal counsel and other appropriate professionals is  strongly recommended before selecting the form of ownership of the title to real property  
Community Property  
Community property generally consists of all property acquired by a husband and wife, or either, during a valid  marriage, other than separate property acquired prior to the marriage, by gift, or as an individual heir or devisee  of a deceased. Separate property may also include the fruits falling from the previously described tree of  categories of separate property, as well as property designated as separate by the husband or wife or by court  order. Separate property of either the husband or the wife is not community property.  
Separate property of a married person includes:  
1. All property owned before marriage.  
2. All property acquired during marriage by gift or inheritance.  
3. All rents, issues and profits of separate property, as well as other property acquired with the proceeds from  sale of separate property. For instance, if a wife owned a duplex prior to marriage, the rents from the  duplex would remain her separate property. If she sold the duplex and bought common stock, the stock and  dividends would be her separate property. It would have to be clearly and unequivocally identifiable as  separate property, and separate records should be maintained to make certain any separate property is not  commingled in any way with the community property. Very often husband and wife deliberately may allow  their separate property to merge with community property in keeping with their intentions or with their  conduct and actions.  
4. Earnings and accumulations of a spouse while living separate and apart from the other spouse. 
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5. Earnings and accumulations of each party after a court decree of separate maintenance.  6. Property conveyed by either spouse to the other with the intent of making it the grantee’s separate property.  
It should be recalled that a husband and wife often hold property as joint tenants. Yet, even when title is held in  joint tenancy, it is possible (e.g., by separate written agreement) to own the assets as community property. The  record title may not be controlling in light of off-record agreements showing other intentions of the parties. For  example, joint tenancy property owned by married persons may, in fact, be considered separate property. See 
Civil Code Sections 682.1 and 687 and the Family Code under Part 1 and 2, Division 4, commencing with  Section 720.  
Management and control. Each spouse has equal management and control of community property. An  exception exists if one of the spouses manages a community personal property business. That spouse generally  has sole management and control of that business. Community property is liable for the debts of either spouse  contracted after marriage. Community property is liable for a debt contracted prior to marriage, except that  portion of the community property comprised of the earnings of the other spouse.  
Neither spouse may make a gift of community property without the consent of the other. Neither spouse may  encumber personal property such as the furniture, furnishings, or fittings of the home, or the clothing of the  other spouse or minor children without the written consent of the other spouse. However, each must join in the  sale/transfer or conveyance, or the encumbrancing or leasing of community real property.  
If real property is owned by several (two or more) persons, real estate licensees should obtain the necessary  signatures of each person in title to listing agreements and to purchase and sale agreements, whether for the  purpose of countering or accepting offers from the intended buyer/purchaser.  
Each spouse has the right to dispose of his or her half of community property by will. Absent a will, title to the  decedent’s half of the community property passes to the surviving spouse. See the Family Code under Part 4,  Division 4, commencing with Section 1100.  
Joint tenancy and community property. Considerable confusion surrounds the status of some family homes  in California, since the husband and wife may acquire their home with community funds but proceed (as  previously mentioned) to take record title “as joint tenants.” It is not generally understood that some of the  consequences of holding title in joint tenancy are entirely different from the consequences of holding title as  community property.  
As previously mentioned, California courts are aware of this problem and have established the rule that the true  intention of husband and wife as to the status of their property shall prevail over the record title. Ambiguity  results from the specific circumstance of having the record title in joint tenancy while the true character of the  property, as intended by the husband and wife, is community property. This transition might be accomplished  by appropriate agreement in writing, or even by a deed from themselves “as joint tenants” to themselves “as  community property.”  
Among themselves, the rights and duties of joint tenants are generally the same as among tenants in common,  with the vital exception of the rule of survivorship. As previously discussed, a joint tenant may borrow money  and, as security for the repayment of the debt, execute a mortgage or deed of trust on his/her interest just as a  tenant in common may. This does not destroy the joint tenancy, but if the borrower should default, and the  mortgage or deed of trust should be foreclosed while the borrower is still alive, the joint tenancy would be  ended (a severance) and a tenancy in common created. As previously noted, most lenders would hesitate to  make such a loan.  
Should the borrower/trustor/mortgagor die before the mortgage is paid off or foreclosed, the surviving joint  tenant gets title free and clear of the mortgage executed by the deceased joint tenant. When title is held as  community property, no separate interest exists for the purpose of encumbering through a mortgage or a deed  of trust. As previously mentioned, the signatures of both the husband and wife are required to sell, transfer, or  otherwise convey or encumber the community property.  
While a probate is typically required to dispose of the community property in the event of the death of either  spouse, in certain fact situations a limited probate proceeding has been authorized by existing law. This limited 
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probate proceeding is commonly known as a community property or small estate “set-aside”. For example, the  court may find that the entire estate of the deceased spouse is property passing to the surviving spouse. In such  event, the court may determine that no administration of the estate is required. See Probate Code Section 6600  et seq. and Section 13656.  
TENANCY IN PARTNERSHIP  
At the time of initial codification in California Law of the various forms of ownership of property interests, the  recognized entity for ownership was a partnership. Tenancy in partnership exists if two or more persons, as  partners, own property for partnership purposes. Under the Uniform Partnership Act, the incidents of tenancy in  partnership are such that:  
1. A partner has an equal right with all other partners to possession of specific partnership property for  partnership purposes. Unless the other partners agree, however, no partner has a right to possession for any  other purpose.  
2. A partner’s right in specific partnership property is not assignable except in connection with the  assignment of rights of all the partners in the same property.  
3. A partner’s right in specific partnership property is not subject to attachment or execution, except on a  claim against the partnership.  
4. On death, a partner’s right in specific partnership property vests in the surviving partner (or partners). The  rights in the property of the last surviving partner would vest in the decedent’s legal representative. In  either case, the vesting creates a right to possess the partnership property only for partnership purposes.  
5. A partner’s right in specific partnership property is not subject to dower or curtesy (both have been  abolished in California by statute) nor allowance to widows, heirs, or next of kin. Even when married, a  partner’s right is not community property. On the other hand, a partner’s interest in the partnership as such  (that is, a partner’s share of profits and of surplus) is governed by community property rules for some  purposes.  
These incidents make sense because two or more persons are attempting to carry on a business for profit.  Without these incidents, continuity and unified, efficient operation would be difficult. Partners are not,  however, prevented from owning different fractional parts of the business. Thus, although each partner has  unlimited liability to third parties for firm debts, each partner’s interest in profits and losses may be any  percentage to which the parties agreed.  
Partners may also structure the business relationship as a partnership in many different ways. By agreement,  one partner may have greater authority than the other partners. An example that is often used is a limited  partnership. The general partner or partners manage and control the partnership and the limited partners (in  exchange for limited liability) give up management and control. In a partnership where all partners have equal  rights of management and control, the partnership is commonly referred to as a general or co-partnership.  
The Uniform Partnership Act set forth in 15001 et seq. of the Corporations Code and the Limited Uniform  Partnership Act set forth in 15501 et seq. of the Corporations Code each have been or will be repealed effective  January 1, 2010. The Uniform Partnership Act of 1994, commencing with Section 16100 of the Corporations  Code, remains operative and describes, among other issues, the scope of and limitations imposed on general or  co-partnerships in California. This law includes language describing the relationships between partners, the  handling of charging orders and claims of creditors against the partnership or an individual partner, and how  the partnership is to be wound-up and dissolved.  
Limited Liability Partnerships are described in the Corporations Code, commencing with Section 16951.  However, the Uniform Limited Partnership Act of 2008 (enacted subsequent to the previous sections of the  Corporations Code describing Limited Liability Partnerships) is set forth in the Corporations Code,  commencing with Section 15900.  
The foregoing body of law is complex and comprehensive. Understanding what portions have been or will be  repealed and what portions remain operative is essential. Furthermore, to establish partnership relationships 
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requires an understanding of practical, legal, tax and other important issues. Accordingly, the advice of  knowledgeable legal counsel is recommended before proceeding to form a partnership or determining to hold  title to real property or interests therein in a partnership entity.  
OTHER LAWFULLY CREATED ENTITIES  
In the 19th century when some of the applicable Civil Code Sections previously cited were enacted, the entity  most commonly used to hold title or interests therein was a partnership. Corporations and trusts existed, and  when they joined in a common economic enterprise, were often identified as “combinations”. Two additional  entities have been more recently authorized by state legislative action. They are Limited Liability Companies  (“LLCs”) and, as previously discussed, Limited Liability Partnerships (“LLPs”).  
Each of the foregoing entities may and do hold title to real property or to interests therein. The body of law  describing corporations and their organization, operation, and management is enormous. Three categories of  corporations are recognized in California Law. Included are general corporations, nonprofit corporations, and  corporations for a specific purpose.  
The law applicable to corporations is set forth in federal and state statutes and regulations. For example, the  State of Delaware publishes statutes and regulations regarding corporations, which are instructive as many  corporations are organized under Delaware law. Organizing and operating a corporation under California Law  requires review of California Corporations Code Sections 100 through 2319 (General Corporation Law),  Sections 5000 through 10841 (Nonprofit Corporation Law), and Sections 12000 through 14451(Corporations  for Specific Purposes).  
Limited Liability Partnerships were discussed in the previous section entitled, “TENANCY IN  PARTNERSHIP”. Limited Liability Companies are organized similar to a corporation, but taxed similar to a  partnership. The legislation authorizing the use of such entitles was enacted in 1994 and is set forth in  Corporations Code Sections 17000 through 17656. LLCs may hold title to real property and to interests therein.  However, a real estate broker may not license an LLC entity to perform acts for which a real estate license is  required. See Corporations Code Section 17375. Real estate brokers may license corporations as brokers and  partnerships are able to perform acts for which a real estate license is required through licensed partners that are  real estate brokers. See Business and Professions Code Sections 10137.1, 10158, and 10211.  
The body of law describing the administration of trusts, the duties of trustees, the accounting of trust assets,  federal and state tax issues, etc. is complex and appears in various state and federal statutes and regulations.  The primary reference for trust administration is found in California Probate Code Sections 16000 through  16504. The use of trusts to hold title or interests therein occurs most often in family trusts or in other forms of  inter vivos trusts.  
Again, it is important to understand that the use of trusts, as well as other entities, to hold title or interests  therein should occur only with the advice of knowledgeable legal counsel and of other appropriate  professionals. A word of caution is necessary regarding the demands frequently made upon real estate and  mortgage brokers by lenders and title insurers (or their underwritten companies), either directly or through  escrow holders, regarding properties where the title is held in trusts by principals of the brokers.  
Typically, the real estate or mortgage broker is directed to instruct his/her principals to transfer the title to the  real property from an existing trust to the individual beneficiaries/settlers/trustors for purposes of encumbering  the property with new financing; or to sell, transfer or convey title to the property to third parties. The practical,  legal, estate planning, and tax consequences may be significant and should be reviewed, in advance, by legal  counsel and appropriate professionals representing the principals for this purpose. Real estate and mortgage  brokers may be engaging in the unauthorized practice of law to provide such instructions to their principals  (even when directed to do so by representatives of the lending, title, or escrow industries) without making it  perfectly clear the information required to make such a decision is beyond the scope of the practice of real  estate and requires the advice of knowledgeable legal counsel and competent professionals.  
ENCUMBRANCES/LIENS  
In this section, the principal types of encumbrances/liens are examined that may be imposed on a given parcel  of land/property without affecting the fee title to the owner’s real property as part of the owner’s estate. This 
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discussion includes the distinctions between the “lien” vs. “legal title” theories, and the fact that the “lien”  theory has been adopted by California and represents current law.  
Definition- Encumbrance  
An encumbrance may be defined very generally as any right or interest in land/property, possessed by a  stranger to the title, which affects the value of the owner’s estate, but does not prevent the owner from enjoying  and selling, transferring, or otherwise conveying the fee title.  
Two categories of encumbrances exist: those affecting title and those affecting condition or use of the property.  
Encumbrances that affect title. Most notably, these are liens. A lien is defined as a charge imposed on  property and made security for the payment of a monetary claim or the performance of an act in connection  therewith. Typically, the lien is imposed for the payment of a debt evidenced by a promissory note. Liens may  also be imposed solely for the performance of an act in the form of a performance deed of trust.  
Liens may affect real or personal property and may be voluntary (e.g., a home mortgage to secure a loan) or  involuntary (e.g., imposed by law for overdue taxes). A lien may be specific, affecting only a particular  property (e.g., a trust deed, or a mechanic’s lien on a given property) or may be a general lien, affecting all  property of the owner not exempt by law (e.g., a money judgment, or a lien for overdue state or federal income  taxes). As previously mentioned in this chapter, all liens are encumbrances, but not all encumbrances are liens.  
Encumbrances that affect the physical condition or use of the property. Examples are easements, building  restrictions and zoning requirements, and encroachments.  
A buyer will commonly accept a deed to encumbered property, with the price adjusted accordingly. Often, the  encumbrance may not be objectionable, e.g., an easement for utility purposes. But sometimes a buyer may insist  that the encumbrance be removed or cleared from the public record before the transaction closes.  
Cloud on the title. A “cloud on the title” is defined as any outstanding claim or encumbrance that would, if  valid, affect or impair the owner’s title to a particular property/estate. While the cloud remains, the owner is  prevented from selling transferring, or conveying marketable title. The ability to further encumber the title may  also be impaired by a “cloud on the title”.  
Examples are: a mortgage paid off but without official recordation of that fact (a reconveyance of a deed of  trust); an apparent interest in the property which remains because one of a group of heirs fails to sign the deed  on sale of the property; or a notice of action (a lis pendens) which remains on the public record even after the  plaintiff and defendant have agreed to dismissal of the court action. Removal of a cloud may require time and  patience. Meanwhile, closing will be postponed until the persons requesting coverage obtain a title insurance  policy without reference to the cloud.  
It is important to understand the distinction between the “lien” theory and the “legal title” theory and the impact  of these theories on the use of mortgages and deeds of trust as security devices/instruments for the repayment of  a monetary claim or the performance of an act.  
LIEN THEORY VS. LEGAL TITLE THEORY  
History. An essential concept of California Law is the ability to secure the repayment of monetary claims or the  performance of an act typically in connection therewith by a “lien” that does not impair the owner’s rights to  freely enjoy the benefits of the use and ownership of the property. These benefits include the right to sell,  transfer, or otherwise convey, or further encumber the title to the land/real property. It is settled law that  California is a “lien” and not a “legal title” theory state when imposing encumbrances/liens against the title of  real property.  
California has a 150-year history of development and evolution in the way its courts have applied legal  principles to mortgages and deeds of trust. As of 2009, this 150-year history is split approximately in half,  creating two 75-year periods. The first 75-year period begins in 1859, ends in 1933, and is marked by the  California Supreme Court’s historic insistence that mortgages create “liens” and deeds of trust transfer “legal  title”. The Court held that the two instruments/security devices have no common features, and each are  controlled by different bodies of real property law (“Title Period”). 
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The second 75-year period begins in 1933, runs to the present, and is marked by the 180-degree reversal of  position in which the California Supreme Court currently insists that a deed trust is the functional equivalent of  a mortgage with power of sale. Therefore, both instruments (mortgages and deeds of trust) are governed by  mortgage laws (“Lien Period”). In these two periods, dramatically differing opinions on the same legal issue  were offered by California courts. These differing opinions evolved the law regarding deeds of trust over the  last 75 years to reconcile the law applicable to mortgages with power of sale, and thus established the “lien  theory” as the applicable California Law.  
The most comprehensive analysis of distinctions in the legal status of deeds of trusts and mortgages during the  Title Period is contained in two California Law Review articles. The first published in 1915 by Professor Kidd  is Trust Deeds and Mortgages in California. See, A. M. Kidd, Trust Deeds and Mortgages in California, 3 Cal.  L. Rev 381 (1915).  
The second analysis, Applications of the Distinction between Mortgages and Trust Deeds in California, was  published in 1938 and brings Professor Kidd’s 1915 article current through the watershed Bank of Italy II decision in 1933. See, Joseph M. Cormack and James B. Irsfeld Jr., Applications of the Distinction between  Mortgages and Trust Deeds in California, 26 Cal. L. Rev. 206 (1938).  
In the 1915 article, Professor Kidd identifies the paradoxical character of California mortgage and deed of trust  law, which applied the “lien” theory and “legal title” theory of real property security instruments in the same  state at the same time. The Title Period begins with the California Supreme Court’s decision in Koch v. Briggs,  14 Cal. 256 (1859.  
The California Supreme Court held in the Koch v. Briggs case: “It [a deed of trust] has no feature in common  with a mortgage, except that it was executed to secure an indebtedness.” As the 1915 and 1938 articles detail,  the legal effect of seeking to impose the “lien” theory for mortgages and the “legal title” theory for deeds of  trust resulted in numerous distinctions that seemingly had no foundation in legal principle, since both  instruments were clearly real property instruments/security devices. These distinctions were most prominent in  substantive areas such as the right of redemption (none historically recognized for deeds of trust), the one form  of action rule, limitations on deficiencies, and negotiability of a note secured by a mortgage versus deed of  trust, the fiduciary duties imposed on foreclosure trustees, homestead exemptions, mechanics liens, and the  impact of bankruptcy.  
As noted by the leading treatise on California real estate: “Creditors began using the deed of trust as a real  property security instrument during the 19th century because of the procedural inhibitions imposed on the  mortgage by the courts and the impediments attendant with judicial foreclosure of the debtor's equity of  redemption. The use of a conveyance to a trustee clothed with a power of sale offered the creditor several  advantages over the mortgage so that, by the time the distinctions between the two security instruments were  removed during the early part of the 20th century, the deed of trust had become the generally accepted and  preferred security device in California.”  
“Except for some minor distinctions, for all practical purposes, a mortgage that contains a power of sale has a  similar legal effect and economic function as the deed of trust. Each is subject to the same procedures and  limitations on judicial and non-judicial foreclosure, each is subject to the same redemption provisions both  prior to and after the foreclosure sale, and each is subject to the same anti-deficiency limitations. Both are  intended by the parties to serve the same economic function of providing security for the performance of an  obligation.” See, Miller & Starr, California Real Estate 3d, § 10:1.  
The depression era years of 1932 and 1933 were the turning point for beginning the process of reconciling  California mortgage and deed of trust law. Two California Supreme Court opinions arising from the same case  symbolize the fitful end of the “Legal Title” period and the beginning of the “Lien” period. Although Bank of  Italy II is universally cited as the seminal decision reconciling mortgage and deed of trust law, little attention is  paid to the fact that just six (6) months earlier, the California Supreme Court decided Bank of Italy Nat. Trust &  Savings Ass’n v. Bentley, 14 P. 2d 85 (1932) – Bank of Italy I. 
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In Bank of Italy I, the California Supreme Court held: “It must be considered as thoroughly settled in California  that a deed of trust is not a mortgage. Substantial differences between two types of security have been  recognized, and statutes applicable to mortgages have generally been held inapplicable to deeds of  trust…”.[citations omitted]…Stockwell v. Barnum, 7 Cal. App. 413, 94 P. 400 …Id., 14 P. 2d at 86.  
This holding of Bank of Italy I makes even more remarkable the reversal of position contained in Bank of Italy  II (only six months later in the same case before the same court): “This view, that deeds of trust, except for the  passage of title for the purpose of the trust, are practically and substantially only mortgages with a power of  sale…”. See, Bank of Italy Nat’l Trust and Savings Ass’n v. Bentley, 217 Cal. 644, 657 (1933).  
Current Law. The California Supreme Court’s recognition in Bank of Italy II that deeds of trust are  “practically and substantially only mortgages with power of sale” renders obsolete all pre-1933 case law that  was built upon the legal foundation of Koch v. Briggs that holds a deed of trust “has no feature in common with  a mortgage, except that it was executed to secure an indebtedness.” In case after case published over the last 75  years, the California courts have reconciled any remaining distinctions between a deed of trust and mortgage  with power of sale. See, The 1989 California Supreme Court case of Monterey S.P. Partnership v. W.L.  Bingham, Inc., 261 Cal. 3d 454 (1989). (“Monterey”) reveals just how far the unification of trust deeds and  mortgages has come.  
In Monterey, the court considered whether service of a complaint to the trustee of a deed of trust in a  mechanic’s lien foreclosure action is sufficient to bind the beneficiary of the deed of trust. In its holding, the  court makes it abundantly clear that a deed of trust creates a “lien” on the property and has the same legal effect  as a mortgage with a power of sale: “Although Whitney, supra, 10 Cal. 547, involved the effect of a mechanic’s  lien foreclosure on the rights of a mortgagee, the holding applies equally to a beneficiary under a deed of trust.  As explained in describing “the anomalous nature of deeds of trust in this state” (Bank of Italy etc. Assn. v.  Bentley (1933) 217 Cal. 644, 657, 20 P.2d 940), “deeds of trust, except for the passage of title for the purpose  of the trust, are practically and substantially only mortgages with a power of sale...”.  
In practical effect, if not in legal parlance, a deed of trust is a “lien” on the property and not a transfer of fee  title to the trustee, i.e., establishing and adopting the “lien” theory vs. the “legal title” theory. It would be  inconsistent with Bank of Italy, supra, 217 Cal. 644, 20 P.2d 940, to deny the beneficiaries the rights of  mortgagees recognized in Whitney, supra, 10 Cal. 547, merely because the beneficiaries’ security interest took  the form of a deed of trust, which conveys “title” to a trustee. The deed of trust conveys “title” to the trustee  “only so far as may be necessary to the execution of the trust.” (Lupertino v. Carbahal (1973) 35 Cal.App.3d  742, 748, 111 Cal.Rptr. 112.)  
The Court of Appeal also relied on Johnson v. Curley (1927) 83 Cal.App. 627, 257 P. 163, which held that  beneficiaries under a deed of trust were not necessary parties to an action to have that deed declared void for  fraud. However, as plaintiff Monterey and amici curiae on its behalf point out, the Court of Appeal’s reliance  on Johnson was misplaced for several reasons. First, Johnson was decided before the court clarified that a  deed of trust is tantamount to a mortgage with a power of sale. (Bank of Italy, supra, 217 Cal. at p. 657, 20  P.2d 940.) Id., at 590-591 (emphasis added).  
As Monterey makes clear, pre-Bank of Italy II cases premised on the distinction between trust deeds and  mortgages are no longer good law. The same result was recently reached in Aviel v. Ng, 161 Cal. App. 4th 809  (2008). In Aviel, the court considered whether a subordination agreement subordinating a lease to “mortgages”  also subordinated the lease to a deed of trust beneficiary that had foreclosed on the lessor’s property. The lessee  argued strenuously that the perceived distinctions between a mortgage and a deed of trust should result in the  court finding that the subordination did not apply to the deed of trust. The court rejected the arguments as  follows:  
Here there was a subordination clause within the lease rendering the lease subordinate to “mortgages which  may now or hereafter affect” the real property. The Ngs, however, emphasize distinctions between mortgages  and deeds of trust that are either illusory or unimportant. For example, they underscore that a deed of trust  conveys legal title, and, citing Anglo-California T. Co. v. Oakland Rys. (1924), 193 Cal. 451, 225 P. 452, urge  that “the interest in the property [vests] as an estate and not as a lien.” Anglo-California T. Co. predates Bank of 
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Italy and is predicated on the obsolete “lien” versus “legal title” theory historically relied on to differentiate the  two security devices/instruments. That theory has been discredited by the more contemporary jurisprudence  discussed above which functionally equates the two instruments and recognizes that a deed of trust, for all  practical purposes, is a “lien” on the property. Also See, Domarad v. Fisher & Burke, Inc., 270 Cal.App.2d  543, 553 (1969).  
These authorities and many more since 1933 confirm that any pre-Bank of Italy II authorities are premised on  the distinction between deeds of trust and mortgages with power of sale are no longer good law. These earlier  decisions have been rendered obsolete based on the evolution of California Law and the consistently applied  holding that mortgages and deeds of trust are functionally equivalent and trust deeds are evaluated under  general mortgage law. Also See, Cornelison v. Kornbluth, 15 Cal.3d 590 (1975).  
MECHANIC’S LIEN  
California law expressly provides that persons furnishing labor or material for the improvement of real estate  may file liens upon the property affected, if the persons furnishing labor or material are not timely paid. Thus,  an unpaid contractor, or a craftsman employed by the contractor to work on a building project, but who has not  been paid by the owner or contractor may protect their right as an unpaid contractor or craftsman employed by  a contractor, to receive payment by filing a lien against the property in a manner prescribed by law. Any person  who has furnished material such as lumber, plumbing, or roofing holds the same right, if the claim is not timely  paid. It is because of the possibility of these liens being recorded that an owner employing a contractor often  requires that a bond be furnished to guarantee payment of possible mechanics’ lien claims.  
DESIGN PROFESSIONAL’S LIEN  
Effective January 1, 1991, California Civil Code Sections 3081.1 through 3081.10 provide for the filing of a  design professional’s lien.  
For this purpose, a “design professional” is defined as a certificated architect, a registered professional  engineer, or a licensed land surveyor who furnishes services, pursuant to a written contract with a landowner  (property owner) for the design, engineering, or planning of a work of improvement.  
If a landowner (property owner) defaults under a written contract with a design professional, a 10-day written  demand for payment must be made on the landowner (property owner) prior to the recordation of a design  professional’s lien. Section 3081.3 requires the 10-day written demand for payment be mailed by first-class  registered or certified mail, postage prepaid, addressed to the landowner (property owner), which notice of and  demand for payment shall specify that a default has occurred (pursuant to the contract or agreement) and the  amount of the default. Subsequently, the design professional may record a notice of lien against the real  property on which a work of improvement is to be constructed, with the notice of lien describing the real  property being improved, and further specifying the building permit or other governmental approval of the  work as a condition of recording the notice of lien. See Civil Code Section 3081.2 and 3081.3.  
The design professional’s lien will not take priority over the interests of record of a purchaser/  buyer/lessee/encumbrancer, if the interests of the foregoing in question was duly recorded prior to the recording  of the design professional’s lien. See Civil Code Section 3081.9. The design professional’s lien does not apply  to the work of an improvement related to a single-family owner occupied residence where the construction  costs are less than $100,000 in value. See Civil Code Section 3081.10.  
Except as previously discussed, the statutes provide for enforcement of a design professional’s lien in the same  manner as a mechanic’s lien.  
Definition  
A lien is a charge imposed in some way, other than by a transfer in trust upon specific property by which it is  made security for the performance of an act. A mechanic’s lien is a lien that secures payment to persons who  have furnished material, performed labor, or expended skill in the improvement of real property belonging to  another. See Title 15 of the Civil Code, commencing with Section 3082.  
It is helpful to keep in mind while reading and thinking about this material on mechanics’ liens that: 
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∙ The mechanic’s lien claimant’s fundamental objective is to get paid; and  
∙ The claim of mechanic’s lien is the claimant’s security used to reach the objective of payment.  To convert the security for the lien into money requires:  
1. Timely recordation of a notice and claim of lien (one document) in the county recorder’s office in which  the work of improvement is located;  
2. Perfection of the recorded notice and claim of lien by the filing of an action (a lawsuit) in the right court;  
3. Recordation of a lis pendens (a written notice that a lawsuit has been filed concerning real property,  involving either the title to the property or a claimed ownership in the property);  
4. Timely pursuit of the lawsuit to judgment; and  
5. Enforcement of that judgment by a mechanic’s lien foreclosure sale.  
Origin  
The basic lien rights of mechanics, materialmen, artisans and laborers is found at Article XIV, Section 3 of the  California State Constitution:  
“Sec. 3. Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon  the property upon which they have bestowed labor or furnished material for the value of such labor done and  material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such  liens.”  
The statutes enacted pursuant to this constitutional provision are, as previously mentioned found in Title 15,  Division 3, Part 4, of the Civil Code, commencing with Section 3082. This Section of the law is entitled,  “WORKS OF IMPROVEMENT”.  
The Theory  
The mechanic’s lien law is based on the theory that improvements to real property contribute additional value  to land; therefore, it is only equitable to impose a charge on the land/property equal to such increase in value.  This charge may exist in the absence of any direct contract relationship between the lien claimant and the  landowner. The lien must, however, be founded upon a valid contract with the contractor, subcontractor,  material house, supplier, lessee or vendee. Also, ordinarily the lien is valid only to the extent of labor and  materials furnished for and actually used in the job.  
Public Policy  
The mechanics’ lien statutes and the decisions of the courts interpreting and construing them reflect a strong  public policy of providing extraordinary rights to unpaid contributors of services and material in the property  they were instrumental in improving, and in the funds intended for payment for the improvements. The rights of  these unpaid contributors accrue and may be enforced against the property, even though (in certain fact  situations) the owner of the property has not contracted with the claimant and no personal liability exists to the  claimant.  
The mechanic’s lien device is the traditional remedy giving security to people who improve the property of  others. However, owners are given means within the California statutes to protect against the burdening of their  land/property with improper liens. The basic elements of California’s system of protection for mechanics’  lienors and owners are:  
1. Mechanic’s lien;  
2. Stop notice on private work;  
3. Stop notice on public work;  
4. Payment bond on private work;  
5. Payment bond on public work;  
6. Contractor’s license bond; and  
7. Notice of nonresponsibility. 
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Persons Entitled to a Mechanic’s Lien  
The constitutional guarantee of the right to a mechanic’s lien upon the property is provided to mechanics,  materialmen, contractors, subcontractors, lessors of equipment, artisans, design professionals, machinists,  builders, teamsters, draymen, and all persons and laborers of every class performing labor upon or bestowing  skill or other necessary services upon, or bestowing materials, or leasing equipment to be used or consumed in  or furnishing appliances, teams, or power contributing to works of improvement. See Section 3110 of the Civil  Code. Persons specifically entitled to mechanics’ liens by virtue of the constitution and the statutes include the  following:  
Mechanics Registered Engineers  
Materialmen Licensed Land Surveyors  
Contractors Machinists  
Subcontractors Builders  
Lessors of Equipment Teamsters  
Artisans Draymen  
Architects Union Trust Fund  
See Section 3111 of the Civil Code 
Property Subject to Mechanics’ Liens  
The land/property that may be subject to a claim of mechanic’s lien should be the property described in a  recorded claim of mechanic’s lien. Perhaps the only safe exception to this is real property owned and used by  the public. No lien for work or material attaches to a “public work.” See Los Angeles Stone Co. v. National  Surety Co., 178 C 247, 173 P 79 (1918). In situations in which private enterprise undertakes improvement of  public lands/properties, a claim of lien could be sustained against the improvements, although it would be  invalid as to the land/property. See Western Electric Co. Inc. v. Colley, 79 CA 770, 251 P 331 (1926).  
With every statutory increase in the designation of those contributors of services and material entitled to a claim  of mechanic’s lien, there has usually been a corresponding broadening of the land/property interests that may be  subjected to a claim of mechanic’s lien. Today, under appropriate circumstances, a claim of mechanic’s lien  may attach to only a building or structure; only to land/property beneath a building or structure; to both  land/property and the building or structure; or, to a parcel of land upon/property for which there is no structure.  
Public Works  
This discussion of the mechanic’s lien law applies only to private works of improvement. Sections 3179  through 3214 and Sections 3247 through 3252 of the Civil Code should be consulted in connection with any  question or problem arising from the contribution of labor or material to a public work of improvement. A  “public work of improvement” means any work of improvement contracted for by a public entity. “Public  entity” means the state, Regents of the University of California, a county, a city, district, public authority,  public agency, and any other political subdivision or public corporation in the state. See Civil Code Sections  3099 and 3100.  
Work of Improvement  
Mechanics’ liens are triggered by the commencement of a work of improvement. A work of improvement is  defined in Section 3106 of the Civil Code as including the construction, alteration, addition to, or repair of a  building or structure. The structure could be a bridge, ditch, well, fence, etc. It may also include activities not  directly associated with a building or structure such as seeding, sodding, planting, or grading. A work of  improvement includes “site improvements” such as trees or other vegetation located on the land/property, the  drilling of test holes, grading, filling, or otherwise improving the land/property as well as the street, highway, or  sidewalk in front of adjoining the land/property. “Site improvements” also improve constructing or installing  sewers or other public utilities, the construction of areas, vaults, cellars, or rooms under the land/property  including sidewalks and demolishing or removing of any improvements on the land/property. See Civil Code  Section 3102. 
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Lender’s Priority  
If commencement of work has occurred on a project prior to recordation of a mortgage or deed of trust, all  mechanics’ liens are prior to the recorded instrument of encumbrance. The lender’s margin of security for  repayment of a construction loan is jeopardized by the commencement of work on the project prior to  recordation of the instrument of encumbrance. If any mechanic’s lien claimant can show that commencement of  work occurred prior to recordation of the lender’s instrument of encumbrance, all mechanic’s lienors will take  priority over the lender if the real property/land subject to the work of improvement is sold at sheriff’s sale. See 
Civil Code Section 3134.  
Preliminary 20-Day Notice  
The right to claim a lien and to assert the privileges of a mechanic’s lien claimant is dependent on compliance  with numerous statutory procedural requirements.  
The initial step in the perfection of a claim of mechanic’s lien for all claimants, except one under direct contract  with the owner, one performing actual labor for wages or an express labor trust fund, as defined in Civil Code  Section 3111, is to give the preliminary 20-day notice specified in Section 3097 of the Civil Code. That is,  before recording a mechanic’s lien, the lien claimant gives a written notice to certain persons, depending on the  relationship of the lien claimant to the work of improvement and the owner of the real property/land on which  the work has been done or will be done. The notice may be given any time after the contract has been entered  into, but it must be given no later than 20 days after claimant has first furnished labor, services, equipment or  materials to the job site. This 20-day notice is preliminary to the recording of a mechanic’s lien. It is a  prerequisite to the validity of a claim of mechanic’s lien. The persons who are entitled to receive the notice  depends on the relationship of the mechanic’s lien claimant to the owner of the property. Thus:  
1. If the claimant has a direct contract with the owner, the notice needs to be given only to the construction  lender, if any, or to the reputed construction lender, if any. See Section 3097(b) of the Civil Code.  
2. If the claimant does not have a direct contract with the owner, the notice is required to be given to the  following persons. See Section 3097 (a) of the Civil Code:  
 a. The owner, or reputed owner;  
 b. The original contractor, or reputed contractor; and  
 c. The construction lender, or reputed construction lender.  
 d. Any subcontractors with whom the claimant has contracted.  
The purpose of the notice is to inform the owner, original contractor, and construction lender, if any, prior to  the time of recording a claim of lien, that the improved property may be subject to liens arising out of a contract  to which they are parties. See Wand Corp. v. San Gabriel Valley Lumber Co. 236 CA2d 855, 46 Cal. Rptr. 486  (1965).  
The preliminary 20-day notice shall contain all of the following:  
1. Name and address of the person furnishing the labor, service, equipment, or materials;  2. Name of the person who contracted for purchase of the labor, service, equipment, or materials;  
3. A description of the job site sufficient for identification (e.g., common street address of the job site or legal  description);  
4. A general description of the labor, service, equipment, or materials furnished, or to be furnished and an  estimate of the total price thereof; and  
5. A Notice To Property Owner in bold face type as required by law.  
See Civil Code Section 3097.  
An up-to-date form should be used since a failure to use a current form that complies with the statute may cause  the court to disregard the preliminary 20-day notice. See Harold James Inc. v. Five Points Ranch, Inc., 158  CA3 1, 204 CR 494 (1984). 
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Every written contract entered into between a land/property owner and an original contractor shall provide  space for the owner to enter his name and address of residence and place of business. The original contractor  must make available the name and address of residence of the owner and the name and address of the  construction lender or lenders to any person seeking to serve a preliminary 20-day notice. See Section 3097 (m)  of the Civil Code.  
If one or more construction loans are obtained after commencement of construction, the property owner must  provide the name and address of the construction lender or lenders to each person who has given to the property  owner a preliminary 20-day notice. See Section 3097 (n) of the Civil Code.  
Filing a Preliminary 20-day Notice  
Each person serving a preliminary 20-day notice may file (not record) that notice with the county recorder in  which any portion of the real property is located. The filed preliminary 20-day notice is not a recordable  document and, hence, is not entered into the county recorder’s indexes that impart constructive notice. The  recorder is to maintain a separate and distinct index of the filings of the preliminary 20-day notice that does not  impart actual or constructive notice to any person of the existence (or contents) of the filed 20-day notice. No  duty of inquiry on the part of any party to determine the existence or contents of the preliminary 20-day notice  is imposed by the filing. See Civil Code Section 3079(o).  
The purpose of filing the preliminary 20-day notice is limited. It is intended to provide the necessary  information for the county recorder to issue notices of recorded notices of completion and of cessation to those  persons who filed the 20-day notice. Once the county recorder’s office records either a notice of completion or  cessation, it must mail to those persons who filed a preliminary 20-day notice, notification that a notice of  completion or cessation has been recorded and the date of recording of the foregoing. See Section 3097 (o) (2)  of the Civil Code.  
Failure of the county recorder to mail the notices required by law to the person who filed the preliminary 20- day notice, or the failure of those persons to receive such notices shall not affect the period within which a  claim of lien is required to be recorded. However, the county recorder is to make a good faith effort to mail  within 5 days after the recording of a notice of completion or cessation notices thereof to those persons who  filed the preliminary 20-day notice. See Section 3079 (o)(3) of the Civil Code.  
Determination of Completion Time  
Fixing the time of completion, to the exact day, is critical to establishing whether a given claim of lien  (mechanic’s or design professional’s lien) has been recorded within the time limit fixed by law. The  determination of completion of works of improvement can be complex under California law. Generally, any  one of the following alternatives is recognized by the law as equivalent to completion:  
l. Occupation or use by the owner or owner’s agent, accompanied by cessation of labor on the work of  improvement;  
2. Acceptance by the owner or owner’s agent of the work of improvement;  
3. A cessation of labor on the work of improvement for a continuous period of 60 days; or  
4. A cessation of labor on the work of improvement for a continuous period of 30 days or more, if the owner  records in the county recorder’s office a prescribed notice of cessation. See Section 3092 of the Civil Code.  
If the work of improvement is subject to acceptance by any public entity, the completion date is considered as  the date of acceptance or a cessation of labor for a continuous period of 30 days. See Civil Code Section 3086.  
Thereafter, generally within 10-days the owner may file the notice of completion. If properly drawn, it will  show the date of completion, the name and address of the owner, the nature of the interest or estate of the  owner, a description of the land/property (which includes the official street address of the property, if it has  one, or a sufficient legal description of the site), and the name of the original contractor, if any. If the notice is  given only of completion of a contract for a particular portion of the total work of improvement, then the notice  will also generally state the kind of work done or materials furnished.  
As previously mentioned, the notice of completion should be filed with the recorder of the county where the  property is situated within 10 days after completion of the work of improvement. See Civil Code Sections 3093  and 3117.
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A mechanic’s claim of lien may be filed:  
1. By the original contractor within 60 days after the date of filing for record of the notice of completion or  of cessation. An original contractor is one who contracts directly with the owner or owner’s agent to do the  work and furnish materials for the entire job, or for a particular portion of the work of construction. The  owner may enter into different original contracts, for example, framing, plumbing, painting, or papering. A  material supplier, as such, is not an original contractor. (It should be noted that contracting with more than  one original contractor may be subject to applicable provisions of the Contractors State License Law. See 
Business and Professions Code Section 7000 et seq).  
2. By any claimant, other than the original contractor, within 30 days after filing for record of the notice of  completion or of cessation.  
3. If the notice of completion or cessation is not recorded, the original contractor (as defined) or any other  claimant must file/record a claim of mechanic’s lien within 90 days after completion of the work of  improvement. See Civil Code Section 3106.  
If there are two or more original contractors, as defined, and a notice of completion or cessation is properly  recorded as to one of them, the original contractor under the contract covered by the notice must, within 60  days after recording of such notice, file/record the claim of mechanic’s lien. The claimant under the contract for  which notice of completion or cessation has been recorded must, within 30 days after the recording of the  notice, file/record the claim of a mechanic’s lien. Each original contractor and any claimants under the contract  with the original contractor are subject to their own notice of completion or cessation and the recording of a  claim of mechanic’s lien within the periods prescribed by applicable law. If no notice of completion or  cessation has been recorded, the period of recording claims of mechanic’s liens is the 90 days specified in  Sections 3115 and 3116. See Sections 3114, 3115, 3116, and 3117 of the Civil Code.  
Termination of the Lien  
Voluntary release of a mechanic’s lien, normally after payment of the underlying debt, will terminate the lien.  But even in the absence of release, the lien does not endure indefinitely. If a mechanic’s lien claimant fails to  commence an action to foreclose the claim of lien within 90 days after recording the claim of lien and if within  that time no extended credit is recorded, the lien is automatically null, void and of no further force and effect.  (Section 3144(b), Civil Code) When credit is extended for purposes of this limitation, it may not extend for  more than one year from the time of completion of the work. Moreover, a notice of the fact and terms of the  credit must be filed for record within the 90-day lien period.  
If the lien is foreclosed by court action, there may ultimately be a judicial sale of the property and payment to  the lienholder out of the proceeds.  
Notice of Nonresponsibility  
The owner or any person having or claiming any interest in the land may, within 10 days after obtaining  knowledge of construction, alteration, or repair, give notice that he or she will not be responsible for the work  by posting a notice in some conspicuous place on the property and recording a verified copy thereof. The notice  must contain a description of the property; the name of the person giving notice and the nature of his/her title or  interest; the name of the purchaser under the contract, if any, or lessee if known; and a statement that the person  giving the notice will not be responsible for any claims arising from the work of improvement. If such notice is  posted, the owner of the interest in the land may not have his/her interest liened, provided the notice is recorded  within the ten-day period.  
The validity of a notice of nonresponsibility cannot be determined from the official county records since they  will not disclose whether compliance has been made with the code requirements as to posting on the premises.  If such posting has not been made, a recorded notice affords no protection from a mechanic’s lien.  
Release of Lien Bond  
Owners and contractors disputing the correctness or the validity of a recorded claim of mechanic’s lien may  record, either before or after the commencement of an action to enforce the claim of lien, a lien release bond in  accordance with the provisions of Civil Code Section 3143. A proper lien release bond, properly recorded, is  effective to “lift” or release the claim of lien from the real property described in the lien release bond as well as  any pending action brought to foreclose the claim of lien. 
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CONDITIONS REQUIRING OWNER TO PROVIDE CONTRACTOR WITH COPY OF RECORDED  CONSTRUCTION LOAN INSTRUMENTS AND SECURITY FOR PAYMENT  
Recent amendments to the law require (in those fact situations where a lending institution is extending credit in  the form of a construction loan) the owner must provide the original contractor with a copy certified by the  county recorder of the recorded construction mortgage or deed of trust. The recorded instrument is to disclose  the amount of the construction loan. The trigger for the foregoing is when the contract for the work of  improvement is more than $5,000,000 and the owner is the fee simple title holder of the property, or the  contract for the work of improvement is more than $1,000,000 and the owner holds less than a fee simple title  interest such as a leasehold interest.  
In certain defined fact situations, the owner may be required to provide security for the payment obligations  under the construction contract. The security may be in the form of a payment bond, an irrevocable letter of  credit, or an escrow account with funds deposited therein subject to a security interest established in favor of  the original contractor being determined sufficient by written opinion of legal counsel. This body of law is  complex and should be reviewed by knowledgeable legal counsel. See Civil Code Section 3110.5.  
ATTACHMENTS AND JUDGMENTS  
Property Subject to Attachment  
Attachment is the process by which real or personal property of a defendant in a lawsuit is seized and retained  in the custody of the law as security for satisfaction of the judgment the plaintiff hopes to obtain in the pending  litigation. The plaintiff gets the lien before entry of judgment, and is somewhat more assured of availability of  the defendant’s property for eventual execution in satisfaction of the claim (if the judgment is awarded to the  plaintiff).  
The purpose of an attachment is to protect a plaintiff who is a prospective judgment creditor against attempts by  the defendant/debtor to transfer or dissipate the property subject to the attachment, and thus, in so dissipating  the property, frustrate efforts to obtain satisfaction of a judgment subsequently obtained. The property seized  and held under the attachment process constitutes an asset, or assets, which a judgment creditor may cause to be  sold through execution proceedings in satisfaction of the judgment.  
An attachment has always been referred to as a harsh remedy because it imposes a lien on the defendant’s  property and deprives him or her of absolute dominion and control over it for so long as it takes the court to  adjudicate the plaintiff’s claim. It is because of the deprivation of the defendant’s right to dispose of  defendant’s attached property that the procedural framework of the attachment process has not been adopted to  accommodate time consuming complex legal issues or disputes. Instead, the attachment process is based on the  theory that the existence of a debt owed by the defendant to the plaintiff is conceded and that the principal  function of the court is merely to ascertain the amount of that debt. This is why the right of a plaintiff to an  attachment lien before trial (a prejudgment attachment lien) has been historically confined to actions arising out  of contracts, express or implied, for the payment of money. Even in case of a claim arising out of a contract, the  courts have been reticent to issues orders for prejudgment attachment liens.  
Section 488.720 of the Code of Civil Procedure introduces a novel method of tempering the harsh  consequences of an attachment lien and preventing its abuse. In noticed proceedings before the court, should  the value of the defendant’s interest in the property sought to be attached be shown to be clearly in excess of  the amount necessary to satisfy plaintiff’s claim, the court may order a release of as much of the property as it  considers excess security.  
Prejudgment attachments of the property of a natural person (individual) have been limited by case law and  statute to claims arising out of the conduct of a business, trade, or profession. There are numerous other  limitations on obtaining a prejudgment attachment.  
Property Exempt from Attachment and Execution  
As a matter of public policy, certain property is exempt from attachment or execution where the defendant is a  natural person. The exemptions include, among others, property that is necessary for the support of the  defendant or the family of the defendant; “earnings” as provided for and defined in Code of Civil Procedure  Sections 706.010 and 706.011; interests in real property except leasehold estates with unexpired terms of less 
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than a year; accounts receivable of a trade, business, or profession conducted by the defendant, as defined;  equipment; farm products; inventory; money judgments arising out of the conduct of the defendant regarding a  trade, business, or profession; money on the premises where a trade, business, or professions is conducted by  the defendant, except the first $1000.00 located elsewhere, as defined; negotiable documents of title;  instruments; securities; and minerals or the like. Community property interests of the defendant are subject to  the attachment. A proper claim is to be made for the exemptions to apply. See Code of Civil Procedure Sections  487.010, 487.020, 487.030 and 706.010, et seq.  
The most important exemption is the homestead, and the formalities of declaration of homestead by the owner  are discussed later in this chapter. See Code of Civil Procedures Section 487.025.  
Judgment  
A final judgment is the final determination of the rights of the parties in an action or proceeding by a court of  competent jurisdiction. Of course, the possibility exists that either party will appeal the judgment and,  following the appeal, the judgment might subsequently be reversed or amended. Notwithstanding the foregoing,  comparatively few judgments are appealed. Even for those judgments that are not appealed, the judgment is  enforceable until the time to appeal or seek other procedural legal relief has elapsed.  
A simple money judgment does not automatically create a lien. However, as soon as a properly certified  abstract of the judgment is recorded with the recorder of any county, it becomes a lien upon all real property of  the judgment debtor located in that county. It extends in that county to all real property the debtor may  thereafter acquire before the lien expires. The lien of a lump sum money judgment normally continues for ten  years from the date of entry of the judgment or decree. See Code of Civil Procedure Section 664 et seq. As  with the lien on attachment, a judgment lien is discharged if enforcement of the judgment is stayed on appeal  and the defendant executes a sufficient undertaking (promise or security) or deposits in court the requisite  amount of money. See Code of Civil Procedure Sections 489.010 et. seq. and 515.010 et seq.  
California Law has been amended to limit the inclusion of the social security number of the debtor on the  abstract of judgment to the last four digits of the number. However, the listing of the social security number and  the driver’s license number of the judgment debtor pursuant to Section 4506 of the Family Code applies to  abstracts of judgment recorded after January 1, 1979, unless otherwise limited pursuant to the previously  mentioned section of the Family Code.  
The abstract of judgment is to contain the title of the court where the judgment is entered, the cause and number  of the action, and the date of the entry of the judgment in the records of the court. In addition, the name and last  know address of the judgment debtor and the name and address of the judgment creditor are to be included  along with the date of the issuance of the abstract. Generally, the priority of an abstract of judgment is the date  of recordation of the original abstract of judgment. Exceptions to this rule have been provided by law. See 
Code of Civil Procedure Section 674.  
EASEMENTS  
Generally  
Having considered various types of liens which are encumbrances affecting the title to property, it is important  to consider encumbrances which affect the physical condition or use of the property. Easements, probably the  most common of this category, are ordinarily rights to enter and use another person’s land or a portion thereof  within definable limits. Therefore, an easement is a right, privilege, or interest limited to a specific purpose  which one party has in the land/property of another.  
Easement rights are often created for the benefit of the owner of adjoining land. The benefitted land is called  the “dominant tenement,” and the land subject to the easement is described as the “servient tenement.” Unless  the easement is specifically described to be “exclusive,” its creation does not prevent the owner of the land  from using the land/property and the portion covered by the easement in a way that does not interfere with the  use of the easement.  
Appurtenant Easements  
Typical statutory easements (or land burdens or servitudes as they are also known) include, among others: a  right of ingress and egress (a right to go on the land and to exit from the land); the right to use a wall as a party  wall; or the right to receive more than natural support from adjacent land/property or things affixed thereto. 
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These easements, when attached to a ‘‘dominant tenement,” are considered “appurtenant” thereto, and pass  automatically upon transfer of the dominant tenement without explicit mention in the instrument of transfer.  “Appurtenant” means “belonging to.” Civil Code Section 801 lists a variety of easements commonly used in  real property transactions. Civil Code Section 801.5 provides for a solar easement to ensure that solar collectors  receive direct and unimpaired sunlight to facilitate the operation of the solar energy system.  
Easements in Gross  
It is possible to have an easement that is not appurtenant to particular land/property. Thus A, who owns no  related land/property, may have a right-of-way over B’s land/property. Public utilities frequently enjoy  easements to erect poles and string wires over private lands, yet own no related dominant tenement. Such  easements are technically known as easements in gross, and are personal rights attached to the person of the  easement holder and not attached to any specific land/property, yet in reality they encumber someone’s  land/property and in effect constitute an interest therein.  
If the instrument creating an easement is unclear, the following factors are useful in determining whether the  easement is appurtenant or in gross: (1) if the easement can fairly be construed as being attached to the  land/property, it will be so construed; (2) the intention of the parties and the right created are important  considerations; and (3) outside evidence may be considered.  
How Easements Are Created  
Easements may be created in various ways, such as by express grant, express reservation, implied grant or  implied reservation, agreement, prescription, necessity, dedication, condemnation, sale of land/property with  reference to a plat, or estoppel.  
Normally, easements arise in one of three ways. Either they are expressly set forth in some writing (such as a  deed or a contract), or they arise by implication of law, or by virtue of long use. Those created by deed must  comply with the usual requirements of any deed and may arise either by express grant to another or by express  reservation to oneself.  
While the most common method of creating an easement is by express grant or reservation in a grant deed,  written agreements/contracts between adjoining landowners/property owners often are used. Generally, a deed  or other recorded instrument to impart constructive notice of the easement established by the  agreement/contract. The person who can grant a permanent easement is the fee owner of the servient tenement,  or a person with the power to dispose of the fee.  
Easements created by agreement/contract with a deed or other instrument of record to impart constructive notice must not violate applicable law, public policy implementing the law, or public policy even though not  expressly applicable law. In a recent case, the agreement/contract between the dominant tenement and the  servient tenement established an easement for maintaining horses on the land/property of the servient tenement.  The applicable zoning ordinance prohibited the maintenance of horses on the land/property affected by the  easement. Because of the violation of the zoning ordinance, the court held the easement unenforceable and the  agreement/contract void. See Civil Code Section 1667 and Baccouche v. Blankenship (2007), Cal.App.4th [No.  B192291. Second Dist., Div. Four. Sep. 11, 2007.]  
Easement by Implication of Law  
Civil Code Section 1104 contains the rule for implied grants. Certain conditions must exist at the time  land/property is conveyed before an easement by implied grant will have effect. An easement by necessity is  one example of an easement by implication, but an easement by necessity differs somewhat in its requirements  from other easements by implication.  
The “way of necessity” is generally recognized whenever a transfer occurs which truly “landlocks” a parcel of  real estate (land/property) and no method of access exists, except over the servient tenement retained by the  seller, or over the land/property of a stranger. The former is established by implication. The later would  generally require a quit claim deed from the seller describing the road used by the seller and the seller’s  predecessors in title to the parcel of land/property conveyed that otherwise is “landlocked”. To implement the  claim to the access may require establishing the easement by perscription. 
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Another implied easement is recognized when land/property in one ownership is divided, and at the time of  division, one portion is being used for the benefit of the other portion, e.g., a sewer lateral. See Civil Code  Section 801 and 1104. 
Easement by Prescription  
Continuous and uninterrupted use for five years will create an easement by prescription where such use is  hostile and adverse (without license or permission from the owner), open and notorious (the owner knows of  the use or may be presumed to have notice of the use), exclusive (although use is not necessarily by one person  only, it is such as to indicate to the landowner/property owner that a private right is being asserted), and under  some claim of right. Generally, payment of ad valorem or other relevant real property taxes is not required to  establish an easement by prescription, although it is among the requirements to establish adverse possession and  ownership of the land/property. The obtaining of a quitclaim deed as discussed in the previous section may join  the concept of easement by implication with easement by prescription. Should the stranger have been in chain  of title to the subject land/property, an easement by implication with a quitclaim deed may be established. See Civil Code Section 813 and 1008. 
Termination of Easements  
Easements may be extinguished or terminated in several ways, including express release, legal proceedings,  nonuse of a prescriptive easement for five years, abandonment, merger of the servient tenement and the  easement in the same person, destruction of the servient tenement, and adverse possession by the owner of the  servient tenement. An easement obtained by grant cannot be lost by nonuse. See Civil Code Section 811.  
RESTRICTIONS  
A very common type of encumbrance is the restriction, which, as the name suggests, in some way restricts the  free use of the land by the owner. Commonly, restrictions are referred to as the covenants, conditions, and  restrictions (CC&Rs) or the declaration.  
Restrictions are generally created by private owners, typically by appropriate clauses in deeds, or in  agreements, or in general plans of entire subdivisions. A restriction usually assumes the form of a covenant—a  promise to do or not to do a certain thing—or a condition. Zoning is an example of a public use restriction on  the use of land.  
Distinction between Covenants and Conditions  
A covenant is essentially a promise to do or not to do a certain thing. It is generally used in connection with  instruments pertaining to real property, and is created by agreement. Typically it is embodied in deeds, but it  may be found in any other writing. For example, a tenant might covenant in a lease to make certain repairs, or a  buyer might covenant to use certain land/property only for a retail grocery store. A mere recital of fact, without  anything more, is not a covenant.  
A condition, on the other hand, is a qualification of an estate granted. Conditions, which can be imposed in  conveyances, are classified as conditions precedent and conditions subsequent. A condition precedent requires  certain action or the happening of a specified event before the estate granted can vest (i.e., take effect).  
A familiar example is a requirement found in most of the installment contracts of sale of real estate (also known  as a land contract of sale). All payments required under the agreement shall be made at the time specified  before the buyer may demand transfer of title. It is important to understand that the use of such contracts are  subject to legal issues where there is existing mortgages or deeds of trust encumbering the title of the  land/property described therein. Accordingly, such contracts should not be used without the advice of  knowledgeable legal counsel.  
If there is a condition subsequent in a deed, the title vests immediately in the grantee, but upon breach of the  condition, the grantor has the power to terminate the estate. This is termed a forfeiture, since the title may revert  or be forfeited to the creator of the condition or to the heirs or successors in interest of the creator without  payment of any consideration. An example is a condition subsequent in the deed stating that the property may  not be used for the sale of liquor or other forms of alcoholic beverage. Should this condition subsequent be  violated, title reverts to the grantor that created the condition or to the lawful heirs or successors in interest of  the grantor. 
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Covenants and conditions are distinguishable in two further respects, in regard to the relief awarded and  second, as to the persons by or against whom they may be enforced.  
Relief awarded. As to the first, while a condition affects the estate created, and the failure to comply with it  may result in a forfeiture of title, the only remedy to a breach of covenant is an action of damages or an  injunction. Breach of a condition may prevent any right arising in favor of the breaching party, or destroy a  right previously acquired, but does not subject the breaching party to liability and damages. While a breach of a  covenant gives rise to a right of actual damages, does not necessarily excuse the other party from performance.  
Enforcement. As to the second difference, a covenant normally does not bind successors of the promisor who  may become owners of the affected land/property. However, some covenants “run with the land” (i.e., they  bind the assigns of the covenantor or promisor and vest in and benefit the assigns of the covenantee or  promisee), or they may be binding and effective by statute or in equity. Conditions, on the other hand, run with  the restricted land into the indefinite future, unless abandoned or vacated by the grantor creating the condition  or the lawful heirs or successors in interest of the grantor.  
How construed. Whether a particular provision is a condition or covenant is a question of construction. Since  the law abhors forfeitures, the courts ordinarily will construe restrictive provisions as covenants only, unless the  intent to create a condition is plain. The use of the term “condition” or “covenant” is not always controlling.  The real test is whether the intention is clearly expressed and the enjoyment of the estate conveyed was  intended to depend upon the performance of a condition; otherwise, the provision will be construed as a  covenant only.  
For instance, the deed reciting that it is given upon the agreement of the grantee to do or not to do a certain  thing implies a covenant and not a condition. So also with a recital that the land conveyed is or is not to be used  for certain purposes.  
Certain Covenants and Conditions Are Void  
Covenants and conditions that are unlawful, impossible of performance, or in restraint of alienation, are void.  
For example, a condition that a party shall not marry is void, but a condition to give use of property only until marriage is valid. A condition against conveying without the consent of the grantor, or for only a specified  price, is void as in restraint of alienation. In such cases, title passes free of the condition subsequent. Recently,  owner/developers of subdivision properties have sought to impose conditions subsequent upon the deeds  conveying title to the individual parcels/properties within the subdivision requiring the payment of fees at the  time of sale or transfer to an entity established for a community purpose (such as the maintenance of a  commonly or publicly owned land/property functioning as a preserve).  
Title does not pass at all if a condition precedent is impossible to perform or requires the performance of a  wrongful act. However, if the act itself is not wrong, but is otherwise unlawful, the deed takes effect and the  condition is void.  
Covenants Implied in Grant Deed  
When the word “grant” is used in any conveyance of an estate of inheritance or fee simple, it implies the  following covenants on the part of the grantor (and grantor’s heirs or successors in interest) to the grantee (and  grantee’s heirs, successors and assigns):  
1. That the grantor has not already conveyed the same estate or any interest therein to any other person;  
2. That the estate is free from undisclosed encumbrances made by the grantor, or any person claiming under  grantor. As noted earlier, encumbrances include, among others, liens, taxes, easements, restrictions,  conditions, mortgages and deeds of trust.  
Thus, a grant deed by a private party is presumed by law to convey a fee simple title, unless it appears from the  wording of the deed itself that a lesser estate was intended. Moreover, if a grantor subsequently acquires any  title or claim of title to the real property that the grantor had purported to grant in fee simple, the after-acquired  title usually passes by operation of law to the grantee or grantee’s successors. When fee title to the  land/property is being conveyed that is subject to encumbrances such as mortgages and deeds of trust, the  practice in California is to rely on title insurance coverage (obtained at the time of the sale or transfer) listing  the encumbrances as exceptions to the coverage in the order of their priority. The title insurance coverage  issued to the purchaser is relied upon in lieu of describing these instruments of encumbrance on the face of the 
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deed. Accordingly, it is important that title insurance coverage be obtained at the time of the sale or transfer of  the land/property.  
Deed Restrictions  
Restrictions imposed by deeds, or in similar private contracts, may be drafted to restrict, for any legitimate  purpose, the use or occupancy of land/property. The right to acquire and possess property includes the right to  dispose of it or any part of it, and to impose upon the grant any legal restrictions the grantor deems appropriate.  However, the right may not be exercised in a manner forbidden by law. Restrictions prohibiting the use of  property on the basis of race, color, sex, religion, ancestry, national origin, age (generally), disability, sexual  orientation, marital status, familial status, or source of income are unenforceable under state and federal law.  
Declarations that impose restricted covenants that discriminate on the basis of race, color, religion or other  prohibited basis included in a deed or grant in violation of Section 12955 of the Government Code are unlawful  and unenforceable. Should historic restrictions include covenants that contain unlawful discriminatory  prohibitions, the conditions, covenants and restrictions, or other governing documents must contain a cover  page or stamp on the face thereof stating such restrictive covenants are unlawful and unenforceable. Further, a  statutory procedure is provided through which the documents may be created and recorded by a person who  holds an ownership record in the land/property that he or she believes is the subject of an unlawful restrictive  covenant. The document is entitled, “Restrictive Covenant Modification”. See Government Code Sections  12956.1 and 12956.2.  
In addition, conditions restraining alienation, when “repugnant to the interest created”, are void. However,  federal law has been enacted that preempts state law in this regard to the extent mortgagees or beneficiaries of  mortgage/deed of trust instruments have the right (pursuant to the provisions of these instruments) to accelerate  all sums due thereunder irrespective of the majority date stated in such instruments of encumbrance in the event  of the sale, transfer, further encumbrance, or other conveyance of the security property. See Section 711 of the  Civil Code and the Federal Depository Institutions Act of 1982.  
Restrictions may validly cover a multitude of matters: use for residential or business purposes; character of  buildings (single family or multiple units); cost of buildings (e.g., a requirement that houses cost more than  $100,000); location of buildings (e.g., side lines of five feet and 20-foot setbacks); and even requirements for  architectural approval of proposed homes by a local group/committee established for that purpose.  
Unless the language used in the deed clearly indicates that the grantor intended the conditions or restrictions to  operate for the benefit of other lots or persons, the restrictions run to the grantor only, and a quitclaim deed  from the grantor, or the grantor’s heirs, successors in interest or assigns, is a sufficient release. However, if the  language used in the deed shows that the conditions or restrictions were intended for the benefit of adjoining  owners, or other lots or owners of separate interests in the tract/subdivision (such as a common interest  development), quitclaim deeds may be required from each owner of separate interests having the benefit  thereof, as well as from the grantor or the grantor’s heirs, successors in interest or assigns, to release the  conditions or restrictions. When the subdivision is a common interest development, the vote of the owners of  separate interests is generally required. The requirements and conditions imposed by the political subdivision of  jurisdiction (local government) to establish the common interest development may prevent the release of the  covenants or restrictions without the concurrence of the governmental entity.  
Notice of Discriminatory Restrictions  
Effective January 2000, a county recorder, title insurance company, escrow company, or real estate licensee  who provides a declaration, governing documents or deed to any person that contain an unlawful covenant or  restriction must provide a specified statement about the illegality of discriminatory restrictions and the right of  homeowners to have such language removed. As previously mentioned, the statement must be contained in  either a cover page placed over the document or a stamp on the first page of the document. See Government  Code Sections 12956.1 and 12956.2. 
New Subdivisions  
In contrast to zoning ordinances, private contract restrictions need not promote public health, general public  welfare or safety. They may be intended to create a particular type of neighborhood deemed desirable by the  tract/subdivision owner and may be based solely on aesthetic conditions. These tracts/subdivisions are typically  know and described as common interest developments. As might be expected, the most common use of  covenants and restrictions today is in new subdivisions. The original owner/developer/subdivider establishes 
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uniform regulations as to occupancy, use, character, cost and location of buildings and records a “declaration of  restrictions” when the subdivision is first created. Thereafter, all lot owners or owners of separate interests, as  among themselves, may enforce the covenants and restrictions against any one or all of the others, provided the  covenants and restrictions have been properly imposed and have not been otherwise waived.  
In some cases, when land/property is originally subdivided, arrangement is made in the nature of a covenant  whereby a perpetual property owners’ association is formed to be governed by rules and regulations set forth in  an agreement signed by all new lot purchasers/owners of separate interests. Such associations (typically  described as homeowner’s associations) are often given the power to amend tract/subdivision restrictions from  time to time to correspond with community growth (provided the amendments are not inconsistent with the  conditions imposed by the local government having jurisdiction over the land/property when the  tract/subdivision was established and are not inconsistent with applicable law, including zoning ordinances and  building codes. Homeowner’s associations may have the power to revise building restrictions pertaining to  certain blocks of lots/parcels in the development/subdivision, impose architectural restrictions, and make other  authorized requirements from time to time.  
Termination  
Restrictions may be terminated by  
l. expiration of their terms;  
2. voluntary cancellation;  
3. merger of ownership;  
4. act of government; or  
5. changed conditions (i.e., a court finds that the restrictions should be terminated because the conditions  which the restrictions addressed have changed).  
Restrictions usually have either a fixed termination date or one which becomes effective on recordation of a  cancellation notice by a given the appropriate percentage of the lot owners or owners of special interests.  
Zoning Regulations  
Restrictions on the use of land may be imposed by government regulation as well as by private contracts.  
The governing authority of a city or county (local government) has the power to adopt ordinances establishing  zones within which structures/improvements must conform to specified standards as to character (including  aesthetic considerations) and location, and to limit buildings designed for business or trade to designated areas  consistent with the general plan. Zoning ordinances apply to each form of use that may be contemplated by the  owner of the land/property (agricultural, industrial, commercial retail, commercial office, research and  development, multi-family residential, single family residential, among others),  
However, zoning restrictions, to be valid, should be substantially related to the preservation or protection of  public health, safety, morals, or general welfare. They must be uniform and cannot be discriminatory or created  for the benefit of any particular group. Public authorities may enjoin or abate improvements or alterations that  are in violation of a zoning ordinance, but only the use of the land/property, not the title, is affected.  
ENCROACHMENTS  
Adjoining owners of real property often find themselves involved with encroachments in the form of fences or  walls and buildings extending over the boundary lines. The party encroaching on a neighbor may be doing so  with legal justification. The person who encroached may have gained title to the strip encroached on by adverse  possession, or may have acquired an easement by prescription or possibly by implication to the land/property  upon which the encroachment has occurred.  
On the other hand, the encroachment may be wrongful. If it is, the party encroached upon may sue for damages  and a court may require removal of the encroachment.  
Note: If the encroachment is slight (e.g., measurable in inches), the cost of removal great, and the cause an  excusable mistake, a court may deny removal and award dollar damages to the owner of the land/property  subject to the encroachment. In such an event, the local government would require either a boundary line  adjustment or an appropriate variance to establish the minimum “setbacks” required by the applicable zoning 
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ordinance. The determination whether the encroachment may remain and damages may be paid in lieu of  removal requires exhausting administrative remedies with the local government prior to a court of competent  jurisdiction being able to rule on the matter.  
HOMESTEAD EXEMPTION  
The principal purpose of the homestead exemption is to shield the home against creditors of certain types whose  claims might be exercised through judgment lien enforcement. Few areas of California real property law are  more misunderstood.  
Obligations unaffected by the declaration. Over the years, the homestead exemption amount has been  increased from time to time, with the type of homestead determining the actual amount of the exemption.  However, the validity of a homestead depends not only upon the recordation of the homestead declaration but  on certain off-record matters including, actual residency in the declared homestead dwelling at the time the  declaration is recorded and an actual interest in the “dwelling”.  
The homestead declaration does not protect the homestead from all forced sales. For example, it is subject to a  forced sale if a judgment is obtained: (l) prior to the recording of the homestead declaration; (2) on debts  secured by encumbrances on the premises executed by the owner before the declaration was filed for record;  and (3) obligations secured by mechanics’, contractors’, subcontractors’, laborers’, materialmen’s, suppliers’ or  vendors’ liens on the premises. Voluntary encumbrances by the owner of the homestead are not affected by a  declaration of homestead. A mortgage or deed of trust is an example of a voluntary encumbrance.  
Two Homestead Statutes  
Articles 4 and 5 of Chapter 4, Division 2, Title 9, Part 2 of the California Code of Civil Procedure  (commencing with Section 704.710) contain respectively the applicable law regarding the “Homestead  Exemption” and ”Declared Homesteads”.  
While both Articles deal with granting homeowners homestead protection from the claims of certain creditors,  the Articles are in part mutually exclusive. Article 4 provides protection to homeowner debtors who meet the  requirements but have not filed a declaration of homestead. Article 5 concerns homeowners who undertake the  actual filing of a homestead declaration. In either case, there is protection against certain judgment liens to the  amount of the exemption afforded by law.  
The following discussion concerns primarily the “Declared Homestead” under Article 5.  
(NOTE: A “Probate Homestead” also exists in California. See Probate Code Sections 60 and 6520 through  6528.)  
Declared Homestead  
A dwelling in which an owner or his or her spouse resides may be selected as a “Declared Homestead” by  recording a homestead declaration in the office of the county recorder of the county where the dwelling is  located. From and after the time of recording, the dwelling is a “Declared Homestead”. See the Code of Civil  Procedure Sections 704.710 and 704.910.  
Definitions for Declared Homestead  
A “Declared Homestead” is the dwelling described in a homestead declaration and a “Declared Homestead  Owner” includes both (1) the owner of an interest in the “Declared Homestead” who is named as a “Declared  Homestead Owner” in a homestead declaration recorded pursuant to Code of Civil Procedure Section 704.920  and, (2) the declarant named in a declaration of homestead, including the spouse of the declarant, recorded prior  to July 1, 1983, pursuant to the former Title 5 (commencing with Section 1237) of Part 4 of Division 2 of the  Civil Code. See the Code of Civil Procedure Section 704.910.  
“Dwelling” means any interest in real property (whether present or future, vested or contingent, legal or  equitable) that is a “dwelling” as defined in Section 704.710 of Article 4 and Section 704.910 of Article 5 of  the Code of Civil Procedure, but does not include a leasehold estate with an unexpired term of less than two  years or the interest of the beneficiary of a trust. See the Code of Civil Procedure Section 704.910.  
 For the purpose of Article 4 and Article 5 of the Code of Civil Procedure, “Spouse” means a “spouse” as  defined in Sections 704.710 and 704.910. 
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Definitions and Terminology  
Some of the terminology for “Declared Homesteads” depends for their meaning on definitions from Article 4,  which describes a residential exemption, even if there is no filing of a “Declared Homestead”. These definitions  are:  
1. “Dwelling” means a place where a person actually resides and may include, but is not limited to, the  following:  
 a. A house together with the outbuildings and the land upon which they are situated;   b. A mobilehome together with the outbuildings and the land upon which they are situated;   c. A boat or other waterborne vessel;  
 d. A condominium, as defined in Section 783 of the Civil Code;  
 e. A Planned Development, as defined in Section 11003 of the Business and Professions Code;   f. A stock cooperative, as defined in Section 11003.2 of the Business and Professions Code; and   g. A community apartment project, as defined in Section 11004 of the Business and Professions Code.  2. “Family unit” means any of the following:  
 a. The judgment debtor and the judgment debtor’s spouse if the spouses reside together in the homestead.  
 b. The judgment debtor and at least one of the following persons who the judgment debtor cares for or  maintains in the homestead:  
 (1) The minor child or minor grandchild of the judgment debtor or the judgment debtor’s spouse or  the minor child or grandchild of a deceased spouse or former spouse.  
 (2) The minor brother or sister of the judgment debtor or judgment debtor’s spouse or the minor child  of a deceased brother or sister of either spouse.  
 (3) The father, mother, grandfather, or grandmother of the judgment debtor or the judgment debtor’s  spouse or the father, mother, grandfather, or grandmother of a deceased spouse.  
 (4) An unmarried relative described in this paragraph who has attained the age of majority and is  unable to take care of or support himself or herself.  
 c. The judgment debtor’s spouse and at least one of the persons listed in paragraph (2) who the judgment  debtor’s spouse cares for or maintains in the homestead.  
See the Code of Civil Procedure Section 704.710. 
3. “Homestead” means the principal dwelling (l) in which the judgment debtor or the judgment debtor’s  spouse resided on the date the judgment creditor’s lien attached to the dwelling, and (2) in which the  judgment debtor or the judgment debtor’s spouse resided continuously thereafter until the date of the court  determination that the dwelling is a homestead. Where exempt proceeds from the sale or damage or  destruction of a homestead are used toward the acquisition of a dwelling within the six-month period  provided by Section 704.720, “homestead” also means the dwelling so acquired if it is the principal  dwelling in which the judgment debtor or the judgment debtor’s spouse resided continuously from the date  of acquisition until the date of the court determination that the dwelling is a homestead, whether or not an  abstract or certified copy of a judgment was recorded to create a judgment lien before the dwelling was  acquired. See the Code of Civil Procedure Section 704.710. 
4. “Spouse” does not include a married person following entry of a judgment decreeing legal separation of  the parties, or an interlocutory judgment of dissolution of the marriage, unless such married persons reside  together in the same dwelling. See the Code of Civil Procedure Section 704.710. 
Amount of Homestead Exemption  
The amount of the homestead exemption is the same under Articles 4 and 5 and is based upon the debtor’s  status at the time the creditor’s lien is recorded. The current protected homestead exemption values and the  required status of the debtor or spouse are as follows: 
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1. $50,000, unless the judgment debtor or spouse of the judgment debtor who resides in the homestead is  the person described in paragraph (2) or (3);  
2. $75,000, if the judgment debtor or the spouse of the judgment debtor who resides in the homestead at  the time of the attempted sale of the homestead is a member of the family unit, and there is at least one  member of the family unit who owns no interest in the homestead or whose only interest in the  homestead is a community property interest with the judgment debtor;  
3. $150,000, if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at  that time of the attempted sale of the homestead any one of the following:  
A. A person 65 years of age or older  
B. A person physically or mentally disabled and because of that disability is unable to engage in  substantial gainful employment. There is a rebuttable presumption affecting the burden of  proof that the person receiving disability insurance payments under Title II or supplemental  security income payments under Title XVI of the Federal Social Security Act satisfies the  requirement of this paragraph as to his or her inability to engage insubstantial gainful  employment.  
C. A person 55 years of age or older with a gross annual income of not more than $15,000 or, if  the judgment debtor is married, a gross annual income, including the gross annual income of  the judgment debtor’s spouse, of not more than $20,000 and the sale is an involuntary sale.  
Regardless of any other provision of this law, the combined homestead exemptions of spouse on the same  judgment shall not exceed the amount specified in paragraph (2) or (3) above, which ever is applicable,  regardless of whether the spouses are jointly obligated on the judgment or whether the homestead consists of  community or separate property or both. If both spouses are entitled to a homestead exemption, the exemption  of proceeds of the homestead shall be apportioned between the spouses on the basis of their proportionate  interests in the homestead. See the Code of Civil Procedure Section 704.730.  
Contents of the Declaration of Homestead  
1. A recorded homestead declaration will contain all of the following:  
 a. The name of the “Declared Homestead” owner. A husband and wife both may be named as “Declared  Homestead” owners in the same homestead declaration if each owns an interest in the dwelling  selected as the “Declared Homestead”.  
 b. A description of the “Declared Homestead”.  
 c. A statement that the “Declared Homestead” is the principal dwelling of the “Declared Homestead”  owner or such person’s spouse, and that the “Declared Homestead” owner or such person’s spouse  resides in the “Declared Homestead” on the date the homestead declaration is recorded.  
2. The homestead declaration shall be executed and acknowledged in the manner of an acknowledgment of a  conveyance of real property by at least one of the following persons.  
 a. The “Declared Homestead” owner.  
 b. The spouse of the “Declared Homestead” owner.  
 c. The guardian or conservator of the person or estate of either of the persons listed in (a) or (b) above.  The guardian or conservator may execute, acknowledge, and record a homestead declaration without  the need to obtain court authorization.  
 d. A person acting under a power of attorney or otherwise authorized to act on behalf of a person listed in  (a) or (b) above.  
3. The homestead declaration shall include a statement that the facts stated in the homestead declaration are  known to be true as of the personal knowledge of the person executing and acknowledging the homestead  declaration. If the homestead declaration is executed and acknowledged by a person listed in (c) or (d)  above, it shall also contain a statement that the person has authority to so act on behalf of the “Declared 
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Homestead” owner or the spouse of the “Declared Homestead” owner and the source of the person’s  authority.  
See the Code of Civil Procedure Section 704.930. 
The definition of “dwelling” for purposes of Article 5 means an interest in real property that is a dwelling as  defined in Section 704.710 (Article 4), but excludes a leasehold estate with an unexpired term of less than two  years at the time of the filing of the homestead declaration. A “dwelling” that is personal property (boat,  waterborne vessel or mobilehome not affixed to land/property) appears to be excluded under Article 5. Prior to  applying the definition of “dwelling”, the advise of knowledgeable legal counsel should be obtained. See the  Code of Civil Procedure Section 704.910.  
The law does not set a limit on the amount of land/property that may be contained in the homestead “dwelling”  property Ownership interests and occupancy by the owner or owner’s spouse at the time of filing the  declaration are the principal governing factors.  
Where unmarried persons hold interests in the same “dwelling” in which they both reside, they must record  separate homestead declarations, if each desires to have a valid homestead.  
Under previous law, a person who was a “head of household” was entitled to qualify for the amount of the  greater exemption. Under current law, the amount of the exemption will depend upon whether or not the  judgment debtor qualifies as a “family unit.”  
See Article 4 and 5 of the Code of Civil Procedure commencing with Section 704.710. 
Declarations recorded prior to July 1, 1983. Any declaration of homestead filed prior to July 1, 1983,  remains valid, but the effect is limited to the effect given a homestead declaration under current statutes, i.e.,  the previously filed declaration must be qualified under present law. See Article 5 of the Code of Civil  Procedure commencing with Section 704.910.  
Effect of recording - how terminated. When a valid declaration of homestead has been filed in the office of  the county recorder where the property is located, containing all of the statements and information required by  law, the property becomes a homestead protected from execution and forced sale, except as otherwise provided  by statute. The homestead remains operative until terminated by conveyance, abandoned by a recorded  instrument of abandonment, or sold at execution sale.  
A homestead declaration does not restrict or limit any right to convey or encumber the declared homestead.  
To be effective, the declaration must be recorded; when properly recorded, the declaration is prima facie  evidence of the facts contained therein; but off-record matters could prove otherwise.  
See the Code of Civil Procedure Sections 704.920, 704.940, 704.965, 704.970, 704.980, and 704.990.  
Rights of spouses. A married person who is not the owner of an interest in the dwelling may execute,  acknowledge, and record a homestead declaration naming the other spouse who is an owner of an interest in the  dwelling as the “Declared Homestead” owner but at least one of the spouses must reside in the dwelling as his  or her principal dwelling at the time of recording. See the Code of Civil Procedure Sections 704.920 and  704.930.  
Either spouse can declare a homestead on the community or quasi-community property, on property held as  tenants in common, or held as joint tenants, but cannot declare a homestead on the separate property of the  other spouse in which the declarant has no ownership interest. A homestead cannot be declared after the  homeowner files a petition in bankruptcy. The phrase, “Quasi-community property”, refers to real property  situated in this state acquired in any of the following ways:(1) By either spouse while domiciled elsewhere  which would have been community property if the spouse who acquired the property had been domiciled in this  state at the time of its acquisition. (2) In exchange for real or personal property, wherever situated, which would  have been community property if the spouse who acquired the property so exchanged had been domiciled in  this state at the time of its acquisition. 
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If a husband and wife own separate interests as separate property, each spouse qualifies for his or her own  exemption but the combined exemptions cannot exceed the amount that is due to a “family unit.” A declaration  intended to be for the “joint benefit” of both spouses, one or both spouses must qualify as a “family unit.”  
After a decree of legal separation or interlocutory judgment of dissolution of marriage, if a spouse no longer  resides on the property, the spouse cannot declare a homestead on the property.  
See the Code of Civil Procedure Sections 704.710 and 704.910 and Family Code Section 910 et seq.  
Levy and execution sale. When an execution for the enforcement of a judgment is levied on a homestead  dwelling, the judgment creditor must follow specific procedures.  
Within 20 days after a writ of execution is levied and the creditor is notified of this fact, the creditor must apply  to the court where the judgment was rendered for an order to execute the sale of the property. See the Code of  Civil Procedure Sections 704.740, 704.750 and 704.760.  
The value of the property is determined by the court. The court may appoint an appraiser and will consider  other evidences of value to set a minimum bid for the property. Creditors must prove sufficient value to receive  the minimum bid or the court may not make a finding for the sale.  
If the court makes an order for sale of the dwelling upon a hearing at which neither the judgment debtor’s  spouse nor attorney debtor or spouse appeared, then within 10 days after the order for sale, the creditor must  serve a copy of the order and statutory notice of sale on the debtor. The property is not sold if no bid is received  at least equal to the court’s prescribed minimum bid (which is a sum at least equal to the amount needed to pay  all liens and encumbrances on the property, the amount of the homestead exemption, and the lien of the  judgment creditor enforcing the lien), and the creditor cannot subject the property to an additional order for sale  for at least one year. See the Code of Civil Procedure Sections 704.770, 704.780, 704.790, and 704.800.  
After the sale, the proceeds of sale are distributed as follows: (a) to discharge all liens and encumbrances on the  property recorded prior to the judgment lien; (b) to the owner/debtor for the amount of the homestead  exemption; (c) to costs of execution; (d) to the amount due the judgment creditor; and finally (e) balance to  owner/debtor.  
The proceeds from the execution sale are exempt for 6 months after the debtor receives the proceeds. If  reinvested in a new “dwelling” and a new declaration of homestead is recorded within this 6-month period, the  new filing has the same effect as though recorded on the date the prior declaration was recorded. See the Code  of Civil Procedure Section 704.960(b).  
Federal Homestead Act of 1862  
The declared homestead discussed above has nothing to do with the term “homesteading” as applied to filings  on federal lands whereby a person acquired title to acreage by establishing residence or making improvements  upon the land.  
The purpose of the Federal Homestead Act of 1862 was to encourage settlement of the nation. Except for  Alaska, homesteading was discontinued on public lands in 1976. Because all the good agricultural land had  already been homesteaded and deeded, Congress recognized that the Homestead Act had outlived its usefulness  and passed the Federal Land Policy and Management Act of 1976that immediately repealed the old law (as to  all states except Alaska).  
ASSURING MARKETABILITY OF TITLE  
Casual reflection on the nature of title to real property and its use and transfer must lead to the conclusion that  establishing marketable title is often a complex and difficult undertaking. The term itself has no universally  accepted meaning. It does not mean a perfect title, but rather one that is free from plausible or reasonable  objections. In effect, the title is marketable (or merchantable) if there is reasonable assurance as to the extent of  the rights involved. The title must be such that a proper court would compel the buyer to accept it, if asked to  decree specific performance of the purchase and sale contract/agreement.  
Establishing a marketable title is especially important whenever land/property is transferred for consideration,  and when, in connection with such transfer or otherwise, money is loaned with land as security. The  prospective buyer or lender would be reluctant to commit funds to the transaction without some assurance of 
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getting what was bargained for. Buyers of real property expect some assurance that there are no hidden interests  in the real property they propose to buy.  
For example: One uses the surface, another extracts subsurface minerals, and a third controls the air space  above the surface. Interests in land/real property may be divided, distributed, and distinguished in many  different manners or ways. This occurs since much land/property is of comparatively high value, especially in  urban areas where the growth and concentration of population have placed a premium on such parcels.  Consequently, the land/property has been divided, subdivided and recombined into a patchwork measured in  feet and sometimes even in inches.  
Since the persons who own or deal with land/property are themselves subject to a variety of laws which  determine the extent of their rights (e.g., probate, dissolution, guardianship, bankruptcy, business association  laws, among others), an understanding of how these laws affect ownership rights is necessary. Since creditors  and others may burden the real property with a variety of liens and encumbrances, an understanding of how  applicable law affects the rights of mortgagees and mortgagors (beneficiaries and trustors) and creditors and  debtors is also essential.  
Who owns what? The issue is one of determining all the important facts with reference to who owns what  interests or rights in the title to a particular parcel of land. Actual possession of the land/property has always  been important and helpful in providing the answer. But possession may be by someone other than the owner,  and transfers may be made without taking possession. Hence, the documentary record of ownership in the  county recorder’s office of the county in which the parcel is located assumes great significance. Reliance on  recorded documents is encouraged by the official recording system under which deeds and other instruments  affecting title may be recorded with the recorder of the county in which the land/property is situated.  
Thus, a “chain of paper title” could be traced back to the original conveyance from the government. However,  recordation is not generally compulsory, although there are fact situations were it is required. The “Race  Recording” or “Race-Notice Recording” systems were created to accomplish a “chain of paper title” and to  establish the priority of recorded instruments/documents. However, the record of the “chain of paper title” is  not always properly achieved or maintained. Records may be erroneous, or sometimes may even reflect  fraudulent and unenforceable transactions. When done thoroughly and conscientiously, the resulting records  over the years become a complicated history in themselves, yet they may be woefully incomplete for purposes  of determining the status of the title in question. This is so for a variety of reasons.  
For example: In an intestate transfer, a qualified heir might have inadvertently been excluded; or a transfer,  valid on its face may have been made by a person incompetent because of age or mental condition. Then too,  other official records (e.g., tax records and records of court judgments) may profoundly affect the picture. In  short, title to land/property and marketability of that title depends not only on recorded facts of title transfer, but  also on a vast array of extraneous information outside of the documents recorded in the county recorder’s  office.  
Abstract of Title  
As might be expected under such complex circumstances, historically the individual buyer or lender was ill  equipped to make the necessary investigation of the status of the title to property. They soon came to rely on the  title specialist who made a business of studying the records and preparing summaries or abstracts of title of all  pertinent documents discovered in the search. An abstract of title is a summary statement of the successive  conveyances and other facts (appearing in the proper place in the public records) on which a person’s title to  real property rests. The abstract of title and a lawyer’s opinion of the documents appearing in the abstractor’s  “chain of title” were the basis of our earliest attempts to establish marketable title. This method still exists  today, with modern refinements.  
Certificate of Title  
In time, abstractors accumulated extensive files of abstracts and other useful data, including “lot books”  wherein references to recorded documents were systematically arranged according to the particular property  affected, and “general indices” wherein landowners were listed alphabetically together with information  concerning them and affecting titles (e.g., probates and property settlements).  
These files came to be known as “title plants” and provided classified and summarized histories of real estate  transactions and of other activities that affect or might affect ownership of the land/property in the areas 
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covered. With the growth and improvement of title plants and increased proficiency of examiners employed by  the abstractors, the formal abstract of title for delivery to the customer and the related legal opinion were  sometimes dispensed with completely. The abstract company would simply study its records and furnish the  customer with a certificate of title in which it stated that it found the title properly vested in the present owner,  subject to noted encumbrances. The certificate plan has strictly limited use today, for it was a transitional  method of assuring not insuring titles.  
Guarantee of Title  
The next step was the guarantee of title under which the title insurance company did more than certify the  correctness of its research and examination.  
Thus, the company provided written assurances (not insurance) about the title to real property. The coverage  was usually limited to a particular condition of title, a certain period of time, and a certain kind of information.  This meant it was engaged in the insurance business and generally was subject to regulation as such.  
Title Insurance  
As already noted, the public records may be incomplete or erroneous and do not necessarily disclose  shortcomings arising from forgery, incompetence, and failures to comply with legal requirements, among  others. Accordingly, the policy of title insurance was developed as the culmination of the quest for a reliable  and marketable title as well as compensation for incorrect assurances that cause a covered loss. Although still  covering most risks that are a matter of public record, it alone extends protection against many nonrecorded  types of risks, depending on the type of policy purchased. The title insurance company continues to utilize the  “title plant” to conduct as accurate a search of the records as possible and seeks to interpret correctly what it  finds in the records. Its unique contribution is the protection it affords against risks that lie outside the public  records.  
Preliminary report. In current practice, the title insurance industry typically issues a “preliminary report”  rather than a “search” or “abstract” that are intended to assure the status of title and for which there would be  liability, as defined in the document issued as a “search” or “abstract”. The Insurance Code defines  “preliminary report” as a “commitment” or “binder” furnished in connection with an application for title  insurance and such reports are offers to issue a title policy subject to the stated exceptions set forth therein and  such other matters as may be incorporated by reference. Preliminary reports are not abstracts of title, nor are  any of the rights, duties, or responsibilities applicable to the preparation and issuance of an abstract of title  applicable to the issuance of such reports. Preliminary reports are not to be construed as nor constitute a  representation as to the condition of title to real property (a “search” of the title). Preliminary reports are a  statement of the terms and conditions upon which the issuer is willing to issue its title policy, if such offer is  accepted. See Insurance Code Section 1234.11.  
Standard policy. In addition to risks of record, the standard policy of title insurance protects against:  
∙ off-record hazards such as forgery, impersonation, or lack of capacity of a party to any transaction  involving title to the land (e.g., a deed of an incompetent or an agent whose authority has terminated, or of  a corporation whose charter has expired);  
∙ the possibility that a deed of record was not in fact delivered with intent to convey title (typically excluding  a fraudulent conveyance);  
∙ the loss which might arise from the lien of federal estate taxes, which is effective without notice upon  death; and  
∙ the expense, including attorneys’ fees, incurred in defending the title, whether the plaintiff prevails or not.  
The standard policy of title insurance does not however protect the policyholder against defects in the title  known to the holder or to the agent of the holder to exist at the date of the policy and not previously disclosed  to the insurance company. Further, the standard policy neither protects against easements and liens which are  not shown by the public records; nor against rights or claims of persons in physical possession of the  land/property, yet which are not shown by the public records (since the insurer typically does not inspect the  property when offering such coverage); nor against rights or claims not shown in public records, yet which  could be ascertained by physical inspection of the land/property, or by appropriate inquiry of persons on the 
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land/property, or by a correct survey; nor against mining claims, reservations in patents, or water rights; nor  against zoning ordinances.  
These limitations may not be as dangerous as they might appear to be. To a considerable degree, the limitations  can or may be eliminated by careful inspection of the land/property by the purchaser/buyer or his or her agents  (e.g., brokers/appraisers) and a routine inquiry as to the status of persons in possession. However, if desired,  most of these risks can be covered by special endorsement or use of extended coverage policies at added  premium cost.  
ALTA Policy (for lenders). In California, many loans secured by real property have been made by out-of-state  financial institutions/licensed lenders that were not in a position to make personal inspection of the properties  involved except at disproportionate expense. For them and other nonresident lenders, the special ALTA  (American Land Title Association) Policy was developed. This policy expands the risks normally insured  against to include: rights of parties in physical possession, including tenants and buyers under unrecorded  instruments; reservations in patents; and, most importantly, unmarketable title. The new ALTA Loan Policy  (issued 10-17-92 and further revised 6-17-2006) also covers recorded notices of enforcement of excluded  matters (like zoning), as well as recorded notices of defects, liens or encumbrances affecting title that result  from a violation of matters excluded from policy coverage. A review by knowledgeable legal counsel of the  provisions of ALTA Loan Policies is recommended before purchasing coverage, including specific  endorsements.  
Extended coverage. The American Land Title Association has adopted an owner’s extended coverage policy  (designated as ALTA Owner’s Policy [10-17-92]) that provides to buyers or owners much the same protection  that the ALTA policy gives lenders. The owner’s policy has been recently revised and the coverage expanded.  The California Land Title Association (“CLTA”) has also provided expanded protection for the owner’s  policies it issues under standard coverage.  
However, reliance on the owner’s or the owner’s agent notice or knowledge of defects affecting the title and  not of record has also been expanded and enhanced. These policies offer no protection against defects or other  matters concerning the title that are known to exist by the insured (the owner or the agents of the owner) as of  the date of the policy that have not previously been communicated in writing to the insurer. These policies also  offer no protection regarding governmental regulations concerning occupancy and use. The former limitation is  self-explanatory; the latter exists because zoning regulations concern the condition of the land/property rather  than the condition of title.  
For homeowner’s (1 to 4 residential units) a new CLTA/ALTA policy was developed in 1998; (ALTA  Homeowner’s Policy (10-17-98), and CLTA Homeowners Policy (6-2-98). As previously mentioned, these  polices have been revised again. Generally, the policies are the same with the exception: the CLTA policy  provides a form of Subdivision Map coverage, while the ALTA policy makes the Map Act coverage optional.  The idea of the new and revised policies is to provide homeowners with a form of extended coverage. The new  and revised policies contain maximums payable under certain categories of coverage and small deductibles  payable by the insured. Both policies incorporate protection against certain risks that conventionally were  available only to lenders and only by endorsement.  
Domestic Title Insurance Companies in California  
Section 12359 of the Insurance Code of California requires that a title insurance company organized under the  laws of this State have at least $500,000 paid-in capital represented by shares of stock. Section 12350 requires  that the insurer deposit with the Insurance Commissioner a “guarantee fund” of $100,000 in cash or approved  securities to secure protection for title insurance policy holders. A title insurer must also set apart annually, as a  title insurance surplus fund, a sum equal to 10 percent of its premiums collected during the year until this fund  equals the lesser of 25 percent of the paid-in capital of the company or $1,000,000. This fund acts as further  security to the holders and beneficiaries of policies of title insurance.  
Policies of title insurance are now almost universally used in California, largely in the standardized forms  prepared by the California Land Title Association (“CLTA”), the trade organization of the title companies in  this State. Every title insurer must adopt and make available to the public a schedule of fees and charges for  title policies. Today, it is the general practice in California for buyers, sellers and lenders, as well as the 
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attorneys and real estate brokers who serve them, to rely on title insurance companies for title information, title  reports and policies of title insurance.  
Rebate Law  
Title insurance companies are required to charge for preliminary reports under the terms of legislation adopted  at the 1967 general session of the California Legislature. The rebate law requires title insurance companies to  not only charge for reports, but also to make sincere efforts to collect for them except in certain defined  circumstances.  
Title insurance companies can still furnish “the name of the owner of record and the record description of any  parcel or real property” without charge. Such information may be referred to as a “property profile” or “subject  property history”.  
The statute extends the anti-commission provisions of Section 12404 of the Insurance Code to prohibit direct or  indirect payments by a title insurance company to principals in a transaction as a consideration for title  business.  
Thus, the law prohibits a title insurance company from paying, either directly or indirectly, any commission,  rebate, or other consideration as an inducement for or as compensation on any title insurance business, escrow  or other title business in connection with which a title policy is issued. Rebates are also precluded in the Real  Estate Law, as defined.  
See Business and Professions Code Section 10177.4.
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