The buyer is a real estate lawyer and real estate broker, the title company told him while in escrow that the seller did not own the property and who the real owner is. The buyer filed a law suit against the seller and the owner for quit title, what laws etc. prevents him from having standing to do this? And should he the buyer be reported to the state bar, and state real estate board ?
A: Okay, I understand, now. The buyer believes that there is an agreement, other than one of record with the county clerk-recorder, by which the seller is the equitable owner of the property that the buyer seeks to purchase.
The possible legal vehicles would be:
1. Land Sales Installment Contract (aka contract for deed, wraparound land sales contract, etc.).
2. Undisclosed trust. A written trust agreement between owner and seller, whereby the seller is the trustee of the property, and has the power to transfer it to the buyer (or to anyone else).
3. Unrecorded title. Owner transferred property to seller by deed, as a gift or for cash, etc., and seller simply never recorded the deed.
4. Apparent or ostensible agency. seller has owner's undisclosed power of attorney, or seller is a licensed real estate broker or attorney who agreed to sell the property under his/her own name for owner.
5. Fraud. Owner and Seller conspired to try to trick buyer into pay seller the proceeds of sale, and Owner and Seller intend to split the profits. I'm putting this into the mix here, because it's at least legally possible. I'm not accusing anyone of actually trying to pull a confidence-scam (aka criminal false pretenses).
In each of the above cases, the buyer's solution is to file a quiet title lawsuit, and then try to use the tools of discovery to determine the owner's true knowledge of and intent re this transaction.
I won't speculate at what's actually going on, but absent showing that the claims of plaintiff/buyer on its face does not state a legal claim for relief (aka "demurrer"), the owner will have to hire legal counsel and defend title.
I would think that the owner's title insurance would cover this legal action to the limits of the policy -- but, I'm not sure. Never had this particular problem, myself. I understand the possibilities, though.
The owner could file a demurrer, which basically accepts everything that the buyer claims as true, and then shows that one or more elements of the quiet title claim are unprovable. The upside of this is that the case may end sooner, it offers the possibility of negotiation, as it pinches everyone's pocketbooks, so that they get a real taste of how much this thing is going to cost, if it moves forward to summary judgment and trial. The downside is that it's costly, and sometimes educating your opponent about what's wrong with his/her claim is bad. Personally, I only file a demurrer if I am absolutely certain that a plaintiff cannot successfully state a particular (or all) claim(s). Otherwise, if I see defects, then I tell the client: "Let the plaintiff spend his/her ammo and try to prove the case."
But, let's say, for example, that the plaintiff states "On information and belief, defendant Owner, conspired to defraud buyer out of his money." That statement is conclusory. It says that something bad happened, but not exactly what. The court is unlikely to allow a complaint to stand on what is mere speculation in the hopes of finding out the truth while engaged in a fishing expedition during discovery. So, you could demurrer and have that particular claim struck from the complaint entirely.
The botXXXXX XXXXXne here, is that if you are trying to find a way out of this mess, because you know in advance that there "is" something going on "behind the curtains," then you may want to seriously consider trying to settle the matter. Because unless you and/or your clients have deeeeeep pockets, this is going to burn cash like nobody's business
, and in the end, if the buyer has any legal smarts, he/she will get to the bottom of the case and get the property -- so, maybe it's not worth fighting over.
Note also, that if you're a Cal. Real Estate Broker, and you are involved as a party or an agent in some capacity, then your license could be at risk of suspension or revocation. The DRE (no wait, it's now the "BRE," effective today) doesn't like to see this sort of lawsuit floating around, because it tarnishes the entire industry, even if the agent ultimately prevails.
I think that about covers this issue. Please let me know what else you need.