2022

Chapter 8: California Fair Employment and Housing Act

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A Dear John to homebuyer love letters

A Dear John to homebuyer love letters somebody Fri, 09/22/2023 - 10:06 pm

Posted by Kinnedy Kriso | Jun 27, 2022 | Fair Housing, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

In California’s competitive markets, real estate agents depend on an arsenal of creative weapons to secure home sales transactions. But one of those weapons — the buyer love letter — is now coming under fire.

Homebuyer love letters are personal notes sometimes included in an offer, written to appeal to the seller on an emotional level. They often gush about the property (“I love your additions to the living room”), reveal some personal detail in the hopes of making a connection (“I noticed your garden, I have a green thumb too!”) and might even include a picture-perfect family portrait.

A good love letter plucks the seller’s heartstrings in a way that all-cash offers cannot. But even heartstrings wear down and being inundated with love letters in a hot market can cause sellers to tune out. More importantly, the letter might reveal a personal detail about the buyer against which the seller may harbor implicit bias.

The seller loves me, loves me not

Though agents are split on their effectiveness in swaying sellers, love letters come roaring back during competitive markets. In California, home prices rose sharply in response to the pandemic; closing transactions became an industry meme. Up against all-cash offers, California’s real estate professionals pulled out all the stops — including love letters.

In less competitive markets, these letters fall on deaf ears. And such a market is looming; the second half of the double-dip recession is expected to arrive heading into 2023.

California’s housing market stands at the precipice of a downturn, with prices expected to bottom in 2025. In fact, real estate licensees in the state are already seeing steep price cuts at every tier. Shortly, today’s hand wringing over the appropriateness of love letters will become moot. They may not return again until 2026 or 2027, when firsttuesday expects a sustainable recovery.

Editor’s note — Prepare for the upcoming recession by expanding your real estate skills and credentials with firsttuesday’s California Notary Education course.

But there’s a chance love letters may not even return for the next boom cycle. Thanks to increasing scrutiny on discrimination in real estate, some professionals are writing them off altogether. The concern is that sellers will base their decision on a personal detail, possibly discriminating against a stronger offer from a protected group.

The Federal Fair Housing Act (FFHA) prohibits discrimination in the sale, rental, and financing of housing based on:

race or color;
national origin;
religion;
sex;
familial status; or
disability.

California’s list of protected classes is more extensive than federal protections, with discriminatory practices prohibited based on an individual’s:

race or color;
religion;
sex;
sexual orientation;
gender identity;
genetic information;
marital status;
national origin;
ancestry;
familial status;
source of income; or
disability.

Related article:

Some states have gone as far as banning love letters entirely. Oregon House Bill 2550 prevents a seller from accepting love letters (including photographs) from buyers entirely. The bill became effective in 2022 but was recently blocked by a judge, establishing a preliminary injunction that prohibits enforcement of the law until a final decision is reached.

But here in California, love letters are still free to pluck heartstrings. A lawsuit has yet to challenge a seller or a real estate professional on discrimination based on a love letter. Experts rate the likelihood of successful legal prosecution in a love letter case as difficult to impossible. This is because a prosecutor would have to prove beyond doubt that the seller discriminated against a buyer based on their protected group status, and not the myriad other variables in the offer.

Implicit Bias training

For seasoned agents and brokers, the quiet discussion of managing clients’ personal biases is nothing new. But with the passage of California Senate Bill (SB) 263, that discussion has been codified in real estate licensing and education law.

SB 263 requires California licensees to undergo 2-hour course in implicit bias training; and 3-hour course on fair housing. This includes a critical interactive component in which the licensee roleplays as both consumer and real estate professional to explore implicit and explicit biases in the industry. These tools aim to create a better understanding of discrimination’s many facets, including those potentially communicated through love letters.

Editor’s note — firsttuesday is one of the first California real estate schools to develop and submit its own training and to the California Department of Real Estate (DRE) for approval. Sign up for the firsttuesday Newsletter to be notified when the course is available for your license.

Identifying personal biases in the real estate industry is only one step toward creating a fairer and more equitable California. Visit the firsttuesday resource page Legislative steps toward more affordable housing to stay ahead of California real estate’s changing legal landscape.

And let us know in the comments: will you continue to use buyer love letters in California despite their potential liability?

Related Reading:

Real Estate Principles

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Access to Homeownership and the Wealth Gap

Access to Homeownership and the Wealth Gap somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Oct 3, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the fourth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into the new continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode deconstructs the source of the homeownership gap and the corresponding wealth gap. Click for the prior episode in series.

A source of wealth

Homeownership is the main source of wealth for American families. To increase household wealth, the U.S. government subsidizes and encourages homeownership through various tax incentives and mortgage programs, like:

the mortgage interest deduction (MID);
Federal Housing Administration (FHA)-insured, low down payment mortgages;
low ceilings on capital gainstax; and
Proposition 13 (Prop 13) in California.

Yet despite these incentives, some groups have greater difficulty becoming homeowners than others, which leads to an enormous wealth disparity between racial and ethnic groups.

The median household wealth as of 2019 is:

$184,000 for white households;
$38,000 for Latinx/Hispanic households; and
$23,000 for Black households. [Kent, Ana Hernández & Ricketts, Lowell. (2021) Wealth Gaps between White, Black and Hispanic Families in 2019]

Put another way, for every dollar held by white households, Black households hold only 12 cents, and Latinx households hold only 21 cents.

While all types of asset ownership are greater for white households, the majority of this racial wealth gap can be explained by lower homeownership rates among Black and other minority households.

Why minority households steer clear of homeownership

If homeownership is the key to wealth, why don’t more minority households buy homes?

If past experience has taught minority communities anything, it’s that for Black and Latinx households, homeownership is not the “safe investment” many vociferously proclaim it to be.

The National Bureau of Economic Research (NBER) published a study on the impact of the 2008 Millennium Boom and subsequent Great Recession on the homeownership rates of Black and Latinx households compared to white households (Asian households were excluded from the study). [Bayer, Patrick; Ferreira, Fernando & Ross, Stephen L. (2013) The Vulnerability of Minority Homeowners in the Housing Boom and Bust]

It found the 2009 foreclosure crisis had a greater effect on Black and Latinx homebuyer communities compared to white communities. The share of homeowners who lost their homes to foreclosure during this time was:

over 1-in-10 Black and Latinx households; and
just 1-in-25 white households.

Why were Black and Latinx homeowners more than twice as likely than White homeowners to lose their homes? Three factors converged to increase the likelihood of foreclosure:

aggressive subprime or predatory lending;
high debt-to-income ratios (DTIs) allowed by lenders; and
high cases of employment instability.

Millennium Boom: the perfect storm for minority homebuyers

The most dangerous factor that increases the likelihood of foreclosure for Black and Latinx homebuyers is predatory lending.

The largest recognized case of predatory lending was settled by Bank of America (BofA) in 2012 for their subsidiary company, Countrywide’s, discriminatory lending practices. BofA paid $335 million to roughly 200,000 victims of Countrywide’s actions.

Countrywide discriminated against minority homebuyers in two ways, by:

charging higher fees to minorities than white homebuyers with equivalent qualifications; and
steering minority homebuyers into subprime mortgage products, even though the targeted homebuyers had equal or better credit histories than other white homebuyers who were not shown bad mortgages.

Higher upfront fees and subprime mortgages induced the minorities targeted by Countrywide to ultimately pay much more than similarly qualified white homebuyers. Therefore, when the housing market and the economy went bust following the Millennium Boom, it was more difficult for minority homebuyers to make mortgage payments than the white homeowners who took our mortgages with Countrywide — the mortgages themselves were already less favorable and posed more risk.

Lenders also deliberately encouraged minority homebuyers to take on more debt than they would reasonably be able to carry — in effect, steering them to a mortgage product with a higher DTI that would provide the greatest benefit to the lender. The higher a homebuyer’s DTI, the greater the risk and the less likely the buyer will be able to make future mortgage payments.

Lenders of the Millennium Boom era did not seem to care about this axiom, and knowingly pushed minority homebuyers into mortgages they were unable to pay. This resulted in higher immediate fees for lenders, who jettisoned the risk to other investors by selling the bad mortgages on the secondary mortgage market — out of sight, out of mind.

Lastly, homeowners were more likely to lose their home following the Great Recession due to the statistical fact that the heads of Black and Latinx households are more likely to be employed in professions more susceptible to economic downturns, like manufacturing and other hourly jobs. In other words, the heads of these households are more likely to lose their jobs than their white counterparts.

Job loss and the inability to pay are the biggest reasons homeowners default on their mortgages. Other financial shocks also contribute to the decision to strategically default, which is typically a struggling household’s last resort. [Gerardi, Kristopher; Herkenhoff, Kyle F.; Ohanian, Lee E. & Willen, Paul. (2015) Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default]

The problem for California real estate

California is a large, diverse state. Nearly 40% of the population identifies as Latinx (Hispanic or Latino/Latina), according to the U.S. Census. Roughly 16% identify as Asian and 7% identify as Black or African American. Therefore, discrimination in the mortgage and housing markets has a far-reaching influence on our state.

Another issue for minority homebuyers, not mentioned in the NBER report, is the discriminatory behavior practiced by some real estate agents.

Compared to similarly qualified white clients, the U.S. Department of Housing and Urban Development (HUD) finds real estate agents show fewer rental and for-sale listings to Black, Asian and Latinx clients. [Aranda, Claudia L.; Levy, Diane K; Pitingolo, Rob; Santos, Rob; Turner, Margery Austin; Wissoker, Doug; The Urban Institute. (2013) Housing Discrimination Against Racial and Ethnic Minorities 2012]

Why do some real estate agents tend to show minority homebuyers fewer listings than their white counterparts?

It’s usually implicit bias on behalf of the real estate agent. For instance, some real estate agents may think they’re doing their Black clients a favor by only showing them homes in neighborhoods predominately full of other Black residents (an unlawful practice). Or agents may not realize they’re slower to respond to requests by minority homebuyers, exercising a lesser degree of urgency than they would normally provide.

This perpetuates neighborhood segregation, which limits minority household access to higher quality jobs, better schools and other resources that disproportionately benefit white households.

The only way to stop a California real estate agent from discriminating against minority clients? The California Department of Real Estate (DRE) may enforce anti-discrimination laws. However, the DRE will only pursue an agent for ethics violations after first receiving a formal complaint.

In cases of discrimination, most homebuyers, sellers and renters do not know how to take appropriate action by contacting the DRE. Therefore, it is up to fellow agents and brokers to report discriminatory practices to the DRE. Aggrieved individuals may report complaints on the DRE’s website using their online complaint form.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

Related topics:
implicit bias

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As California’s rent relief funds run low, fraudsters rush to pilfer cash

As California’s rent relief funds run low, fraudsters rush to pilfer cash somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Apr 4, 2022 | Laws and Regulations, Property Management, Real Estate, Recessions | 3

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Keeping rental assistance programs churning amid the recession hangover requires California to fuel up on federal funding.

But now, the state is running empty.

For the past 12 months, California’s rent relief program — Housing Is Key — has accepted applications from tenants unable to make rent payments and from landlords submitting applications on their behalf. As of March 31, 2022, the window to apply for rental assistance in California has closed, though many applications are still in the pipeline, awaiting a decision on rent relief.

Related article:

On June 28, 2021, the state passed Assembly Bill (AB) 832, which saw:

$5.2 billion in federal funds allocated for the state’s rent relief program; and
tenants and landlords able to receive 100% of the back rent due to them.

However, the reality has fallen far short of the goal. As of March 2022, the statewide rent relief program has:

received $7.1 billion in requests for funds; and
allocated $2.5 billion in rent relief, paying on average $11,443 per household, according to Housing Is Key’s interactive dashboard.

To bridge the deficit between amounts received from the federal government and amounts requested from California tenants and landlords, the California Department of Housing and Community Development (HCD) formally requested an additional $1.9 billion from the U.S. Treasury.

The Treasury responded by granting the state just $62 million — far below what is needed, according to the HCD. The U.S. Treasury also released $136 million in its second round of emergency rental assistance (ERA), according to the U.S. Treasury.

These additional funds are a drop in the bucket compared to what the state’s tenants need to remain in their homes. Worse, what little funds are left may be at the mercy of fraudsters attempting to access what they view as a free lunch.

Related article:

Fraudulent claims for emergency rental assistance

Although the funds have fallen short, of the tenants who have been successful at receiving ERA, more than 84% are very low- or extremely low-income households, earning less than 50% of their area’s median income, according to the HCD.

While the state is working to distribute ERA funds to these tenants at greatest risk of eviction, tenants who have applied for ERA on or before the March 31, 2022 deadline may stave off eviction while their ERA decision is pending.

Related article:

In contrast, there’s the risk that some of the relief money will go towards paying out fraudulent claims.

The CEO of a risk solutions firm estimates 25% to 30% of claims for rent relief are filed fraudulently by individuals using personal identifiable information to pretend they are a tenant, according to ABC News.

In one case, a homeowner in Alameda County received a letter from the state addressed to someone who claimed to be renting his home, despite not being a landlord or owning any rental properties.

Officially, the state reports a much more conservative estimate of ERA fraud cases in California: 1,800 fraudulent rental assistance applications identified out of 500,000 statewide, or less than 1%, according to the HCD, as reported by ABC News.

Of course, there’s no way to know whether those identified cases represent the whole or if more are slipping through the cracks in the state’s investigations.

For example, in 2021, two California residents from Tulare County were arrested for attempting to defraud the rent relief program. The couple was charged with forgery and fraudulent personation, according to NBC news.

The HCD is confident fraud claims are under control, unlike at the beginning of the pandemic when unemployment fraud claims made up nearly 10% of all unemployment claims, according to the California Employment Development Department.

But the underpinnings of these two programs were much different, as states scrambled to distribute unemployment benefits during the 2020 recession. With so little time to prepare, fraud screening measures were not fully implemented.

That scramble was not so prevalent with the state rental relief program, which had months to prepare and continues to act slowly in approving applicants and distributing its funds, while also using greater security measures the state learned to be vital through its handling of unemployment benefits.

The pandemic and 2020 recession have been tough teaches, but it appears, at least from the state’s perspective, that it’s gotten ahold of fraud claims surrounding its rent relief program.

Now, it’s just a matter of getting ahold of funds.

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As mortgage interest rates rise, concessions return

As mortgage interest rates rise, concessions return somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Dec 12, 2022 | Buyers and Sellers, Finance, Interest Rates, Loan Products, Mortgages, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Mortgage rates in 2022

Mortgage interest rates have earned their spot as 2022’s news story of the year. In fact, 71% of respondents in a recent firsttuesday poll singled out interest rates as the biggest challenge in today’s housing market — and many are turning to old transaction tricks to salvage their sales volume.

In response to 40-year high consumer price inflation, mortgage interest rates swung upwards in 2022. In turn, buyer purchasing power has plummeted for California homebuyers. As of the third quarter (Q3) of 2022, homebuyers with the same income are able to borrow 31% less purchase-assist money than a year prior when interest rates were distorted at near-historic lows during the Pandemic Economy.

In step with purchasing power, one-to-four unit single family residential (SFR) mortgage origination volume has also fallen back significantly from 2021 levels, when they totaled $4.44 trillion, according to the Mortgage Bankers Association (MBA). This is a far cry from the MBA’s forecast of $2.26 trillion in SFR originations for 2022, and $2.05 trillion in 2023.

This slowdown in mortgage origination is forcing layoffs in the mortgage industry, with more to come over the next two years. Savvy mortgage loan originators (MLOs) have already begun to prepare for the downturn in origination fees with MLO side hustles.

In the meantime, buyers looking to recoup lost purchasing power are dusting off old strategies to secure a more comfortable monthly mortgage payment. The most popular strategies include builder concessions in the form of points or buydowns, adjustable rate mortgages (ARMs), interest-only mortgages and, of course, shopping with multiple lenders for the most competitive offer.

Mortgage points

Mortgage points draw in buyers by offering a lower interest rate over the life of the mortgage. With points, the buyer (or seller, when offered as a concession) pays an upfront fee to the lender in exchange for a lower rate.

Typically, each mortgage point is equal to 1% of the total mortgaged amount. For example, on a $100,000 mortgage, one points equals $1,000. Two points are 2% of the mortgage amount, or $2,000. On a $300,000 mortgage, one point is equal to $3,000.

Paying mortgage points is essentially prepaying mortgage interest upfront. For points to be a sound investment, buyers need to plan to stay in the home for several years.

Related article:

Buydowns

Seasoned agents and brokers might recognize temporary buydowns, a mortgage product widely used through the 1970s and 80s when mortgage interest rates also zoomed upward. Now, it’s experiencing a revival.

A temporary buydown reduces the homebuyer’s monthly payments in the first year (sometimes in the first two or three years) before resetting to the higher market rate. Instead of making the mortgage’s full monthly payments right away, the homebuyer makes discounted payments for the first year or more, depending upon which type of buydown the buyer secured.

The 3-2-1 and 2-1 temporary buydowns are among the most common. In the 3-2-1 buydown, a seller or builder pays an amount of money upfront to buy the rate down. For instance, the rate would go from about 6% — the current average 30-year fixed rate mortgage (FRM) rate — to 3% at the start of the payment period. The next year, the rate would go up to 4%; the following year 5%; and then finally 6% for the remaining years left on the mortgage.

The 2-1 temporary buydown works similarly, except it has two periods of adjustment instead of three — for example, it will begin at 4%, then reset to 5% after a year, then back to 6%.

Related article:

ARMs

ARMs provide lenders with periodic increases in their yield on the principal balance during periods of rising and high short-term interest rates. They enjoy greater demand when interest rates or home prices rise quickly, leaving fewer buyers able to qualify for FRM financing. A graduated payment schedule allows buyers time to adjust their income and expenses in the future to begin the eventual amortization of the loan.

ARMs averaged a rate of 5.70% as of November 2022, compared to 6.49% for the average 30-year FRM rate as of December 2, 2022.

The low teaser rate on ARMs makes the risk more appealing to homebuyers set on taking back the purchasing power they lost to rate hikes. It also helps break down resistance to home price reductions — dissolving the sticky pricing phenomenon among your seller clients.

As the undeclared recession intensifies going into 2023, expect the ARM rate to rise and exceed FRM rates, likely in the first half of 2023. This inversion will slash homebuyer appeal of ARMs instantly.

Related article:

Interest-only mortgages

With an interest-only ARM, the buyer’s monthly payments are applied only to the interest due on the loan, not to the loan principal. This interest-only payment schedule is typically for three to 10 years.

After the interest-only period expires, the buyer’s monthly payments are adjusted to include both interest and principal. However, because the buyer did not make any principal payments during the first few years of the mortgage term, the principal payments are amortized over a shorter period of time.

For example, a buyer enters into a mortgage agreement with a lender for an ARM which amortizes over 30 years. The terms of the mortgage provide for the buyer to make interest-only payments for the first three years of the mortgage. After the three-year period expires, the lender will adjust the interest rate according to the terms of the mortgage and recast the mortgage to amortize the buyer’s payments over the remaining 27-year period.

Some interest-only mortgages also have periodic adjustments to the interest rate during the interest-only period.

Buyer beware: the longer the interest-only period, the greater the payments will be when the loan recasts.

Consider a buyer taking out a 30-year ARM with a five-year interest-only feature. The buyer’s monthly payment during the first five years of the mortgage is $625. However, after the initial teaser period, the lender recasts the mortgage, raises the interest rate to 5% and amortizes the mortgage balance over the remaining 25 years of the mortgage. The buyer’s monthly mortgage payment jumps to $1,461 in the sixth year of the mortgage, more than double the amount of the buyer’s early payments.

Shopping around

No matter the interest rate environment, the best way a buyer may secure the most competitive interest rate is to mortgage shop between lenders.

When choosing a lender, buyers need to cast a wide net and consider different types of institutions — such as an online lender, a bank and a credit union.

Different lenders offer different closing costs and interest rates, which may save (or cost) a homebuyer thousands over the life of the mortgage.

Real estate professionals: your buyers need to apply with at least three lenders to find the lowest rate, lowest fees and most favorable terms. Homebuyers are largely unaware interest rate quotes vary significantly between lenders.

Once your client has applied to multiple lenders, take advantage of our Mortgage Shopping Worksheet to quickly compare the rates, costs and terms of each lender. [See RPI Form 312]

Although mortgage interest rates are in the midst of a long-term rising cycle, real estate professionals can still count on these strategies to squeeze more transactions out of a slowing housing market.

Subscribe to Quilix, the firsttuesday newsletter, for more weekly news and updates on tailoring transactions to a recessionary market.

Related topics:
adjustable rate mortgage, mortgage, mortgage interest rates

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Avoid Discrimination Risks When Advertising

Avoid Discrimination Risks When Advertising somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Oct 17, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the sixth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode provides actionable guidance for advertising to a wide, diverse audience. The prior episode covers the economic drawbacks of implicit bias.

Implicit signaling

In advertising, a company needs to target audiences effectively and directly. For example, goods marketed toward women are stereotypically packaged in pastels, identifying them as engineered for a feminine audience before you can even say “For Her.”

While that might pass muster in retail, applying such a strategy in real estate may amount to implicit discrimination or worse – explicit discrimination.

For an example of implicit discrimination in advertising, consider an agent who directs Black homebuyers only to neighborhoods with a large Black population. While they may believe they are acting in their client’s best interest by guiding them to a community with a similar population, the impact is discriminatory and this activity is unlawful.

Of course, some neighborhoods are not a good fit for every homebuyer. But when selling and renting properties, it is risky to limit your marketing blitz to a single group — even when that group is protected under fair housing laws.

Relatedly, when you are going to use models or stock photography in any of your marketing materials, be mindful to use images of all types of people. Do not single out one group in particular, even when the group you choose to single out is a protected group. By relying on just one type of person in your marketing, whether premised on race, gender or other protected class, you are implicitly signaling the property is not a good fit for others who are not in this group.

Federal protections under the Federal Fair Housing Act (FFHA)

The printing or publishing of an advertisement for the sale or rental of residential property that indicates a wrongful discriminatory preference is a violation of the Federal Fair Housing Act (FFHA). [42 United States Code §3604(c)]

A property sold or leased for residential occupancy is referred to as a dwelling. The discriminatory preference rule applies to all brokers, developers and landlords in the business of selling or renting a dwelling. [42 USC §3603, 3604]

Real estate advertising guidelines are issued by the Department of Housing and Urban Development (HUD). The guidelines are the criteria by which HUD determines whether a broker has practiced or will practice wrongful discriminatory preferences in their advertising and availability of real estate services.

HUD guidelines also help the broker, developer, and landlord avoid signaling preferences or limitations for any group of persons when marketing real estate for sale or rent.

Wrongful discriminatory preferences in advertising

The selective use of words, phrases, symbols, visual aids and media in the advertising of real estate may indicate a wrongful discriminatory preference held by the advertiser. When published, the preference can lead to a claim of discriminatory housing practices by a member of the protected class.

Words in a broker’s real estate advertisement that indicate a particular race, color, sex, sexual orientation, handicap, familial status or national origin are considered violations of the FFHA.

To best protect themselves, a broker – as gatekeeper to real estate – refuses to use phrases indicating a wrongful preference, even when requested by a seller or landlord.

Preferences are often voiced in prejudicial colloquialisms and words such as restricted, exclusive, private, integrated or membership approval. Words or phrases indicating a preference in violation of the rights of persons from protected classes include:

white private home;
perfect for newlyweds;
Jewish (or Christian) home;
country club nearby;
Black home;
walking distance from the synagogue;
ideal bachelor pad;
spacious master bedroom;
Hispanic neighborhood; or
adult building.

Beyond just words

Words are not the only way to discriminate. Selectively using symbols, images, human models, visuals and other forms of media indicate preference too. Examples of symbols and other visual aids used in advertising include:

sexuality pride flags;
religious images such as a cross or Star of David;
gender symbols;
handicapped signs; and
flags representing nationalities.

As previously discussed, aiming an advertisement at a particular class may lead people outside the group to believe they are not welcome in the area. Also, it may make the seller and their agent look like they only want to do business with a few select groups, which is never the desired intent in good brokerage practice.

The phrases above directly target protected classes, so it is best to leave them out of your practice – period. This includes listings and marketing materials, as well as applications and deeds. While some may not sound aggressively prejudiced, even the seemingly harmless phrase “spacious master bedroom” is to be avoided due to the historical underpinning of the expression.

Regardless of what the advertiser meant, these problematic phrases can alienate clients and welcome a discrimination lawsuit.

Further, these phrases may not directly reference protected classes. Words like “exclusive,” “private” and “restricted” indicates the neighborhood has a barrier to entry, such as income, religion or ethnicity. Phrases like “membership approval” raise all sorts of loaded questions, like what makes someone qualified for a membership and how members are approved. It’s best to avoid these red herring words and focus on the property facts, of which there are many.

Protect against discrimination lawsuits

As a matter of best practices, real estate professionals – gatekeepers – need to avoid using discriminatory language or images in their practice, keeping in mind the ostensibly welcoming advertisement examples discussed here. Further, to create a favorable impression which induces the most people to contract for real estate services with the brokerage, real estate professionals need to avoid all language that is politically charged or can be construed of carrying an unintended loaded meaning.

No matter how well-intentioned the specifications may be, good intentions will not protect brokers and agents against fines and potential litigation.

Brokers may not direct potential buyers or renters to areas the broker thinks are suitable for them based on their protected status.

Prior to 2022, a loophole in the Real Estate Regulations allowed agents to decide which properties to show clients with disabilities, based on what the agent believed to be suitable or unsuitable properties due to the client’s disability. For example, a broker representing a client in a wheelchair may have skipped showing their client any properties with stairs, believing they were doing their client a favor.

However, agents cannot fully understand their clients’ needs or abilities, even despite their best intentions. Therefore, a 2022 update requires real estate professionals to provide all clients an opportunity to view, rent, sell or finance any property the client believes will suit their needs, closing the disability loophole. [DRE Reg. §2780(b)]

It is best to cast a wide net in real estate when advertising homes as using discriminatory ads may lower turnover rates – and in turn, reduce fees. Brokers are better off making listings sound inclusive, not like they’re trying to appeal to a niche.

Fair housing is not a niche, and neither is getting paid.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

Related topics:
advertising, implicit bias, marketing

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Avoid Discrimination Risks in Rental Practices

Avoid Discrimination Risks in Rental Practices somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Nov 7, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the seventh episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode covers fighting implicit bias in the screening of tenant applicants. The prior episode covers avoiding discrimination risks in advertising.

Ask the same standard questions of all tenants

A good rule of thumb is to simply not ask a potential or current tenant questions regarding their protected status.

For example, since landlords may not discriminate based on a tenant’s national origin, landlords may not ask prospective tenants what country they were born in as this can never be a factor in deciding the terms, conditions or privileges for their rental of a dwelling.

To avoid discrimination, landlords need to ask all potential tenants the same standard questions to ensure equal treatment. Landlords also ought to limit inquiries to matters that are directly applicable to the potential renters’ tenancy or the maintenance of the rental property.

For example, landlords may ask:

about the presence of pets;
how many tenants will occupy the property;
how many parking spaces will be required;
whether their present landlord will provide a favorable reference;
whether any of the tenants smoke; and
whether any of the tenants intend to use a waterbed in the premises.

This allows landlords to screen tenants effectively and limits vulnerability to a lawsuit from a potential tenant who believes they were treated unfairly. For example, a landlord may not ask questions about the tenant’s:

marital status;
religious practices;
intention to have children;
national origin;
disability status; or
any other protected status.

Some common fair housing violations more broadly include:

refusing to rent, lease or sell housing due to illegal discrimination;
sexual harassment, particularly demanding sexual favors in return for housing;
creating documents, such as covenants, conditions and restrictions (CC&Rs) that discriminate against a protected group;
denying a home loan or insurance for discriminatory reasons; and
failing to reasonably accommodate a disability.

When a landlord is on shaky ground with fair housing laws, it is best to err on the side of caution. The penalties for violating these laws are serious and can include loss of their license, and awarding money to the aggrieved individuals involved and paying attorney fees.

Removing discriminatory language from CC&Rs

A common interest development (CID) or homeowners’ association (HOA) may not be governed by covenants, conditions and restrictions (CC&Rs) which discriminate against any person due to an individual’s actual or perceived:

race;
color;
religion;
sex;
gender;
gender identity;
gender expression;
sexual orientation;
marital status;
national origin;
ancestry;
familial status;
source of income;
disability;
veteran or military status; or
genetic information. [Calif. Civil Code §4225(a); Calif. Government Code §12955(a); (m)]

When a discriminatory declaration is included, the board will amend and record the CC&Rs to remove the prohibited declaration regardless of membership approval. [CC §4225(b); (c)]

When a person provides the CID with written notice regarding the discriminatory language included in the CC&Rs, the board has 30 days to remove the prohibited language. When the language is not removed within 30 days, the Department of Fair Employment and Housing (DFEH), the local government in which the CID is located or any person may pursue legal action against the CID. [CC §4225(d)]

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

Related topics:
implicit bias

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Black mortgage applicants denied almost twice as often as white applicants

Black mortgage applicants denied almost twice as often as white applicants somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Feb 14, 2022 | Fair Housing, Mortgages, Real Estate | 4

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Bias in mortgage lending is well-documented historically, and it continues today. The result has been lower homeownership rates and less wealth for Black and Latinx households.

Nationwide, Black mortgage applicants are denied nearly twice as often as white applicants. Here in California, mortgage denial by race is not as starkly unequal as on the national scale, but the difference in denial rates is still apparent. The share of mortgage applications denied by race is:

16% for American Indian mortgage applicants;
15% for Black applicants;
13% for Latinx applicants;
13% for Pacific Islander applicants;
10% for white applicants; and
10% for Asian applicants, according to a Zillow analysis of the 2020 Home Mortgage Disclosure Act (HMDA).

While the share of households unable to qualify for a mortgage is clearly skewed across race and ethnicity, it is not necessarily due to explicit discrimination. The high mortgage denial rates for non-white and non-Asian households can be traced to many observable factors, including:

down payment size;
credit history;
debt-to-income (DTI) ratios; and
job security.

For example, just over one-third of Black mortgage applicants who didn’t qualify were denied due to credit history. Further, the average Black mortgage applicant listed a 3.5% down payment, well below the 8.9% down payment from applicants averaged across all races.

In these cases, it’s not so much direct discrimination by the lender, but the residual effects of systemic racism on Black and Latinx communities.

For example, redlining and its ongoing impacts have reduced wealth in Black and Latinx communities, limiting generational wealth and reducing access to benefits like down payment gifts and inheritance. Redlining is the practice of denying mortgages and under-appraising properties in minority communities.

While redlining was outlawed in 1977, its impacts continue all these years later. Redlining led to a decline in both the quality and quantity of housing in communities lenders considered to be “risky” investments. Today, these neighborhoods that were subject to redlining have lower homeownership rates, home values and rents — and thus, less wealth.

In fact, parental transfers of wealth like down payment gifts account for 30% of the Black-white homeownership gap, as found in a study by the Consumer Financial Protection Bureau (CFPB). In the U.S., young white households are twice as likely to be homeowners as are young Black households.

The result: the homeownership rate for Black households in the U.S. is just 44% and 48% among Latinx households. By the same measure, the homeownership rate for white households is a whopping 73%.

Related article:

Proactive agents step in

Real estate brokers and agents are well positioned to open the doors of homeownership for all groups of people, including those who have historically been left out of homeownership. Often, a proactive approach is needed.

When a potential homebuyer wants to buy but is unable qualify due to common reasons like a lack of credit history, low down payment or high DTI ratio, their agent encourages them to keep trying.

It’s important for brokers and agents to take the extra step to help these potential homebuyers qualify when they are in a better financial situation, maybe a few months in the future. For example, brokers can inform unsuccessful mortgage applicants about special mortgage programs designed for first-time homebuyers. Some of these programs allow more leeway in qualifying or provide down payment assistance.

In other cases, the client will be able to gain mortgage approval after taking a few steps to pare down debt or build their credit history. Without being pushy, brokers may continue to check in every month or so to see where they are in the process. Clients may be discouraged or embarrassed about being denied a mortgage, but it’s the broker’s job to keep them motivated and on the path to homeownership.

Agents who want to break down the homeownership barrier will take positive steps to ensure they are reaching the broadest range of potential clients, removing obstacles and not leaving any group out of the potential for homeownership.

Editor’s note — firsttuesday’s editorial staff is hard at work preparing content for California’s new implicit bias course requirements. Want to get a head start on fair housing and implicit bias topics? Download firsttuesday’s Fair Housing continuing education e-book.

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Buyer breach of contract in a decreasing price environment: Seller remedies

Buyer breach of contract in a decreasing price environment: Seller remedies somebody Fri, 09/22/2023 - 10:06 pm

Posted by Madison Hart | Jul 15, 2022 | Buyers and Sellers, Home Sales, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This article helps homebuyers and sellers understand the legal ramifications of a breach of contract.

Market conditions prevent buyers from completing purchases

Since mid-2020, home sellers — and their agents — have had the luxury of their home sales being a sure thing.

Here in California, the housing market continues to experience high competition for a limited inventory of homes for sale, resulting in rising home prices. However, in 2022, home sales volume has begun to slow and price cuts are on the rise.

The historically low interest rates which occurred throughout the pandemic played a big part in allowing buyers to snatch up homes. But interest rates are on the rise now, and a sea change for sellers has already begun.

In other words, what was previously a sure thing — a quick and easy home sale — is now on shaky ground.

With the jump in interest rates and downward sloping home sales volume, home prices are expected to decrease heading into 2023. As prices slide, buyers under contract will spot equivalent homes listed for less and realize they have overpaid. Their reaction will be to pull out and buy the less expensive house — or simply wait for the market to bottom.

Other situations may cause buyers to simply lose their qualifications to buy in today’s slippery housing market, including:

unexpected job loss; and
higher interest rates pushing their debt-to-income (DTI) ratio beyond the maximum threshold.

As the above scenarios play out in the next few months, we will see more buyers breaching purchase agreements.

Of course, buyers ought to be mindful of ensuring they do their due diligence before entering into a purchase agreement. This includes allowing a buffer for interest rate increases and being sure of their job security.

But, more importantly, sellers and their agents need to be prepared for when the inevitable happens.

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Liabilities and monetary losses for purchase agreement breach

When a purchase agreement is breached, the implications can range from a mild hiccup to a huge loss. Either way, it will be the buyer’s and seller’s agents running into the battlefield to assist their clients.

During an upward price environment, a breached contract is usually no more than a minor headache for the seller, as it delays the eventual sale of the property. It might actually result in a higher sales price, as they can now relist the property at a higher price.

However, the opposite is true in a falling price environment, when a breached purchase agreement often translates to monetary losses for sellers.

That’s because in the intervening weeks or months from when a purchase agreement is agreed to and breached, property prices will have declined. It may also mean lost money due to longer carrying or operating costs.

What are a seller’s options when they experience monetary losses due to a buyer’s breach of contract?

Related article:

Once more unto the breach for liability

Upon a buyer breach of contract, sellers then need to decide their next step. This may include:

enforcing the purchase agreement;
remarketing the property for sale; or
retaining the property.

The seller is generally responsible for value jumping around after the buyer breaches. Thus, for fund recovery, a money loss needs to be accounted for.

There are liability limitations in a purchase agreement, which include a:

liquidated damages provision; and
contract limitation on recovery.

The liquidated damages provision sets the cash deposit as the ceiling amount for recoverable money losses. The latter sets the limit for recovery and creates an agreed limit for this amount in the purchase agreement. [See RPI Form 150 §10.7]

The loss is recoverable by the seller, unless the property does end up being sold for the same price — or more.

The buyer’s deposit

A seller is entitled to recover their losses when the net proceeds for the resale transaction equals less than the gain from the original purchase agreement.

However, the seller needs to account for the loss.

Consider a buyer and seller who entered into a purchase agreement during a time when interest rates were lower. As they hike, the buyer is no longer able qualify at the new, higher mortgage payments. The buyer is forced to back out of their agreement. In the meantime, the property’s valued has diminished, impacting the seller’s bottom line.

This is where the collection of the buyer’s deposit comes in.

The buyer’s deposit — also called the good-faith deposit or earnest money — will be offset by the amount of the seller’s losses. Essentially, the seller may have the right to retain the buyer’s earnest money deposit on cancellation of the purchase agreement.

When a breached purchase agreement contains a provision limiting the dollar amount of losses the seller can collect, the losses recoverable are controlled by the agreed-to limit, and the accrual of interest is added on top.

Any interest due accrues at the legal rate of 10%. When the seller agreed to an installment sale, the note rate for the carryback paper is the controlling rate. [See RPI Form 150 ]

Forecast for future purchase endeavors

As we head into the next downturn for home prices, real estate professionals need to focus on the potential liabilities for their clients entering into purchase agreements.

Breaches in purchase agreements will increase as we head into the recession, expected to officially arrive heading into 2023. Expect to see declining sales volumes from 2022-2024, with prices bottoming in 2025.

Real estate professionals: have you seen more buyers breaching contracts? Share your experiences with other readers in the comments below!

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breach of contract, liability, purchase agreement

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California real estate: 2022 in review and a forecast for 2023

California real estate: 2022 in review and a forecast for 2023 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Dec 27, 2022 | Economics, Feature Articles, Home Sales, Interest Rates, Laws and Regulations, Real Estate, Recessions, Your Practice | 4

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This article provides a bird’s eye view of the legislative changes and economic shifts which impacted real estate professionals during 2022. We then look ahead to the property market in 2023, and beyond.

What do you see as the trend in SFR construction starts in 2023?

SFR starts will decrease (69%, 63 Votes)
SFR starts will remain the same (20%, 18 Votes)
SFR starts will increase (11%, 10 Votes)

Total Voters: 91

The aftermath of Pandemic Economics

After two years of volatile economic waves, California’s pandemic response officially ended in 2022. As the year closes, real estate professionals preparing for 2023’s housing market can start by retracing the Pandemic Economy’s path.

At the state level, the pandemic pushed legislators to enact eviction and foreclosure moratoriums and distribute individual stimulus checks in 2020-2021. Along with the pandemic-induced supply chain disruption, these actions resulted in rapidly escalating inflation — both consumer price inflation and asset price inflation.

Extra money in their wallets emboldened consumers to over-spend (and under-save) during 2021-2022, which also helped prop up the jobs market. Employers continue to hire going into 2023, with jobs surpassing the 2019 peak in October 2022.

For the housing market, perhaps the most influential impact of pandemic era policy was on mortgage interest rates.

Following the Federal Reserve’s (the Fed’s) actions to drop interest rates to historic lows in 2020-2021, the Fed ended its pandemic period monetary policy of funding and setting interest rates on home mortgages by exiting the mortgage-backed bond (MBB) market at the end of 2021.

On exiting, the funding and setting of fixed rate mortgage (FRM) rates returned to the bond market. This resulted in a jump in mortgage rates to match bond market MBB yields which, unlike Fed funding, are based on the 10-year Treasury Note rate plus a risk premium rate presently set at double historic norms in anticipation of a recessionary rise in defaults.

The result of all the pandemic-related fiscal and monetary stimulus caused consumer inflation to exceed the Fed’s target of 2%. To rein in and tamp down excess consumer inflation, the Fed bumped up their benchmark rate several times in 2022. This directly increased interest rates on adjustable rate mortgages (ARMs).

Further, interest rates on long-term debt obligations, such as the 30-year FRM, reflect bond market investor perceptions about the level of success the Fed will achieve in their current fight to lower consumer inflation. When the Fed is succeeding in its fight — as is beginning to appear heading into 2023 — bond market investors accept lower yields, and FRM rates follow.

While mortgage rates skyrocketed in the first three quarters of 2022, they were slashing mortgage borrowing and thus buyer purchasing power. This brought on a cascade of altered behaviors in the marketing of real estate services, to stretch on for the next two-to-three years as buyers now take the reins.

The casualty of rising mortgage rates on sellers of real estate

These toppled dominoes lead us to the year’s leading market fundamental: As buyer purchasing power declines, so goes support for home sales.

Homebuyers qualify for a maximum mortgage amount based on their incomes and shifting interest rates. Thus, any rise in mortgage rates instantly cuts the amount they can borrow, and the price they pay for a home is reduced. The only factor able to move in the triangle consisting of the homebuyer, lender and seller is the seller’s list price.

Following a pandemic-distorted year of high home sales volume in 2021, sales volume peaked early in 2022. While year-end reports are not yet in, sales volume is likely to dip below 2019 levels — the last “normal” year for sales volume — in 2022.

Thus, home prices have fully reversed course from their May 2022 peak, ranging from 6% below the peak in the low tier to a staggering loss of 9% in the mid and high tiers.

Still, average home prices remain a tenuous 5% higher than a year earlier for low-tier prices, 6% higher for mid-tier prices and 8% higher for high-tier prices as of September 2022. This year-over-year spread is narrowing rapidly, with reports expected to show the annual price change turning negative near the start of 2023.

As home values plunge, recent mortgaged homebuyers are falling underwater.

Related article:

Negative equity homeowners are unable to sell their home when unexpected circumstances require them to rid themselves of their asset. These include a job loss — as is common during a recession — a required relocation or household change. Their only solution is to:

negotiate a short sale with the lender; or
exercise their put option, forcing the lender to foreclose.

Savvy real estate agents and MLOs will be prepared to handle the coming wave of distressed sales and work with an evolving base of homebuyers and sellers to earn fees, even as the volume of traditional sales slows to a trickle.

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Pandemic Economics are also removing support in the commercial property market.

Industrial space vacancy rates increased during 2022, on their way to a return to pre-pandemic rates in 2023 — an occupancy level evincing a “fair deal” environment for both landlord and tenant.

This rise in the vacancy rate is a prelude to the elimination of the excessive demand on space brought on by the pandemic period which needs to take place before the industrial market can begin to stabilize.

However, there is some movement for unused commercial space. An increase in commercial-to-residential conversions is both helping to alleviate the housing shortage and giving a second life to unprofitable retail and office space.

Related article:

New laws to encourage construction

California continues to experience a statewide housing shortage, which has led to an ongoing population decline as former residents head for states with more reasonable housing costs.

To address the housing shortage, state lawmakers continue to pass new legislation to add to the housing inventory.

Commercial-to-residential conversions are becoming more common with the passage of Senate Bill (SB) 6 and Assembly Bill (AB) 2011, which permit:

multi-family developers to submit projects for a streamlined ministerial review process, which are exempt from conditional use permits and environmental impact reports; and
residential development within areas zoned for office, retail or parking uses when specific conditions are met, including requirements for:
- density;
- public notice;
- comment;
- hearing;
- site location and size;
- consistency with sustainable community strategy or alternative plans;
- prevailing wages for builders; and
- a skilled and trained workforce.

Both bills encourage builders to transform office and retail commercial spaces into housing units for low- and middle-income Californians. These housing bills require general plans for land development and the compliance to local zoning laws.

Accessory dwelling units (ADUs) are also having a moment, with the passage of SB 897 and SB 2221, which prohibit:

owner-occupant requirements for ADUs; and
a local government from establishing front setback limits for ADUs, specifies detached ADUs may include an attached garage, and decreases ADU permitting times.

California’s infamously restrictive zoning regulations and high building costs mean new housing for low- and moderate-income households remains scarce. But recent pro-ADU legislation has more homeowners cashing in on the shortage and becoming landlords.

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Property management updates

For landlords, the expiration of pandemic-era eviction moratoriums means a full return to the Tenant Protection Act (TPA) of 2019, which:

caps annual rent increases at 5% plus the rate of inflation for much of California multi-unit residential properties;
requires “just cause” to evict tenants in place for 12 months or more.

The applicability of the TPA is comprehensive, covering most multi-unit residential real estate housing in California and those single family residential (SFR) units owned by a real estate investment trust (REIT), a corporation or a limited liability company (LLC) with a corporate member.

However, there are numerous, sizable exemptions for multi-family units and conditions for SFRs to be excluded, including:

residential units which have been issued a certificate of occupancy within the previous 15 years;
a duplex of which the owner occupied one of the units as their principal residence at the beginning of the tenancy and remains in occupancy;
units restricted as affordable housing for households of very low, low, or moderate income, or subject to an agreement that provides subsidies for affordable housing for households of very low, low, or moderate income;
dormitories constructed and maintained in connection with any higher education institution in California;
units subject to rent or price control that restricts annual increases in the rental rate to an amount less than that set by the TPA;
multi-unit transient occupancy housing like hotels and motels;
accommodations in which the tenant shares kitchen or bathroom facilities with an SFR owner-occupant;
SFR real estate that can be sold and conveyed separate from the title to any other dwelling unit, like in an SFR subdivision or condominium project, provided:
- the owner is not one of the following:
  - a real estate investment trust (REIT);
  - a corporation; or
  - a limited liability company (LLC) in which at least one member is a corporation; and
- the tenant has been given written notice stating the rental property is exempt from the rent increase caps under the TPA. [Calif. Civil Code §1947.12(d); CC §1946.2(e); See RPI Form 550, 551 and 550-3]

Even though the TPA took effect in 2020, the pandemic interruption has meant many landlords have yet to enact the TPA in practice. The California Office of the Attorney General (OAG) has begun cracking down on landlords committing unjust evictions.

Read more about the rules for just cause eviction under the TPA.

Other new laws for landlords enacted in 2022 include:

AB 2559, which encourages and clarifies rules regarding reusable tenant screening reports; and
SB 971, which requires landlords receiving low-income tax credits to allow pets.

Related video:

Shifting requirements for real estate professionals

California requires Department of Real Estate (DRE) licensees to render their services to the public with consistency and competence. This means staying on top of the constantly shifting landscape of laws which affect licensees’ practice and treatment of the public.

Passed in 2022, SB 1495 delays the implementation of the implicit bias and fair housing law components in the Real Estate Practice course required for licensing education until January 1, 2024. Meanwhile, two hours of implicit bias training is already required for renewing DRE licensees, implemented by a 2021 law.

SB 869 requires the Department of Housing and Community Development (HCD) to regulate individuals acting as managers or assistant managers of mobilehome parks and requires the completion of at least 18 hours of training on the rules and regulations for operating a mobilehome park.

For prospective brokers, AB 2745 requires non-licensees applying to the DRE for a broker’s license to show the required two years of general real estate experience accumulated within the five-year period prior to the exam application date.

Forecast for 2023 and beyond

The biggest development of 2022 has been the abrupt about-face in real estate dynamics. What was a seller’s market for the past decade has quickly become a buyer’s market.

The reason? California’s housing market is being dragged down by the economic encore to the short-lived 2020 recession. This time, offsetting government stimulus will be limited while the Fed’s rate increases eliminate excess consumer price inflation and Wall Street resumes the setting of FRM rates.

Real estate sales volume and prices will continue to fall in 2023-2024 as dictated by rising mortgage rates and capitalization (cap) rates.

Watch for a return of real estate speculators in 2024 to provide a “dead cat” bounce in real estate sales volume and pricing, falling back and bottoming in 2025. A sustainable recovery will take off in property sales with the return of end user property buyers — more reliable buyer occupants and long-term buy-to-let investors — around 2026-2027. Then, prices will gradually rise during the recovery from the 2023 recession.

How agents can survive and thrive during the 2023 recession

What can agents do to adjust to the downturn in 2023-2025?

Agents need to pivot from focusing on providing seller services to finding and working with buyer clients. This means refocusing expertise on the needs of buyers (and tenants), and advertising yourself as a buyer’s agent.

Become an expert in assisting clients with the types of sales common during a recession, including purchasing:

homes at trustee’s sale — foreclosures;
short sales; and
real estate owned (REO) properties.

For agents with seller clients during a downturn, they can help along the sale by encouraging the seller to offer seller financing, also known as carryback financing.

For seller’s agents, carryback financing can make their property more marketable, enabling a higher sales price, while also allowing the seller to defer the tax bite on their profits.

Carryback financing generally offers the buyer:

a moderate down payment;
a competitive interest rate;
less stringent terms for qualification and documentation than imposed by traditional lenders; and
no origination costs or lender processing hassle. [See RPI ebook Creating Carryback Financing]

Finally, agents can take on side gigs available in a multitude of fee-based real estate services, including:

obtaining a higher fee split by upgrading to a broker’s license;
gaining new marketable skills like becoming a notary public;
earning a mortgage loan originator (MLO) endorsement to assist homeowner clients obtaining a mortgage;
rounding out your skillset by becoming a property manager— one of the few recession-proof real estate jobs;
becoming a foreclosure and short sale specialist, as distressed sales inevitably rise when home values drop;
assisting with the management and sale of real estate owned (REO) properties; and
using the recession as a launchpad for investment by becoming an expert in forming real estate syndicates and 1031 exchanges.

Poised to profit off existing contacts in real estate-adjacent careers, these agents and brokers will survive and succeed even as the housing market continues to slip deeper into the recession.

Track California’s housing market in 2023 with firsttuesday — subscribe to Quilix for your Monthly Statistical Update and more real estate market analysis in your inbox every week.

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California’s home remodeling boom set to peak in 2022

California’s home remodeling boom set to peak in 2022 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Apr 25, 2022 | Buyers and Sellers, Economics, Real Estate, Recessions | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

With interest rates on the rise, homeowners who sat out of the pandemic market might feel they missed their chance to trade up. But there’s another solution that feels just as new: home renovations.

For owners of residential real estate, renovations have become increasingly enticing — and expensive. The home remodeling market may peak to a new height of $430 billion by the end of 2022, according to projections from Harvard University’s Joint Center for Housing Studies (JCHS).

Year-over-year, the home remodeling market increased a robust:

4.7% in Q1 2021;
5.7% in Q2 2021;
7.6% in Q3 2021; and
9.4% in Q4 2021.

2021’s nearly double-digit gains in expenses for home repairs and remodels came as a surprise even to the Joint Center for Housing Studies. Early on in the year, they projected the home remodeling market to have a much more moderate annual increase of 3.8% for 2021.

In Q2 2022, total homeowner expenditures for home renovations are projected to ramp up into double-digit territory, increasing 15.2% year-over-year and surpassing $400 billion for the quarter, according to JCHS.

By Q3 2022, JCHS projects the home remodeling market will increase a whopping 19.7% year-over-year to a total amount of nearly $430 billion.

The forces driving 2022’s home renovation boom are increases in:

home sales activity;
household incomes; and
home equity levels, according to JCHS.

Related article:

Consumer preferences are another factor influencing the 2022 spike in home remodels.

Homeowners looking to put their money into assets such as real estate amid inflation concerns will have a harder time qualifying due to rising interest rates. Instead, they may turn to upgrades or repairs on their current residence, improving the home’s value.

The significant expenditures and market activity for home renovations will peak in Q3 2022 and then descend into more sustainable levels thereafter, according to JCHS projections.

Even though Q4 2022 will begin the renovation market’s descent, the JCHS still expects 17.3% year-over-year revenue growth in this quarter — to a tune of $432 billion. These steep gains in Q4 2022 will follow Q4 2021’s already sizeable year-over-year growth of 9%.

Thus, by Q4 2022, homeowners will be paying 29% more than they did in Q4 2020, and 32% more than in Q4 2019 when they spent $327 billion on home renovations.

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Home renovation FOMO

Consumer preferences are malleable, yet they considerably influence the housing economy.

Consumers themselves can be fickle — their preferences are difficult to predict and subject to change. Naturally, their psychology shifts with new information, experiences and market conditions. Just as in the pandemic, mass shifts in psychology directly influences economics — a phenomenon dubbed “animal spirits” by economist Robert J. Shiller.

As real estate professionals know from 2021’s hypercompetitive market, consumers are susceptible to the fear of missing out (FOMO) when making decisions. This includes big-ticket purchases like cars, furniture and homes.

In 2021, FOMO propped up home sales, sending prices to break-record highs. In 2022, FOMO threatens to reemerge with home remodeling projects, pushing prices of building materials even higher.

Rising costs of labor and construction materials, a shortage of contractors and builders and rising interest rates may discourage homeowners from engaging with home improvements, according to JCHS’s project director.

Homeowners in a position to delay their remodeling projects are most likely to become discouraged enough to stay out of the fray. But those with urgent repairs to complete will be steeped in competition. The axiomatic factors of supply and demand will play themselves out through 2022’s remodeling boom. [See RPI e-book Real Estate Economics Chapter 8.2]

A growing demand of owners desiring repairs and remodels paired with a restricted supply of materials and labor means price gains are imminent.

The construction material shortage has already been a factor causing builders’ confidence in their market to wane in 2021.

More recently, supply chain disruptions and inflation concerns further deplete builder confidence in 2022, according to the National Association of Home Builders (NAHB).

Inflation, as of March 2022, is a nail-biting 8.5%, according to the Bureau of Labor Statistics. For perspective, a normal inflation rate is typically around 2% or below, according to the Federal Reserve.

Due to supply chain disruptions, construction materials have more than doubled between 2019 and 2021. The rise in prices to offset building material delays will impact new home construction as well as home renovation projects.

Related article:

FARM the FOMO

A home renovation frenzy doesn’t bode well for home sales.

California’s inventory will remain low since building material and labor restrictions hold builders back from new construction.

In response to these factors, new home construction will become increasingly expensive and difficult to qualify to buy, on top of higher interest rates and decreased buyer purchasing power. These factors will all diminish home sales volume in 2022.

Real estate professionals might consider FARMing their neighborhoods using materials geared towards homeowners in the renovation stage.

2022 may see changing consumer preferences and thus, increased demand to renovate. At the same time, inflation, interest rates and building material prices may likely continue to rise. But there’s still time for owners to get their maintenance, repairs or remodels done before they’re priced out of yet another market and thrown into a second FOMO frenzy.

Consider reaching out to prior and new clients interested in remodeling or repairing their home and letting them know what kind of market to expect in 2022, as well as how to get the best return out of their renovations.

Related FARM letters:

Want to learn more about the principle of supply and demand in the real estate market? Click the image below to download the RPI book cited in this article.

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builders, fomo, inflation, supply and demand

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California’s new housing strike force prepares for battle — with NIMBYs

California’s new housing strike force prepares for battle — with NIMBYs somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Jul 18, 2022 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s housing shortage is the latest battleground between state-led initiatives and local governments.

All too often, legislation and funding passed to alleviate the housing shortage never make it from the state level into local communities. This means the burden continues to fall on renters and homebuyers, ensuring the pace of home price and rent increases remains higher than income increases.

In fact, most California renters pay more than the recommended 30% of their income on rent. Worse, roughly one-third of renters pay over half of their income on rent, according to California’s Office of the Attorney General (OAG).

California’s Department of Justice (DOJ) has enacted several new initiatives to combat the state’s housing shortage. This includes a new Housing Strike Force aimed at advancing:

access to housing;
availability of affordable housing;
environmentally sustainable housing; and
equity in California’s housing market, according to the OAG.

This new strike force is made possible by 2021’s Assembly Bill (AB) 215, which broadens the OAG’s powers to enforce state housing laws.

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NIMBYs, beware

California’s new Housing Strike Force is aptly named, as the OAG goes on the offensive against not-in-my-backyard (NIMBY) advocates who have long held the power in the struggle for more housing.

With California’s growing number of households and limited space in job-rich metros, the intricacies of zoning for new housing is a contentious issue.

California’s tight zoning rules have resulted in strict:

land use regulations;
parking restrictions;
lot sizes;
height restrictions; and
permitting costs and times.

With all these restrictions, it’s much easier for builders to stick to single family residences (SFRs), which has resulted in a reduced housing supply. Each year since 2018 there have been more SFRs constructed in California than multi-family units.

However, to keep up with population growth, the OAG estimates an additional 180,000 new housing units need to be completed each year. But new construction has not exceeded 80,000 units annually since 2008. This leaves a lot of catching up for housing — and explains the immense price increases experienced across all housing types.

But California’s AG is putting on the gloves, most recently defending SB 10 in court against NIMBY groups who sought to declare the law unconstitutional. SB 10 allows local governments to rezone for up to 10 residential units per parcel in job-rich areas, transit-rich areas and urban infill sites.

To stabilize prices and rents, local governments will need to comply with legislation to counter the housing shortage as it is passed. The new, more aggressive tactics from the OAG will help keep this compliance in check. Then, organic growth in new construction will occur where it is most in demand, putting an end to the inventory shortage.

An end to the housing crisis will ensure a higher quality of life for residents, making homeownership more attainable for first-time homebuyers who are currently priced out. This will help residents stay afloat — especially real estate professionals, whose careers depend on healthy turnover and broad access to housing.

Have a complaint or tip about housing laws not being enforced in your community? Email housing@doj.ca.gov.

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DFPI Bulletin Digest: December 2022

DFPI Bulletin Digest: December 2022 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Dec 19, 2022 | Laws and Regulations, Mortgages | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The December 2022 DFPI Bulletin focuses on new state laws for 2023, license renewals and escrow reports.

Editor’s note — The California Department of Financial Protection and Innovation (DFPI, formerly the Department of Business Oversight) supervises, licenses, and regulates a variety of financial institutions, including some real estate mortgage loan originators (MLOs) holding a Nationwide Multistate (or Mortgage) Licensing System and Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DFPI shares the responsibility for overseeing MLOs depending on their license use.

Read ahead for firsttuesday’s MLO-focused digest of November’s most important developments affecting your license use.

New MLO laws for 2023

The DFPI has published a list of new California laws for 2023 affecting licensees. The 2022 Chaptered Legislation Highlights include a brief description of the law, plus a link to the bill text. All are set to go into effect January 1, 2023 (unless otherwise noted).

Among the highlights, Assembly Bill (AB) 1837 makes it harder for large corporate investors to elbow out individual homebuyers at a trustee’s sale. Building on 2020’s Senate Bill (SB) 1079, the new bill closes loopholes favorable to corporate Real Estate Owned (REO) property bidders at auction.

The bill also requires the winning bidder at a foreclosure sale to maintain the property as affordable for low-income households (whether as a sale or rental) for at least 30 years. Click ahead for an in-depth breakdown of this new foreclosure law.

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NMLS license renewal

The Conference of State Bank Supervisors (CSBS) reminds MLOs to renew their licenses annually via the NMLS. Licensees need to renew annually by December 31 to maintain their licensure for the following year.

Not sure how to renew? Visit the NMLS Annual Renewal Information page for step-by-step instructions.

Editor’s note — It’s not too late to renew your NMLS license for 2023. Visit firsttuesday.us to order your 8-Hour On-Time Continuing Education and complete before the deadline.

DFPI action on crypto accounts and businesses

The DFPI’s focus on crypto asset accounts and business intensified in 2022, handing down several high-profile actions against the backdrop of a crypto crash.

Between November and December 2022, the Department clamped down on unlicensed and allegedly fraudulent businesses, including:

MyConstant, which is not licensed to operate in California;
SALT Lending and BlockFi Lending, which announced pausing client withdrawals; and
NovaTech and Fundsz, part of a larger High Yield Investment Program (HYIP) crackdown.

Crypto assets are enjoying wider adoption among financial service providers, and real estate professionals are fielding more financial questions from consumers with crypto savings. Stay ahead of the questions — continue to our rundown of growing use-cases for digital currency and blockchain technology in real estate services.

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Escrow reports due

The Department reminds escrow agents to submit annual reports within 105 days of the close of their fiscal year. As an example: agents whose fiscal year ended on August 31, 2022 need to submit by December 14, 2022.

An agent’s CPA may email the report to ESCAnnualReportFiling@dfpi.ca.gov using a secure and encrypted delivery system, including a secured dropbox.

Note that the penalty for failing to file by the deadline or include required information stands at $100 per day for the first 5 days a report is late, and $500 after that point. It may also trigger a license suspension, revocation and even examination.

That’s a wrap for the December 2022 DFPI Bulletin Digest! Check out the full December Bulletin, and subscribe to the weekly Quilix newsletter to receive the first 2023 edition of the DFPI Bulletin Digest in your inbox.

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dfpi, mortgage loan originator (mlo)

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DFPI Bulletin Digest: July 2022

DFPI Bulletin Digest: July 2022 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Jul 22, 2022 | Laws and Regulations, Mortgages, New Laws, Pending Laws, Real Estate, Your Practice | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The July 2022 DFPI Bulletin focuses on small business financing disclosures, proposed rules on commercial financial products, and the 2022-2023 assessment rates for financial institutions, among other topics.

Editor’s note — The California Department of Financial Protection and Innovation (DFPI, formerly the Department of Business Oversight) supervises, licenses, and regulates a variety of financial institutions, including some real estate mortgage loan originators (MLOs) holding a Nationwide Multistate (or Mortgage) Licensing System and Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DFPI shares the responsibility for overseeing MLOs depending on their license use.

Licensees, stay in the know of July 2022’s MLO news and events below.

Extension of Commercial Financing Disclosure Regulations

On June 9, 2022, the California Office of Administrative Law (OAL) approved the DFPI’s proposed commercial financing disclosure regulations. The regulations extend disclosure protections to California small businesses when those businesses seek commercial financing.

The disclosures will take effect on December 9, 2022. They aim to provide California small businesses a deeper understanding of the costs and benefits of commercial financing offers. Armed with these disclosures, small businesses will be better able to compare different offers to find the best financing solution for their needs. The final regulations and Final Statement of Reasons are posted to the DFPI website.

The DFPI’s work on these disclosures traces back to the passage of SB 1235 in 2018, which mandates commercial financing providers provide disclosures to small businesses. The bill requires providers to disclose:

the total funds provided;
total dollar cost of financing;
term or estimated term;
method, frequency and amount of payments;
a description of prepayment penalties; and
the total cost of financing as an annualized rate.

Rules Proposed on Commercial Financial Products and Services

The DFPI has filed a Notice of Proposed Action to invite public comments on proposed rulemaking under the Consumer Financial Protection Law (CCFPL). The proposed regulations implement, interpret, or make specific provisions of the Financial Code relating to commercial financing to small businesses, nonprofits, and family farms.

Submit your comments via email to regulations@dfpi.ca.gov with a copy to Samuel.Park@dfpi.ca.gov. Please include “PRO 02-21” in the subject line.

Alternatively, comments may be mailed to:

Department of Financial Protection and Innovation
Attn: Sandra Navarro
2101 Arena Boulevard
Sacramento, California 95834

The Text of Proposed Regulations and the Initial Statement of Reasons are available on the DFPI website.

The 45-day public comment period ends on August 8, 2022.

Public Comment Period on Oversight of Crypto Asset-Related Financial Services

While public interest in cryptocurrencies has exploded since the pandemic, regulation remains thin. Regarding oversight of crypto-asset related financial products and services, the DFPI is currently seeking comments on:

regulatory priorities;
CCFPL regulation and supervision; and
market-monitoring functions.

For any rulemaking recommendations, commenters are invited to provide a description of any economic impact of the recommendation for California businesses and consumers.

Governor Gavin Newsom issued Executive Order N-9-22 last May to create a transparent regulatory and business environment for web3 companies, to foster responsible innovation, bolster California’s economy, and most importantly: protect consumers. As part of this strategy, the DFPI seeks input in developing guidance and regulatory clarity and supervision in offering crypto asset-related financial products and services in California.

The DFPI has posted topics and questions to help commenters generate feedback. Find the formal Invitation for Comments on the DFPI website.

Comments will be accepted until August 5, 2022, and may be submitted via email to regulations@dfpi.ca.gov. Include “Invitation for Comments – Crypto Asset-Related Financial Products and Services ” in the subject line.

Comments may also be mailed to:

Department of Financial Protection and Innovation, Legal Division
Attn: Sandra Navarro, Regulations Coordinator
2101 Arena Boulevard
Sacramento, CA 95834

2022-23 Assessment Rates for Financial Institutions

On June 30, 2022, the invoice for the 2022-23 annual assessment were emailed to banks, credit unions and money transmitters. Licensees that have not received their invoices should notify the Accounts Receivable Unit at AccountingAR@dfpi.ca.gov as soon as possible.

Invoices are payable on or before August 1, 2022 with more time allowed for payments made via electronic funds transfers (EFTs). EFT payments are due by August 8, 2022.

For commercial banks, foreign banks, and trust companies, the base rate was set at $1.39 per $1,000 of assets, a $0.05 decrease from last year’s rate of $1.44.

For credit unions, the 2021-22 assessment rate was set at $1.01 per $1,000 of assets, the same as last year’s rate.

For industrial banks, the base rate was set at $1.39 per $1,000 of assets, a decrease of $0.05 from last year’s rate of $1.44.

Lastly, for money transmitters, the 2021-22 assessment rate was set at $0.014 per $1,000 received for transmission by a licensee in calendar year 2021, a decrease of $0.006 from last year’s rate. The 2021-22 assessment rate for issuers of payment instruments and stored value was set at $0.63 per $1,000 of total payment instruments and stored value sold by a licensee.

For assessment calculation questions, refer to “How to Calculate Your Assessment” or contact Patrick Carroll at (415) 263-8559 or patrick.carroll@dfpi.ca.gov. Questions regarding assessment payment processing should be directed to the Accounts Receivable Unit at AccountingAR@dfpi.ca.gov.

Escrow Advisory Committee Openings

As of September 2022, there will be three openings on the Escrow Advisory Committee.

The Committee is comprised of eleven members, including the Commissioner (or their designee).

Appointed members serve for a period of two years without compensation or reimbursement for expenses. The Committee meets quarterly at the Department’s office. The next meeting is tentatively scheduled for Wednesday September 7, 2022.

The current committee vacancies are representatives from:

a small-size escrow company;
an escrow company that has a different type of business ownership; and
a CPA who has escrow agent clients.

Managers or corporate officers of independent escrow companies are eligible to serve. Examples of a different business ownership include companies owned by title companies or brokers.

Licensed escrow agents and qualifying CPAs who meet one of the above criteria are encouraged to apply by sending a letter of qualifications and/or resume to Paul Liang at Paul.Liang@dfpi.ca.gov, or via mail to:

Department of Financial Protection and Innovation
320 West 4th Street, Suite 750
Los Angeles, California 90013

The deadline for submissions is July 29, 2022. Direct any questions to Paul.Liang@dfpi.ca.gov or (213) 576-7535.

Increased Access to Responsible Small Dollar Loans and Non-Profits 2021 Report

The DFPI has published the 2021 Annual Report of the Pilot Program for Increased Access to Responsible Small Dollar Loans (RSDL). The program is designed to provide an alternative to payday loans and other more expensive forms of consumer credit. This report contains detailed information gathered earlier this year from participating lenders.

The Pilot Program aims to increase the availability of responsible small dollar installment loans of at least $300 but less than $2,500. In 2018, the maximum loan amount rose to $7,500.

Additionally, the DFPI has posted the 2021 Annual Report for Nonprofit Entities Providing Zero-Interest Loans. Senate Bill 896 was enacted in 2015 to encourage nonprofit organizations (exempt organizations) to facilitate zero-interest, low-cost loans. In part, the small dollar loans are intended to allow consumers to establish, build and improve their credit scores.

That’s a wrap on the July 2022 DFPI Bulletin. Find out more about the topics mentioned here by reading the full bulletin on the DFPI website.

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Disability Status and Source of Income

Disability Status and Source of Income somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Nov 21, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the ninth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode covers fighting discrimination in disability status and a tenant’s source of income. The prior episode covers taking the extra steps to help historically marginalized buyers qualify for a mortgage.

Avoiding the top fair housing complaints

As gatekeepers to homeownership, real estate brokers and agents are in a prime position to help close the homeownership gap and ensure quality rental housing for historically marginalized groups.

One of the biggest errors when trying to even the playing field for all groups is to claim to be blind to all differences (e.g. “color blindness”).

A more effective approach recognizes and honors the differences in others, creating empathy

With greater understanding, individuals may become aware of their own biases, discard stereotypes and embrace the unique backgrounds and experiences of each individual.

The highest number of fair housing complaints received each year in California — by far — are in regard to disability status. [Department of Fair Employment and Housing (DFEH). (2022) 2020 Annual Report.]

California law defines disability

as a mental or physical impairment, disorder or condition that limits a major life activity, such as working, physical and social activities. This includes medical diagnoses like HIV/AIDs and cancer. [Calif. Government Code §12926.1(c)]

For example, consider a disabled rental applicant who requires the use of a service dog — but the rental unit they are applying for does not allow pets. Even though the no-pet rule applies to all tenants and is not on its face discriminatory, the landlord may not refuse to rent a unit to a tenant on the basis that they are disabled and use a:

guide dog, a seeing-eye dog trained by a licensed individual to aid a blind person;
signal dog, trained to alert a deaf or hearing-impaired person to intruders or sounds; or
service dog, trained to aid a physically disabled person with protection work, pulling a wheelchair or fetching dropped items. [Calif. Civil Code 54.1(b)(6)]

Further, landlords may not charge additional rent or security deposit to tenants with authorized service, guide or signal dogs. [CC §54.2(a)]

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Equal opportunity denied

A landlord who refuses to make reasonable accommodations to afford a person with disabilities an equal opportunity to use and enjoy their housing — such as through denying them housing due to their use of a service dog — is guilty of practicing unlawful discrimination. When the Department of Fair Employment and Housing (DFEH) investigates and finds the landlord practiced unlawful discrimination, the DFEH may require the landlord to:

provide housing that was previously denied;
pay monetary compensation for any losses or even emotional distress;
undergo mandatory one-time or regular training to prevent future discriminatory acts;
pay fees, penalties, fines; and
undergo monitoring to avoid future discrimination. [Department of Fair Employment and Housing (DFEH). (2020) Disability Discrimination Fact Sheet.]

Another discriminatory activity for which the DFEH receives a high number of complaints is discrimination based on source of income

As of 2020, government housing vouchers — such as Section 8 vouchers

— are considered a tenant’s source of income in California, and thus are a protected status. In other words, California landlords may not choose to deny housing to a tenant based on their use of housing vouchers. Further, due to the tenant’s source of income, the landlords may not:

advertise a preference or limitation for certain sources of income;
refuse an application;
charge a higher deposit or rent;
treat the tenant differently in any way;
refuse to renew the lease;
terminate the tenancy;
lie about the availability of a unit;
require additional conditions or rules on the tenancy; or
restrict the tenant’s access to property facilities or services. [Gov C §12927]

Tenants or applicants who believe they have been discriminated against may file a complaint with the DFEH. The DFEH will investigate and attempt to resolve the complaint. However, when the complaint cannot be resolved, the DFEH may file a lawsuit against the landlord to seek monetary relief.

Related article:

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

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Employment and wages highest hurdles for Millennial first-time homebuyers

Employment and wages highest hurdles for Millennial first-time homebuyers somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Apr 11, 2022 | Buyers and Sellers, Economics, Finance, Real Estate, Recessions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

For many homebuyers in Covid-era California, closing on a home is akin to winning the lottery.

While some will luck out, the odds are stacked against the average Millennial first-time homebuyer thanks to their historically sluggish income, especially against 2022’s breakneck home prices.

Millennials, now the largest generation on the face of the earth, are between 26 and 41 years old in 2022. This generation, which came to age around the time of the Great Recession, is no stranger to financial distress and unemployment.

Still, the financial barriers to homeownership imposed on Millennials mount further: underemployment and wage stagnation chew away at this generation’s homebuying aspirations, according to a recent survey conducted by Legal & General.

Agents helping first-time homebuyers break into homeownership are better suited to assist when they understand the compounding factors affecting the Millennials, who are currently in their prime income-earning and homebuying years.

Read on to learn about the financial obstacles that block or delay Millennial homeownership — and what that means for agent incomes in 2022.

Unstable employment means unstable housing

Californians across the board suffer when employment opportunities are limited. Millennials, many working less than full-time hours or not working at all, are now steeped in this reality first-hand.

The single greatest factor impacting California real estate is employment. [See RPI e-book Real Estate Economics Chapter 1.1]

Without jobs, wage earners have insufficient financial ability to make rent or mortgage payments. This is because the local quantity and quality of jobs impact the level of rents and home prices in the area.

Employment is improving slowly in California after a devastating crash coinciding with the 2020 recession. Between the December 2019 peak and the April 2020 trough, about 2.7 million Californians — over 15% — lost their jobs.

Over the course of a year, from January 2021 to January 2022, 1.2 million jobs have been added across the state. Still, California jobs are 690,000 or 3.9% below the pre-recession December 2019 employment peak.

1 in 5 mid-aged Millennials (those between the ages of 30-35) were unemployed when the Legal & General survey was conducted in March 2021. Only 48% in this age group were working full-time.

Further, the overall employment figure for Millennials as a whole, both full and part-time, was 63% — with 51% working full time, according to the 2021 survey.

The American Dream of homeownership is out of reach for these unemployed and underemployed Millennials, especially in California. To restore the dream, California will need to regain its footing on jobs.

Related article:

Wages stagnate while market accelerates

Even barring an overnight miracle in employment, Millennials and first-timers would still struggle to enter California’s housing market in earnest thanks to wage stagnation.

66% of Millennial respondents working full-time hours reported earnings of under $60,000, according to the Legal & General survey.

Millennials earn, on average, around $47,000 per year as of March 2020, according to U.S. Census data. Of Millennials surveyed who might qualify for a home, conservatively estimated at earning $50,000 or above, only 47% meet those qualifications. An average Millennial might qualify for a home (assuming they had the down payment saved up) priced around $220,000.

But home prices in California easily eclipse that.

As of January 2022, low-tier home prices have surged 19% year-over-year across the state.

In the 1970s, the median national income for first-time homebuyers was $52,830 and the median national home price was $87,370. In the 1980s, median income had dropped to $51,180 while the average home cost $102,370. By the early 2000s, income had risen only slightly, to $58,740 — while the average home price was $144,800, according to a 2015 Zillow report.

Over the past several decades, wages have stayed stagnant while home prices continue to climb.

Since 2012, Millennial income in the U.S. has risen 24% — while home prices shot up 86%, according to a 2020 NerdWallet report.

Here in California, 35% of 25-34 year-olds — the typical age of first-time homebuyers — own a home as of 2019, compared with 43% of this age group who owned a home in 2006 at the height of the Millennium Boom.

Up, up and away floats the dream of homeownership.

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Qualifying to buy

The barriers to Millennials’ employment also prove to be a barrier to homeownership.

Expect their homeownership rate to continue remaining low through 2024 as they continue to slowly muster savings for down payments and grapple with the financial fallout from the 2020 recession, including inflation further diminishing wages and interest rate hikes pushing away their ability to qualify to purchase a first home.

Agents yearning for a slice of this demographic can look to their local jobs market performance for indications of an uptick in sales volume.

As Millennials’ wages improve, qualifying them to buy, they will enter the housing market around the same time Baby Boomers will retire and relocate, creating a stable and fluid housing market for California, beginning around 2024-2025.

Until then, advise Millennial clients hopeful to purchase within the next few years to work on saving up their down payments and paying down debts, and continue to check in with them over time.

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Want to learn more about the connection between employment, the economy and real estate? Click the image below to download the RPI book cited in this article.

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Failing to qualify, or just cold feet? More homebuyers backing out of deals in 2022

Failing to qualify, or just cold feet? More homebuyers backing out of deals in 2022 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Aug 22, 2022 | Buyers and Sellers, Home Sales, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

More buyers backing out

Real estate deals are faltering as home sales volume continues its downward path.

In June 2022, roughly 60,000 home sales fell through nationwide, translating to 14.9% of homes under contract.

This is the most escrow cancellations seen since March and April 2020, when sales cancellations were heightened by the outset of the pandemic. At this peak, job losses were through the roof and consumer confidence was in the basement.

In comparison, just 11.2% of sales fell through a year earlier. Further, just a month earlier in May 2022, 12.7% of escrows were cancelled. The vast majority of these cancellations were initiated by homebuyers, according to Redfin.

Here in California, the share of home sales which fell through in June 2022 was:

21% in Riverside;
20% in Sacramento;
20% in San Diego;
18% in Anaheim;
18% in Los Angeles;
10% in San Jose; and
6% in San Francisco.

Most of these cancelled escrows were due to homebuyers failing to obtain mortgage approval. 2022’s rapidly rising mortgage interest rates are largely to thank for more homebuyers losing the ability to qualify midway through their home purchase.

With higher interest rates and downward-sloping home sales volume, home prices are poised to decrease heading into 2023.

As prices slide, buyers under contract will soon spot equivalent homes listed for less and realize they have overpaid. Their reaction will be to pull out and buy the less expensive house — or simply wait for the market to bottom.

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Sellers remedies for buyer breaches of contract

As buyers continue to back out of purchase agreements, real estate professionals need to review the liabilities born out of clients entering purchase agreements.

When a purchase agreement is breached, the implications can range from a mild hiccup to a huge slash in net proceeds. Naturally, the sellers may seek remedies when the buyer breaches the contract — especially when the breach causes a significant loss for the sellers.

In a falling price environment, a breached purchase agreement often translates to monetary losses for sellers. Upon a buyer breach of contract, the seller’s next steps include:

enforcing the purchase agreement;
re-marketing the property for sale; or
retaining the property.

To recover funds, the seller needs to account for a money loss.

There are liability limitations in a purchase agreement, which include a:

liquidated damages provision; and
contract limitation on recovery.

Liquidated damage provisions set the cash deposit as the ceiling amount for recoverable money losses. The latter sets the limit for recovery and creates an agreed limit for this amount in the purchase agreement. [See RPI Form 150 §10.7]

Loss is recoverable by the seller, unless the property does end up being sold for the same price, or more — an impossible situation in the coming months as sales volume and prices fall back. Breaches in purchase agreements will only increase as we head further into 2022’s undeclared recession. Expect to see declining sales volumes from 2022-2024, with prices bottoming in 2025.

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As escrow cancelations rise, watch for increased competition for rentals, in what is already a hot market. Here in California, buying is now significantly more costly than renting.

Real estate professionals who want to recession-proof their practice will consider adding property manager to their resume. Filling out your real estate practice with related work skills and experience will ensure a continued stream of income even when sales continue to slow in the months ahead.

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breach of contract, cancellation, escrow

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Fannie Mae settles fair housing lawsuit for $50 million

Fannie Mae settles fair housing lawsuit for $50 million somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | May 9, 2022 | Fair Housing, Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

For seasoned real estate professionals, the subprime mortgage crisis still casts a long shadow. It was so disastrous for Californians that its effects are still being studied and argued in courts today.

Since 2009, local and national fair housing advocates have studied the fallout of the foreclosure crisis within communities of color and within predominantly white neighborhoods and have noticed some stark differences between neighborhoods, differences which they claim violate the Federal Fair Housing Act (FFHA).

Such disparate treatment prompted fair housing groups to file a discrimination lawsuit in 2016 against the government-sponsored enterprise and secondary mortgage market holder Fannie Mae.

Fannie Mae had maintained foreclosed properties it was marketing for sale in white neighborhoods differently from foreclosed properties located in predominantly Black and Latinx neighborhoods, according to the lawsuit.

Now, fair housing organizations will have more revenue to double down on outreach and assistance to their communities. Fannie Mae settled the case for a historic $53 million in February 2022, according to the settlement agreement.

$35 million of that sum will go directly towards activities, outreach and assistance to promote fair housing in metropolitan areas nationwide, with California’s Bay Area receiving $1.5 million, according to the San Francisco Chronicle.

The settlement agreement was the first federal court ruling to determine that foreclosed properties are subject to fair housing laws, according to the National Fair Housing Alliance (NFHA).

Related article:

Disparate impact claim sticks

Between 2011 and 2015, local and federal fair housing organizations collected data on over 2,300 foreclosures in 38 metropolitan areas across the U.S.

The data indicated Fannie Mae discriminated between neighborhoods based on racial composition, according to the national fair housing organization’s lawsuit announcement.

The fallout from the subprime mortgage crisis granted Fannie Mae ownership of a vast collection of foreclosed properties. This type of mortgage holder-owned, foreclosed property is referred to as real estate owned (REO) property. [See RPI e-book Real Estate Economics, Chapter 5.1]

Related article:

On becoming REO property, the mortgage holder assumes all duties and responsibilities of ownership, including upholding ordinary maintenance. These maintenance activities help with the marketing of the home, assuring the property will receive the highest and best price on the open market while also supporting neighborhood stabilization.

However, the fair housing organizations maintain in their lawsuit that REO property owned by Fannie Mae located in predominantly white neighborhoods were far more likely to have their properties free of trash, debris, overgrown grass, vines and weeds, and have their doors and windows secured than REO property located in communities of color.

On the contrary, the properties in majority Black/Latinx communities were much more likely to be left in a state of disrepair. These neighborhood blights courtesy of Fannie Mae’s negligence further depleted home values of neighboring owners, contributing to the widening wealth gap in the U.S., according to the lawsuit’s claims.

The national statistics collected and analyzed by the fair housing organizations found:

53% of Fannie Mae REO properties in white neighborhoods had fewer than five deficiencies, while 24% of Fannie Mae REO properties in neighborhoods of color had fewer than five deficiencies; and
24% of Fannie Mae REO properties in neighborhoods of color had ten or more deficiencies, while only 7% of Fannie Mae REO properties in predominantly white neighborhoods had ten or more deficiencies.

Fannie Mae initially sought to dismiss the claims, and was partially successful in doing so, convincing a federal district court they did not hold discriminatory motives. However, Fannie Mae was unable to entirely dismiss the fair housing groups’ claims that a disparate impact occurred to the communities, according to the 2019 decision.

Despite the large payout, Fannie Mae’s settlement does not contain any admission of wrongdoing.

Related article:

Persistent wealth gaps and inequities

The racial homeownership gap today is as wide as it was in the 1960s, before the FFHA was signed into law.

Today, the homeownership rate is:

63% for white households in California and 74% nationwide;
44% for Latinx households in California and 49% nationwide; and
37% for Black households in California and 45% nationwide, according to the U.S. Census Bureau.

Segregation laws and discriminatory government policies such as redlining historically prevented wealth accumulation for people of color in the U.S. and in California. Widespread discrimination of the past affects generational wealth today.

In addition to historical reasons for low homeownership rates among racial groups, research analyzing racial inequities in homeownership presents a complex and multi-faceted view of how these gaps emerged and persist. Some of the explanations for the gap include household formation patterns, financial literacy, access to credit, household income, geographic location, down payment assistance from parents and implicit and explicit biases, to name a few of the possibilities, according to related research.

Related article:

Perhaps most significantly, a shortage of available low-income housing has exacerbated the factors already affecting homeownership rates. In recent years, reductions in both for-sale inventory and new residential construction has created a significant supply-and-demand imbalance. These market conditions result in rising home prices, an event which firmly took hold in 2021.

In 2022, rising mortgage interest rates squeeze prospective buyers even further, especially first-time homebuyers who are frequently cost-burdened through renting. Paying out more than 30% of a household’s monthly income for rent affects a prospective buyer’s ability to save up for a down payment. Simultaneously, rising inflation, supply chain disruptions and a less-than-ideal jobs market further diminish wages and savings.

Related article:

Standardized practices ensure equal treatment

Historical, social, economic and personal factors all intersect in myriad, complicated ways. The effects of these synthesized factors contribute to different homeownership rates and home values between racial groups.

Communities of color are affected by compounding forces which affect the community’s ability to financially invest in itself and pass that wealth down to the next generation. As the lawsuit against Fannie Mae demonstrates, some of those forces in question are the REO properties for which Fannie Mae holds responsibility of maintaining, which they did not tend to do as proficiently in communities of color than in white neighborhoods.

Now, with more funding thanks to Fannie Mae’s settlement, these communities will have additional support, resources and outreach to help close that persistent and complicated homeownership gap. At the same time, Fannie Mae prides itself on improving housing affordability and racial equity, and is putting that goal into action, according to their statements on social responsibility.

Fannie Mae defended themselves adequately enough to convince the court they did not have intentional motives to discriminate. However, they were unable to dismiss the claims the fair housing groups presented, since evidence pointed to a disparate impact, regardless of motive.

Thus, the best lesson for real estate professionals through this case is to treat all people — including their properties and neighborhoods — the same with a standardized approach. Preferential or differential treatment is inherently risky, so keeping practices standardized and identical is optimal for maintaining fair housing compliance.

Related Video: Different Treatment is Discrimination

Click here for more information on differential treatment under the Fair Housing Act.

Want to learn more about the history and forecast of REO property and home sales in California? Click the image below to download the RPI book cited in this article.

Related topics:
discrimination, fannie mae, foreclosure, homeownership rate

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Form-of-the-Week: A comparative market analysis for setting prices and rents — Forms 318 and 318-1

Form-of-the-Week: A comparative market analysis for setting prices and rents — Forms 318 and 318-1 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Dec 27, 2022 | Appraisal, Buyers and Sellers, Finance, Forms, Real Estate, Recessions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The market sets the price an informed buyer is willing to pay

The real estate market never rests. Related, the market allows for no pricing equilibrium from month to month, much less from year to year. Property pricing, though not its value, is either headed up or headed down. By virtue of the constantly shifting market, there is never a solstice moment to observe pricing.

Inevitably as in business cycles, California home prices peaked one evening in May 2022, reversing course after skyrocketing in 2020-2021. This compels the astute reader to question: was it gravity, magnetic pull of a mean-pricing trendline, sobriety of buyers, the bond market?

Read on for some insight.

The 2022 peak in prices was preceded by a peak in home sales volume three months earlier in March, a span normally of nine months between peaks. By August 2022, failing home sales volume reached a grim 29% below a year prior and has not yet decelerated.

The financial result of sellers losing perceived wealth is already well known: home prices are in freefall destroying family balance sheets, and buyer demand further weakens. Expect California’s housing market to continue to experience declining sales volume and prices, not to find a stable bottom until around 2025. Thus, a real estate recession has unequivocally put down roots.

In recessions, sellers’ agents will encounter owners who tell them they intend to sell but claim their property has greater value than its present — and declining — market price. Based on their convictions (or pride), they will only agree to an asking price for their property greater than prices buyers are currently paying for comparable property.

The illusion of greater wealth

Conceptually, most sellers erroneously believe the price they paid to acquire and improve their property only rises from year to year. This is an industry-wide myth, mischief orchestrated to disregard interest rate cycles and resulting pricing cycles.

This money illusion held by sellers of property is about the relevance of past dollar pricing. This hang-up on yesterday pricing seriously inhibits their listing agent’s ability to successfully market the property in, well, today’s market — or even market the property for a sale within the next five plus years when yesterday’s prices might then fully return.

When mortgage rates rise, buyers quickly learn yesterday’s prices — pre-2022 — were set based on ever lower mortgage rates which gave buyers ever larger amounts of purchase-assist mortgage funds to pay ever greater asking prices. A virtuous cycle for those who sold at the time.

Unlike buyers, sellers do not talk to mortgage lenders. Consequently, sellers are unaware, or simply refuse to grasp that the dynamic of rising mortgage rates and the fixed debt-to-income (DTI) payment ratio works to reduce the amount of mortgage funds available to buyers.

The initiating force driving prices down today is the calculus of rising mortgage rates and the amount of mortgage payment the buyer is allowed to pay. The monthly payment permissible is determine by applying the qualified-mortgage DTI ratio to the buyer’s income to set the maximum amount of mortgage money available to the buyer.

Since the maximum amount of purchase-assist funding a buyer is able to borrow is the amount that classically funds 97% of the purchase price of a home, it is mortgage rates and the income of the prototype buyer of a particular home that sets a property’s price — not the mathematical abstraction of a seller’s asking price.

More attenuated but fundamental, are the underpinnings which hourly set the FRM rates:

the 10-year treasury note rate;
plus a mortgage-default risk premium; and
the Mortgage Backed Bond (MBB) market controls both, not the seller, the buyer or the lender.

Specifically, home prices are mostly equivalent to the maximum amount of purchase-assist funds a typical buyer of a comparable home can borrow.

Further, personal income among likely buyers competing for a property does not vary much, rarely declining short of a loss of employment. Alternatively, mortgage rates vary hourly; often a lot monthly. The income of buyers is tied to a running average of annual inflation rates — the cost-of-living adjustment (COLA), averaging 2%.

As for sellers, they need to know what buyers are able to pay for the seller’s property before setting an asking price or reviewing a purchase offer for acceptance or rejection. For a listing agent, the best method for informing their seller what buyers are now paying for property comparable to the seller’s property requires a search into what buyers have very recently paid for like-type property. This data is known, thus discoverable by a little due diligence application.

Important also is a discussion with the seller about the effect of the current pricing trend, whether up or down.

Related FARM letter:

Sticky prices and the recalcitrant seller dilemma

The resistance sellers have to set or adjust their asking price at declining market prices is a phenomenon called the sticky price syndrome.

Sticky pricing always occurs in recessionary times. The seller understands all property prices have peaked, that prices paid by buyers are lower every month — net equity today, gone tomorrow. Yet that seller is unwilling to lower their asking price or the sales price they will accept on an offer.

For wide-eyed listing agents, a recalcitrant seller fast becomes a waste of their energy, time, and talent: a black hole. The marketplace of real estate sales with inventories growing and sales volume shrinking indicates the necessity of an asking price to be reasonably close to what today’s buyers are paying.

Before an agent marketing a property for sale can attract a qualified buyer who will close a purchase escrow on the seller’s property, the seller needs to hold reasonable pricing expectations. When they do not — or will not — the seller’s agent needs to back away from this prospective client for their lack of rational behavior.

Sellers who follow this illusion — and their agents who enable it to persist — will see the property sit on the market and the listing expire with the property unsold. No chance of a fee despite the agent’s efforts.

Longer days on market — shopworn listings — convince prospective buyers something is wrong, either with the property, the owner or their agent. The market has had a look at the listing and rejected it, only to leave it orphaned. It has not sold while others have. As a consequence, the seller now receives offers at lower prices than had their agent been authorized to market the property at a realistically competitive price from the first posting of the property for sale — a listing consistent with current market conditions for optimal fast closings.

To assure — educate — the seller they are listing the property at an asking price which appears reasonable and will attract buyers quickly before prices slip further, a seller’s agent prepares a comparative market analysis (CMA) and reviews it with the seller.

The CMA is a critical tool an agent uses to inform themselves, and the seller, about realistic pricing buyers are paying to acquire similar properties at the time of the listing.

When the seller accepts the agent’s price analysis — known in the industry as a broker price opinion (BPO) — the agent achieves the objective of an asking price that is at or sufficiently close to prices buyers are currently paying which will attract buyers and offers. With pricing no longer an issue and a property staged with “curb appeal,” the agent can effectively concentrate on locating a buyer qualified and ready to purchase the property. Escrow, we are on our way. [See RPI Form 318 and 318-1]

Related FARM letter:

Comparative Market Analysis and the BPO

A CMA is a form filled out by an agent to work up an opinion about the market price of a property — the BPO. Using the worksheet, the agent compares attributes and amenities of a seller’s property to similar properties in the area that recently sold, called comps.

The agent analyzes the information gathered and entered on the itemized CMA checklist. The agent then reviews it with the seller to come up with an informed listing price for the property — i.e., the seller’s asking price. The agent will use the seller’s asking price to market the property for sale.

To attract potential buyers, the asking price in the agent’s marketing adverts need to be:

reasonably close to recent sales prices and asking prices of comparable properties;
an amount likely to encourage buyers to make offers; and
likely to result in a closed sales transaction. [See RPI Form 318]

An agent gathers information for use in a CMA by downloading a property profile on the property to confirm:

the vesting;
any liens on the property;
property tax status;
any foreclosure notices; and
use restrictions other than zoning.

The agent also prints out a report on recent sales in the surrounding area from a title company website.

From the recent sales report, the agent pulls data on comps recently sold in the area and enters them on the CMA form.

A seller’s agent uses a CMA worksheet for:

establishing the price of the seller’s property for the seller [See RPI Form 318]; and
setting rents for a seller’s single family residence (SFR) held out for rent. [See RPI Form 318-1]

CMA for setting the market price

Both a seller’s agent and a buyer’s agent use a Comparative Market Analysis for Setting Values form to determine prices buyers recently paid for comparable properties. On an analysis, the agent develops their opinion about a property’s market price, which is communicated to the seller. [See RPI Form 318]

The comparable properties always have some features distinguishable from the seller’s property. The agents make dollar adjustment on the CMA worksheet to reflect the lesser or greater value of the comps based on the agent’s observations. [See RPI Form 318]

The Comparative Market Analysis for Setting Values confirms price adjustments for:

zoning [See RPI Form 318 §2.1];
easements [See RPI Form 318 §2.2];
use restrictions governed by covenants, conditions and restrictions (CC&Rs) [See RPI Form 318 §2.3];
retrofitting or water conservation improvements [See RPI Form 318 §2.4];
location factors, including:
- neighborhood trends;
- street amenities;
- lot size and shape;
- vehicle access;
- schools/churches/institutions;
- utilities available; and
- environmental hazards and nuisances [See RPI Form 318 §3];
landscaping features, such as:
- the quality;
- maintenance costs;
- the condition of the soil; and
- topography [See RPI Form 318 §4];
improvements, including their:
- age;
- type;
- highest and best use;
- design/style;
- energy efficiency;
- maintenance and obsolescence;
- exterior conditions; and
- interior conditions [See RPI Form 318 §5];
livable space, documenting the:
- gross livable square feet;
- number of bedrooms;
- number of bathrooms;
- kitchen/appliances;
- existence of a:
  - living room;
  - dining room;
  - family room;
  - basement/storage; and
  - attic [See RPI Form 318 §6]; and
amenities, including a:
- fireplace/woodstove;
- pool;
- fence;
- patio/porch/deck. [See RPI Form 318 §7]

A completed CMA confirms the market price of the seller’s property based on what buyers of comparable properties have been recently willing to pay. Thus, the agent sets their BPO for the property. [See RPI Form 318 §10]

Related article:

CMA for setting rents

The pricing of any income property begins with a study of the income the property produces or will produce. A property’s income is exclusively rents paid by tenants for space they do or will occupy, called rental income.

The property’s annual income and expenses are disclosed to prospective buyers on an operating spreadsheet, called a profit and loss (P&L) statement. The rental income is the first item on the statement; the most significant and the most important. Simply, no income = no value as an income property.

All operating expenses and ownership obligations (mortgage debt/income taxes) are analyzed and judged as percentages of the rental income.

When the amount of income is erroneously presented, the expenses and ownership obligations stated as percentages are distorted. Worse, the bottom line end result of a property’s operating statement is the amount of Net Operating Income (NOI) the property produces annually for ownership.

As always, the NOI together with the capitalization (cap) rate a buyer determines is applicable to their investment in the property sets the market price the buyer of an investment property will offer to pay to acquire the property.

When the rental income is overstated, say, just 5%, the NOI will be overstated at around 15% greater than it actually is. On applying the buyer’s cap rate to this distorted NOI, the result is an excessive price at around 15% over market for the property.

Building the case for setting rental income

To determine the amount of rent tenants are currently willing to pay for units in a property — space — the listing agent needs to know what tenants are presently paying for units/space in comparable properties.

For gathering and analyzing rents in comparable properties, the listing agent may use a Comparative Market Analysis to Set Rent — Single Family Residence form. It is a worksheet used repeatedly for each type of unit or space in the income property. The agent notes the distinguishable features of comparable rental units/spaces from the listed property and enters a dollar adjustment needed to correct for the comparable property’s greater or lesser rental value than the listed property. [See RPI Form 318-1]

The Comparative Market Analysis to Set Rent sets forth the following aspects on the subject property and three comparable properties:

the property’s features [See RPI Form 318-1 §1];
rental amounts [See RPI Form 318-1 §2];
the location [See RPI Form 318-1 §3];
landscaping [See RPI Form 318-1 §4];
improvements [See RPI Form 318-1 §5];
livable space [See RPI Form 318-1 §6]; and
amenities. [See RPI Form 318-1 §7]

With adjustments entered and totaled, the agent arrives at an adjusted monthly rent for the comps, a BPO for rental amount. [See RPI Form 318-1 §§8 and 9]

Informed by a review of the comps, the seller and the agent set the monthly rent a buyer may reasonably expect the property to generate. The operating statement the agent makes available to interested investors and their agents will set the annual rental income as justified by comparable properties, not scheduled income expectations. The CMA is the supporting documentation. [See RPI Form 318-1 §10]

Related article:

A “BPO” for DRE licensees, an “appraisal” for CalBREA

A BPO is an evaluation of a property setting its market price as developed by a DRE-licensed broker or agent. It expresses their opinion of the property’s current market price stated as a dollar figure.

An appraisal on the other hand, is an opinion of value about a property’s pricing that requires the individual expressing the opinion to hold a certified appraiser license issued by the California Bureau of Real Estate Appraisers (CalBREA).

The appraised fair market value (FMV) submitted by an appraiser is relied on by a mortgage lender as the value of the property for applying loan-to-value ratios. The ratio applied to the appraised value sets the maximum mortgage amount for financing secured by the property. While the BPO determines the current market price for a particular property, the appraiser determines the market price submitted as the property’s fair market value.

In practice, both opinions rely on the same comparable sales approach to evaluate the property. Thus, the dollar amount of value and market price will be nearly the same. Both clearly are opinions based on the same concrete data and rational approach to evaluation.

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Form-of-the-Week: Authorization to Prepare a Home Inspection Report and a Natural Hazard Disclosure Report — Forms 130 and 131

Form-of-the-Week: Authorization to Prepare a Home Inspection Report and a Natural Hazard Disclosure Report — Forms 130 and 131 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | May 10, 2022 | Buyers and Sellers, Forms, Fundamentals, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Investigative reports flesh out the marketing package

The primary objective of a seller’s agent on taking a listing is to solicit and locate prospective buyers. In the process, the seller and their agent need to sufficiently disclose the property’s condition to the buyer before they submit an offer.

The seller’s agent owes the buyer a general duty to provide critical information voluntarily and promptly on the listed property that might adversely affect its value. This property information is collectively referred to as material facts. [See RPI e-book Real Estate Principles, Chapter 13]

Upfront factual disclosures notify the buyer of any property conditions known to the seller or the seller’s agent, correcting the asymmetry of information which exists in a transition. Without this information, a prudent buyer is unable to set a price and make an informed offer — in effect, flying blind.

At the listing stage, the seller’s agent gathers property data and organizes it into a marketing package. [See RPI Form 133]

The marketing package contains third-party investigative reports prepared by unbiased professionals or government agencies addressing essential aspects of the property’s condition that are of concern to reasonable buyers.

Related article:

Two recommended third-party reports to be included in the marketing package are:

a home inspection report (HIR) to accompany mandated property disclosures [See RPI Form 130]; and
a Natural Hazard Disclosure Statement (NHD), provided by an NHD expert. [See RPI Form 131]

Negotiations with a prospective buyer trigger a full disclosure when the buyer or their agent seek additional information on a listed property beyond the data contained in a promotional flier.

Related Video: Transparency by Design, Not Default

Click here for more information on third-party investigative reports.

The HIR attaches to the seller’s TDS

An HIR, paid for by the seller and prepared by a local home inspection company, is necessary so:

the agent may properly market the property to prospective buyers and their agents; and
the seller may avoid any claims made by buyers that the condition of the property is misrepresented. [See RPI e-book Real Estate Principles, Chapter 21]

In addition, the seller uses the HIR to best prepare their Condition of Property Transfer Disclosure Statement (TDS). [See RPI Form 304]

The HIR is then attached to the seller’s TDS. Both are included in the agent’s thorough marketing package presented to prospective buyers seeking additional property information.

The TDS needs to be handed to prospective buyers as soon as practicable. Typically, this is when they first express serious interest in the property and when negotiations commence. [See RPI e-book Real Estate Principles, Chapter 15]

On a tardy delivery of the TDS, occurring after the seller enters into a purchase agreement, the buyer may:

cancel the purchase agreement under a statutory three-day right to cancel [Calif. Civil Code §1102.3];
demand the seller to correct any defects or reduce the price accordingly before escrow closes [See RPI Form 150 §12.2]; or
close escrow and demand the seller to cover the costs of curing any defects. [Jue v. Smiser (1994) 23 CA4th 312]

Related Video: The Inspection and Report

Click here for more information on the home inspection and report.

The marketing role of a home inspection for a seller’s agent

The seller’s agent is primarily responsible for gathering information about the condition of the listed property and delivering the information to prospective buyers. [CC §2079]

The seller’s agent needs to request and use the HIR (on behalf of the seller) to supplement their observations during the mandatory competent visual inspection of the property when reviewing and approving the seller-prepared TDS.

When a buyer goes under contract without reviewing an HIR, the seller’s agent loses control over the marketing and sales process — and exposes themselves and their seller to claims of misrepresentation.

The buyer’s reliance on an HIR relieves the seller and their agent from liability for property defects not observed during the seller’s agent’s visual inspection, or which ought to have been known to the seller or the seller’s agent, known as red flag defects.

However, when the seller’s agent relies on the HIR to avoid liability for faulty preparation of the TDS, the seller’s agent needs to select a competent (read: non-negligent) home inspector to prepare the HIR. [See RPI e-book Real Estate Practice, Chapter 26]

Related Video: A Home Inspector’s Qualifications

Click here for more information on hiring a home inspector.

On receipt of the HIR, the seller may voluntarily eliminate some or all of the deficiencies noted in the report.

However, sellers are not obligated to eliminate any defects they disclose in the TDS and HIR when selling a property, unless they negotiate with the buyer to do so. Here, the seller’s agent orders an updated report for use with the TDS.

Related article:

Hiring a home inspector

When prospective buyers are informed about the precise condition of the physical property before they submit an offer to purchase, the seller avoids later demands to correct property defects or to adjust the sales price before escrow closes — or worse, cancellation or post-closing litigation.

With the HIR and TDS delivered to the buyer prior to the seller’s acceptance of the purchase agreement, the property has been purchased transparently “as disclosed.” [See RPI Form 304]

Editor’s note — When the home inspector who prepared the HIR is unknown to the buyer’s agent, it is good practice for the buyer’s agent to also recommend as part of the buyer’s due diligence investigation that the buyer conduct their own inspections pertaining to all physical aspects of the property.

Related Video: Word-of-the-Week: Home Inspection

Click here for more information on home inspections.

An agent uses the Authorization to Inspect and Prepare a Home Inspection Report published by Realty Publications, Inc. (RPI) to document a request for a home inspection. It authorizes the selected home inspector to conduct an inspection and prepare an HIR on behalf of the principal. [See RPI Form 130]

The Authorization to Inspect and Prepare a Home Inspection gives the home inspector specific information regarding the requested inspection, including:

the property address [See RPI Form 130 §1];
the type of property being inspected [See RPI Form 130 §1.1];
the seller’s name and phone number [See RPI Form 130 §2];
the contracting party requesting the HIR (whether the seller, buyer or agent) [See RPI Form 130 §4];
contact information for the person to arrange the inspection [See RPI Form 130 §5];
a confirmation whether the agent will be present for the inspection [See RPI Form 130 §5.1]; and
the anticipated fee to be paid upon the delivery of the HIR to the agent. [See RPI Form 130 §7]

The form also contains instructions to the inspector that the HIR is to include, such as:

an energy efficiency inspection [See RPI Form 130 §6.1];
any improvements not in compliance with building codes and for which no permits exist [See RPI Form 130 §6.2]; and
the property’s compliance with safety codes for child resistant pool barriers, hot tub covers, automatic garage doors, door locks/latches, gas valves, security bars and water heaters. [See RPI Form 130 §6.3]

Editor’s note — Although Home Energy Raters are specially trained and certified, any home inspector may perform a home energy audit, provided the audit conforms to the California Home Energy Rating System (HERS) regulations established by the California Energy Commission. [Calif. Business & Professions Code §§7199.5, 7199.7]

Related article:

A unified NHD disclosure for all real estate sales

Natural hazards are risks to life and property which exist in nature due to a property’s location. [See RPI e-book Real Estate Principles, Chapter 17]

Natural hazards are separate from the man-made aspects of the property. The existence of a hazard due to the geographic location of a property affects its desirability, and thus its value to prospective buyers — a material fact requiring disclosure.

Locations where a property might be subject to natural hazards include:

special flood hazard areas, a federal designation;
potential flooding and inundation areas;
very high fire hazard severity zones;
wildland fire areas;
earthquake fault zones; and
seismic hazard [CC §1103(c)]

Related Video: Word-of-the-Week: Natural Hazards

Click here for more information on natural hazards.

Hazards, by their nature, limit a buyer’s ability to develop the property, obtain insurance or receive disaster relief. The existence or lack of a natural hazard on a particular property irrefutably affects the property’s desirability, and thus, its value to a prospective buyer.

Whether a seller lists the property with a broker or markets the property themselves, the seller needs to disclose any natural hazards known to the seller, including those readily available in public records.

A seller or their agent present these disclosures in the statutorily-mandated Natural Hazard Disclosure (NHD) Statement, a form unique to California. [See RPI Form 314]

Related Video: The NHD Form for Uniformity

Click here for more information on preparing the NHD form.

Use of an expert to avoid seller liability

Delivery of natural hazard information is mandated on all types of real estate. [CC §1103.1(b)]

A seller and their agent need to exercise ordinary care in gathering natural hazard information, either on their own or with the assistance of an NHD expert, such as a geologist.

Here, the expert prepares the NHD form for the seller and the seller’s agent. The seller and their agent will review the completed form, add any comments, sign it and include it in the marketing package to be delivered to prospective buyers. [CC §1103.4(a)]

For the seller and their agent to rely on an NHD report prepared by a third party, the seller’s agent need only:

request an NHD report from a reliable expert in natural hazards, such as an engineer or a geologist who has studied public records;
review the NHD form prepared by the expert and enter any actual knowledge the seller or seller’s agent may possess, whether contrary or supplemental to the expert’s report; and
sign the NHD Statement provided by the NHD expert and deliver it with the NHD report to prospective buyers or buyer’s agents on commencement of negotiations (always prior to the seller’s acceptance of an offer). [CC §1103.2(f)(2)]

The Natural Hazard Disclosure encourages brokers and their agents to use natural hazard experts to gather and report the information publicly available from the local planning department rather than do the work themselves. This practice relieves the seller’s agent of any liability for errors unknown to the agent.

Related Video: Delivery of the NHD to the Buyer

Click here for more information on delivering the NHD form.

Hiring an NHD expert

An agent uses the Authorization to Prepare Natural Hazard Disclosure published by RPI to document a request for an inspection ordered by behalf of the seller (or buyer). It authorizes an NHD expert to prepare an NHD report for disclosing property conditions to a buyer. [See RPI Form 131]

The Authorization to Prepare Natural Hazard Disclosure contains:

the property address [See RPI Form 131 §1];
a statement that the expert is being retained to prepare an NHD report for the identified property [See RPI Form 131 §2];
the identity of the person the NHD report will be delivered to when complete [See RPI Form 131 §3]; and
the anticipated fee owed the expert on delivery of the report to the agent. [See RPI Form 131 §4]

Related article:

This article was originally published September 2017 and has been updated.

Want to learn more about timely executing and delivering seller disclosures? Click an image below to download the RPI books cited in this article.

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Form-of-the-Week: Expired listings — Forms 122, 123 and 123-1

Form-of-the-Week: Expired listings — Forms 122, 123 and 123-1 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Sep 19, 2022 | Buyers and Sellers, Forms, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The safety clause

A safety clause in a listing agreement entitles the broker to the agreed fee, when:

an individual has direct contact with the broker (or their agent) regarding the property during the listing period, called solicitations;
the broker treats the individual as a prospective buyer due to their inquiries or conduct by handing them a package of information about the property, called negotiations;
negotiations with the individual terminate without resulting in their entering into an agreement to purchase the property;
the listing period expires and the broker timely registers the individual by name with the seller as a prospective buyer; and
the individual and the seller, with or without the broker’s further involvement, later commence negotiations within an agreed-to period following the expiration of the listing, called the safety period, and eventually complete a sale of the property.

A safety clause is part of the fee provision in a listing agreement. Both the open and exclusive types of seller’s and buyer’s listing agreements contain safety clause provisions. [See RPI Form 102 §3.1(d); see RPI Form 103 §4.1(c)]

A safety clause in the fee provision of a listing agreement provides an additional period of time after the listing period expires for a broker to earn a fee. [See RPI e-book Real Estate Practice, Chapter 12]

The safety clause for seller’s agents

The safety clause imposes an obligation on the seller to pay a fee on a sale which results from negotiations with registered prospective buyers handled by anyone within the safety period. [See RPI Form 123-1]

However, several crucial activities need to be performed by the seller’s agent to perfect the broker’s right to a fee under the safety clause, including:

providing information about the listed property to any prospective buyers the broker or buyer’s brokers have contact with;
documenting dealings with prospective buyers by maintaining a File Activity Sheet in a property listing file [See RPI Form 520]; and
registering the prospective buyers with the seller on termination of the listing with the seller by providing the seller with a List of Prospective Buyers in a timely manner (e.g., within 21 days). [See RPI Form 122]

Related article:

The safety clause for buyer’s agents

Likewise, under the safety clause in a buyer’s listing agreement, the buyer’s broker is entitled to collect a fee within an agreed-to period after the expiration of the buyer’s listing when:

information specific to the property was provided to the buyer by the buyer’s agent during the listing period;
on expiration of the buyer’s listing, the buyer is handed an itemized list which identifies those properties the buyer’s agent brought to the buyer’s attention needed to perfect the buyer’s broker’s right to a fee [See RPI Form 123];
the buyer entered into negotiations with the owner of a registered property; and
the safety-period negotiations ultimately result in the buyer acquiring an interest in the property.

Although the buyer under a listing agreement promises to pay a full broker fee on the acquisition of property, in practice, the buyer will nearly always close the purchase without directly paying the promised broker fee. It is the seller who typically pays the fee the buyer has promised their agent. [See RPI e-book Real Estate Practice, Chapter 15]

Related Video: Provisions for Payment of a Fee

Click here for more information on fee entitlements.

The identification of prospective buyers/tenants

An owner’s agent uses the Identification of Prospective Buyers/Tenants — On Expiration of Listing published by Realty Publications, Inc. (RPI) when their employment has expired under a listing agreement for the sale or lease of a property containing a safety clause calling for the payment of a fee on a purchase or lease of the property within one year after expiration by a prospect the broker negotiated with during the listing period. The form allows the agent to identify these prospective buyers or tenants of the property to the owner. [See RPI Form 122]

The Identification of Prospective Buyers/Tenants form contains:

Facts, including which type of agreement the form is an addendum for, either:
- a Seller’s Listing Agreement [See RPI Form 102];
- an Exclusive Authorization to Lease Property [See RPI Form 110]; or
- a blank space to list another listing agreement; and
the date the listing was entered into and the property address for the described real estate [See RPI Form 122 §1]; and
the identities of prospective buyers or tenants the broker solicited and negotiated with for the purchase or lease of the real estate. [See RPI Form 122 §2]

The owner is obligated under the listing agreement to pay a brokerage fee when, within one year after expiration of the agreement, the owner enters into a negotiations which result in the sale or lease of the real estate with any of the named prospective buyers or tenants. [See RPI Form 122 §2.2]

The identification of qualifying properties

A buyer’s or tenant’s agent uses the Identification of Qualifying Properties published by RPI when their employment has expired under a listing agreement to buy or lease property containing a safety clause calling for the payment of a fee on the client’s purchase or lease within one year after expiration of a property presented to the buyer or tenant during the listing period. The form allows the agent to identify prospective properties the broker brought to the attention of the client. [See RPI Form 123]

The Identification of Qualifying Properties form contains:

Facts, including which type of agreement the form is an addendum for, either:
- a Buyer’s Listing Agreement [See RPI Form 103]; or
- an Exclusive Authorization to Locate Space [See RPI Form 111];
the date the listing was entered into and the property address for the described real estate [See RPI Form 123 §1]; and
the identities of properties qualifying as the type sought by the buyer or tenant which the broker located, investigated, solicitated or negotiated for acquisition by the buyer or tenant. [See RPI Form 123 §2]

The buyer or tenant is obligated under the listing agreement to pay a brokerage fee when, within one year after termination of the agreement, the buyer or tenant enters into negotiations which result in the acquisition or lease of any of the named addresses provided on the form. [See RPI Form 123 §2.2]

Demand for payment of a fee

An agent uses the Demand for Payment of a Fee — Fee Earned on an Expired Listing published by RPI when, within one year after termination of a listing agreement, the client enters into negotiations which later result in a closed transaction with a registered person or property. The form allows the agent to initiate collection of an earned fee. [See RPI Form 123-1]

The Demand for Payment of a Fee form contains:

Facts, including whether the demand for a fee pertains to:
- a Seller’s Listing Agreement [See RPI Form 102];
- a Buyer’s Listing Agreement [See RPI Form 103];
- an Exclusive Authorization to Lease [See RPI Form 110];
- an Exclusive Authorization to Locate Space [See RPI Form 111];
- a Trust Deed Listing [See RPI Form 112]; or
- a blank space to list another listing agreement; [See RPI Form 123-1 §1.1];
the date the listing was entered into, the broker’s identity, the client’s identity and the described real estate [See RPI Form 123-1 §1];
Demand for a fee, which includes:
- whether an Identification of Prospective Buyers or Identification of Qualifying Properties was provided to the client on the expiration of the listing agreement [See RPI Form 122 and 123; See RPI Form 123-1 §2.1];
- the identity of the person with whom negotiations resulted in a transaction with or, alternatively, the property which was located for the client within one year after termination of the listing agreement [See RPI Form 123-1 §2.2];
- the broker’s fee earned under the listing agreement [See RPI Form 123-1 §2.3]; and
- whether broker fees are due immediately upon receipt of the demand or another time period the broker will enter. [See RPI Form 123-1 §2.4]

When an agent or broker discovers a completed sale has occurred within one year for which the agent provided the client with prospective buyers or qualifying properties, the broker makes a written demand on the seller or buyer for their fee earned and unpaid under the safety clause in the expired listing. [See RPI Form 123-1]

Want to learn more about perfecting the right to a fee? Click the image below to download the RPI book cited in this article.

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Form-of-the-Week: Mortgage Worksheets — Forms 312, 320 and 320-1

Form-of-the-Week: Mortgage Worksheets — Forms 312, 320 and 320-1 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Sep 1, 2022 | Buyers and Sellers, Forms, Mortgages, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Walking the buyer through mortgage financing

The ability of a buyer or an owner to obtain financing is an integral component of most real estate transactions.

The buyer’s agent, referred to by lenders as the transaction agent (TA) in the context of financing, owes their buyer the duty to ensure they negotiate the best financial advantage available among multiple mortgage lenders.

The duties imposed by agency law on the TA include:

helping the buyer locate the most advantageous mortgage terms;
oversight of the mortgage application submission; and
policing the lender’s mortgage packing process and funding conditions.

Recall that a lender’s objectives and goals are diametrically opposed to those of the buyer. The lender is selling a product to potential buyers. Consequently, homebuyers have the liberty to accept — or reject — a lender’s offer.

The buyer’s agent owes a fiduciary duty to their buyer to help them acquire the information needed to make an educated choice regarding their finances. Without mortgage information, a homebuyer cannot make a well-informed decision as to which mortgage offers the most advantageous terms.

Thus, the buyer’s agent is obligated to shepherd their homebuyers through the asymmetry of information created by the buyer’s inexperience and the lender’s silence about the mortgage process and available mortgage options. Agents, well-versed in real estate fundamentals and lender conduct, are the only ones available to walk their homebuyers through the mortgage market.

Shop ‘til you drop

The consequences of not competitively shopping for mortgages amounts to a costly mistake for prospective buyers.

As much as 30% of buyers do not comparison shop for their mortgage, and more than 75% of borrowers applied for a mortgage with only one lender, according to the Consumer Finance Protection Bureau (CFPB).

This failure to shop around costs the average homebuyer about $300 per year and tens of thousands of dollars over the life of the mortgage. In high-cost California, the average cost for not shopping around is even higher.

As a matter of best practices, mortgage applications ought to be submitted to at least two lenders. Without a backup application processed by another lender, the buyer is left with no opportunity to reject the lender’s eleventh hour changes. [See RPI e-book Real Estate Principles, Chapter 54]

Multiple government agencies also promote the practice of submitting more than one application. To assist the buyer with the task of comparing the products of two or more lenders, government entities publish Mortgage Shopping Worksheets.

The Mortgage Shopping Worksheet published by Realty Publications, Inc. (RPI) is designed to be completed by the buyer with the assistance of the TA. The worksheet contains a list of all the mortgage variables commonly occurring on origination and during the life of the mortgage. [See RPI Form 312]

Keep in mind that submitting applications to multiple lenders will not adversely affect the buyer’s credit score, so long as the buyer conducts all of their mortgage inquiries for comparisons within a 45-day period.

Related Video: Preparing for Meeting with a Lender

Click here for more information on meeting with a lender.

Interest rate variations

A promissory note is a document given as evidence of a debt owed by one person to another. It is given in exchange for property as a promise to pay. The signed promissory note is not the debt itself, but evidence the debt exists.

Promissory notes are partly distinguished based on interest rate calculations, such as:

fixed interest rate notes, commonly called fixed rate mortgages (FRMs); and
variable interest rate notes, commonly called adjustable rate mortgages (ARMs).

The most common type of home financing in the U.S. is the 30-year FRM. Under this arrangement, the interest rate and scheduled payments remain fixed for the life of the mortgage, giving certainty to future payment obligations. [See current market rates]

The ARM, as opposed to an FRM, calls for periodic adjustments to the interest rate after an initial teaser period. Thus, the amount of scheduled payments fluctuates from time to time and may rise significantly. The ARM provides the lender with periodic increases in its yield on the principal balance during periods of rising and high short-term interest rates. [See RPI e-book Real Estate Finance, Chapter 6]

Whether the buyer chooses an FRM or an ARM, they always have the option to shop around for the most advantageous financing options available to them.

A buyer who is shopping for a FRM, with help from the TA, uses the Borrower’s Mortgage Worksheet — For FRMs to determine their best FRM term. [See RPI Form 320]

Likewise, a buyer who is shopping for an ARM, along with their agent, uses the ARM Disclosure Worksheet to determine their best ARM term available across mortgage lenders. [See RPI Form 320-1]

Related Client Q&A:

Mortgage shopping worksheet

A TA and their buyer uses the Mortgage Shopping Worksheet published by RPI when a mortgage application is submitted to two or more lenders. The form allows the buyer to compare mortgage rates and origination costs offered by different lenders competing to make the same type of mortgage. [See RPI Form 312]

The Mortgage Shopping Worksheet contains the critical details of three different mortgages in friendly columnar format, including:

the total mortgage amount to be funded;
the size of the down payment the homebuyer intends to put down;
the mortgage term in years;
the estimated total monthly payment the homebuyer will be paying to the lender;
the monthly cost of private mortgage insurance (PMI) or mortgage insurance premiums (MIPs), when required;
whether the mortgage has a fixed or adjustable rate of interest, and the associated rate and terms;
the lender’s margin on the mortgage;
the total expected lender and origination fees;
whether the mortgage contains a final/balloon payment, and if so, the amount and when it becomes due; and
the amount of any prepayment penalty the homebuyer will pay when they pay off the mortgage early. [See RPI Form 312]

The worksheet is used to compare the terms of either a purchase-assist mortgage or mortgage refinance. Space is provided for the entry of mortgage terms offered by three competing lenders, and the terms of an existing mortgage when an owner is refinancing.

Once complete, the homebuyer and their agent can quickly compare the terms offered by the competing lenders.

Related article:

Borrower’s mortgage worksheet for FRMs

A buyer, owner or their TA uses the Borrower’s Mortgage Worksheet for FRMs published by RPI when initiating the mortgage loan pre-approval or application process. The form allows the borrower to interview a lender and determine the most advantageous of the fixed-rate financing options available. [See RPI Form 320]

The Borrower’s Mortgage Worksheet for FRMs includes all the information and terms on a fixed-rate mortgage, including:

the type of FRM (Conventional, FHA, VA, Jumbo) [See RPI Form 320 §1];
the type of property [See RPI Form 320 §1.1];
down payment parameters [See RPI Form 320 §2];
the borrower’s maximum monthly payment abilities [See RPI Form 320 §3];
the maximum loan amount for each amortization term (15-year, 30-year or 40-year) [See RPI Form 320 §4];
points and discounts available [See RPI Form 320 §5];
the final/balloon payment terms [See RPI Form 320 §6];
the effect of credit scores on different aspects of the mortgage [See RPI Form 320 §7];
the effect of a co-signer on the mortgage [See RPI Form 320 §8];
whether the mortgage has a prepayment penalty provision or not, for which period it applies and how much the penalty is [See RPI Form 320 §9];
the loan assumability terms by the buyer on resale of the property [See RPI Form 320 §10];
the lender’s pre-approval letter information and when the borrower will receive it [See RPI Form 320 §11];
charges to be disclosed in a Good Faith Estimate (GFE) [See RPI Form 204-5; See RPI Form 320 §13];
seller contribution restrictions [See RPI Form 320 §14];
loan documents to be signed at the time of closing [See RPI Form 320 §15];
web addresses where loan information is obtained [See RPI Form 320 §16];
unemployment insurance information [See RPI Form 320 §17]; and
lender recommendations. [See RPI Form 320 §18]

Once complete, the buyer or owner and their agent have all the information needed to determine whether the borrower wants to close on the mortgage on the terms offered.

Related article:

ARM disclosure worksheet

A buyer, owner or their TA uses the ARM Disclosure Worksheet published by RPI when locating the most advantageous ARM financing available for funding the purchase or refinance of a property. The form allows the agent to provide the buyer or owner with a checklist for conducting an interview with mortgage lenders and noting for comparison the terms they offer on an ARM. [See RPI Form 320-1]

The contents of the ARM Disclosure Worksheet includes:

the name of the loan plan, lender, loan officer and the property’s address [See RPI Form 320-1];
the monthly interest rate adjustment, when the first adjustment occurs and the note ceiling rate, as well as the initial interest rate and how long it is in effect [See RPI Form 320-1 §§1 through 4];
whether full amortization, interest only payments or buildup of the principal amount borrowed is a feature of the loan, and the terms [See RPI Form 320-1 §§5 through 7];
whether a due-on-sale clause exists in the trust deed, and the conditions for consent to an assumption on a resale [See RPI Form 320-1 §8];
whether a prepayment penalty exists and, when applicable, for what period it applies and the terms [See RPI Form 320-1 §9]; and
whether the mortgage provides for convertibility to a fixed rate loan at the borrower’s election, and under what conditions. [See RPI Form 320-1 §10]

Once complete, the buyer or owner with their TA is able to determine whether they want to proceed with obtaining the mortgage on the terms offered or seek financing elsewhere.

Related article:

Want to learn more about walking a buyer through mortgage financing? Click an image below to download the RPI books cited in this article.

Related topics:
arm, buyers agent, frm, mortgage, mortgage shopping worksheet

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Form-of-the-Week: Occupancy Agreements — Interim and Holdover — Forms 271 and 272

Form-of-the-Week: Occupancy Agreements — Interim and Holdover — Forms 271 and 272 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Nov 14, 2022 | Buyers and Sellers, Forms, Home Sales, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Occupancy agreements

The 2020-2021 surge in home prices boosted California homeowners’ home equity levels. Before prices are fully dragged down from their May 2022 peak by the encore of the 2020 recession, owners may take advantage of this fleeting equity boost by selling their primary residence and buying replacement property.

However, it’s not always possible to smoothly transition from the old residence to the new one. In this volatile environment where prices are looking for a bottom, it’s a greater challenge to time the current home’s closing with the purchase of a replacement home.

This logistical challenge has a solution: occupancy agreements.

An occupancy agreement creates a rental agreement for the buyer or seller to occupy the property as tenants until their replacement residence is secured. [See RPI Form 271 and Form 272]

A buyer’s agent uses the Interim Occupancy Agreement when the buyer seeks occupancy of the property before closing escrow. [See RPI Form 271]

A seller’s agent uses the Holdover Occupancy Agreement when the seller seeks to temporarily remain in possession of the property after the sales escrow closes. [See RPI Form 272]

Occupancy agreements are best attached to the purchase agreement as an addendum. They may also be agreed to prior to closing escrow or in a counteroffer. The agreement clarifies the buyer or seller’s ownership rights and, more importantly, creates a landlord-tenant relationship for quick resolution of any disputes over occupancy in the event of a default.

Related video:

The interim occupancy agreement

Under an interim occupancy agreement, arrangements are made for the buyer to prematurely take possession of the replacement property prior to closing the purchase escrow on the replacement home. [See RPI Form 271]

To create the tenancy:

the seller, as a landlord, agrees to lease the premises for a certain term; and
the buyer, as a tenant, agrees to pay rent for the use of the premises.

The occupancy agreement provides for the rental period to be set as a determinable “fixed” time period. It will expire on the earlier of the close of escrow or on termination of the underlying agreement. [See RPI Form 271 §3]

A fixed-term tenancy terminates automatically without need of prior notice from the seller/landlord. [Camp v. Matich (1948) 87 CA2d 660]

In addition, the amount of rent and time of payment is stated. [See RPI Form 271 §5]

A special provision is included in the occupancy agreement for payment of rent when the buyer does not vacate upon the expiration of the tenancy. The amount is sharply increased and made payable at a daily rate to discourage the buyer from remaining in the premises beyond the agreed-to term of occupancy. [See RPI Form 271 §5.7]

Further, the security deposit is to be refunded to the buyer on the close of escrow. On cancellation of the purchase agreement, the tenancy terminates and the security deposit is to be returned within 21 days of the buyer vacating, less amounts necessary to remedy any default in rent or to clean or repair the premises. [See RPI Form 271 §6]

Related article:

The holdover occupancy agreement

Under a holdover occupancy agreement, arrangements are made for the seller to retain possession of the residence after the sales escrow closes. [See RPI Form 272]

Such an arrangement allows for the seller to assume the role of tenant and the buyer to assume the role of landlord. The seller/tenant agrees to pay for the use of the property in exchange for the buyer/landlord to lease the newly bought property for a specific term.

The occupancy agreement provides for the rental period to terminate on a specified “fixed” time period. [See RPI Form 272 §2.1]

The agreement also specifies the:

amount of rent;
time of payment; and
method of payment. [See RPI Form 272 §3]

When the seller continues to occupy the premises after termination of the tenancy, the seller/tenant is to pay a day-to-day tenancy of a specified rental rate to discourage the seller from remaining as a holdover tenant beyond the agreed-to term. [See RPI Form 272 §3.7]

The security deposit and the first month’s rent (or all months’ rent) are best disbursed by escrow from the seller’s proceeds at the close of escrow. Supplemental escrow instructions are to be prepared instructing escrow to pay the buyer the rent and security deposit due. [See RPI Form 401]

Related article:

Analyzing the interim agreement

A buyer’s agent uses the Interim Occupancy Agreement — Receipt for Rent and Security Deposit published by Realty Publications, Inc. (RPI) when the buyer seeks occupancy of the property prior to the close of escrow to purchase the property. The agreement allows the agent to prepare a rental agreement for buyer occupancy with conditions protecting the seller when the buyer defaults. [See RPI Form 271]

The Interim Occupancy Agreement contains:

Facts, such as:
- the referenced agreement (Purchase agreement, Counteroffer, Escrow);
- the date;
- the buyer’s/tenant’s identity;
- the seller’s/landlord’s identity; and
- the address [See RPI Form 271 §1];
Agreements, including:
- the buyer has a right to possession and occupancy [See RPI Form 271 §2];
- the date the occupancy commences and when it expires [See RPI Form 271 §3];
- cancellation agreements, including when the seller may terminate the agreement [See RPI Form 271 §4];
Rent information, including:
- the amount of rent and security deposit the seller is to receive [See RPI Form 271 §5];
- the time and method of payment [See RPI Form 271 §§5.1 through 5.5];
- the rent will be prorated to the date the tenancy is terminated [See RPI Form 271 §5.6]; and
- the amount the buyer/tenant will pay per day when they holdover [See RPI Form 271 §5.7];
Security deposit information [See RPI Form 271 §6];
Property conditions, detailing that the property is in satisfactory condition and will remain that way during the buyer’s tenancy [See RPI Form 271 §7; see RPI Form 560];
the buyer is to timely pay utilities incurred during their occupancy [See RPI Form 271 §8];
a hold harmless provision [See RPI Form 271 §9];
the seller/landlord’s right to enter the property in case of an emergency or for necessary repairs [See RPI Form 271 §10];
the buyer is not to assign their rights or sublet any portion of the premises [See RPI Form 271 §11];
an attorney fees provision [See RPI Form 271 §12];
additional terms to be attached in an addendum [See RPI Form 271 §13; See RPI Form 250]; and
Signatures of the buyer/tenant and seller/landlord. [See RPI Form 271]

Related article:

Analyzing the holdover occupancy agreement

A seller’s agent uses the Holdover Occupancy Agreement published by RPI when the seller seeks to temporarily remain in possession of the property after the sales escrow closes. The agreement allows the agent to prepare a rental agreement for the seller’s continued occupancy with conditions protecting the buyer when the seller defaults. [See RPI Form 272]

The Holdover Occupancy Agreement sets forth:

Facts, such as the:
- referenced agreement (Purchase agreement, Escrow, Counteroffer);
- date;
- buyer’s/landlord’s identity;
- seller’s/tenant’s identity; and
- address [See RPI Form 272 §1];
Agreements, including when the occupancy terminates [See RPI Form 272 §2];
Rent information, including the:
- amount of the rent and security deposit to be handed to the buyer/landlord on close of escrow from the seller’s/tenant’s funds [See RPI Form 272 §3];
- time and method of payment [See RPI Form 272 §§3.1 through 3.5];
- rent will be prorated to the date the tenancy is terminated [See RPI Form 272 §3.6];
- amount the seller/tenant will pay per day when they holdover [See RPI Form 272 §3.7];
Security deposit information [See RPI Form 272 §4];
the seller is to timely pay utilities incurred during their occupancy [See RPI Form 272 §5];
the seller will keep the premises in good condition [See RPI Form 272 §6];
a hold harmless provision [See RPI Form 272 §7];
the buyer’s/landlord’s right to enter the property in case of an emergency or for necessary repairs [See RPI Form 272 §8];
the buyer/landlord may terminate the agreement when the premises are destroyed or damaged by the seller/tenant [See RPI Form 272 §9];
the seller/tenant may not assign or sublet any portion of the premises [See RPI Form 272 §10];
an attorney fees provision [See RPI Form 272 §11]; and
Signatures of the seller/tenant and buyer/landlord. [See RPI Form 272]

Related article:

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Form-of-the-Week: Transfer Disclosure Statement, Unique Factors and Conditions Affecting Property and Seller’s Neighborhood Security Disclosure — Forms 304, 308 and 321

Form-of-the-Week: Transfer Disclosure Statement, Unique Factors and Conditions Affecting Property and Seller’s Neighborhood Security Disclosure — Forms 304, 308 and 321 somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Aug 8, 2022 | Buyers and Sellers, Forms, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Disclosure on material facts

All sellers and their agents to a prospective buyer have the general duty to disclose all known conditions about a property that may adversely affect the desirability or value of the property. Collectively, these are called material facts. [Calif. Civil Code §1102]

Material facts include information about:

the physical aspects and condition of improvements on the property;
natural hazards affecting the location of the property;
environmental hazards on or near the property;
financial aspects (i.e., the property’s income, expenses and mortgages);
property title covenants, conditions and restrictions (CC&Rs) regarding use;
the area surrounding the property’s location; and
the suitability and zoning of the property for the intended purposes expressed by the buyer.

A seller of a one-to-four unit residential property completes and delivers to a prospective buyer a statutory form called a Transfer Disclosure Statement (TDS), more generically called a Condition of Property Disclosure Statement. [See RPI Form 304]

The seller uses the TDS to set forth any property defects known or suspected to exist which may negatively affect the value or desirability of the property. Disclosures to the buyer are not limited to the general items preprinted on the form. [CC §1102.8]

However, most sellers and their agents, when preparing disclosures, willingly neglect to provide information about recent criminal activity within the neighborhood — whether known or suspected by either. [See RPI Form 321]

As an agency rule, when a seller employs an agent to sell their property, both the agent, the licensee marketing the property, and the seller, as the owner of the property, owe a general duty to prospective buyers to disclose all known facts affecting the value, use and desirability of the property — and the surrounding area. [See RPI e-book Real Estate Principles, Chapter 13]

Related Video: TDS: Mandated on One-to-Four Residential Units

Click here for more information on the TDS form.

Neighborhood nuisances

Although the TDS is not specific to surrounding neighborhood security or local criminal activity and might not name all factors which might affect a property, the TDS broadly calls for the seller to provide information regarding neighborhood nuisances.

Neighborhood and area conditions which adversely affect the property’s value and desirability are material facts compelling disclosure to prospective buyers seeking further information about a property they may acquire. [See RPI Form 308]

Disclosure of facts yielding a negative effect on the value of property is required regardless of whether the negative effect is expressed as an item on a pre-printed TDS form or questioned by the buyer. Anything less is deceit, and thus a fraud on the buyer by the seller’s broker and agent.

Thus, a seller’s agent discloses the existence of unique external factors or conditions affecting a property’s desirability or security conditions surrounding the property when preparing a marketing package for the sale, exchange, lease or option of a one-to-four unit residential property or on demand from a prospective buyer or their agent. [See RPI Form 308 and 321]

Related article:

Unique factors and conditions

A seller’s agent uses the Unique Factors and Conditions Affecting Property form published by Realty Publications, Inc. (RPI) when preparing a marketing package for the sale, exchange, lease or option of a one-to-four unit residential property. The form allows the agent to disclose the existence of unique factors or conditions which may adversely affect the property or its immediate vicinity. [See RPI Form 308]

The Unique Factors and Conditions Affecting Property form lists several factors which may influence a buyer’s decision to purchase or the price they are willing to pay for a particular property. These factors and conditions include:

Notice of Airport in Vicinity: The property is located in an airport influence area which may subject occupants to annoyances or inconveniences such as noise, vibration or odors [See RPI Form 308 §2];
Notice of Right to Farm: The property is located within one mile of a farm or ranch land and may be subject to inconveniences or discomforts resulting from agricultural operations [See RPI Form 308 §3];
Notice of San Francisco Bay Conservation and Development Commission Jurisdiction: The use and development of property within this commission’s jurisdiction may be subject to special regulations, restrictions and permit requirements [See RPI Form 308 §4];
Notice of Mining Operations: The property is located within one mile of a mine operation and may be subject to mining-related inconveniences [See RPI Form 308 §5];
Notice of Industrial Use Zone: The property is located in or next to an Industrial Use Zone which allows manufacturing or commercial uses [See RPI Form 308 §6];
Notice of State or Federal Ordinance: The property is located within one mile of a former state or federal ordinance location, such as those used for military training purposes [See RPI Form 308 §7];
Notice of Contamination of a Controlled Substance: A government health official has identified the property or immediate vicinity as being contaminated by methamphetamine or another controlled substance in the prior three years [See RPI Form 308 §8];
Notice of Death: A death has occurred on the property within the prior three years [See RPI Form 308 §9];
Notice of Insurance Claim Affecting the Property: An insurance claim affecting the property has been filed within the previous five years, and may increase the cost of insuring the property for subsequent owners [See RPI Form 308 §10]; and
Notice of Other Conditions affecting the property or immediate vicinity for the agent to list. [See RPI Form 308 §11]

A blank space is provided at the bottom of the form for the agent to explain any of the checked items in further detail. [See RPI Form 308 §12]

After review and consideration of these seller disclosures, the buyer is able to make an informed decision whether to proceed with the purchase, negotiate an adjustment in the price to cover the value of the disclosed risks, or cancel and find a property with fewer associated risks and costs.

Related article:

Neighborhood security

A seller’s agent uses the Seller’s Neighborhood Security Disclosure published by RPI when preparing a marketing package which includes information addressing security on or about a property they have listed for sale or lease, or on demand from a prospective buyer/tenant or their agent. The addendum allows the agent to prepare a disclosure for delivery to prospective buyers of facts known or readily available about security conditions on or in the area of the property. [See RPI Form 321]

Each section of the Seller’s Neighborhood Security Disclosure has a separate principle relating to the security of the occupants of the property. The sections include:

a statement from the seller disclosing any investigative reports on the adequacy of the property’s security arrangements [See RPI Form 321 §2];
security precautions already undertaken, including steps taken by the seller or prior owner to prevent security breaches [See RPI Form 321 §3];
conduct on the property by a tenant, their pets or visitors which have endangered another person or the property of another [See RPI Form 321 §4]; and
any other specific criminal activities occurring on the property during the past two years, including theft, vandalism, trespass or assault. [See RPI Form 321 §5]

Although the disclosure of security conditions which exist on and around a property is not statutorily mandated, timely disclosure provides material information to the buyer under case law when the information is “readily available” and “relevant to a buyer’s decision.” Thus, the seller’s disclosure is not just good practice — it’s a legally critical supplement to the statutory TDS and part of a thorough marketing package.

Related article:

Want to learn more about disclosing material facts? Click the image below to download the RPI book cited in this article.

Related topics:
disclosures, marketing package, material facts, security, sellers agent

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Governor Newsom opens up commercial zoning for residential use

Governor Newsom opens up commercial zoning for residential use somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Oct 20, 2022 | Commercial, Investment, Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

New housing bills signed by the governor

California’s housing crisis has been an albatross around the state legislature’s neck for decades. Now legislators are hoping to kill one bird with two stones — for good luck this time.

In 2017, Gavin Newsom campaigned on a pledge to develop 3.5 million housing units by 2025. But even if that many units were ready for construction today, California’s residential construction workforce only has the capacity to build about a third of that number, according to Reuben Law.

At the same time, commercial retail and office space demand has declined since 2020. This is thanks to the sudden explosion in remote work fueled by the pandemic and consumer shift toward online shopping. Vacancy rates are inching up for office, retail and industrial real estate as the demand for these spaces has fallen beneath supply.

With all these factors in play, two bills aim to address them all at once.

Governor Newsom signed two pieces of legislation into law in September 2022, both of which streamline commercial conversions into residential buildings. These are Senate Bill (SB) 6 and Assembly Bill (AB) 2011.

The bills enjoy support across California labor unions. This is because instead of choosing between affordability and labor rules, the state legislature approved both approaches. Developers now have two options for converting commercial units to residential: to comply with stricter standards meeting low-income parameters (through AB 2011) or stricter labor standards for builders (through SB 6).

AB 2011

AB 2011, the Affordable Housing and High Road Jobs Act of 2022, permits multi-family developers to submit projects for a streamlined ministerial review process, which will be exempt from conditional use permits and environmental impact reports.

Under AB 2011, developers need to meet specified objective standards and affordability and site criteria. Some of that criteria includes building the development within a zone where office, retail or parking are a principally permitted use.

For affordability, there are two pathways developers may take: 100% of units will be below market rate or 15% of units below market rate when the projects are located on commercial corridors, i.e., strip malls.

In addition, AB 2011 requires contracts for construction workers to meet certain wage and labor standards. Workers will be paid at least the general prevailing rate of wages. For developments with 50 units or more, builders will need to participate in an apprenticeship program or request apprentices from a state-approved apprenticeship program. These larger building projects will also require developers to make specified expenditures for the construction workers’ healthcare.

AB 2011 goes into effect July 1, 2023 and sunsets January 1, 2033.

SB 6

SB 6, the Middle Class Housing Act of 2022, allows residential development within areas zoned for office, retail or parking uses when specific conditions are met.

These conditions include requirements for:

density;
public notice;
comment;
hearing;
site location and size;
consistency with sustainable community strategy or alternative plans;
prevailing wages for builders; and
a skilled and trained workforce.

Just as AB 2011, SB 6 goes into effect July 1, 2023 and sunsets January 1, 2033.

Related article:

Turning a corner towards conversions

These bills allowing mixed-use development in commercial zones will provide California an additional 1.6 to 2.4 million residential units, including up to 400,000 low-income homes requiring no government subsidies, according to estimates by UrbanFootprint.

This strategy also touts significant environmental benefits. Converting low-density commercial parcels to moderate density residential and mixed-use buildings uses less water and energy and produces fewer greenhouse gas emissions than typical housing development, according to UrbanFootprint’s analysis of San Francisco’s adoption of commercial corridor conversions.

Ultimately, legislators are leaning on conversions because of two main advantages: shorter completion times and lower costs. Many of the required building elements will already be in place, so developers aren’t starting from scratch. Paired with anemic office space demand, conversions are quickly becoming a favorite shortcut to help meet housing demand.

Watch for more conversions to take off in the 2020s as the benefits of restructuring commercial zoning codes gain traction.

The California Department of Housing and Community Development (HCD) will study the effects of AB 2011 and SB 6 in the coming years for a more comprehensive understanding of the advantages of mixed-use development in California.

For more legislative updates on mixed-use developments in California, subscribe to firsttuesday’s agent- and broker-centered weekly newsletter, Quilix.

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Helping Clients Gain Mortgage Approval

Helping Clients Gain Mortgage Approval somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Nov 14, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the eighth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode covers taking the extra steps to help your historically marginalized buyers qualify for a mortgage. The prior episode covers fighting implicit bias in the screening of tenant applicants.

Mortgage lending and the homeownership gap

Bias in mortgage lending is well-documented historically. Though concrete administrative steps have been taken to address it to create a more equitable mortgage market, it still continues in some form today. While the net effect of bias in the mortgage industry and all its manifestations proves difficult to quantify, the fundamental result has been lower homeownership rates and less household wealth for Black and Latinx households.

Here in California, the share of mortgage applicants denied a mortgage are:

16% of American Indian mortgage applicants;
15% of Black applicants;
13% of Latinx applicants;
13% of Pacific Islander applicants;
10% of white applicants; and
10% of Asian applicants, according to the 2020 Home Mortgage Disclosure Act (HMDA).

While the disparity in mortgage denial is clear, it of course is not entirely due to discrimination. The high mortgage denial rates for non-white and non-Asian households can be traced to many observable factors, including:

down payment size;
credit history;
debt-to-income (DTI) ratios; and
job security.

For example, the average Black mortgage applicant listed a 3.5% down payment, well below the 8.9% down payment from applicants averaged across all races.

While direct discrimination by mortgage lenders is not responsible for low down payment amounts, systemic bias against minority homebuyers is the underlying cause of this disparity. Thinking back, redlining and its ongoing impacts have reduced wealth in Black and Latinx communities, holding back generational wealth and reducing access to benefits like down payment gifts and inheritance.

The result: the homeownership rate amongst Black households in the U.S. is just 52%, while the homeownership rate for white households is 72%.

A proactive approach to mortgage approval

First-time homebuyers may be unsure about the mortgage application and pre-approval process, more so if they are the first in their family to purchase housing. Here, brokers and agents need step up their role as a transaction agent, helping their buyer through every component of the process.

These transactional duties include:

helping the buyer locate the most advantageous mortgage terms available in the market;
oversight of the mortgage application submission process; and
policing the lender’s mortgage packaging process and funding conditions.

Collectively, these activities ensure all documents needed to comply with the lender’s requests and closing instructions are in order. If not, funding cannot take place and closing the sales escrow is jeopardized.

Further, having a couple trustworthy and helpful lenders on hand is crucial. Brokers may suggest these proven lenders to homebuyers to receive a pre-approval letter, which is typically necessary for submitting a successful offer. Homebuyers ought to apply with at least three mortgage lenders so they can choose the best terms.

Editor’s note — Keep in mind that an agent receiving payment for referring a client to a mortgage lender is considered a kickback, which is unlawful under the Real Estate Settlement Procedures Act (RESPA). 12 United States Code §2607(d)

Any first-time homebuyer will be assisted by knowing what documents they will need to have available. Further, even after they receive approval, there are several “next steps” that need to be taken once their offer is accepted. Brokers can move the process along by keeping in contact with both the client and their chosen lender.

Getting an approval – next time

What happens when a potential client wants to buy, but is unable qualify?

Rather than giving up and simply moving on to the next client, it’s important for brokers and agents to take the extra step to help them qualify next time.

For example, brokers can inform unsuccessful mortgage applicants about special mortgage programs designed for first-time homebuyers. Some of these programs allow more leeway in qualifying.

The number one reason for receiving a mortgage denial is a too-high DTI ratio. A homebuyer’s DTI is measured by comparing all of their monthly debt obligations (e.g., auto loan payments, student debt, credit card payments, etc.) with their monthly income. In most underwriting circumstances, a lender will not allow a homebuyer’s total debt — including a mortgage payment — to exceed 43% of their monthly income.

In many cases, the client will be able to gain mortgage approval after taking a few steps to pare down debt. Without being pushy, brokers may continue to check in every month or so to see where they are in the process. Clients may be discouraged or embarrassed about being denied a mortgage, but it’s the broker’s job to keep them motivated and on the path to homeownership — not just in “special cases,” but for all clients.

In the next chapter, we will examine more positives steps agents and brokers can take to ensure they are reaching the broadest range of potential clients, removing barriers for groups that have been historically marginalized and not leaving any group out of the potential for homeownership.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

Related topics:
implicit bias

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Home defects face greater scrutiny in 2022’s cooling market

Home defects face greater scrutiny in 2022’s cooling market somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Aug 22, 2022 | Buyers and Sellers, Economics, Fundamentals, Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Simmering down

A cooling real estate market signals less competition among buyers — and a greater ability for buyers to negotiate price by pressing sellers on home defects.

California home sales volume, which typically peaks mid-year, has been falling back month after month during the 2022 spring sales cycle. As of June 2022, the number of homes sold in California was 24% below a year earlier, translating into 13,000 fewer sales.

The Federal Reserve (the Fed) has been aggressively raising their benchmark interest rate in 2022 as a method of wrangling inflation back into their target range. The Consumer Price Index (CPI) increased 9.1% over the last year as of June 2022, according to the Bureau of Labor Statistics. Meanwhile, the Fed strives for annual inflation of around 2%. Hence, their recent rate hikes are some of the largest increases in decades.

The result of these rising interest rates has been less mortgage money available for consumers. Measured as buyer purchasing power, this index has dropped a whopping 26.6% over the past year as of June 2022. This means homebuyers qualify for 26.6% less mortgage money than they did a year ago.

As the housing market shifts away from sellers and toward a buyer’s market, buyers will be scrutinizing home defects to negotiate a lower asking price — especially since they qualify for significantly less mortgage money than they did just a few short months ago.

Today’s sobered homebuyers have greater liberty to leverage home defects, malfunctions and lack of upgrades to justify a price cut than they did the last two years. In 2020 and 2021, most sellers received multiple offers and bidding wars ensued. This pushed prices further up through competition and a scarce number of available properties thanks to depleted inventory levels.

Now in 2022, multiple offers are no longer the norm — and buyers are taking notice.

How “significant” is this defect, anyway?

As part of a seller’s effort to market their property, along with their agent, the seller needs to prepare, fill out and deliver a statutory Transfer Disclosure Statement (TDS) as soon as practicable, before negotiations begin. [See RPI Form 304]

The seller’s TDS alerts prospective buyers to known or suspected property defects affecting the value or desirability of a property. All sellers and their agents owe to prospective buyers the general duty of disclosing these conditions, known as material facts. [Calif. Civil Code §1102]

As the seller goes through the TDS, they will be asked about their awareness of any “significant” defects/malfunctions in any:

walls;
windows;
ceilings;
doors;
floor;
foundation;
insulation;
driveways;
roof;
sidewalks;
walls/fences;
electrical systems; and
plumbing/sewer/septic systems. [See RPI Form 304 §B]

Here, the term “significant” might be taken subjectively. What a buyer deems significant might differ from what the seller considers significant. Regardless of the severity, all known factors affecting value need to be disclosed.

Disclosure of material facts is especially pertinent in a cooling market like the one agents see today, where buyers may scrutinize these defects differently than they did in 2021.

As part of an agent’s risk avoidance procedures, the seller’s agent recommends the seller obtain third-party inspections of the property’s condition and its components, which includes a home inspection report (HIR) to be completed on the seller’s behalf. [See RPI e-book Real Estate Practice, Chapter 22]

These third-party inspections reduce the exposure to claims by a buyer who might discover deficiencies in the property not known to the seller or the seller’s agent. The HIR is also used to prepare the seller’s TDS. Both are presented to prospective buyers before the seller accepts an offer. Together, these forms provide maximum mitigation of risks of claims made by the buyer on the seller and the seller’s agent.

Hiring a competent home inspector, conducting a visual inspection and assisting the seller with filling out the TDS are key areas where the seller’s agent is involved. Any defects that are highlighted in this process are to be disclosed to buyers.

Rest assured, buyers in 2022-2023 will be on guard for defects and malfunctions. The seller is always obligated to disclose known or suspected defects or malfunctions. Though sellers might fumble over how significant that defect really is, the best advice is: when in doubt, disclose.

Related article:

Want to learn more about property disclosures? Click the image below to download the RPI book cited in this article.

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Implicit bias and fair housing soon required for licensing courses

Implicit bias and fair housing soon required for licensing courses somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Oct 28, 2022 | Fair Housing, Laws and Regulations, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Following a wave of new laws passed to address systemic racism, California’s legislature has updated a 2021 law ensuring equal treatment is cultivated by real estate professionals.

Beginning January 1, 2024, Senate Bill (SB) 1495 will require real estate course providers to include implicit bias and fair housing education within licensing courses required to obtain a real estate broker or sales agent license. Further, the implicit bias and fair housing components will be offered within the Real Estate Practice course only.

While continuing education courses are already required to include implicit bias and fair housing training in 2023, the delay for licensing courses stems from implementation issues of the bill itself.

The additional year provides real estate educators sufficient time to revise statutory courses with the newly required implicit bias and fair housing components. In turn, this guarantees students will be educated within implicit bias and fair housing practices.

For current real estate licensees, continuing education requirements remain the same.

Real estate licensees will need to complete 45-hours of continuing education every four years, including the additional two-hour implicit bias course to renew their license.

In case you missed it

firsttuesday’s two-hour Implicit Bias training is now available for current and unenrolled students.

Current firsttuesday students may access their required course by logging into their existing accounts. Students who are not yet enrolled may visit the order page. Or give our customer service team a call at 951-781-7300.

Need to study on the go?

Firsttuesday’s Prep App — the only mobile app designed by a California real estate school — is now available for download in both the App Store and Google Play for Apple and Android mobile devices.

Log-in with your license number or T-number and test your real estate knowledge through practice exams in each of the topics required by the DRE.

Receive instant feedback on your practice exam performance and focus your studies on the areas which need improvement — all through the convenience of your mobile device.

Read Crenshaw Subway Coalition v. City of Los Angeles (HAAS BHCP Property Owner, LLC) here.

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Is a city’s project to revitalize a local neighborhood which may result in future gentrification prohibited under the Federal Fair Housing Act (FFHA)?

Is a city’s project to revitalize a local neighborhood which may result in future gentrification prohibited under the Federal Fair Housing Act (FFHA)? somebody Fri, 09/22/2023 - 10:06 pm

Posted by Kinnedy Kriso | May 31, 2022 | Fair Housing, Recent Case Decisions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Crenshaw Subway Coalition v. City of Los Angeles (HAAS BHCP Property Owner, LLC)

Facts: A city approves an expansion project to encourage economic development in a predominately Black and Latinx neighborhood. The proposed renovation of the neighborhood entails significant construction of additional commercial and residential units facilitated by loosened zoning. The city issues a permit for construction in the neighborhood based on the developer setting aside housing for individuals earning less than the area median income. A local fair housing NIMBY group challenges the city’s approval of the project under the Federal Fair Housing Act (FFHA) based on their belief the project to revitalize the neighborhood will lead to rent increases and economically depress low-income minority residents.

Claim: The local housing group seeks to stop the city’s housing expansion project claiming it violates the gentrification theory under FFHA and results in a disparate impact since it will result in greater future socioeconomic inequality through the displacement of future Black or Latinx residents in the neighborhood.

Counterclaim: The city claims the expansion project does not violate FFHA since the expansion of the neighborhood is meant for economic development, provides new housing ownership opportunities, and the city had no intent to perpetuate segregated housing in the project decision-making process.

Holding: A California appeals court holds the housing project permitted by the city to renovate the neighborhood does not violate the gentrification theory under FFHA and the construction permit is valid since the city’s project is designed to encourage economic development and future gentrification predictions cannot be based of the city’s housing expansion project. [Crenshaw Subway Coalition v. City of Los Angeles (HAAS BHCP Property Owner, LLC) (2022) 75 CA5th 917]

Related Reading:

Real Estate Principles

Chapter 7: Civil rights and fair housing laws

Related topics:
ffha, gentrification, los angeles, nimby

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It’s fair housing month — are landlords overcharging renters of color?

It’s fair housing month — are landlords overcharging renters of color? somebody Fri, 09/22/2023 - 10:06 pm

Posted by Madison Hart | Apr 22, 2022 | Fair Housing, Real Estate | 5

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Renters of color historically have a harder time qualifying for housing than similarly qualified white renters, but that’s not all. They also have to pay more to live in virtually the same unit and area as equally qualified white renters.

Why is this happening?

Renters of color pay more in application fees and security deposits. Rent remains high for all groups, which forges an even tougher financial struggle when met with added fees — the coup de grace for renters already struggling to make ends meet.

Nationally, from March through August 2021, two-in-five renters who moved said rising rents was their main reason for leaving. Of those respondents who moved during these six months, the share of renters who relocated due to rent hikes was:

63% of Latinx renters;
56% of Black renters;
41% of Asian renters; and
38% of white renters, according to Zillow.

As well as paying more security fees, renters of color also needed to submit more applications than white renters. When application fees are already higher for renters of color, the additional applications typically required to secure a rental add up.

On average, white and Asian renters need to submit two applications before receiving approval to rent, whereas Black and Latinx renters submit three applications. On average, landlords require:

white renters to make a security deposit of $600 and pay a $50 application fee;
Black renters to make a security deposit of $700 and pay a $65 application fee;
Latinx renters to make a security deposit of $650 and pay an $80 application fee; and
Asian renters to make a security deposit of $1,000 and pay a $100 application fee.

The Zillow study does not mention how security deposit amounts may coincide with rental prices. For example, higher security deposits are often required for higher-priced units, thus may skew the average deposit amounts displayed in this list.

For a more accurate view of the issue, consider the renter groups who needed to relocate due to rent hikes. In these cases of rapid rent increases and higher fees, landlords are by and large not showing bias on an individual scale. Rather, the higher rental burdens for households of color are the byproducts of deeply entrenched systematic discrimination.

For example, consider the ongoing effects of redlining. Redlining is the practice of denying mortgages and under-appraising properties in communities of color. Redlining was outlawed in 1977, but the residuals remain, leading to a decline in the quality and quantity of housing in communities seen as “risky.”

Related article:

Say no to implicit bias and discrimination in real estate

Real estate professionals have a duty to combat racial factors and other types of discrimination playing any sort of role in the housing process.

In recognition of this duty, real estate agents and brokers with licenses expiring on or after January 1, 2023 will need to complete implicit bias training to renew their licenses.

firsttuesday’s Implicit Bias course will require licensees to learn:

the impact of implicit, explicit and systemic biases on consumers;
the historical and social impacts of those biases; and
actionable steps licensees may take to recognize and address their own biases.

Landlords, beware: charge tenants the same fees based on observable factors. For example, charging an additional pet fee is reasonable — but only when the landlord charges the same pet fee for all tenants with pets.

When you’re unsure what to be mindful of, turn to California’s Unruh Civil Rights Act, which protects against discrimination due to:

age;
ancestry;
color;
disability;
genetic information;
national origin;
marital status;
medical condition;
race;
religion;
sex (including gender identity and gender expression);
pregnancy; and
sexual orientation. [Calif. Civil Code §51(e)]

Landlords violating anti-discrimination protocols will face consequences, especially when a tenant takes legal action, which may result in money losses and civil penalties. Going to trial is not a fun process for anyone, except for perhaps the lawyers making their livelihood off of it. Real estate professionals have their own livelihoods to protect. To start, check out Advertising Guidelines for Sales and Rentals for more information on how to avoid discrimination in practice.

Stay tuned for more information as the Implicit Bias course rolls out, expected to be published in July 2022.

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Landlords nationwide plan rent increases over the next year

Landlords nationwide plan rent increases over the next year somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Aug 15, 2022 | Economics, Laws and Regulations, Property Management, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

An escalating trend

California’s renters are stretched paper thin in 2022 — and they may have to stretch even further in 2023.

As inflation continues to eat up their pandemic savings, Californians — especially renters — will need to tighten their belts another notch. This is because nearly three quarters of landlords plan to increase rent over the next year, according to a nationwide survey conducted by the Urban Institute.

These future rent hikes escalate an existing trend. National asking rents are up 14% year-over-year as of June 2022, according to Redfin.

Here in California, year-over-year rents are up:

18% in Sacramento;
18% in San Diego;
15% in San Jose;
14% in Oakland;
14% in San Francisco;
10% in Riverside;
8% in Anaheim; and
8% in Los Angeles.

Around 72% of landlords plan to increase rent in at least one of their rental units within the next year, according to the Urban Institute. However, 75% of those landlords planning to increase rent do not expect the price hike to exceed 10%.

The top reasons surveyed landlords gave for their planned rent increases include:

covering increasing ownership costs (43% of respondents); and
competing with increasing rental market prices in the area (41% of respondents).

Still, even with the coming spike in rent, many landlords are keeping their rent increases below market rates. For example, while 64% of landlords said their market rate has gone up by more than 10%, only 31% of landlords are planning another eye-watering increase exceeding 10%.

California’s expected rent increases will put further financial strain on tenants who are already cost-burdened.

Landlords, too, continue to operate on slim margins. Many will choose to raise rents only slightly beyond the bare minimum needed to remain competitive and profitable.

Related article:

Inflation raises California’s rent caps

California landlords aren’t just motivated by market factors to raise rent. Legislation also plays a role in their decision making — and one California law is making it possible for landlords to raise rent to a higher percentage than in 2021.

The Tenant Protection Act (TPA) went into effect in 2020 to limit the amount landlords may legally raise rent in any given year.

The TPA requires landlords to:

cap annual rent increases at 5% plus the rate of inflation or up to 10%, whichever is less; and
have a “just cause” to evict tenants in place for 12 months or more.

The TPA limitations apply to most multi-unit residential properties, but only those that were built within the last 15 years.

Related article:

Beginning August 2022, California landlords will be legally allowed to increase rents by as much as 10% due to inflation.

The TPA applies the April consumer price index (CPI) to rent increases effective on or after August 1 of each year.

Based on California’s April 2022 CPI figures, the CPI went up:

8% in the Los Angeles-Long Beach-Anaheim metro;
5% in the San Francisco-Oakland-Hayward metro;
8% in the San Diego-Carlsbad metro; and
10% in the Riverside-San Bernardino-Ontario metro.

Thus, all of these major California metros now meet the threshold for the cap to be set at a 10% rent increase.

As rents continue to soar beyond incomes in much of California, tenants will spend more of their income on rent and have less to spend on other goods and services contributing to local economic growth. [See RPI e-book Real Estate Economics, Factor 6]

The ultimate goal is to build more housing so the supply-and-demand imbalance will ease and rents will become sustainable for California’s residents.

Until then, tenants will continue to feel the squeeze.

Undeclared recession risks

The undeclared recession complicates matters for landlords anticipating rent increases.

Existing tenants are more likely to be able to pay rent within the next few years than a replacement tenant since the existing tenant has a proven record of paying rent from income earned from their occupation. By contrast, a new tenant is a new and different gamble: will they pay rent the next month or not?

The tenant who is consistent but leaves due to rent increases will be paying rent to another landlord, while the new replacement tenant who agrees to pay the higher rent and take on the risk of paying more going into the recession will be more likely to default. Now, the landlord who raised rent will be left with no rental income, a vacant property or a costly and complicated eviction process on their hands.

Thus, today’s landlords are best served within the coming years by making a deal with their existing tenant which will allow the tenant to survive the recession, rather than driving their tenant out with unsavory rent hikes.

Related article:

Want to learn more about renting trends in California? Click the image below to download the RPI book cited in this article.

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Letter to the editor: Are landlords required to supply working air conditioning (AC)?

Letter to the editor: Are landlords required to supply working air conditioning (AC)? somebody Fri, 09/22/2023 - 10:06 pm

Posted by Kinnedy Kriso | Jun 24, 2022 | Letters to the Editor, Pending Laws | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Question: Are residential landlords required to supply working air conditioning (AC) in each habitable unit?

Answer: No, air conditioning is not required for a property to be considered habitable — but proposed legislation in 2022 may change that.

It’s getting hot in here

Every summer, California’s dangerously hot temperatures lead to discomfort, hospitalizations and even death.

In 2017, a massive heat wave hit San Francisco resulting in 14 people dying of heat stroke and 79% of those people experienced symptoms at home, according to the Public Health Institute. Socioeconomic inequality plays a major role in many poor industrialized neighborhoods that won’t beat the heat, according to The Los Angeles Times.

Many homes in San Francisco don’t have central air conditioning (AC) or even individual AC units. Homes in Northern California are not equipped to handle major heat waves and heat can get trapped inside, having AC has never been standard, according to the San Francisco Times. As climate change causes more consistent heatwaves in California, it’s more dangerous than ever to be without an AC.

But does California’s building code consider homes uninhabitable when individuals are experiencing heat strokes and dying?

Related Article:

A habitable dwelling

Every residential tenant is entitled to a unit with habitable conditions. A habitable unit requires a minimum acceptable level of safety, utility and sanitation in a residential rental. Landlords need to care for the premises by maintaining habitable conditions. This entitlement requires all amenities or appurtenances to be present and working, including:

weather protection, including working windows or doors;
proper plumbing;
working gas facilities;
hot and cold running water connected to a sewage disposal system;
heating facilities;
access to electricity and regulated wiring;
a property free of pests or vermin with sanitary conditions;
clean garbage and recycling bins;
working floors, stairways, or railings; and
a residential mailbox. [Calif. Civil Code §1941.1]

When any of these amenities stop working or become faulty, the landlord is required to make repairs, since the malfunction will determine a residence uninhabitable, according to the California Department of Consumer Affairs.

However, air conditioning is notably absent from this list. Likewise, when a property does have central air, but the AC unit stops working, it must be repaired within thirty days after a notice is served since it is considered an inconvenience. [CC §1941]

A do-it-yourself tenant

When a tenant takes it upon themselves to repair an AC unit, there are some things to keep in mind.

The tenant of a residential property is not expected to make repairs to major components of a residential or rental property. A landlord ought to make changes and repairs to plumbing or electrical issues— when a tenant takes it upon themselves to repair something it must be less than one month’s rent and the tenant may deduct the cost from the rent under, repair-and-deduct remedy. This is only possible when the landlord agrees to these conditions. [CC §1942]

When a landlord refuses to let the tenant repair a unit, and desires to fix it themselves, a landlord has 30 days to repair an inconvenience. [CC §1942(b)]

The landlord is exempt from repairs when the tenant breaks or damages the unit themselves. [CC §1941.2]

Related Article:

Legislative Gossip

While air conditioning is not currently required, proposed legislation may change that.

Assembly Bill (AB) 2597 proposes to require safe indoor temperatures by means of improved insulation, air sealing, increased shade, cool roofs, fans, heat pumps, and, when necessary, air conditioning.

In terms of changing the law, this bill will make safe indoor air temperatures a requirement and will mandate landlords to provide access to proper air conditioning for a property to be considered habitable. The Department of Housing and Community Development will be required to develop and propose a mandatory standard for safe maximum indoor temperatures. This will change future homes in California forever.

Related topics:
california landlords

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Local governments try to dodge California’s single family zoning ban

Local governments try to dodge California’s single family zoning ban somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | May 2, 2022 | Laws and Regulations, Los Angeles-Santa Barbara-Ventura, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s housing shortage has reached epic proportions in 2022, with inventory plunging, launching prices to historic heights.

The state’s legislators have attempted several fixes in recent years, with Senate Bill (SB) 9 one of the most recent. SB 9 took effect on January 1, 2022, effectively banning single family zoning in California.

SB 9 aims to ease the process and ability of homeowners to create a duplex or subdivide their single-family residential lot into up to four units. The bill’s authors highlighted the new law’s potential to increase affordable housing inventory in a tight real estate market and create additional income streams for homeowners.

However, opponents of increased density have identified and begun to exploit some of the law’s loopholes. For example, properties are exempt when they are located in a:

historic district; or
site designated as a landmark by the city or county. [Calif. Government Code 65852.21(a)(6)]

The City of Pasadena recently attempted to take advantage of these loopholes by passing an urgency ordinance to exempt much of the city by arbitrarily declaring large areas landmark districts. For reference, passing an urgency ordinance requires the health and safety of residents to be in jeopardy. Since the subdivision of lots does not in fact jeopardize anyone’s safety, this is a clear attempt to sidestep the new law. Further, new landmark districts covering large swathes of the city have been proposed specifically to avoid complying with SB 9, according to the Office of the Attorney General (OAG).

In another completely transparent attempt to avoid SB 9 compliance, another local government — the town of Woodside — recently declared the entire town a mountain lion sanctuary! The state was quick to notify the town’s planning manager that its declaration was unlawful and needed to be amended, according to the OAG. After all, a developed suburban neighborhood isn’t exactly prime mountain lion habitat.

Woodside has since revoked its declaration, but Pasadena is still fighting the state on its ability to declare landmark districts exempt from SB 9. After receiving a notice from the OAG that it was violating SB 9, the Pasadena Planning Commission chose to pass their landmark district exemption, anyway, according to Pasadena Now.

So, what happens next? In this game of zoning regulations chicken, it’s likely the OAG and the City of Pasadena will end up in court.

Related article:

Contentious zoning

Zoning is a fiercely contentious issue for Californians. The ever-worsening housing shortage makes the need for more housing clear for all housing participants — just as long as it’s built “somewhere else.” Now, as new legislation removes power from the grips of not-in-my-backyard (NIMBY) advocates, they aren’t going down without a fight.

California’s housing market has long been held back tight zoning rules, which have instated restrictive:

land use regulations;
parking restrictions;
lot sizes;
height restrictions; and
permitting costs and times.

With all these restrictions, it’s much easier for builders to stick to single family residences (SFRs), which has resulted in a reduced housing supply. In fact, each year since 2018 there have been more SFRs constructed in California than multi-family units.

The end result is less housing — a supply-and-demand imbalance — which has led to record-high home prices and rents.

The overall cost of a home today is hundreds of thousands of dollars higher due to tight zoning which restricts the housing inventory. Specifically, zoning restrictions alone have driven up home prices by an average of:

$410,000 higher in San Francisco;
$199,000 higher in Los Angeles;
$112,000 higher in San Jose; and
$33,000 higher in Riverside, according to the National Bureau of Economic Research (NBER).

The best way to stabilize home prices is to loosen zoning and allow residential construction to rise to meet the level of demand present in individual neighborhoods. This organic growth will gradually occur as California legislation catches up — so long as local governments cooperate.

Did a mortgage holder violate the HBOR by foreclosing when the propery owner rejects an offer for a trial loan modification plan?

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MLO Mentor: California’s Homeowner Bill of Rights

MLO Mentor: California’s Homeowner Bill of Rights somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Jun 6, 2022 | Feature Articles, Laws and Regulations, Mortgages, Real Estate, Your Practice | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article gives an overview of California state’s Homeowner Bill of Rights (HBOR).

California’s Homeowner Bill of Rights was signed into law in 2012 at the tail end of the Great Recession and foreclosure crisis that forced many residents out of their homes, some unfairly and unlawfully. Its aim was to give qualified homeowners facing foreclosure a meaningful opportunity to obtain a mortgage modification and keep their homes. [Calif. Civil Code §2923.4]

This Homeowner Bill of Rights was automatically repealed January 1, 2018. Senate Bill (SB) 818, has reinstated many of the provisions of the original bills.

Homeowner Bill of Rights update

The biggest changes the Homeowner Bill of Rights made were to prevent:

dual-tracking foreclosure, when a homeowner is simultaneously going through the mortgage modification process and the foreclosure process;
robo-signing of foreclosure documents, heightening the risk for wrongful foreclosure; and
more than one point of contact for distressed homeowners in the foreclosure process.

These protections are once again in place for first lien mortgages secured by residential property. The main differences between the original Homeowner Bill of Rights and the SB 818 version are new exceptions:

allowing servicers to be exempt from the provisions in SB 818 when an application for a mortgage modification is received less than five days before a scheduled foreclosure sale; [CC §2924.18(a)] and
exempting servicers from the telephone contact requirements of SB 818 when the homeowner has notified the servicer in writing to cease and desist all communications. [CC §2923.5(e)(2)(C)(ii)]

When a homeowner requests a foreclosure prevention alternative such as a mortgage modification, the servicer needs to promptly establish a single point of contact for the homeowner. This will prevent confusion and help prevent the homeowner from becoming lost in the shuffle of other homeowners considering foreclosure prevention options. [CC §2923.7(a)]

Mortgage servicers may not record a notice of default (NOD) until:

at least 30 days have passed after initially contacting the homeowner; or
if the servicer is unable to contact the homeowner, they have satisfied the due diligence requirements made to reach the homeowner, including mailing a notice and calling at different times of day. [CC §2923.5(a)(1)(A)]

Further, servicers may not record an NOD when a homeowner submits a complete application for a loan modification at least five business days before a scheduled foreclosure sale. Once the servicer provides the homeowner with a written decision on the loan modification, the servicer may proceed with the foreclosure process if necessary. [CC §2923.5(a)(1)(B)]

When the homeowner is rejected for a loan modification, the servicer needs to wait at least 31 days after the homeowner is notified before recording an NOD or — if an NOD was already recorded — recording a notice of trustee’s sale (NOTS). [CC §2923.6(e)]

When the homeowner is approved for a loan modification, the servicer may not proceed with the foreclosure process as long as the homeowner complies with the terms of the modification. [CC §2924.18(a)(2)(A)]

Servicers may not charge homeowners any fees to apply or obtain a mortgage modification or other foreclosure prevention alternative. [CC §2924.11(e)]

The bill gives California the right to sue lenders and banks up to $50,000 for violating the laws. [CC §2924.19(b)]

Verbal agreements

A frequently asked question of the Homeowner Bill of Rights involves verbal agreements. Is a verbal agreement to postpone a sale enforceable against foreclosure?

Consider Granadino v. Wells Fargo Bank, N. A., a relevant case study on this topic from 2015.

Here, a borrower defaulted on their mortgage and was issued an NOD on May 24, 2010. Within the proper timeline, the lender filed an NOTS. The borrower hired an attorney to assist them with negotiating a loan modification with the lender.

Through the attorney, the borrower obtained a postponement of the trustee’s sale from September 24, 2011 to October 17, 2011 while mortgage modification negotiations were in progress.

On October 17, 2011, the attorney’s office called the lender and was told the trustee’s sale was under active mortgage modification review, so the trustee’s sale date was no longer scheduled.

A month after the lender’s representative gave verbal assurance of the indefinite postponement of the trustee’s sale, the borrower received a written notice of their mortgage modification denial.

A trustee’s sale date was set for December 16, 2011.

After the borrower received the written notice, the attorney called the lender and informed the lender’s representative the borrower’s tax returns pursuant to the mortgage modification were being sent over. The lender’s representative acknowledged the sending of the tax returns.

On December 16, 2011, the property was sold at a trustee’s sale.

The borrower sought to remain in the residence while pursuing money losses, claiming the lender improperly foreclosed since it verbally agreed to postpone the trustee’s sale and accepted the tax returns after the written notice of modification denial was received, thus precluding the borrower from reinstating their mortgage.

The lender claimed the borrower was not entitled to money losses since the borrower was notified in writing their mortgage was removed from modification review and the foreclosure process would resume.

Ultimately, a California court of appeals held the borrower was not entitled to money losses or continuing occupancy of the residence since the mortgage holder properly provided all necessary notices satisfying foreclosure requirements. [Granadino v. Wells Fargo Bank, N. A. (2015) CA 2nd B256511]

The California Homeowner Bill of Rights is still being tested in courts today. Click through these related articles for more up-to-date decisions and interpretations on this legislation.

Related articles:

Does a lender who discusses foreclosure alternatives with a defaulting homeowner need to initiate the discussion to comply with the HBOR?

Related topics:
california, homeowner bill of rights

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MLO Mentor: The Home Mortgage Disclosure Act, Part II

MLO Mentor: The Home Mortgage Disclosure Act, Part II somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Mar 14, 2022 | Feature Articles, Finance, Fundamentals, Laws and Regulations, Loan Products, Mortgages, Real Estate, Your Practice | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article discusses the different thresholds that trigger Home Mortgage Disclosure Act (HMDA) data collection and reporting. Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California MLO license and learn more about fraud and abuse prevention in your practice.

Who must collect HMDA data?

The threshold for determining whether HMDA data must be collected differs depending on whether a lender is a:

depository institution; or
non-depository institution.

Regulation C collectively refers to depository institutions and non-depository institutions as financial institutions. [12 CFR §§1003.1-2]

Depository institutions

Depository institutions are banks, savings associations or credit unions. [12 CFR §1003.2(g)(1)]

To determine whether a depository institution is required to collect and report HMDA data, the following five questions must be answered. If the depository institution answers “Yes” to Questions 1-3, “Yes” to at least one prong of question 4 and “Yes” to at least one prong of question 5, it is required to collect and report HMDA data in the next calendar year.

The asset-size threshold

On the preceding December 31 (December 31, 2021), did the total assets of the institution exceed $48 million dollars? [12 CFR §1003.2(g)(1)(i)]

The threshold is reviewed for adjustment every November based on year-to-year changes in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In December 2021, the total assets threshold was increased from $48 million to $50 million.

The assets held by a depository institution and the asset thresholds in place on December 31 of the preceding year control HMDA data collection for the entire following calendar year.

For the following examples, the asset thresholds are/were:

$50 million as of December 31, 2021 for 2022 HMDA data collection;
$48 million as of December 31, 2020 for 2021 HMDA data collection;
$47 million as of December 31, 2019 for 2020 HMDA data collection;
$46 million as of December 31, 2018 for 2019 HMDA data collection;
$45 million as of December 31, 2017 for 2018 HMDA data collection; and
$44 million as of December 31, 2014-2016 for 2015-2017 HMDA data collection.

[History of HMDA from the Federal Financial Institutions Examination Council]

Asset-size threshold Example 1

On December 31, 2021, Harris Bank has more than $48 million in assets. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, Harris Bank must collect HMDA data in 2022. In mid-2022, its assets fall to $45 million. May Harris Bank stop collecting HMDA data when its assets fall below the asset threshold?

No! Remember, the asset threshold on December 31, 2021, controls HMDA data collection for all of 2022, regardless of Harris Bank’s asset fluctuations during 2022.

Asset-size threshold Example 2

On December 31, 2020, Harris Bank has $45 million in assets. Harris Bank is not required to collect HMDA data in 2020. On July 1, 2021, its assets increase to over $48 million. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, is Harris Bank required to begin collecting HMDA data on July 1, 2021 when its assets rise above the asset threshold?

No! However, if Harris Bank still has over $48 million of assets on December 31, 2021, it would be required to collect HMDA data for all of 2021.

The location threshold

On the preceding December 31, did the institution have a home or branch office in an MSA? [12 CFR §1003.2(g)(1)(ii)]

For depository institutions, a branch office is any office of a bank, savings association or credit union that is approved as a branch by a federal or state supervisory agency. Stand-alone automated teller machines (ATMs) are not considered branch offices.

A lender may, upon approval by the Secretary of HUD, maintain branch offices for the origination of Title I and Title II loans. A branch office of a mortgagee must be registered with the Department in order to originate mortgages or submit applications for mortgage insurance. The mortgagee must register all branch offices in which it conducts FHA business including originating, underwriting, or servicing of FHA-insured mortgages, on which the HUD Handbook 4000.1 provides further guidance. [24 CFR §202.5(k)]

The loan activity threshold

In the preceding calendar year, did the institution originate at least one home purchase loan (excluding temporary construction loans) or refinance of a home purchase loan secured by a first lien on a one-to-four family dwelling? [12 CFR §1003.2(g)(1)(iii)]

The federally related threshold

Is the institution federally insured or regulated? Was the mortgage loan insured, guaranteed or supplemented by a federal agency? Was the loan intended for sale to Fannie Mae or Freddie Mac? [12 CFR §1003.2(g)(1)(iv)]

Federally related example

Harris Bank is insured by the Federal Deposit Insurance Corporation, does not make government-insured or guaranteed loans and keeps loans it makes on its portfolio. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, is Harris Bank required to collect HMDA data based on these facts?

Yes! Remember, if the depository institution answers “Yes” to questions 1-3, it only needs to answer “Yes” to one of the prongs in Question 4 in order to be required to collect HMDA data. In this case (provided the next threshold is also met), Harris Bank is federally insured, and thus is required to collect HMDA data.

The loan-volume threshold

Did the depository institution originate at least 25 closed-end mortgages in each of the two preceding calendar years and/or 500 open-end lines of credit in each of two preceding calendar years? [12 CFR §1003.2(g)(1)(v)]

This new threshold went into effect in 2018. The higher threshold relieves smaller depository institutions of the burden of HMDA reporting when they do not routinely make mortgages covered by HMDA reporting. The 500 open-end lines of credit prong is temporary, and reverted to 100 open-end lines of credit in 2020.

Loan-volume example 1

Campbell Bank originates 30 closed-end mortgages in 2016 and 24 in 2017. It does not originate any open-end lines of credit in either year. Assuming it meets all other criteria requiring it to collect HMDA data, is it required to collect HMDA data on closed-end mortgages in 2018?

No! While Campbell Bank met the closed-end mortgage HMDA reporting threshold for 2016, it did not meet the requirement in 2017. Since the threshold was not met in each of the two calendar years preceding 2018, Campbell Bank does not have to collect HMDA data.

Loan-volume example 2

Price Bank originates 100 closed-end mortgages in 2016 and 128 in 2017. It originates 120 open-end lines of credit in 2016, and 130 in 2017. Assuming it meets all other criteria requiring it to collect HMDA data, is it required to collect HMDA data in 2018?

Yes, but only on closed-end mortgages. Since Price Bank did not meet the threshold for open-end lines of credit, it is not required to report HMDA data on open-end lines of credit. The two types of loans are differentiated for HMDA data collection thresholds. [Official Interpretation of 12 CFR §1003.3(c)(11)-2]

State exemptions

The Consumer Finance Protection Bureau may exempt a state-charted depository institution from HMDA reporting requirements if it determines state requirements are substantially similar to HMDA requirements. State-chartered depository institutions exempt from HMDA data collection must still submit data to their state supervisory authority for aggregation. [12 USC §2805(b); 12 CFR §1003.3(3)]

Non-depository institutions

Non-depository institutions are all other for-profit mortgage lending institutions, such as warehouse lenders or hard-money lenders. [12 CFR §1003.2]

To determine if non-depository institutions — including mortgage bankers — must collect and report HMDA data, the following three questions must be answered. If the non-depository institution answers “Yes” to all three questions, it is required to collect and report HMDA data in the current calendar year.

The for-profit test

Is the lender a for-profit institution (other than a bank, savings association or credit union)? [12 CFR §1003.2(g)(2)]

The location test

Did the institution have a home or branch office in an MSA on the preceding December 31? [12 CFR §1003.2(g)(2)(i)]

For non-depository institutions, a branch is any office that takes applications from the public for home purchase loans, home improvement loans or refinances. If a non-depository institution takes five or more applications, or originates five or more of the specified loans above in an MSA, they are considered to have a branch in that MSA. [12 CFR §1003.2(c)(2)]

Under HMDA, an application is an oral or written request for a home purchase loan, a home improvement loan or a refinance in accordance with the procedures for requesting credit. [12 CFR §1003.2(b)(1)]

A preapproval is considered an application if:

the lender reviews the borrower’s creditworthiness before issuing the preapproval; and
a written commitment to lend is conditioned only on identification of a property and/or confirmation that the borrower’s creditworthiness has not changed from the time of the preapproval. [12 CFR §1003.2(b)(2)]

A prequalification is only considered an application if it involves a detailed analysis of the borrower’s creditworthiness. Basically, the substance, not the name, determines whether an application has been received.

The loan-volume threshold

Did the non-depository institution originate at least 25 closed-end mortgages in each of the two preceding calendar years and/or 500 open-end lines of credit in each of the two preceding calendar years? [12 CFR §1003.2(g)(2)(ii)]

This threshold is now the same for depository and non-depository institutions, a result of the simplification of HMDA rules under the Dodd-Frank Act. Like the depository rules, the 500 open-end lines of credit threshold was retired in 2019.

Brokers vs. Investors: who reports?

Consider a state-licensed loan origination company (loan originator) that enters into a warehouse lending agreement with a bank. The loan originator solicits and takes a loan application from a borrower. The loan originator also processes and underwrites the loans, and is responsible for approving the loan, based on the bank’s underwriting criteria. Once the loan is funded by the loan origination company, the loan is immediately sold to the bank to replenish the loan originator’s warehouse line of credit.

Both the loan originator and the bank are required to make HMDA disclosures in the current year. Which entity is responsible for collecting HMDA data on loans originated and sold by the loan originator?

Under Regulation C, the entity that makes the decision on whether to approve or deny the loan application — here, the loan originator — is responsible for collecting and reporting HMDA data. However, if the loan originator in this scenario must submit the loan to the bank for approval prior to the loan closing, the bank, and not the loan originator must collect and report the HMDA data.

Contrast this with a mortgage broker, who also holds a state loan originator license. The mortgage broker takes a loan application from a prospective borrower and shops lenders for the borrower. They then submit the borrower’s applications to three different lenders that are each required to collect HMDA data in the current year. The first two lenders deny the loan. The third lender approves and funds the loan.

Each of the three lenders must collect HMDA data. The loan originator/mortgage broker is not required to collect or report HMDA data, as they were not the entity which made the credit decision(s) on the loan. [Official Interpretation of 12 CFR §1003.4(a)-2-3] Regulation C requires the loan application contain information as to the method the loan was submitted. [12 CFR Part 1003]

While the burden of reporting falls on the entity making the credit decision, mortgage brokers will find knowledge of HMDA requirements useful when preparing a loan application. The more information provided to the lender up-front, the less delay in getting the application to underwriting, and funding.

Related topics:
home mortgage disclosure act, mlo mentor

Read Arche v. Scallon here

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May a homebuyer intending to occupy a property evict a tenant when a COVID-19 eviction moratorium is in place?

May a homebuyer intending to occupy a property evict a tenant when a COVID-19 eviction moratorium is in place? somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Oct 26, 2022 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Arche v. Scallon

Facts: A homebuyer purchases an income producing property with the intent to occupy it as their primary residence. A tenant resides at the property under a month-to-month rental agreement. The homebuyer serves the tenant with a no-fault just cause eviction notice permissible under tenant protection statutes during a COVID-19 eviction moratorium limiting evictions to only specific just causes. The tenant does not vacate the property.

Claim: The homebuyer claims the eviction notice is enforceable since tenant protection statutes allowing for no-fault just cause evictions are not superseded by the COVID-19 eviction moratorium.

Counterclaim: The tenant claims the eviction notice is unenforceable since the homebuyer’s intent to occupy the property does not meet the requirements for the COVID-19 eviction moratorium allowing evictions only for a specific just cause which is not present in a no-fault eviction.

Holding: A California appeals court holds the homebuyer may not evict the tenant since a no-fault eviction based on the homebuyer’s intent to occupy the property is superseded by the COVID-19 eviction moratorium which protects tenants from no-fault evictions. [Arche v. Scallon (2022) 82 CA5^th 12]

Related Reading:

Real Estate Property Management Chapter 27: Just cause evictions under the Tenant Protection Act

Related topics:
covid-19 pandemic, eviction moratorium, homebuyer, tenant

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Mortgage Concepts: Abuse of the Regulation O attorney exemption

Mortgage Concepts: Abuse of the Regulation O attorney exemption somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Sep 26, 2022 | Laws and Regulations, Mortgages, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video helps mortgage loan originators (MLOs) spot and avoid attorney mortgage relief scams. For course credit toward renewing your NMLS license, visit firsttuesday.us.

With a few exceptions, attorneys are not bound by Regulation O in the same way licensed mortgage loan originators are. But this does not mean attorneys can run afoul of Reg O in the MARS rule.

Let’s review a high-profile abuse of Reg O’s attorney exemption so you can spot the warning signs of fraudulent mortgage assistance relief services in your marketplace.

MARS Rule scams

In 2014, the Consumer Financial Protection Bureau (CFPB) took action against three businesses associated with law firms. These businesses had taken advantage of underwater homeowners seeking foreclosure relief. Each was charged with:

attempting to mask mortgage assistance relief services by using attorneys as a front
accepting fees before completing loan modification services, totaling over $25 million in unlawful advance fees;
failing to provide any services toward a loan modification;
inflating the likelihood of obtaining a loan modification; and
falsely promising legal advice and representation. [CFPB Press Release. July 23, 2014]

As a result of these enforcement actions, the CFPB released additional warning signs of unlawful mortgage assistance relief services. These include:

demands for upfront payment — attorneys may ask for payment up front, but only if they are licensed to practice in the consumer’s state, and meet all state requirements for collecting those fees;
claims that the modification is guaranteed — since a mortgage relief assistance service provider has no way of guaranteeing a mortgage lender will agree to the modification; and
hard sells — most lawyers won’t solicit consumers directly or push them to pay money up-front.

Mortgage lenders are also taking extra steps to protect consumers from attorneys abusing their Reg O exemption. Lenders now require consumers to sign an authorization form before dealing with any third party handling loan modification negotiations.

The model authorization form released by the CFPB asks the mortgage relief service provider to identify itself and its credentials. The form also reviews the activities the consumer is authorizing the service provider to perform. Most importantly, it informs consumers about potential scams and provides a phone number to report them.

Even if a licensed MLO does not perform or advertise mortgage assistance relief, they may still be held liable for referring consumers to programs known to violate the MARS rule. [12 CFR §1015.6]

Mortgage assistance warning signs

To protect your license, watch out for mortgage assistance relief programs that:

guarantee to get the consumer a loan modification or stop the foreclosure process;
tell the consumer not to contact the lender, lawyer or housing counselor;
claim that all or most of its customers get loan modifications or mortgage relief;
ask for an upfront fee before providing the consumer with any services (unless it’s a lawyer that has been thoroughly vetted);
accept payment only by cashier’s check or wire transfer;
encourage the consumer to lease their home so it can be purchased back over time;
tell the consumer to make their mortgage payments directly to the service provider, rather than to the lender;
tell the consumer to transfer the property deed or title to the service provider;
offer to buy the consumer’s house for cash (often for much lower than comparable sales in their neighborhood); or
pressure the consumer to sign papers they haven’t had a chance to read thoroughly or that they don’t understand.

Instead of referring a consumer to such a service provider, refer them a credit counselor through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline 1-888-995-HOPE. They provide free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure.

Related video:

Related topics:
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Mortgage Concepts: Reverse mortgage obligations

Mortgage Concepts: Reverse mortgage obligations somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Dec 5, 2022 | Laws and Regulations, Loan Products, Mortgages, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators (MLOs). This video breaks down the obligations reverse mortgage borrowers need to fulfill to avoid a default. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Unlike a traditional mortgage, a reverse mortgage doesn’t require a borrower to make regular monthly payments. They do, however, have other equally important obligations to fulfill.

To remain in good standing on a reverse mortgage, the borrower or surviving eligible non-borrowing spouse needs to:

keep the property as their principal residence;
maintain hazard insurance on the property in an amount acceptable to HUD and the lender;
keep the property free of liens, unless subordinate to the reverse mortgage;
keep the property in good repair; and
pay property taxes, hazard insurance, ground rents and assessments in a timely manner.

The borrower’s failure to meet all of these requirements constitutes a default on the reverse mortgage.

If the lender determines the borrower does not have the capacity to pay for property taxes, hazard insurance and flood insurance premiums from their existing income, the lender may mandate a set-aside from the principal limit to pay for these items. This is called the lifetime expectancy set-aside (LE set-aside).

The LE set-aside is calculated based on the current property taxes, hazard and flood insurance premiums, and the estimated life expectancy of the youngest borrower.

When the LE set-aside has been depleted, the borrower is responsible for making the payments. If the borrower does not make the payments, the lender is required to make payments on behalf of the borrower and add that cost to the principal balance of the reverse mortgage.

You’ll see two LE set-aside options:

a fully-funded LE set-aside on either fixed rate or adjustable rate reverse mortgages; and
a partially-funded LE set-aside on an adjustable rate reverse mortgage.

The underwriter determines which of the two is appropriate when the LE set-aside is mandatory.

The borrower may not cancel a mandatory LE set-aside, and all other property charges are still the responsibility of the borrower.

A borrower who has the capacity to pay the property taxes, hazard insurance and flood insurance premiums may:

volunteer to have an LE set-aside
choose to have the lender pay the property charges, or
choose to pay for all property charges independently.

The borrower’s choice to have payments made from their disbursements is permanent — they may not change their decision later.

A borrower may not elect for the lender to make payments on their behalf, as no further disbursements are provided to the borrower beyond the lump-sum initial draw. Even if this election is made, the responsibility reverts back to the borrower once the mortgage balance has met the principal limit.

The lender needs to complete an annual analysis of LE set-asides, and notify the borrower within 15 days of the analysis if the set-aside is exhausted or there is an insufficient balance to pay property charges for the next year.

The lender is then to provide 30 days’ written notice to the borrower and HUD of a property charge due once a set-aside is depleted. The lender’s notice needs to contain a recommendation that the borrower speak to a HUD-approved housing counselor about property charge payments.

Note that this election may not be treated as an escrow account. The payments are set aside from the principal limit — made and added to the borrower’s loan balance at the time the payments are due. The lender may not hold the payment in a separate account in trust for the borrower.

Unlike a traditional mortgage with an interest-bearing escrow account, there is no interest payment made to the borrower on any of the amounts paid by the lender under this agreement.

Related video:

Related topics:
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Mortgage Concepts: Section 32 restrictions, Part I

Mortgage Concepts: Section 32 restrictions, Part I somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Dec 19, 2022 | Finance, Laws and Regulations, Loan Products, Mortgages, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators (MLOs). This video reviews mortgage terms and features prohibited in Section 32 loans. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Regulation Z (Reg Z) restricts or outright bans certain features in Section 32 loans commonly found in other types of transactions. Let’s review the restricted and prohibited features for Section 32 loans.

Balloon payments

These are payments more than twice as large as the average scheduled payments on the loan — and are prohibited in Section 32 loans. [12 CFR §1026.32(d)(1)(i)]

Section 32 balloon payments are only allowed in:

transactions with a payment schedule adjusted to the borrower’s seasonal or irregular income; [12 CFR §1026.32(d)(1)(ii)(A)]
short-term bridge loans of 12 months or fewer used to finance a new home purchase for a borrower selling their existing home; [12 CFR §1026.32(d)(1)(ii)(B)] and
balloon loans made by small lenders, provided the loan meets the ability-to-repay rules. [12 CFR §1026.32(d)(1)(ii)(C); 12 CFR §1026.43(f)]

Related video:

Negative amortization

This is the addition of unpaid interest to the principal balance of a mortgage due to insufficient monthly interest payments.

Section 32 loans may not include potential for this, except when the increased principal balance results from an increase in permissible charges unrelated to the payment schedule, such as property insurance. [12 CFR §1026.32(d)(2)]

Advance payments

Section 32 loans do not allow a payment schedule which consolidates more than two periodic payments, and pays them in advance from the proceeds. [12 CFR §1026.32(d)(3)]

Increased interest rate on default

Section 32 loans may not require an increased rate of interest in the event of a default, except for interest rate adjustments made on variable rate transactions. [Official Interpretation of 12 CFR §1026.32(d)(4)]

Rebates

Calculation of rebates of interest on loan acceleration due to default which are less favorable than the actuarial method of calculation are prohibited. [12 CFR §1026.32(d)(5)]

Prepayment penalties

You might be wondering how this works with the prepayment penalty coverage test. It’s simple: the thresholds in the prepayment penalty coverage test are the new maximum limit. If a lender makes a loan allowing for a prepayment penalty extending beyond the 36-month limit, or for an amount greater than 2% of the prepaid amount, that loan is a Section 32 loan. The lender is then prohibited from charging any prepayment penalty on the loan. [12 CFR §1026.32(d)(6)]

Acceleration (due-on clause)

Acceleration or a due-on-demand clause is prohibited on Section 32 loans unless the borrower:

committed fraud or material misrepresentation in connection with the loan;
fails to repay the loan as agreed; or
adversely impacts the property securing the loan through their actions or negligence. [12 CFR §1026.32(d)(8)]

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Mortgage Concepts: The California Homeowner Bill of Rights

Mortgage Concepts: The California Homeowner Bill of Rights somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Oct 24, 2022 | Laws and Regulations, Loan Products, Mortgages, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The California Homeowner Bill of Rights (HBOR) was signed into law in 2012 at the tail-end of the foreclosure crisis that forced many residents out of their homes, some unfairly and unlawfully.

It guarantees qualified homeowners facing foreclosure a meaningful opportunity to obtain a mortgage modification and keep their homes. [Calif. Civil Code §2923.4]

While some of its provisions expired in 2018, Senate Bill 818 reinstated and modified many of the Homeowner Bill of Rights’ original protections in 2019.

To better protect homeowners, the HBOR prevents:

dual-tracking foreclosure, which is when a homeowner is simultaneously going through mortgage modification and foreclosure;
robo-signing foreclosure documents, which heightens the risk of wrongful foreclosure; and
more than one point of contact for distressed homeowners in the foreclosure process.

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These protections were reinstated for first lien mortgages secured by residential property. The main differences between the original HBOR and the 2019 version are new clauses:

allowing servicers to be exempt from the provisions in SB 818 when an application for a mortgage modification is received less than five days before a scheduled foreclosure sale; [CC §2924.18(a)] and
exempting servicers from the phone contact requirements of SB 818 when the homeowner has notified the servicer in writing to cease and desist all communications. [CC §2923.5(e)(2)(C)(ii)]

Mortgage servicers may not record a notice of default (NOD) until:

at least 30 days have passed after initially contacting the homeowner; or
if the servicer is unable to contact the homeowner, they have satisfied the due diligence requirements made to reach the homeowner, including mailing a notice and calling at different times of day. [CC §2923.5(a)(1)(A)]

Further, servicers may not record an NOD when a homeowner submits a complete application for a loan modification at least five business days before a scheduled foreclosure sale. Once the servicer provides the homeowner with a written decision on the modification, the servicer may proceed with the foreclosure. [CC §2923.5(a)(1)(B)]

When the homeowner is approved for a loan modification, the servicer may not proceed with the foreclosure process as long as the homeowner complies with the terms of the modification.

Servicers may not charge homeowners any fees to apply or obtain a mortgage modification or other foreclosure prevention alternative. [CC §2924.11(e)]

The bill gives California homeowners the right to sue lenders and banks for violating the bill of rights. [CC §2924.19(b)]

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Most SoCal cities miss deadline to complete housing plans

Most SoCal cities miss deadline to complete housing plans somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Nov 14, 2022 | first tuesday Local, Inland Empire, Laws and Regulations, Los Angeles-Santa Barbara-Ventura, Orange County, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

October deadline

About two-thirds of local governments in Southern California (SoCal) are on the hook for missing a 2022 deadline with the California Department of Housing and Community Development (HCD).

Just 73 out of 197 SoCal cities and counties met an extended October 2022 deadline to get their housing plans for the next eight years approved, according to the Press-Enterprise.

Missing this deadline has steep consequences. The cities and counties which successfully submitted housing plans for 2021 through 2029 have until February 2025 to submit their rezoning plans. Not so for the delinquent cities and counties — they are doubly noncompliant on their housing element plans and now their rezoning requirements.

First, the noncompliant local governments will need to get their housing element plans approved. The state requires municipalities to revise the housing element — referred to as the Regional Housing Needs Assessment (RHNA) — once every eight years to ensure adequate housing for low-, moderate- and high-income earners.

Next, local governments need to rezone enough parcels to allow builders to construct the new housing outlined in the district’s housing element plans.

Governments lacking an approved housing plan and the accompanied rezoning process are subject to a host of possible sanctions, including lawsuits, fines, diminished access to grants and less control over future developments.

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The delinquent cities and counties

Though there are more doubly noncompliant governments within the Southern California Association of Governments (SCAG) than compliant ones, the 73 jurisdictions earning state approval comprise 65% of the 1.3 million new housing units the state wants the SCAG to build by 2030. Real estate professionals rely on local governments to plan construction responsibly for long-term stable income from home sales transactions. Search the HCD’s naughty list by county below for your local service area.

The cities lacking approved housing plans in Imperial County include:

Brawley;
Calexico;
Westmorland; and
Unincorporated Imperial County.

The cities lacking approved housing plans in Los Angeles County include:

Alhambra;
Arcadia;
Artesia;
Azusa;
Baldwin Park;
Beverly Hills;
Bradbury;
Carson;
Claremont;
Commerce;
Compton;
Covina;
Cudahy;
El Segundo;
Gardena;
Glendale;
Glendora;
Hawaiian Gardens;
Hermosa Beach;
Hidden Hills;
Huntington Park;
Industry;
Inglewood;
Irwindale;
La Cañada Flintridge;
La Habra Heights;
La Mirada;
La Verne;
Lancaster;
Lynwood;
Malibu;
Manhattan Beach;
Maywood;
Monrovia;
Monterey Park;
Norwalk;
Palmdale;
Palos Verdes;
Pasadena;
Pico Rivera;
Rancho Palos Verde;
Rolling Hills;
Rolling Hills Estates;
San Marino;
Santa Clarita;
Santa Fe Springs;
South El Monte;
South Gate;
South Pasadena;
Temple City;
Vernon City;
Walnut City;
West Covina;
West Hollywood; and
Unincorporated Los Angeles County.

The cities lacking approved housing plans in Orange County include:

Aliso Viejo;
Anaheim;
Buena Park;
Costa Mesa;
Dana Point;
Fullerton;
Garden Grove;
Huntington Beach;
La Habra;
La Palma;
Laguna Beach;
Laguna Hills;
Laguna Niguel;
Laguna Woods;
Lake Forest;
Los Alamitos;
Mission Viejo;
Orange;
Placentia;
Seal Beach;
Villa Park;
Westminster; and
Unincorporated Orange County.

The cities lacking approved housing plans in Riverside County include:

Banning;
Beaumont;
Blythe;
Calimesa;
Canyon Lake;
Cathedral City;
Coachella;
Desert Hot Springs;
Hemet;
Indian Wells;
La Quinta;
Lake Elsinore;
Menifee;
Murrieta;
Palm Desert;
Palm Springs;
San Jacinto;
Temecula; and
Unincorporated Riverside County.

The cities lacking approved housing plans in San Bernardino County include:

Adelanto;
Apple Valley;
Barstow;
Chino;
Colton;
Grand Terrace;
Hesperia;
Highland;
Loma Linda;
Montclair;
Rialto;
San Bernardino;
Twentynine Palms;
Upland;
Yucaipa; and
Unincorporated San Bernardino County.

The cities lacking approved housing plans in Ventura County include:

Camarillo;
Fillmore;
Moorpark;
Ojai;
Oxnard;
San Buenaventura;
Santa Paula;
Simi Valley;
Thousand Oaks; and
Unincorporated Ventura County.

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From NIMBY to YIMBY

During the last housing planning cycle (2013 – 2021), the goal was to build 400,000 new homes. SoCal failed to reach that goal.

For the current cycle (2021 – 2029), SoCal needs to build 1.3 million new homes, according to the SCAG.

By income category, SoCal needs to add:

350,000 very-low income units;
200,000 low income units;
220,000 moderate income units; and
550,000 above moderate income units, according to the current RHNA plan.

Like real estate itself, housing development is highly localized. Local zoning laws are a contributing factor to the worsening housing shortage since they limit where and how new construction is built.

Not-in-my-backyard (NIMBY) advocates put pressure on local governments to maintain their neighborhood character and prevent new building projects, arguing the solution is better left for other districts besides their own.

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But at the state level, it’s clear California needs to build new housing units to correct the supply-and-demand imbalance. Local governments need to cooperate with state-level housing goals, increasing residential construction to meet demand, even when steps towards adding density is met with NIMBY backlash.

The HCD offers penalties and incentives for noncompliant local governments to get their housing plans approved, and to actually make progress towards achieving housing goals. Similarly, the White House is beginning to offer rewards to jurisdictions with more relaxed zoning laws.

California’s local governments face a critical choice at council meetings — they may maintain the status quo to ease tensions with vocal NIMBYs, or loosen zoning restrictions to ease one of the core issues with California’s housing markets.

As gatekeepers to housing, real estate professionals are ideally situated to grasp their service areas’ policy needs regarding housing development. Attending local council meetings when housing issues are contested in your communities are a simple but effective way to protect future income at the local level.

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Related topics:
nimby, rhna, southern california (socal)

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New California law adjusts DRE broker equivalent experience requirement

New California law adjusts DRE broker equivalent experience requirement somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Dec 9, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Prospective brokers seeking to be licensed for the first time will now need to take an extra step to ensure they meet the experience requirements.

Beginning January 1, 2023, Assembly Bill (AB) 2745 requires non-licensees applying for a broker’s license to show the required two years of general real estate experience accumulated within the five-year period prior to the exam application date.

Along with broker licensing education, broker applicants need to show a minimum two years of full-time salesperson employment within the five years immediately preceding the application date. Qualified licensed experience is defined as:

full-time salesperson employment of at least 40 hours per week devoted to activities requiring a real estate license; or
part-time employment as a real estate salesperson, credited on a prorated basis (e.g. 20 hours of activity per week for four years).

To provide proof of this experience, applicants need to certify their employment through their current and/or previous employing broker. [RE 226]

However, the DRE also accepts applications from non-licensee applicants — who this new law addresses. Like the licensee applicants, this new law now requires the non-licensee’s experience also takes place within the five years preceding the application date. [RE 227]

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Equivalent experience for non-licensee applicants needs to be full-time for at least two of the previous five years, or its part-time equivalent. Acceptable experience includes real estate activity which does not require a salesperson license. This includes, but is not limited to experience as:

an escrow, title or loan officer directly related to the financing or conveying of real estate;
a subdivider, contractor or speculative builder, which include duties relating to the purchase, finance, development and sale or lease of real estate; and
a property appraiser.

The DRE considers other real estate-related activities as equivalent experience, provided they satisfy the intent of the law. For example, experience as a property manager is also likely to fulfill the requirements.

Equivalent experience in lieu of the two years of full-time salesperson employment may also be based on a combination of salesperson employment and real estate related experience.

Separately, an applicant may bypass the experience requirement when they have a degree from a four-year accredited college or university with a major or minor in real estate. [Calif. Business and Professions Code §10150.6(c)]

Stay connected on the latest legislative updates to your real estate practices by subscribing to firsttuesday’s weekly newsletter, Quilix!

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New California law clarifies real estate disclosure requirements

New California law clarifies real estate disclosure requirements somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Dec 21, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s legislature has passed a new law clarifying the requirements for real estate disclosure statements.

Assembly Bill (AB) 2960 ensures disclosure requirements in effect on the date parties enter into an agreement apply. Any changes to the disclosure statement after the parties have entered into an agreement will not apply.

This clarification stems from multiple questions surrounding newly enacted provisions. For example, when a seller and buyer enter into an agreement on December 20, 2022, and a new disclosure provision becomes effective on January 1, 2023, does the seller need to amend their disclosure? Additionally, when the seller fails to amend the disclosure, will the buyer be able to hold the seller liable?

With the new clarification, the answer to both these questions is a resounding no.

Disclosures required

These new requirements apply to all mandated real estate disclosures, including those for a purchase agreement.

For example, sellers complete and deliver to prospective buyers a statutory form called a Transfer Disclosure Statement (TDS), also known as a Condition of Property Disclosure Statement. [See RPI Form 304]

Here, a seller is required to prepare a TDS with honesty and good faith regarding any property defects known or suspected. When the property was built before 1960, the seller also delivers a Residential Earthquake Hazards Report, identifying any weaknesses to earthquakes within the property. [See RPI Form 150 §11.7; RPI Form 315]

Additionally, sellers of properties built before 1978 are required to include a Lead-Based Paint Disclosure. [United States Code §4852d; See RPI Form 150 §11.7; RPI Form 313]

The seller also prepares the Natural Hazard Disclosure Statement (NHDS) on the property, paid for by the seller, and reviewed and signed by the seller and the seller’s agent. The NHDS discloses where a property is subject to natural hazards. [See RPI Form 314]

The Agency Law Disclosure is an attachment agents use when preparing a listing agreement, purchase agreement, or a counteroffer on the sale or exchange of residential property, commercial property, or mobilehomes, to comply with the agency law disclosure law regarding the conduct of real estate licensees. [Calif. Civil Code §§2079 et seq.; See RPI Form 150 §15.3; RPI Form 305]

By clarifying disclosure requirements, this new bill ensures real estate professionals will avoid being entangled in disputes when the state amends mandated disclosures.

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buyers, disclosures, lease agreement, real estate professionals, sellers

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New California law requires landlords of low-income rental housing to allow pets

New California law requires landlords of low-income rental housing to allow pets somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Nov 8, 2022 | Laws and Regulations, New Laws, Property Management, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s legislature has passed a new law ensuring tenants of low-income housing will no longer need to choose between giving up their pets for their own housing needs.

Senate Bill (SB) 971 will require any housing development financed on or after January 1, 2023 by the Department of Housing and Community Development (HCD) to allow tenants to own or maintain one or more common household pets within low-income rental housing with no monthly fee or unreasonable restrictions.

Household pets — such as dogs or cats — will be kept for pleasure rather than commercial purposes. In addition to ownership, the law requires tenants to properly maintain their pets, including caring for their pet’s health.

Current housing regulations enable landlords to place tight restrictions on pet ownership. This can prevent tenants from keeping their pets and often results in them being relinquished to animal shelters.

These regulations affect tenants of low-incoming housing at a disproportionate rate. Low-income housing which is both safe and pet-inclusive is in short supply, forcing tenants with limited budgets into giving up their pets to overcrowded animal shelters, deepening the burden on local public resources.

For tenants who are able to find low-income housing listed as “pet-friendly,” that is when the contention with housing restrictions begins.

Restrictions in these pet-friendly properties which are no longer allowed in low-income housing developments under the new law include:

high monthly fees, or “pet rent”;
prohibitions on specific pet breeds; and
weight limitations.

However, reasonable conditions for pet ownership and maintenance will remain in place. These reasonable conditions include policies on:

nuisance behavior;
leashing requirements;
liability insurance coverage; and
the number of allowable pets determined by each unit’s size.

Though the law prohibits landlords singling out certain dog breeds as dangerous, the landlord may still prohibit individual dogs that are potentially dangerous or vicious. [Calif. Food and Agricultural Code §§31602; 31603]

Landlords may impose refundable security deposits. However, a monthly fee for the ownership or maintenance of household pets may not be imposed.

A healthy choice

The importance of this bill goes beyond allowing tenants to own household pets. The ownership of pets has proven beneficial for a person’s mental and physical well-being.

Owning pets has a wide array of health benefits including:

improving mental health;
increasing physical exercise;
increasing outdoor activities;
decreasing blood pressure;
improving the mood and morale of their owners; and
promoting healthy socialization, especially among the elderly and disabled, according to the Center of Disease Control (CDC) and Prevention.

Under current housing regulations, tenants are limited in their ability to own a pet. For the rental housing which does allow the ownership and maintenance of pets, tenants are met with tight restrictions and high monthly fees.

By loosening regulations, tenants of new low-income housing will no longer need to worry about meeting these standards. This eases not only the emotional turmoil of relinquishing a family member but improves upon the tenants’ overall health.

Stay connected on real estate practices by subscribing to firsttuesday’s weekly newsletter, Quilix.

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landlords, low-income, new law, pet-friendly, rental housing, tenants

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New California law requires training for mobilehome park managers

New California law requires training for mobilehome park managers somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Oct 13, 2022 | Laws and Regulations, New Laws, Real Estate | 2

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Following continual violations and complaints from homeowners and tenants, California’s legislature has passed a new law ensuring on-site or off-site managers maintain mobilehome park living conditions.

By May 1, 2025, Senate Bill (SB) 869 will require the Department of Housing and Community Development (HCD) to adopt regulations requiring mobilehome managers to undergo bi-yearly training to ensure the health and safety of homeowners and tenants in mobilehome parks. The current lack of managerial training has led to an unsafe living environment for homeowners and tenants, including:

cases of discrimination;
unexplained raises in rent;
rule changes with no notice;
unlawful evictions; and
substandard living conditions, according to the legislature’s Bill Analysis.

This training will include six-to-eight hours of education during the initial year, including completion of an annual end-of-year online examination. The training needs to occur within one year of the person’s hiring date or by May 1, 2026, whichever is later.

Every two years thereafter, the training will consist of two-to-four hours of education and an online examination. Coursework may include lectures, instructional videos and online courses.

Training will be offered by third-party course providers authorized by the HCD and will include subjects such as:

prevention of discriminatory practices;
lawful enforcement of the rental agreement;
lawful enforcement of park regulations;
lawful increases of rent, fees, and utilities;
lawful termination of tenancy;
emergency preparedness and procedures;
a clear understanding of managerial responsibilities;
responsiveness to both homeowners’ and tenants’ complaints;
transfer of mobilehome or mobilehome park;
mobilehome title and registration; and
maintenance of park conditions.

Managers will be required to pass an annual examination displaying an understanding of their duties. Thereafter, a written notice will be issued three months prior to their renewal date. A copy of the certificate will be posted in a conspicuous location onsite.

When the manager does not pass the required education, the manager’s permit will be suspended.

An explicit shake up

This is just one of the many changes California’s legislature has made to the educational requirements of California real estate professionals. For instance, appraiser licensees receive anti-bias training as part of their continuing education requirements to address recurring discriminatory practices during the appraisal process. Real estate licensees are also now required to take anti-bias training with their continuing education.

Now, educational requirements for mobilehome park manager populations will alleviate these same discriminatory practices homeowners and tenants have encountered within mobilehome parks.

firsttuesday’s two-hour Implicit Bias training will prepare real estate professionals to identify and counteract elements of systemic racism — conscious and unconscious — in real estate transactions.

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homeowners, implicit bias, mobilehome, property manager

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New California law to require investigation for hazardous properties

New California law to require investigation for hazardous properties somebody Fri, 09/22/2023 - 10:06 pm

Posted by Madison Hart | Jan 3, 2022 | New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Due to ongoing tenant complaints of substandard building conditions, California’s legislature has passed a new law to ensure local governments are responding more quickly and thoroughly towards building hazards.

Beginning July 1, 2022, Assembly Bill (AB) 838 will require local governments that receive complaints of lead hazards or other substandard building conditions from any person involved with the building to respond to those complaints through an inspection. Types of conditions that make a building “substandard” include:

the presence of pests;
lack of heat;
lack of access to safe drinking water;
structural problems;
fire hazards; and
insufficient exits. [Calif. Health & Safety Code 17920.3]

Following the inspection, the local government will need to inform the landlord of each violation found and advise them of actions required to fix the violations. The government will schedule a follow-up inspection to ensure the landlord becomes compliant.

Local governments will also need to give free copies of inspection reports to anyone who requests the forms or anyone impacted by hazard complaints.

Local governments cannot collect costs for inspection of a property, unless the findings of the inspection process produce violations.

This new law is meant to fill the gap between tenants identifying substandard conditions and landlords being made to address these issues. Prior to this new law, tenants were not always able to order building inspections, as they are not owners and in turn face additional obstacles to ordering inspections. Further, without the inspection, the landlord may not be cited. Now, local governments are required to respond to tenant complaints, holding their health and safety above bureaucracy.

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complaints, landlord, law, tenant

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New fire safety law requires fire resistant buildings

New fire safety law requires fire resistant buildings somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Nov 18, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s extreme fire risk is at an all-time high.

Populated areas in California are at a greater fire risk than 96% of homes in other U.S. states, according to the United States Department of Agriculture Forest Service (USDA).

To combat this growing threat, California’s legislature has recently passed a bill to encourage new construction to be made fire-resistant.

Assembly Bill (AB) 2322 will require the State Fire Marshal (SFM) to research and develop mandatory building standards for fire resistance prior to the next triennial edition of the California Building Standards Code adopted on January 1, 2026.

The SFM will propose these new building standards to the California Building Standards Commission (BSC) for their consideration. These fire-resistant standards include:

ignition-resistant building materials for critical structures, such as hospitals and schools; and
extended fire ratings of four hours, three hours, and two hours.

With the extended fire ratings — four-, three-, and two hours — structures will be able to withstand fire damage for a longer duration. By reinforcing construction to make buildings more fire-resistant, this bill emphasizes the protection of lives.

However, while new building standards are important for promoting wildfire safety, proposals made under this bill can be ignored — or rejected entirely.

Here is where real estate professionals can stay one step ahead by taking the initiative. Agents and brokers can help homeowners and homebuyers by providing information on how to reduce critical mistakes which lead to increased fire damage.

firstuesday’s FARM letters are an excellent source of information on fireproofing methods, free to download, personalize and distribute. Some of these recommendations include:

ignition-resistant roofing materials;
removing patio furniture when not in use;
planting vegetation at least three-to-four feet from the property; and
clearing out any flammable debris, such as pine needles, from around the property. [See FARM letter: Avoid fire danger around your home]

By informing your clients on making fire-safe decisions, you ensure their best chance at keeping their properties safe — whether these new building standards are adopted or not.

Stay connected on the latest real estate practices by subscribing to firsttuesday’s weekly newsletter, Quilix!

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fire safety, homebuyer, homeowner, new law

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New law aids Californians experiencing homelessness

New law aids Californians experiencing homelessness somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Nov 4, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The homelessness crisis in California has reached alarming levels in recent years. In fact, the number of individuals experiencing homelessness has hit its highest level ever in 2022, according to CalMatters.

California’s legislature continues to respond to the ongoing crisis with new legislation.

By December 31, 2023, Assembly Bill (AB) 2483 will require the Department of Housing and Community Development (HCD) to award incentives to Multifamily Housing Program project applicants that set aside 20%-to-50% of the projects units, when the project includes more than 100 units, for individuals experiencing homelessness or who are eligible for services such as the Program of All-Inclusive Care for the Elderly.

Developers interested in benefiting from the program can read more at the HCD.

Additionally, the HCD will partner with the State Department of Health Care Services to establish an efficient solution to arrange qualifying services in housing projects funded by the Multifamily Housing Program.

Under this new law, the HCD will assess tenant outcomes and identify specific information, including:

age;
race;
ethnicity; and
the previous housing status of the people being served.

Further, California will partner with agencies to assist individuals with disabilities in gaining their own homes and receiving the necessary support to live on their own.

Stay up to date with new housing laws and subscribe to the firsttuesday newsletter, Quilix!

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california legislation, developers, homelessness, housing assistance, law

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New law allows homeowners freedom of speech

New law allows homeowners freedom of speech somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Nov 30, 2022 | Laws and Regulations, New Laws | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California homeowners’ association (HOA) documents and rules are changing — and these adjustments give homeowners more wiggle room.

Beginning January 1, 2023, Assembly Bill (AB) 1410 will prohibit an HOA’s conditions, covenants and restrictions (CC&Rs) from preventing a member or resident of a common interest development (CID) from using social media or other online resources to discuss any issues of concern to members and residents, including:

development living;
association elections;
legislation; and
criticisms of the association.

HOAs are prevented from retaliating against a member or resident from exercising their rights to peacefully assemble or use social media to discuss issues about the HOA.

Additionally, in a declared emergency, the HOA is prohibited from taking enforcement actions for a violation of the CC&Rs when:

it relates to the homeowner’s nonpayment of assessments; and
the emergency makes it unsafe or impossible to fix the violation.

Further, an owner of a unit in an HOA is exempt from any provision in the CC&Rs which prohibits the rental or leasing out a room in the owner-occupied unit for more than 30 days.

Stay up to date with new housing laws and subscribe to the firsttuesday newsletter, Quilix!

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New law allows reusable screening reports for tenants

New law allows reusable screening reports for tenants somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Dec 2, 2022 | Fair Housing, Laws and Regulations, New Laws, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Prospective tenants will not have to worry about paying for multiple screening reports any longer.

California’s legislature has passed a new law clarifying the usage of reusable tenant screening reports (RTSRs), which will ease tenants’ financial burden in the rental application process.

Beginning January 1, 2023, Assembly Bill (AB) 2559 gives landlords the option of accepting RTSRs from prospective tenants. This lightens the high cost of multiple screening reports for tenants and saves landlords time processing each tenant applicant.

The RTSR is to be:

prepared within the previous 30 days by a consumer reporting agency;
made directly available to the landlord or available through a third-party website; and
available to the landlord at no cost or access to use.

RTSRs obtained from third-party websites will need to comply with all state and federal laws, including fair housing laws, pertaining to the use and disclosure of tenant information. By using a third-party who strictly adheres to regulations, the RTSRs reduce the risk of errors — saving a promising tenant from being rejected.

Previously, tenants were often unable to view the screening reports landlords use in selecting applicants, keeping them unaware of any errors. RTSRs alleviate this issue by allowing tenants to view the screening report before the rental application process, giving them the opportunity to fix any possible errors.

Additionally, RTSRs need to contain each tenant’s:

name;
contact information;
verification of employment;
last known address; and
results of an eviction history check.

The tenant needs to ensure no material changes have occurred in the information provided. Lastly, the landlord is prohibited from charging the tenant a screening fee for the landlord to access the report.

Though landlords are not obligated to accept RTSRs, they are highly encouraged. When a landlord does accept a RTSR, they will not be able to charge the applicant an additional screening fee.

Stay connected on the latest legislative updates to your real estate practices by subscribing to firsttuesday’s weekly newsletter, Quilix!

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New law removes obstacles for tenants terminating their lease due to domestic violence

New law removes obstacles for tenants terminating their lease due to domestic violence somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Dec 30, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California legislators are smoothing the path for tenants facing abusive living conditions to terminate their lease.

When the tenant, the tenant’s immediate family, or the tenant’s household member are survivors of abuse and are seeking to terminate the lease due to the presence of the abuser, they need to provide their landlord with a 14-day written notice terminating the lease. [See RPI Form 587]

The tenant will be responsible for no more than 14 calendar days of rent beyond the date the tenant delivers the notice to the landlord. [Calif. Civil Code §1946.7(e)]

This abuse is defined as:

domestic violence;
sexual assault;
stalking;
human trafficking;
abuse of an elder or dependent adult;
bodily injury or death;
use or threat of a firearm or weapon; and
the use or threat of force against the tenant.

Along with the written notice of termination, tenants need to provide documentation of the abuse issued within 180 days of delivery of the tenant’s notice to terminate the lease, such as:

a copy of a temporary restraining order, emergency protective order, or protective order;
a copy of a written report by a police officer;
documentation from a health practitioner or counselor indicating the tenant, immediate family member, or household member, is seeking assistance for physical or mental injuries; or
any other documentation which verifies the crime occurred. [CC 1946.7(d)]

Additionally, the landlord is prohibited from terminating or failing to renew a lease due to abuse against the tenant, the tenant’s immediate family, or a tenant’s household member.

Beginning January 1, 2023, Senate Bill (SB) 1017 requires landlords to compensate tenants between $100 and $5,000 when they violate a tenant’s right to terminate their lease due to abusive living conditions. Additionally, the landlord is prohibited from retaining the tenant’s security deposit or any advanced rent paid.

Exceptions for evictions

When the abuser is a tenant in the same unit as the survivor, the court will direct the landlord to follow through with a partial eviction.

The tenant abuser will be removed and barred from the unit. However, the tenant victim — and any other occupants of the unit — are not evicted.

When a partial eviction is ordered, the landlord needs to:

cooperate with law enforcement to evict the abusive tenant; and
change the locks and provide remaining tenants with the new key.

By partially evicting the abusive tenant, the landlord ensures they are barred from reentering the unit. The remaining tenants may not allow the tenant abuser to live in the unit.

Editor’s note: If you or someone you know is a victim of domestic violence, contact the National Domestic Violence Hotline at 1-800-799-SAFE (7233) or thehotline.org.

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New law requires existing buildings to install electric vehicle charging stations

New law requires existing buildings to install electric vehicle charging stations somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Oct 13, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

To reduce 40% of California’s transportation emissions by the end of 2030, California intends to electrify the transportation system, per the California Green Building Standards Code.

By January 1, 2025, Assembly Bill (AB) 1738 will require the California Department of Housing and Community Development (HCD) to adopt regulations requiring the installation of electric vehicle (EV) charging stations in the parking facilities of existing buildings. This is in addition to AB 2075, which requires new buildings to install EV charging stations. These existing buildings include:

hotels;
motels;
multi-family dwellings; and
nonresidential development.

To support 5 million zero-emission vehicles by 2030, California requires the installation of 250,000 EV charging stations. Existing buildings need to provide a charging power level of two or higher with the inclusion of direct current fast chargers in their parking facilities.

A charging power of level two may fully charge an EV within 6 to 12 hours, while a higher power level charger may fully charge an EV within 30 minutes to an hour.

This new law supports California’s initiative of supporting EV charging needs and becoming completely zero-emission statewide.

Stay up to date on California’s new real estate laws by subscribing to Quilix, the firsttuesday newsletter.

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New law survives court challenge to allow denser housing

New law survives court challenge to allow denser housing somebody Fri, 09/22/2023 - 10:06 pm

Posted by Madison Hart | Jul 11, 2022 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Zoning news in from the Office of the California Attorney General (OAG).

Senate Bill 10 (SB 10) was recently declared constitutional, according to the California OAG.

SB 10 allows cities and local governments to rezone in areas with an abundance of transit, job-rich areas, or urban infill sites — vacant or unused parcels located within highly developed areas. The bill allows up to ten residential units to be built on each parcel.

However, groups which oppose the bill argue allocating authority to rezone directly to local governments diminishes the programs already created by local initiatives — and it also takes power away from public votes.

The Attorney General’s defense hinges on California’s desperate and constant need for more housing. In fact, since the housing shortage is causing harm to residents throughout the state rather than merely at a municipal level, the state may enact legislation to address the statewide issue.

The California Supreme Court declared SB 10 constitutional, allowing the law to stand. However, the court notes there is nothing to stop opposing groups from challenging local government action to rezone when it occurs. Meanwhile, the opposing groups are appealing the decision. [AIDS Healthcare Foundation and Redondo Beach v. Rob Bonta and State of California (2022)]

Construction starts key for extreme housing shortage

The new law is major in terms of zoning regulations and dense residential housing.

Each city and county in California is required to develop a general plan that outlines the community’s vision of future development. Under SB 10, local governments may meet these plans by adjusting zoning for new developments of up to 10 units per parcel — making it easier for builders to receive permission to build near transit-rich areas.

Inventory has been a major sore spot for California. There is a housing shortage of 3.5 million homes, and the state is in need of 1.8 million homes by 2025, according to the California Department of Housing and Community Development (CDHCD).

Inventory has increased slightly from the historic lows experienced in 2021, but we are still well below what is needed to match demand. Expect inventory to climb slightly heading into 2023, the result of rising interest rates and slowing sales volume, but there is a long ways to go to catch up to the level of housing necessary to meet demand.

The inventory shortage is causing hardship on households, especially in big cities like Los Angeles where there is little room for construction. Denser building is vital to meet demand. For example, Q1 2022 saw California’s rental vacancy rate decrease to 3.8%, down from 4.8% a year prior, according to the U.S. Census Bureau. For reference, a healthy vacancy rate is closer to 5.5%.

Curbing low supply and high prices is not easy, but allowing less restrictive zoning and denser building is the uppercut needed to increase the supply, and bandage up the imbalance.

California has a big construction goal to meet with the CDHCD’s targeted 1.8 million additional housing units by 2025. But SB 10 makes it easier for local governments to zone, especially for infill development and higher-density construction. SB 10 and other bills like it are integral to continuing on the path of making zoning regulations less restrictive.

The way to curb lower supply is through bills like SB 10 which make zoning regulations less restrictive, and therefore much easier to actually spur construction starts.

Stay up to date on changes in zoning laws and watch for new legislation relevant to your real estate practice at firsttuesday’s Legislative Gossip page.

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New laws mitigate the stress of the ADU permit process

New laws mitigate the stress of the ADU permit process somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Oct 26, 2022 | Laws and Regulations, New Laws, Real Estate | 2

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Another win for accessory dwelling units (ADUs) as Assembly Bill (AB) 2221 and Senate Bill (SB) 897 loosen the ADU restrictions even further — making it a little easier for ADU dreamers.

Beginning January 1^st of 2023, when a homeowner submits an ADU permit application, local agencies need to:

be objective when imposing standards;
approve or deny an application within the same time frame; and
when denying an ADU application, respond with written comments about the ADU’s defects and how to fix them.

Under the new laws, detached ADUs may include a detached garage.

Further, local agencies may not impose ADU height restrictions lower than 18 feet when the ADU is:

located within half-a-mile walking distance to a major transit stop or high-quality transit corridor; or
detached and located on a lot with an existing multi-family, multi-story residence.

Local agencies may not impose a height limitation lower than 25 feet when the ADU is attached to a primary residence.

In addition, local agencies may not deny an ADU permit application for an unpermitted ADU constructed before January 1, 2018, unless the violation threatens the health and safety of the public or occupants.

Other prohibitions include:

establishing limits on front setbacks;
imposing parking standards on an ADU;
requiring an existing primary dwelling to install fire sprinklers when constructing an ADU; and
denying an ADU permit application to correct nonthreatening local issues, such as nonconforming zoning

Reducing ADU permitting hurdles is one step in the right direction as Californians try to navigate the housing crisis with the implementation of more ADUs.

Stay up to date with ADU news and subscribe to the firsttuesday newsletter, Quilix!

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New laws revise eligibility requirements for foreclosure bidders

New laws revise eligibility requirements for foreclosure bidders somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Dec 19, 2022 | Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

As California home prices continue to fall heading into 2023, more and more homeowners owe more on their mortgage principal balance than their home’s equity. In other words, homeowners are increasingly falling underwater.

Besides the blight on the balance sheet, underwater homeowners face a nearly insurmountable hurdle when the need to sell or relocate arises. Their underwater status prevents them from selling and relocating — unless they are able to negotiate a short sale with the lender. Otherwise, the underwater homeowner’s only other option is to default, forces the lender to foreclose.

Beginning January 1, 2023 Assembly Bill (AB) 1837 and AB 2170 will build upon 2020’s Senate Bill (SB) 1079 to ensure large-scale investors aren’t first in line to profit during the upcoming foreclosure wave.

AB 1837 extends the 1079 process through January 1, 2026.

Under the 1079 process, trustees are to sell foreclosed homes individually rather than in bundles (when multiple homes are sold as a package). These new laws address fraud and make operational improvements to ensure more tenant- and prospective owner-occupants are able to purchase at trustee sales.

AB 2170 clarifies a bundle sale to mean the sale of two or more real estate parcels containing one-to-four residential units, of which at least two have been acquired through foreclosure.

When an entity or person annually forecloses on 175 or more residential properties, they are to give eligible bidders the first opportunity to purchase properties. In the first 30 days after a property is listed, trustees may only accept offers from eligible bidders, including:

prospective owner-occupants;
nonprofit corporations;
California community land trusts;
limited-equity housing operatives; and
public entities.

On the last day of eligible bids, a trustee may not accept a bid sent by uncertified or overnight mail.

Along with the offer to the trustee, foreclosure bidders are to submit a declaration stating they are an eligible bidder. To reduce incidents of fraud, eligible tenant buyers are required to attach evidence of their tenancy with their declaration.

Bids are limited to a single amount and may not include escalation clauses, or instructions for successively higher bids.

Further, before considering any other offer, the trustee needs to respond in writing to all offers from eligible bidders during the first 30 days of the property being listed for sale.

Additional foreclosure requirements for eligible bidders

After the sale of a foreclosure property, a trustee is limited to deducting a fee of $200 or 1/6 of 1% of the unpaid principal loan balance secured by the foreclosed property — whichever is greater — from the eligible bidder.

Within 15 days of the sale of property to an eligible bidder, the trustee needs to send information about the sale to the Attorney General, including the:

winning bidder’s name;
address and parcel number of the property;
copy of the trustee’s deed; and
attached declaration of eligible bidder status.

Further, evictions are prohibited in homes acquired through SB 1079 and units are to be sold or let at an affordable cost for lower income residents.

When a property is purchased by a private entity, the property needs to be sold at an affordable housing cost or rented at an affordable rent for a period of 30 years from the date the trustee’s deed is issued, defined as:

30% of 15% of the area’s median income for acutely low-income households;
30% of 30% of the area’s median income for extremely low-income households;
30% of 50% of the area’s median income for very low-income households; or
30% of 70% of the area’s median income for low-income households. [Calif. Health and Safety Code §50052.5(b); 50053(b)]

These provisions may be enforced by:

the California Attorney General;
a county counsel;
a city attorney; and
a district attorney.

For more updates on new laws pertaining to foreclosures, subscribe to the firsttuesday newsletter, Quilix!

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New mold disclosure mandated for residential rentals

New mold disclosure mandated for residential rentals somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Jan 6, 2022 | Laws and Regulations, Property Management, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Residential landlords need to provide some extra paperwork at the time they enter into a rental or lease agreement.

Beginning January 1, 2022, all residential landlords are to hand new tenants a copy of the educational booklet entitled: Information on Dampness and Mold for Renters in California. A physical copy of the booklet needs to be delivered to the prospective tenant; an electronic copy alone does not suffice. [Calif. Health and Safety Code §26148]

Timing for the landlord’s delivery of the booklet is prior to execution of a rental or lease agreement by the tenant. [Health & S C §26148(b)]

Further, while the law does not require landlords to issue the educational booklet to tenants renewing or extending their rental or lease agreement, it is best practice to do so. Informing all tenants to be watchful for signs of mold will assist landlords in maintaining their property and keeping the premises mold free over the long term.

While this booklet became required 20 years ago under the 2001 Toxic Mold Protection Act, the California Department of Public Health (CDPH) has only just recently managed to publish the booklet. Information in the booklet covers:

identifying mold and its causes;
steps to take to abate mold; and
the health effects of mold.

Two versions of the booklet have been published:

one in English [See RPI Form 564-1]; and
one in Spanish. [See RPI Form 564-2]

Editor’s note – RPI (Realty Publications, Inc.) has adapted both government publications into our library of 400+ real estate forms.

The tenant acknowledges receipt of the booklet by the provisions of the rental and lease agreements. [See RPI Form 550 and Form 55 1 §6.3(a)]

Delivery of the booklet is enforced by the local health and safety office or by local code and environmental health enforcement officers. [Health and SC §26154]

Mold growth makes a unit uninhabitable

Mold growth occurs in damp environments, common following a flood or leak. Mold can also occur in everyday damp areas, like in a bathroom, kitchen, laundry room, and air conditioning radiators without proper ventilation. Exposure to mold can cause a range of health problems, from mild allergic reactions to severe infections. Read more about mold and its effects in residential dwellings at the CDPH’s website.

A health or code enforcement officer may designate a building as substandard and uninhabitable for visible and substantial mold growth. [Calif. Civil Code §1941.7; Health & S C §17920; 17920.3]

Landlords are required to promptly abate a mold infestation when they have notice of:

the infestation’s existence; or
the tenant’s violation of their obligation to keep the rented premises clean and sanitary.

The terms of rental and lease agreements impose a duty on the tenant to keep the premises clean, well ventilated, free of mold contaminating moisture buildup, and sanitary. [See RPI Form 550 and Form 551 §6.3]

Importantly, the tenant agrees to promptly notify the landlord of unabated moisture buildup in the premises so the landlord has notice and can take preventive steps to eliminate the adverse conditions and any mold contamination. [See RPI Form 550 and Form 551 §6.3(b)]

After a landlord is notified of mold contamination, they are required to deliver to the tenant a reasonable notice in writing of their intent to enter the premises to abate the mold. [See RPI Form 567]

Home sellers and their agents must disclose to homebuyers any mold they are aware of, as well as any reports or knowledge they have about the variety of the existing mold. However, home sellers have no obligation to investigate whether improvements on the property contain mold or when mold exists to determine whether the mold is a threat to human health.

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One more barrier to low-income housing in California: Article 34

One more barrier to low-income housing in California: Article 34 somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Nov 21, 2022 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s housing shortage impacts residents of all income brackets as rents and home prices remain elevated in 2022 and demand outstrips supply.

Building new housing is a challenge in California due to high land and labor costs, regulations and development fees. Constructing just one unit of housing in California costs an average of $326,000, according to the U.S. Government Accountability Office.

As rents and home prices rise, the need for low-income housing soars in tandem. But those rising costs of construction remain a roadblock to achieving more low-income housing options.

Yet there’s another curtailing factor, other than costs, stymying housing development for lower income budgets. It involves an article found within the state constitution: Article 34.

Article 34 squashes affordability

Under Article 34, any low-income housing project with federal, state or local financing is prohibited without voter approval. It’s the only type of housing subject to voter preference.

Article 34 was introduced to voters as Proposition 10 in 1950 by the California Real Estate Association — now the California Association of Realtors (CAR). The rationale held that taxpayers have a right to vote on low-income housing projects since they are publicly funded through tax dollars, but the campaign also stoked fear over racial integration and socialism, according to the Los Angeles Times.

Thus, Article 34 becomes a racist relic of real estate past which continues to impact housing development today. Ensuring compliance with this provision adds between $10,000 and $80,000 to the cost of building a below-market rate unit, according to the Mercury News.

In fact, CAR, the trade group responsible for the implementation of Article 34 in 1950, is now co-sponsoring a bill to repeal Article 34, along with offering a public apology for its legacy of discrimination.

In the upcoming 2024 election cycle, California voters may get the chance to repeal the decades-old amendment. If so, it will be the fourth time the issue is brought to the ballot box. All three previous attempts to remove or weaken Article 34 were defeated by voters — the last attempt was in 1993.

2022 election results reveal voter support for housing

In California’s November 2022 general election, no statewide housing-related measures appeared on the ballot. Instead, voters faced local choices regarding housing issues.

In total, Californians voted on 52 different local measures in the November 2022 election, according to the Terner Center for Housing Innovation.

Five of those measures involved Article 34-related approvals, and appeared on ballots in:

Oakland;
Berkeley;
Los Angeles;
Sacramento; and
South San Francisco.

All five cities voting on Article 34 measures approved building the low-income housing projects proposed in their communities, according to the Sacramento Bee.

In fact, across the state, voters consistently backed pro-housing ballot measures, while rejecting measures making it harder to build.

Polls show 76% of adults support increasing the amount of rental housing appropriate for lower- and middle-income Californians, according to the Public Policy Institute of California.

Judging by the 2022 election results, increasing the amount of housing for low- and mid-income residents is a top priority. To address this need, California legislators need to keep supporting legislative changes that encourage builders to construct more housing for this demographic.

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Stay ahead of the curve on California legislative updates for priced right housing by subscribing to firsttuesday’s agent and broker-centered newsletter, Quilix.

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Pandemic-era buying spree plunges homebuyers from minority groups underwater

Pandemic-era buying spree plunges homebuyers from minority groups underwater somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Dec 12, 2022 | Economics, Fair Housing, Home Sales, Real Estate, Recessions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Faced with rapidly declining prices, are sellers listing property agreeing to an appropriate asking price?

No, few sellers initially agree (55%, 36 Votes)
Around half of sellers initially agree (35%, 23 Votes)
Yes, most sellers initially agree (11%, 7 Votes)

Total Voters: 66

Home prices are in a free fall in 2022 — and the many homebuyers who jumped on the bandwagon during the pandemic-era buying blitz are beginning to panic.

Nationally, from 2019 through 2021, the average annual homeownership rate increased by:

0.7 percentage points for white households;
0.9 points for Latino households;
2.1 points for Black households; and
2.3 points for Asian and other households, including Native American and Pacific Islander households, according to the U.S. Census Bureau.

In fact, the U.S. Black homeownership rate increased for the first time since the 1990s.

Despite the rapid growth rates for households from minority groups during the pandemic, the homeownership rate for white households remains far higher than that of other races and ethnicities. In 2021, the U.S. homeownership rate averaged:

74.1% for white households;
59.9% for Asian and other households;
48.4% for Latino households; and
44.2% for Black households.

Homeownership rates for households from minority groups still have a long way to go to reach the elevated homeownership rate of white households. However, the gap is forecasted to continue to narrow in the coming decades, according to the Urban Institute.

While a more significant growth rate for households from minority groups is important, given the systematic racism which severely limits the growth of household wealth, the timing is less than ideal for these groups.

That’s because when minority homebuyer activity hit a decade’s peak in 2019 through 2021, home prices were skyrocketing, fueled by record-low mortgage interest rates and government-issued individual stimulus checks.

Thus, this homebuying wave coincided with the worst time to buy — at the top of the housing cycle.

Now that home values are plunging, recent mortgaged homebuyers are seeing their loan-to-value (LTV) ratio dwindle and go negative. In a word: underwater.

Related article:

When homeownership becomes a prison

Homeowners and renters from minority groups tend to face an uphill battle when it comes to building household wealth — the main source of which is homeownership — and this news is no exception.

While on its face, a jump in the homeownership rate of Black, Latino and Asian households is good news for the real estate market and equality in general, the vast majority of these homebuyers who purchased during the pandemic will soon be underwater, if they aren’t already.

When a homeowner falls underwater, their negative equity status prevents them from selling their home when needed, or even relocating for a new job. The homeowner always has the option to exercise the put option in their mortgage — default — which pushes the homeowner toward a foreclosure or short sale. However, these are both devastating events in terms of the homeowner’s ability to own a future home or even rent suitable housing due to the attack on their credit score.

Thus, the underwater homeowner who chooses not to default is stuck in place, chained to their black hole asset and an economic tenant in their own home.

Worse, when prices continue to fall, the homeowner tends to pay a higher mortgage payment than the rent for an equivalent residence, making the choice to stay an even bigger financial debacle for the underwater household.

As the biggest homeownership gains of the past two years occurred for households from minority groups, it will be these groups who suffer the most while property prices continue to plummet.

firsttuesday forecasts prices will continue to contract over the next two-to-three years, slipping below pre-pandemic levels in 2024 and reaching bottom around 2025.

Real estate professionals can get ahead by learning to assist underwater homeowners. Gathering options for homeowners facing negative equity on top of an inability to pay or a need to move will prepare agents to work with a larger share of clients in the down years ahead.

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black homeownership, homeownership, implicit bias

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Regulators nab two California-based mortgage relief scammers

Regulators nab two California-based mortgage relief scammers somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Nov 4, 2022 | Laws and Regulations, Mortgages, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

With home prices declining, do homebuyers cancel escrows more frequently?

Yes, transactions are more frequently canceled. (69%, 20 Votes)
No, transactions are not canceled more frequently. (31%, 9 Votes)

Total Voters: 29

$6 million fraud scheme

Federal and state regulators have just unraveled a multi-million dollar real estate scam based in Los Angeles targeting vulnerable homeowners during the pandemic.

In September 2022, the California Department of Financial Protection and Innovation (DPFI) and the Federal Trade Commission (FTC) issued a joint complaint against a massive mortgage assistance relief scam operation, according to a DFPI press release.

Roger Scott Dyer and Dominic Ahiga (a.k.a. Michael Dominic Grinnell) operated the scam as Chief Executive Officers, defrauding distressed homeowners nationwide out of a combined $6.3 million, according to the complaint filed with the U.S. District Court for the Central District of California.

Dyer and Ahiga conducted business through multiple trade names, including:

Green Equitable Solutions;
Academy Home Services;
South West Consulting Enterprises;
Home Matters USA;
Apex Consulting & Associates;
Golden Home Services America;
Infocom Entertainment LTD, Inc.;
Amstar Service Group;
Atlantic Pacific Service; and
Home Relief Service of America.

As of September 14, 2022, a federal court temporarily shut down the operation and froze Dyer and Ahiga’s assets. The court also appointed a receiver to assist with taking over the business and administering potential relief for victims.

The mortgage relief scam

From at least June 2018 through September 2022, Dyer and Ahiga targeted distressed homeowners through telemarketing calls, text messages and online advertisements. These featured deceptive claims guaranteeing substantially lower monthly mortgage payments in as little as three months. To reassure homeowners, they falsely claimed affiliation with government mortgage relief programs, including federal COVID-19 relief programs, according to the DFPI and FTC’s allegations.

Homeowners duped by the operation never received a modification. While the operation performed little to no actual services, its damage stretches on in the form of:

money losses in the thousands for some;
damaged credit; and
foreclosure sales.

Real estate scammers get creative in their attempts to disorient consumers. The complaint claims the scammers asked consumers to send signed cease and desist letters to their mortgage servicer, preventing them from receiving late payment notices. This lack of communication would lead to missed payments, default and foreclosure.

Dyer and Ahiga violated numerous laws and regulations by conducting their multi-state operation, including the FTC Act, the Mortgage Assistance Relief Services (MARS) Rule, the Telemarketing Sales Rule, the COVID-19 Consumer Protection Act and the California Consumer Financial Protection Law, according to the complaint’s allegations.

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The MARS rule

Mortgage loan originators are well-acquainted with Regulation O. This enacts the MARS rule, which is designed to protect consumers from deceptive practices in mortgage relief. Originally, the MARS rule and Regulation O went into effect in 2010 in response to widespread abuse of consumers in mortgage distress. While the FTC first had rulemaking authority over the MARS rule, that authority shifted to the Consumer Financial Protection Bureau (CFPB) in July 2011.

For clarity, a mortgage assistance relief service is any arrangement, offering or program provided to consumers claiming to aid them with mortgage-related issues. [12 Code of Federal Regulations §1015.2]

Also, any person or party who provides, extends an offer to provide or arranges for others to provide any mortgage assistance relief service qualifies as a mortgage assistance relief provider. [12 CFR §1015.2]

Related Video: Mortgage Concepts: What is the MARS Rule?

Click here for more information on the MARS rule.

Dyer and Ahiga face violation of the MARS rule against mortgage assistance relief providers requesting or receiving payment of any fee before the consumer has executed a written agreement between themselves and their mortgage holder. [12 CFR §1015.5(a)]

The MARS rule also prohibits mortgage assistance relief providers from representing to consumers that they cannot communicate with their mortgage holder, another violation held in the complaint. [12 CFR §1015.3(a)]

Dyer and Ahiga also stand accused of violating the MARS rule by misrepresenting to consumers material aspects of their mortgage assistance relief services. The rule covers claims concerning:

the likelihood of negotiating, obtaining or arranging any represented service or result;
the amount of time it will take the mortgage assistance relief service provider to accomplish any represented services or results;
affiliation or association with the U.S. government or any federal, state or local government agency; and
the consumer’s obligation to make scheduled periodic payments according to the consumer’s mortgage. [12 CFR §1015.3(b)]

In addition, Dyer and Ahiga apparently failed to make required disclosures clearly and prominently according to the MARS rule. [12 CFR §1015.4]

Related Video: Mortgage Concepts: Deceptive Practices Banned Under Regulation O

Click here for more information on forbidden deceptive practices.

Fraud follows closely on the heels of economic stress. Receive updates on this developing fraud case — and California’s real estate market at large — by subscribing to our weekly Quilix newsletter.

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State and Federal Fair Housing Laws: Identifying the Explicit and the Implicit, Pt II

State and Federal Fair Housing Laws: Identifying the Explicit and the Implicit, Pt II somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Sep 26, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the third episode in our new video series covering Implicit Bias principles, and provides a sneak peek into the new course requirements that will apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode analyzes California prohibitions against explicit and implicit discrimination.

California prohibitions against discrimination

California prohibits discrimination in the sale or rental of housing accommodations based on an individual’s race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, familial status, marital status, disability, genetic information, national origin, source of income, veteran or military status, ancestry, citizenship, primary language, or immigration status. [Calif. Civil Code §§51 et. seq.; Calif. Government Code §12955; DRE Reg. §2780 and §2781]

This list of protected individuals under state law is more extensive than all others.

Discriminatory activities and conduct include:

making a written or oral inquiry into the race, sex, disability, etc. of any individual seeking to rent housing;
ads or notices for rental of housing which state or infer preferences or limitations based on any of the prohibited discrimination factors;
a broker refusing to represent an individual in a real estate transaction based on any prohibited factor; and
any other practice that denies housing to a member of a protected class. [Gov C §12955]

The denial of housing based on the landlord or broker’s perception that a prospective buyer or tenant has any of the protected characteristics is absolutely prohibited, whether it was done explicitly or implicitly. An individual who has been the victim of discriminatory housing practices may recover their money losses. [Gov C §12955(m)]

Fair Employment and Housing Act (FEHA)

The Department of Fair Employment and Housing (Department)

is the California government agency which enforces anti-discrimination law. [Gov C §§12901, 12903, 12930, 12935]

Any individual who feels they have been discriminated against may file a complaint with the Department. The Department investigates the complaint to determine any wrongful conduct. When grounds exist, the Department then seeks to resolve the situation through discussions with the individual against whom the complaint is made. [Gov C §12980]

When the Department believes a discriminatory practice has occurred, it will first attempt to reach a resolution through the Department’s mandatory dispute resolution division. The dispute resolution is provided without charge to either party. When the dispute cannot be effectively resolved, the Department will file a civil action on behalf of the individual who was discriminated against in the county where the discriminatory conduct is alleged to have occurred. [Gov C §12981]

California’s Unruh Civil Rights Act

California’s Unruh Civil Rights Act

, another anti-discrimination law, prohibits discrimination by a business establishment based on numerous status classifications, including: an individual’s sex, race, color, religion, ancestry, national origin, disability or medical condition. [Calif. Civil Code §§51; 51.2; 51.3]

However, age restriction is a legitimate discrimination as long as the restriction is in a project that qualifies as a senior citizen housing development.

The Unruh Civil Rights Act applies to anyone in the business of providing housing. Brokers, developers, apartment owners, condominium owners and single family residential owners renting or selling are considered to be in the business of providing housing.

As business establishments, landlords may not boycott, blacklist, refuse to lease or rent because of the race, creed, religion, color, national origin, sex, disability or medical condition of an individual’s, or that individual’s business partners, members, stockholders, directors, officers, managers, agents, employees, business associates or customers. [CC §51.5]

The Housing Financial Discrimination Act of 1977 (The Holden Act)

To achieve a healthy state economy, all residential housing for sale needs to be available to any homebuyer who is creditworthy and qualifies for purchase-assist financing. [Calif. Health and Safety Code §35801(b)]

An efficient real estate market requires the value of housing to be immune from fluctuations caused by lenders who arbitrarily deny financing to qualified homeowners, whether explicitly or implicitly. Thus, the California Housing Financial Discrimination Act of 1977, known as the Holden Act, prohibits discriminatory lending practices.

The goal of anti-discrimination law in home financing is to:

increase the availability of housing to creditworthy buyers; and
increase lending in communities where lenders have made conventional home mortgages unavailable. [Health & S C §35802]

Under the California Housing Financial Discrimination Act, lenders need to make financing available to qualified creditworthy mortgage applicants to:

buy, build, repair, improve or refinance an existing mortgage on a one-to-four unit, owner-occupied residence; or
improve one-to-four unit residences which are not owner-occupied. [Health & S C §35805(d)]

Lenders violate public policy when they indicate a discriminatory preference by denying or approving financing to creditworthy mortgage applicants based on the applicant’s protected status. [Health & S C §35811]

In a community which is composed mainly of residents of a certain race, color, religion or other protected class, a lender may not:

refuse to fund a mortgage based on the demographics of that community; or
appraise real estate in that community at a lower value than comparable real estate in communities predominantly composed of non-minority residents. [Health & S C §§35810, 35812]

Failure to provide financing in certain communities is called redlining

. Redlining is specifically targeted for correction by the law since it adversely affects the health, welfare and safety of California residents. [Health & S C §35801(e)(4)]

Lenders who deny mortgage applications based on the characteristics of the community discourages homeownership in that community. Thus, redlining leads to a decline in the quality and quantity of housing in areas where financing is generally unavailable, perpetuating segregated housing patterns. [Health & S C §35801]

However, a lender can consider neighborhood conditions when making a mortgage under certain circumstances. When doing so, the lender is required to demonstrate a mortgage denial is based on neighborhood conditions which render the mortgage unsafe and unsound as a matter of good business practice. [Health & S C §35810(a)]

The California-specific prohibitions and requirements under the Housing Financial Discrimination Act apply to all institutions which make, arrange or buy mortgages funded to buy, build, repair, improve or refinance one-to-four unit, owner-occupied housing.

This includes mortgage loan originators (MLOs) or lenders offering consumer mortgage services, whether endorsed by the California Department of Real Estate (DRE) or licensed by the Department of Financial Protection and Innovation. [Health & S C §35805]

DRE regulation of discrimination

The DRE also enforces numerous regulations prohibiting discriminatory practices by real estate brokers and agents. A broker or agent found guilty of engaging in discriminatory business practices may be disciplined by the DRE. [California Department of Real Estate Regulation §2780]

DRE prohibited discriminatory practices include situations in which a broker or agent discriminates against anyone based on race, color, sex, religion, ancestry, disability, marital status or national origin.

Prohibited practices include any situation in which a broker, while acting as an agent, discriminates against anyone based on race, color, sex, religion, ancestry, disability, marital status or national origin. Examples of discriminatory practices include:

refusing to negotiate for the sale or rental of real estate;
refusing to show property or provide information, or steering clients away from specific properties;
refusing to accept a listing;
publishing or distributing advertisements that indicate a discriminatory preference;
any discrimination in the course of providing property management services;
agreeing with a client to discriminate when selling or leasing the client’s property, such as agreeing not to show the property to members of particular minority groups;
attempting to discourage the sale or rental of real estate based on representations of the race, sex, disability, etc. of other inhabitants in an area; and
encouraging or permitting employees to engage in discriminatory practices.

Blatant discriminatory practices are not as common now as they once were. However, the DRE’s focus now has shifted to more subtle forms of discrimination — implicit discrimination. Implicit discriminatory practices are not openly discriminatory, but result in discriminatory effects. Therefore, implicit discrimination is more challenging to spot, though no less deleterious to the California housing market.

A broker has a duty to advise their agents and employees of all anti-discrimination rules, including DRE regulations, the Unruh Civil Rights Act, the California Fair Employment and Housing Act, and the FFHA. [DRE Reg. §2725(f)]

The broker, in addition to being responsible for their own conduct, owes the public a duty to ensure their employees follow anti-discrimination regulations when acting as agents on the broker’s behalf.

Editor’s note – firsttuesday was one of the first schools to submit the new education to the California Department of Real Estate (DRE) in April 2022.

The new education has been “pre-approved” by the DRE as of July 2022, though schools are unable to formally enroll students until fall of 2022.

When the DRE advises firsttuesday we can release the new courses for completion, the new education will be posted to accounts of firsttuesday students who need the education prior to October 2022.

Rest assured – all this is at no additional cost for firsttuesday students.

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The Economic Drawbacks of Implicit Bias

The Economic Drawbacks of Implicit Bias somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Oct 10, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the fifth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into the new continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode quantifies the reduction of real estate services which results from implicit discrimination. The prior episode covers the wealth gap.

Implicit bias from real estate licensees

On top of the economic reasons mentioned above, minority households face discrimination in the form of:

intentional mortgage discrimination;
implicit (and sometimes explicit) discrimination from real estate professionals; and
a higher likelihood of defaultand foreclosure.

Implicit discrimination ensures minority homebuyers and renters are:

shown fewer properties; and
given less information by real estate agents. [Aranda, Claudia L.; Levy, Diane K; Pitingolo, Rob; Santos, Rob; Turner, Margery Austin; Wissoker, Doug; The Urban Institute. (2013) Housing Discrimination Against Racial and Ethnic Minorities 2012]

A landmark study conducted by the Department of Housing and Urban Development (HUD) measured implicit racial discrimination by comparing the experiences of white testers against testers who were Black, Asian or Latinx, each with identical socioeconomic profiles.

Testers were instructed to contact housing providers and/or real estate licensees about recently advertised rental or sales listings. For consistency, two testers contacted the same provider about the same listing. Testers had the same gender, age, family composition and financial characteristics, with their race the only contrasting factor.

This test was repeated 8,000 times across 28 major U.S. metros, including five metros in California.

Testers obtained listing information and scheduled viewings in equal measure, demonstrating that blatant racial discrimination has fallen significantly. But this was not true for the quieter, but equally harmful, implicit bias.

Compared to white buyers and renters responding to the same listings:

Asian clients were shown 19% fewer for-sale and 7% fewer rental listings;
Black clients were shown 18% fewer for-sale listings and 4% fewer rental listings; and
Latinx clients were shown 7% fewer rental listings and roughly the same number of for-sale listings.

While blatant refusal to show properties to Black, Asian or Latinx clients was not an issue identified in the study, licensees exposed all non-white participants to fewer available units than their white counterparts. This subtle form of discrimination still has the adverse effect of providing Black, Asian and Latinx households with fewer options, limiting not just housing choices, but educational and economic access.

Economic inequity

Racial housing discrimination is not just morally and ethically reprehensible. It’s also bad business. Implicit racial discrimination hinders sales volume in the real estate market, and also ties up rental activity.

Importantly, it was real estate agents, not owners, who engaged in the implicit discriminatory practices found by the HUD investigation.

The study showed that implicit racial discrimination impacts minority renters and buyers by:

limiting their access to available housing;
making the housing search longer, costlier and more difficult;
hampering economic mobility by limiting a minority buyer’s housing choices in areas with access to better employment and quality schools; and
reinforcing the de facto racial segregation (redlining) that has gripped many U.S. cities in the years since outright segregation was outlawed.

Further, explicit bias still exists in the real estate profession, though less so today. In these rarer and more overt cases, real estate agents refuse outright to show properties or take applications from members of protected classes.

But the harm of racial, ethnic, and economic segregation reaches far beyond just those who are isolated from the market by these practices. It drags down the larger economy of an entire region – and with it, real estate sales volume – according to research published in the Journal of Urban Studies.

Metropolitan areas with high levels of racial and job skill segregation suffered reduced rates of short- and long-term economic growth between 1980 and 2005, the Urban study found. The future of any community is no less endangered by segregation.

Worse, poverty is very costly to a local economy. Housing discrimination and racial segregation only exacerbate those costs, cutting into the incomes of all people with local vested interests.

California’s homeownership rate is low for all ethnicities, typically averaging roughly ten percentage points below the U.S. homeownership rate.

The number one enemy for real estate professionals is a low homeownership rate. With fewer homebuyers and sellers, real estate agents, brokers and mortgage loan originators (MLOs) — along with all the other professionals involved, like appraisers, escrow agents and title insurance officers — have fewer closings, fewer fees and lower incomes.

Doing your part

How can you get involved and help more Latinx, Black and Asian households break the cycle of implicit bias and achieve homeownership?

Real estate agents — the gatekeeps to real estate ownership — need to be vigilant for signs of predatory lending. Agents can make sure all clients are fully aware of the details of the mortgage they are agreeing to pay back. The Consumer Financial Protection Bureau’s (CFPB’s) mortgage shopping tools are a safe place to direct homebuyers for homebuying and mortgage guidance.

Real estate professionals also need to maintain high anti-discrimination standards by following the laws set out in California’s Unruh Civil Rights Act.

To ensure brokers, agents, MLOs and landlords don’t violate anti-discrimination law — even unintentionally — professionals need to:

ask the same questions of all applicants;
keep records of client interactions; and
when in doubt, contact a local fair housing expert for advice — find a list of experts at HUD’s website.

Finally, licensees can get involved by making sure local housing inventory continues to match homebuyer and renter demand. This will keep costs in check for all demographics and improve access to homeownership for everyone. Do this by attending local city council meetings and advocating for more housing, builder incentives and common-sense zoning.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

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The Importance of Financial Literacy

The Importance of Financial Literacy somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Dec 2, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the final episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode covers financial literacy as a requisite for equal ownership outcomes. The prior episode delved into positive practices to combat bias in hiring and marketing.

Education matters

Households from all walks of life ought to have an equal chance at homeownership.

However, the greatest obstacle many individuals face is a lack of financial acumen, which is usually built over years of exposure to different financial strategies and products.

California is one of just five states in the nation with no financial literacy

education requirements for K-12 public schools. Further, only 20% of teachers feel confident enough to teach on the subject, according to the Council of Economic Education. [Council for Economic Education. Survey of the States – 2022.]

Without basic financial literacy required in school, there is a lot of catching up to do for clients seeking to become homeowners — especially when these clients have no family history of homeownership, as is significantly more likely for minority homebuyers.

Financial literacy teaches homebuyers how to elevate and maintain their credit scores, pay off debts and save — all crucial to qualifying for a mortgage.

Brokers who encourage their first-time homebuyer clients to ask questions will improve understanding and homeownership outcomes, while narrowing the financial literacy gap. Each time the agent or broker speaks with these clients, they ought to end each conversation with “and do you have any questions for me?”

Chances are, they will have many.

Likewise, brokers need to encourage all clients to ask questions of their lender. As the biggest financial investment of their lives, taking out a mortgage ought to leave the homebuyer with zero uncertainty.

While first-time homebuyers may naturally ask their broker plenty of questions, there are also numerous things they may not have the peripheral vision or experience to do know they need to ask about.

That’s where the broker’s initiative and intuition comes in.

Informing buyers of the additional costs of ownership

A first-time homebuyer client likely knows about how much cash on hand they need for a down payment. But some additional costs the broker may need to prepare first-time homebuyers for are:

mortgage insurance — when the homebuyer has a down payment less than 20% of the home’s purchase price, they need to account for private mortgage insurance (PMI), and if they are very close to having a 20% down payment, it may be more financially advantageous to wait until they can save up the full down payment so they can avoid the extra monthly cost of insurance;
closing costs — the client needs to know up-front they will need to set aside thousands of dollars just for closing, an amount which may impact their saving and buying timeline;
the supplemental tax bill the homeowner will receive shortly after closing — a substantial cost the homebuyer needs to prepare for following closing;
any initial repairs needed to make the home livable — when viewing a home that’s missing or in need of new appliances, fixtures or major repairs, the homebuyer can estimate how quickly these costs can add up; and
the true costs of maintenance and upkeep — first-time homebuyers need to understand how much money they will need to budget for property maintenance and utilities, a lack of information best cured by asking the seller to fill out a property expense form. [See RPI Form 306]

Other aspects of the transaction the first-time homebuyer may be unaware of include:

the time it takes to close — having never experienced a closing before, they won’t realize that it typically takes 30-45 days from their offer being accepted to closing;
the home inspection — the buyer needs to make their offer contingent on a satisfactory home inspection, even if the contingency makes their offer less attractive to the seller;
choosing homeowners’ insurance — required by the lender, the homebuyer needs to know they have options when choosing a homeowners’ insurance provider and that the costs can vary based on coverage and the provider; and
the tax deductions available to homeowners, including mortgage interest deductions (MIDs) and deductions on property taxes and bonded assessments.

Being upfront with first-time homebuyer clients about these additional costs and transaction steps will avoid any confusion or surprise on their part.

This additional communication also improves homeownership outcomes, and of course, shrinks the homeownership gap.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

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The Inclusive Brokerage

The Inclusive Brokerage somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Nov 25, 2022 | Fair Housing, Feature Articles, Real Estate, Video | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This is the tenth episode in our new video series covering Implicit Bias principles, and provides a sneak peek into our new DRE-approved continuing education (CE) requirements that apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode covers positive practices to combat bias in hiring and marketing. The prior episode focused on fighting discrimination in the context of disability status and a tenant’s source of income.

Inclusive advertising

To make a living in real estate, it’s always best to appeal the widest audience – cast a wide net. This means real estate marketing needs to speak to everyone. Seeking to appeal to only a certain type of demographic, even with the best of intentions, will leave out opportunities to work with everyone else.

Worse, a real estate advertisement that indicates a bias against or preference for particular race, color, sex, sexual orientation, handicap, familial status or national origin is considered a violation of the Federal Fair Housing Act (FFHA). Even when a real estate professional doesn’t mean to discriminate, problematic wording, phrases or images can alienate clients. Not only is this simply bad for business, it may also welcome a discrimination lawsuit.

The best way to avoid discriminatory advertisements is to take an active approach to being inclusive.

For example, advertisements that use single-gender pronouns (he or she) unnecessarily exclude half of all readers from a broker’s potential client base and tend to incite protests. For more inclusive advertising, brokers do not need to clutter ads with multiple gender pronouns and titles — or clarify their intention to address all genders. Rather, speaking in the second person (you) or using the third person (they) covers all bases.

Simplicity is the best approach. Always avoid salutations that isolate a specific gender, such as “sir” or “madam,” and instead opt for generic terms like “homeowner.” Alternatively, drop titles altogether. The gender or gender identity of the recipient is not pertinent to your marketing efforts. Using the more inclusive pronoun “they” keeps it simple, while avoiding gender assumptions about the audience and reaching more clients.

To be inclusive, it’s also helpful to create advertising and other transaction-related content in multiple languages.

Over one-in-four California residents were born in another country. For perspective, the national average for foreign-born residents is just one-in-eight. Three-quarters of this population is documented or U.S. citizens. Half of California’s migrant population is from Latin America and 39% are from Asia. [Public Policy Institute of California. Immigrants in California (2019)]

With such a diverse population, creating content in languages that are most common in each particular community is reasonable and good practice. Not just one or the other – both.

Hire and work with a diverse workforce

When seeking to serve a diverse community of clients and combat implicit bias before it occurs, the best thing a broker can do is hire and work with a diverse community of agents and other professionals.

For example, when advertising for an available position, employers proactively include an Equal Opportunity Employment (EOE) statement. The EOE statement is a recognition that bias often happens during the employment process, but the employer’s EOE is a step toward countering that bias by promoting a diverse applicant pool.

The EOE statement includes the employer’s commitment to hiring a diverse and inclusive workforce. For example: XYZ Brokerage is an equal opportunity employer. We do not discriminate on the basis of race, color, religion, sex, gender identity, sexual orientation, pregnancy, national origin, age, disability or genetic information.

No longer than a brief paragraph, EOE statements make it clear that the employer wishes to employ a workforce representative of the full range of society. The broker may wish to elaborate to show their earnest wish to employ a diverse workforce, outlining their willingness to provide reasonable accommodations, or even highlighting who they are as a company culture. For example: XYZ Brokerage seeks qualified applicants from all backgrounds and we encourage diverse applicants to apply, including women, people of color, people with disabilities, LGBTQ people and veterans.

Other steps a broker may take to ensure equity in their hiring and employment practices include:

basing agent-broker fee-splits on identifiable factors, such as transaction volume or years of experience, upholding the equal pay for equal work standard;
responding promptly and thoroughly to any complaints of discrimination from agents or clients; and
making reasonable accommodations in the workplace to ensure protected groups are not excluded from employment, such as allowing time off for religious holidays and making adjustments for employees with disabilities.

Further, employers with 15 or more employees need to post the EEO is Law poster, which summarizes EEO law and directs employees how to make a formal complaint, in a conspicuous location in the office. [42 United States Code §2000e-10 (a); U.S. Equal Employment Opportunity Commission]

Employers with fewer than 15 employees are not required to display the EEO is Law poster, but all employers are required to follow the equal pay for equal work standard. [29 Code of Federal Regulations §1620 et seq.]

The gender pay gap

, which sees women systemically earn less money doing the same job as men, is mainly a product of implicit bias on behalf of employers. This also may exist in the context of salary-based office staff who perform administrative work within a real estate brokerage office. This disparity is implicit as employing brokers don’t generally intend to pay female office staff less than a male equivalent doing a similar job, but their hidden expectations, assumptions and attitudes may cause women to receive less pay than men.

Women employed as full-time real estate brokers or sales agents earn on average 70 cents on the dollar compared to men in the same full-time employment, at the national level. On average, that’s a difference of:

$415 a week; or
$21,580 a year. [Bureau of Labor Statistics. (2021) Highlights of Women’s Earnings in 2020]

Beyond hiring a diverse workforce and seeking out a diverse group of professionals to work with, ensuring equal pay and equal access to employment are crucial to rooting out systemic implicit bias.

Editor’s note – firsttuesday was one of the first schools in California to obtain DRE-approval for the new implicit bias training and expanded Fair Housing course.

To enroll, visit the order page.

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The evolution of the “rogue agent” defense in real estate

The evolution of the “rogue agent” defense in real estate somebody Fri, 09/22/2023 - 10:06 pm

Posted by Guest Author Summer Goralik | Dec 5, 2022 | Laws and Regulations, Real Estate, Your Practice | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Real Estate Compliance Consultant and former California Department of Real Estate (DRE) Investigator, Summer Goralik, outlines best compliance practices when a real estate agent strays from their broker’s policies. Learn more by visiting the original post on her blog Expert DRE Compliance.

When it comes to real estate, the term “rogue agent” carries special meaning. It refers to a real estate agent who operates inconsistent with, or against the grain of, their brokerage, or worse, engages in activities which run afoul of the Real Estate law. In other words, a rogue agent may fail to adhere to their broker’s policy and procedures, transaction requirements, advertising guidelines and/or reporting rules. Given this work ethic and general disregard, it is no surprise that a rogue real estate agent may find themselves in legal trouble vis-a-vis a civil claim or under regulatory scrutiny by the California Department of Real Estate (DRE). The purpose of this article is to unpack what I call the rogue agent defense and hopefully educate agents about the myriad dangers of going rogue in real estate.

I should preface this piece by pointing out that a broker, sole proprietor or corporation, is always and ultimately responsible for the supervision and management of their agents and licensed activities. Even though there may be rogue agents in the industry, this does not change or relieve a broker’s statutory duty to perform reasonable supervision and ensure compliance. These are fundamental tenets that all responsible brokers should know and practice. However, for the benefit of this discussion, let’s put broker supervision aside and strictly unravel the rogue agent concept and what it means for everyone involved.

As a real estate agent offering and performing licensed activities on behalf of a brokerage, it is tantamount that the agent not only follows the broker’s rules and expectations, but also strictly abides by the law. In fact, when an agent first onboards and affiliates their license with a brokerage, they are usually required to review the broker’s policy and procedures as well as acknowledge their receipt and agreement to abide by them as a condition of their brokerage-agent relationship. Coincidentally, if an agent fails to adhere to their broker’s policies or company requirements, then it is almost inevitable that they are likely violating the law too, as so many brokers’ internal rules mirror statutory duties, the standard of care required of licensed real estate professionals, and best practices in the industry.

Interestingly enough, a rogue real estate agent is more than just an expression. As the title of this article suggests, it’s actually a defense, and one that may be adopted by a real estate brokerage during a DRE investigation involving one of their agents. As a real estate compliance consultant and former DRE Investigator, I have witnessed this defense evolve first hand. To illustrate, let’s walk through a simple scenario.

The rogue real estate agent

A consumer (buyer) files a complaint with the DRE against their agent, who not only represented them on their real estate purchase, but also represented the seller and acted as a dual agent. The complaint alleges serious violations such as misrepresentation and the failure to disclose material facts. Upon receipt of the complaint, the DRE initiates an investigation and contacts the agent. As part of the investigation, the agent will be required to provide a written, chronological summary about the transaction along with any answers to specific questions raised by the Department.

Needless to say, when an agent is being investigated by the DRE, the broker will also surely be notified and required to provide the Department with not only a response to the allegations, but a complete copy of the transaction file which is the subject of the complaint. Additionally, with any complaint, it is an opportunity for the Department to review and evaluate a broker’s supervision over their agents and licensed activities. Therefore, in addition to the complaint, the DRE may also decide to take a more comprehensive look at the entire brokerage operation.

Specifically, the Department may collect information regarding the broker’s system of supervision, including their methods of review and established policies and procedures. Accordingly, the DRE may also ask the broker to explain how they enforce or monitor compliance with their policies. Therefore, for the broker, one complaint against one agent could actually trigger a deeper dive into their entire real estate business and practices.

In consideration of the stakes involved, once the DRE’s notice is received by the broker, several important things usually happen next. The broker will normally take prompt action by investigating the matter internally, contacting the agent to obtain their version of events, and reviewing and evaluating their transaction file documents for both company and legal compliance. The broker may also bring in an outside consultant or refer to legal counsel to further assess the matter and provide advice. As it turns out, and based upon my experience, it is also during this period of internal review that the rogue agent defense often comes into play. Let me explain further.

To be clear, in this example, the broker first learned of the complaint, and the underlying issues between their agent and the buyer, when they received the DRE’s letter. They had no prior knowledge about the issues involved or violations alleged. Also, for the sake of argument, in this case, the responsible broker does actively review, supervise and manage its licensees, transactions and activities, as well as employ an effective system of supervision in order to monitor and ensure compliance. Moreover, it is against this backdrop that after the broker fully evaluates the transaction and complaint, they determine that the agent made fundamental mistakes, some of which could have been avoided or at least mitigated if the agent had simply followed company policy.

Notably, the agent failed to immediately alert the broker to the transactional dispute with the buyer which occurred mid-escrow. The agent could have reported this information to the broker at the time of the incident, sought their guidance or counsel, and potentially resolved or mitigated the problem. Put another way, although the agent was aware of the brokerage policy, and agreed to abide by it, the agent’s failure to report or disclose the transaction issue to the broker may have unnecessarily put the brokerage at risk and at the forefront of a DRE investigation.

It is precisely at this moment in the investigation when the broker, while defending themselves in connection with the DRE’s inquiry and examination, may accuse the licensee of failing to abide by the broker’s requirements, violating company policy, and essentially going rogue. By utilizing the rogue agent defense, the broker takes the position that the agent’s actions are not a symptom of lack of supervision on their part, but rather, directly related to, and the result of, the agent’s willful disregard for the broker’s policies and Real Estate law. Barring the Department does not find any evidence of violations committed by the broker, guilty knowledge about the complaint matter, lack of supervision and/or any pattern of misconduct by the company or its agents, the rogue agent defense can be quite effective and may actually relinquish a broker from further DRE scrutiny.

Given the above illustration, it is important to point out that when the DRE is investigating an agent, the most ideal situation is one where the agent has the broker’s full support in connection with their position and rebuttal to the consumer’s allegations and complaint. This consolidated front, between the broker and agent, is often a key ingredient to challenging and dismissing claims. Of course, in order to garner such brokerage support, the agent’s activities and practices must be in line with the company’s policy and procedures, and both evidence and reinforce the broker’s overall efforts to maintain a compliant real estate operation.

Compliance matters

Admittedly, even a law-abiding agent with good intentions could be guilty of not reading their broker’s policy and procedures, or failing to recognize that a transaction issue warranted their broker’s attention and review. Furthermore, I hope this article serves as an important reminder to all agents to make sure they are operating in line and consistent with their company’s operation and rules. Also, if you are not sure, please make sure, as guesswork in the real estate industry is quite dangerous and can be costly.

Finally, it should be mentioned that the rogue agent defense loses significant value when real estate agents follow these simple rules:

Please read (maybe twice) your broker’s policy and procedures, and make sure you fully understand what they mean and require of you before acknowledging your agreement with them in writing. If you are confused about any of the rules, please remember to ask questions. You might even document your questions and the answers that you obtain from the brokerage and keep for your future reference and records.
Familiarize yourself with any mandatory reporting required by your brokerage. These reporting expectations are usually outlined in your policy manual, or may be located in your relationship agreement with the brokerage (e.g., employment or independent contract agreement). Typically, there are specific events that trigger such reporting rules, and if you study these requirements up-front, you will likely not forget when the time actually comes to report an issue to your broker.
Seek immediate help and guidance from your broker if you ever feel not proficient or competent when it comes to a specific type of real estate transaction, contract, disclosure, form, or practice; have questions about required or appropriate procedures or processes; or have been asked a question by your client that you don’t know how to answer or feel unsure about. The reality is, if you fail to seek advice and direction from your broker at these critical junctures, you may be putting the company at risk and ultimately subjecting your real estate license to potential discipline.
If a legal issue, dispute or consumer complaint arises in connection with a real estate transaction, please immediately report this information to your broker. The sooner you bring your broker into the matter, the better off you will be. The disclosure of this information to your broker affords them the opportunity to provide guidance and direction, and may even enable them to mitigate or resolve the issue completely. Also, even if the issue cannot be resolved, the broker’s timely awareness of the problem undoubtedly provides the company the ability to react more quickly, immediately correct or address any potential compliance issues, and seek legal counsel prior to the issue rising to the level of a civil or regulatory complaint.

In closing, the purpose of this article is certainly not to scare agents, and the reality is, thoughtful and compliant-minded agents have no reason to fear the rogue agent defense. That said, I hope this piece has hopefully highlighted the importance of adhering to, and/or continuing to stay compliant with, their company’s internal policies. Bottom line, if an agent’s activities strictly abide by their broker’s policy and procedures, they are likely operating on the right side of compliance.

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The homeowner becomes the builder

The homeowner becomes the builder somebody Fri, 09/22/2023 - 10:06 pm

Posted by Casandra Lopez | Jan 7, 2022 | Laws and Regulations, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Homeowners are taking California’s housing crisis into their own hands, literally, and building housing units right in their own backyards.

Homes are desperately needed but also expensive to build in California’s costly coastal cities. Builders have moved away from expensive new single family residential (SFR) construction to cheaper multi-family construction.

First-time homebuyers are also steering clear of new SFRs since the prices of new builds far exceed what’s possible for their low-to-mid tier budgets.

Sensing opportunity, or simply trying to house desperate family members, homeowners of every income level are building their own ADUs, often skipping onerous permitting requirements. The result is a massive informal housing market that accounts for millions of units nationwide, especially in the low-to-mid tier, according to the New York Times.

Los Angeles is estimated to have at least 200,000 “informal” units, many of them ADUs, according to researchers at University of California, Los Angeles.

Backyard conversions have been going on illegally for decades. But it was only recently that California legislators finally made backyard conversions legal, with the passing of Assembly Bill (AB) 68 in 2019. This legalized the widespread construction of accessory dwelling units (ADUs), as easy-to-build type of housing best for low- to moderate-income residents. Legislators are now encouraging homeowners to put small rental homes on their property to help end California’s housing shortage.

In an effort to further support backyard conversions, AB 1584 was approved in 2021 to reduce ADU restrictions. This new law makes any covenant or restriction that prohibits the construction or use of ADUs void and unenforceable. However, restrictions which do not unreasonably increase the cost of construction are still permitted.

A significant source of housing

Backyard conversions are proving to be a significant source of housing for California. By becoming builders themselves, homeowners can shoot two targets with one arrow; address the housing crisis and support their own incomes.

With increasing home prices alongside stagnant wages, backyard conversions stimulate the housing market and improve the lives of homeowners, especially those who buy or rent in the low-to-mid tier. It has the potential to uplift many struggling homeowners, especially after this pandemic, and give them the opportunity to improve their financial circumstances.

Homeowners need to review the ADU handbook before deciding to convert their backyard into a housing unit. In particular, ADUs:

can be converted out of garages, sheds, barns, and other existing accessory structures, either attached or detached from the primary dwelling;
do not have a minimum lot size requirement, but local governments may establish these requirements at any time;
do not have a limit on the height or number of stories, but local agencies may impose height limits;
parking requirements shall not exceed one parking space per unit; and
are not charged for water and sewer connection fees, according to California’s Accessory Dwelling Unit Handbook.

In Los Angeles, homeowners also need to be aware of any tenant relationship issues that may arise when operating an illegal rental unit. For example, a residential landlord of an illegal unit may not use an unlawful detainer (UD) action to evict a tenant. [Carlos Yanez v. Omar Vasquez (June 29^th, 2021) _CA6th_]

The residential landlord can evict the tenant if they file a Declaration of Intent to Evict and serve the tenant with a 30- or 60-day notice of eviction attached to the copy of the Declaration of Intent to Evict and provide relocation benefits. [See RPI Forms 569 and 569-1]

California’s Tenant Protection Act (TPA) recently altered eviction practices for properties subject to “just cause” eviction procedures. Read more about just cause eviction procedures under the TPA.

Related article:

Related topics:
adu, builders, california homeownership, multi-family construction

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The new Implicit Bias and expanded Fair Housing course are available for your 2023 California real estate license renewal

The new Implicit Bias and expanded Fair Housing course are available for your 2023 California real estate license renewal somebody Fri, 09/22/2023 - 10:06 pm

Posted by Carrie B. Reyes | Oct 3, 2022 | Fair Housing, Feature Articles, Real Estate, Your Practice | 2

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

The long wait is over for California real estate licensees: newly-required course content is now available for you to renew your licenses.

Passed at the end of 2021, Senate Bill (SB) 263 requires two hours of implicit bias training to be incorporated into continuing education (CE). Further, the mandated three-hour Fair Housing (or Survey) renewal course has been restructured, including an interactive participatory component.

The new course requirements apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

Late renewals — licensees with expiration dates prior to January 1, 2023, but who renew after the implementation date — will also need to take the additional Implicit Bias course and restructured Fair Housing which includes the interactive participatory component.

How to access your course

The California Department of Real Estate (DRE) has approved firsttuesday’s Implicit Bias course and newly structured Fair Housing course.

As of October 3, 2022, the new education content has been posted to accounts of renewing firsttuesday students at no additional cost. Currently enrolled students and students who already completed their CE with firsttuesday during this renewal cycle receive this education for free. Simply log into your existing account and complete the new education at any time. Once you’re done, you will be issued a Certificate of Completion containing the new education that you may use to process your renewal.

For licenses expiring prior to 2023, you do not need to take this additional education until your next renewal.

While we do not charge enrolled or enrolling firsttuesday students for the updated CE, we do charge those who separately enroll in the five hours of newly mandated education a fee of $17.50.

To enroll, visit the order page. Or give our customer service team a call at 951-781-7300.

A glance into the new courses

Specifically, the course will cover:

federal and state fair housing law in the context of explicit and implicit bias;
predatory lending and redlining both from a contemporary and historical perspective;
the wealth and homeownership gap between white, Black and Latinx households, and how it is perpetuated by discriminatory lending and real estate practices;
the proper implementation of fair hiring practices;
reporting discriminatory practices observed in the industry;
adherence to advertising guidelines in order to avoid discrimination in marketing; and
the need for greater financial literacy to create a more stable housing market.

firsttuesday’s Access for All: A Fair Housing Game™ is taken in conjunction with the restructured three-hour Fair Housing course.

Access for All ™ presents a variety of interactive scenarios. In some, students will take the role of a real estate licensee. In others, students will take the role of a principal. Based on the decisions made by students, the scenarios change – poor choices yield negative outcomes, and virtuous choices yield positive outcomes.

Access for All™ blends video, animation, text, and voice in an engaging educational experience that puts the student directly into the shoes of transaction participants and is hosted by frequent collaborator, Summer Goralik. Summer was employed as a Special Investigator for the DRE for six years and worked closely with former Real Estate Commissioner Wayne Bell.

Get a sneak peek of the Access for All™ welcome video below.

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Unused commercial space continues to convert into much-needed apartments

Unused commercial space continues to convert into much-needed apartments somebody Fri, 09/22/2023 - 10:06 pm

Posted by Ashley Collins | Dec 9, 2022 | Commercial, first tuesday Local, Laws and Regulations, New Laws, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

California’s housing shortage has a new source of aid: conversions from commercial property to much-needed multi-family units.

The adaptation of vacant or underused commercial property, such as hotels and offices, into apartments has become a sustainable option for creating more housing. In the first six months of 2022, Los Angeles took the lead in most apartment conversions — the repurposing of unused commercial space into apartments — with over 1,240 apartment conversions in the first half of 2022, according to RentCafe.

Nationally, California is leading the charge with future conversions in cities such as:

Fresno with 1,010 apartment conversions; and
Los Angeles with 4,130 apartment conversions.

While this is a minor drop in the bucket in terms of meeting housing needs, these cities are inching towards progress by converting buildings like vacant retail stores and healthcare buildings into apartments, according to RentCafe.

These apartment conversions fall in line with the Middle Class Housing Act of 2022, consisting of legislative initiatives Assembly Bill (AB) 2011 and Senate Bill (SB) 6.

Both bills — beginning July 1, 2023 — encourage builders to transform office and retail commercial spaces into housing units for low- and middle-income Californians. These housing bills require general plans for land development and the compliance to local zoning laws.

Apartment conversions improve the quality of life for Californians on the verge of homelessness and for those already experiencing homelessness. More housing means:

fewer Californians on the streets; and
more fees available for real estate professionals who earn income from new housing transactions.

Related article:

Benefits to repurposing an existing building

With the growing need of more housing, apartment conversions are an opportunity for builders to meet demand and do so at a reduced cost.

New apartment construction is costly as building material shortages continue to cause delays as Californians play catch up after the historic jobs losses of 2020. The commercial-to-residential transformation cuts down the usage of building materials and other huge startup costs.

Additionally, builders don’t have to worry about potential roadblocks typical for new construction such as:

site acquisition;
zoning laws; and
environmental restrictions.

The recycling of an existing building means there’s no need for a demolition, which is known to have a harsh impact on the environment. Though builders may run into financial setbacks from meeting residential health and safety standards due to unexpected hazards, conversion is still a less costly project over a new startup all together.

But, alas, builders aren’t the only ones to benefit from apartment conversions — there’s something in it for real estate professionals too. Builders and real estate professionals are going to need a Plan B as the 2023 recession approaches. For builders, it’s finding less costly ways to meet the growing demand for housing. But for real estate professionals? It may look like supplementing your income from transaction fees by becoming a property manager.

Once these apartment conversions are finished, they’re going to need property managers to keep it running. Property managers may use these converted spaces as apartments or flexible spaces — depending on the local zoning regulation. As a flexible space, landlords may let space to housing residents and businesses, such as retail and restaurants, within the same building.

With the 2023 recession on the horizon, real estate professionals offering a little bit of everything tend to go a long way for residential and commercial tenants.

For more tools on how to survive the 2023 recession, subscribe to our newsletter, Quilix!

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What a cooling market means for both sides of real estate transactions

What a cooling market means for both sides of real estate transactions somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Sep 19, 2022 | Buyers and Sellers, Economics, Market Watch, Real Estate, Recessions | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

When prices fall

Today’s real estate professionals are well acquainted with rising prices — but that environment is now behind us. What can agents and brokers on both sides of California home sales transactions expect going into 2023?

Think back to last year’s sky-high home prices, supported by rock-bottom mortgage interest rates. For reference, California home prices rose over 20% year-over-year in all tiers in July 2021.

In 2022, with the Federal Reserve (the Fed) steadily hiking interest rates, home prices have nowhere else to go but down. Agents watching their local listings dry up are beginning to recharacterize 2021’s boom as a windfall rather than a pattern.

In tandem with the Fed’s aggressive interest rate increases, the U.S. economy experienced two consecutive quarters of gross domestic product (GDP) decline in the first half of 2022, signaling a recession — though still undeclared.

California home sales volume has already fallen back in 2022 for four consecutive months. It is highly unusual for home sales to plunge mid-year; this is typically when home sales peak. In accordance with this cycle, home sales and prices will likely remain low through the remainder of the year.

Related article:

In the second half of the Millennium Boom, circa 2005, real estate participants viewed the housing market with a profound level of irrational exuberance, believing the only way housing prices would go is up — indefinitely. Of course, history taught otherwise. [See RPI e-book Real Estate Economics, Factor 12: Pricing]

When housing prices are on an upward trend — the norm for the past decade — real estate participants on both sides of a transaction can expect to earn (and spend) more money. The seller profits more on a sale. The buyer pays more for the purchase. The lender lends more and takes greater risks. Money abundantly circulates through the economy.

But when housing prices are on a downward trend — the cycle the housing market is now entering — owners and sellers lose net worth as their real estate is worth less than it was in the peak market cycle.

Read on for a breakdown of how each real estate participant will fare as prices descend gradually and extensively through the next few years.

Buyers benefit from diminished prices

For prospective first-time homebuyers, a period of falling home prices is a welcome change.

Through the last decade, home prices have increased at a much faster pace than incomes. As a result, many first-time buyers struggle to qualify for financing.

A period of declining or flat home prices improves the home price-to-wage ratio in buyers’ favor. This is good news for younger homebuyers who have long experienced stagnant wages and typically carry significant student loan debt.

Additionally, buyers during a recession will be more likely to find:

sellers who are willing to lower their asking prices;
short sales from mortgage defaults; and
banks offloading foreclosed properties.

Each of these scenarios brings lower purchase prices than those experienced during the robust pandemic housing rush — a huge payoff for patient buyers.

As the market shifts its focus to buyers, agents are closing ranks with their industry contacts. Important corollary groups associated with buyers include the support services which enable buyers to perform their due diligence on the property they wish to buy. This group includes escrow companies, title companies, home inspectors, document preparation servicers, home appraisers, sales-sign companies and builders.

These support services will also be affected by the recession since many are operated by small companies, which are the most vulnerable to negative economic shocks.

Sellers struggle against diminishing prices

For owners and sellers, falling home prices hurts consumer confidence and spending in the local economy since owners see a reduction in their main wealth-building asset.

As more consumers pull back from spending, economic growth slows in tandem. This marks a shift in consumer behavior from spending to saving.

Worse, during a period of faltering home prices, some properties can become trapped in negative equity — which is when the value of the real estate falls below what the owner paid for it. Negative equity status significantly heightens the risk of foreclosure when combined with a household income shock (e.g., loss of job, divorce, loss of health, death, etc.). Altogether, these factors can push a homeowner’s regular mortgage payments beyond reach.

As of July 2022, 1.8% of California homes were delinquent on their mortgage payments, according to Black Knight. This also marks the first decline in home price growth after 31 consecutive months of growth.

Home values have hit their peak. As a result, the number of underwater homeowners is expected to level out and begin to rise, picking up speed going into 2023. [See RPI e-book Real Estate Economics, Factor 4.2: Negative equity and foreclosure]

Related article:

Lenders cut losses against price cuts

For lenders, falling home prices mean the lender will lose money when owners default on their mortgage payments. These lender losses lead to lower bank lending and lower investment initiatives.

Refinancing will become untenable for owners, and banks are preparing to lose on that too. When interest rates rise, refinancing loses its appeal among owners. By contrast, when interest rates are low, such as during the 2020 recession, refinances explode in popularity.

At the end of 2020, refinances in California made up a whopping 79% of all mortgage originations. Over twice as many refinances occurred in 2020 than in 2019. As the Fed remains steadfast in raising rates to level out inflation, expect refinances to suffer.

Many owners who default on their mortgage during the recession will choose to undergo a short sale instead of foreclosure. Others will be foreclosed upon, and their property will become real estate owned (REO) property owned by the mortgage holder, which the mortgage holder will sell at a loss.

Real estate agents will become REO specialists to accommodate this growing share of the real estate market.

Related page:

Preparing for the shift

Since the financial and housing market crash of 2007-2009, real estate pricing has remained on an upward trend. On a significant or elongated downturn in prices, all real estate market participants need to make a dramatic shift in their thinking and practices.

A contraction in the money supply circulating through the market is a much-needed correction, but an uncomfortable one for most real estate participants.

Real estate professionals who enjoyed 20% year-over-year price jumps at the outset of the pandemic will find the drop back down to the mean price trendline a complete shock. This is especially true for those who did not experience the 2008 financial crash firsthand as a licensee.

Consumers have also grown accustomed to an upward path on prices. But this dramatic upward swing was an anomaly from the start. 2019 was the last normal year for prices, and home prices will have to return to reality for the real estate market to regain stability.

Are you and your clients prepared for the drop?

Stay ahead of the yet undeclared recession by subscribing to Quilix, the firsttuesday Journal’s agent- and broker-focused real estate newsletter.

Related article:

Want to learn more about California’s upcoming economic landscape? Click the image below to download the RPI e-book cited in this article.

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When you can expect to access the extra CE required to renew your California real estate license

When you can expect to access the extra CE required to renew your California real estate license somebody Fri, 09/22/2023 - 10:06 pm

Posted by ft Editorial Staff | Jul 18, 2022 | Feature Articles, Laws and Regulations, Licensing and Education, Real Estate | 1

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

This article covers the California Department of Real Estate’s (DRE’s) expected timeline for the availability of the upcoming Implicit Bias course and the restructured Fair Housing course which includes Access for All: A Fair Housing Game™.

New continuing education (CE) requirements for real estate licensees

Real estate agents and brokers who expire after 2022 will soon find themselves studying some new and innovative course content.

Passed at the end of 2021, Senate Bill (SB) 263 requires two hours of implicit bias training to be incorporated into continuing education (CE). Further, the mandated three-hour Fair Housing (or Survey) renewal course has been restructured, including an interactive participatory component.

The new course requirements will apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

Late renewals — licensees with expiration dates prior to January 1, 2023, but who renew after the implementation date — will also need to take the additional Implicit Bias course and restructured Fair Housing which includes the interactive participatory component.

Free for firsttuesday students

firsttuesday was one of the first schools to submit the new education to the California Department of Real Estate (DRE) in April 2022.

The new education has been “pre-approved” by the DRE as of July 2022, though schools are unable to formally enroll students until fall of 2022.

Editor’s note – The DRE will not accept renewal applications from students who expire in 2023 until October 2022.

Rest assured – all this is at no additional cost for firsttuesday students.

Students with license expiration dates after 2022 will be advised by email when we are authorized to post the new education to their accounts.

For licenses expiring prior to 2023, you do not need to take this additional education until your next renewal.

When your license expires after 2022 and you’re currently enrolled in a renewal package, you may complete the majority of your existing enrollment now. However, the current Fair Housing course has been made unavailable until we are authorized to convert it to the newly restructured version of the course in early fall.

If you’re not a firsttuesday student and need the updated CE, you may enroll in these new offerings together with the rest of your required CE, or separately after we receive final approval by the DRE in early fall 2022. The new Implicit Bias and enhanced Fair Housing courses are priced as a combo at $17.50.

Editor’s note – Want to be notified when we’re able to take enrollments? Please leave your email here.

Implicit Bias course content – a look into the future

Implicit bias training is now taking place across industries — in healthcare, policing, and now real estate, thanks to 2021’s passage of SB 263.

firsttuesday’s two-hour Implicit Bias training will prepare real estate professionals to identify and counteract elements of systemic racism — conscious and unconscious — in real estate transactions.

Specifically, the course will cover:

federal and state fair housing law in the context of explicit and implicit bias;
predatory lending and redlining both from a contemporary and historical perspective;
the wealth and homeownership gap between white, Black and Latinx households, and how it is perpetuated by discriminatory lending and real estate practices;
the proper implementation of fair hiring practices;
reporting discriminatory practices observed in the industry;
adherence to advertising guidelines in order to avoid discrimination in marketing; and
the need for greater financial literacy to create a more stable housing market.

Access for All: A Fair Housing Game™

firsttuesday’s Access for All: A Fair Housing Game™ is taken in conjunction with the restructured three-hour Fair Housing course.

Access for All ™ presents a variety of interactive scenarios. In some, students will take the role of a real estate licensee. In others, students will take the role of a principal. Based on the decisions made by students, the scenarios change – poor choices yield negative outcomes, and virtuous choices yield positive outcomes.

Get a sneak peak of the Access for All™ welcome video below.

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White House addresses the housing crisis with a new plan

White House addresses the housing crisis with a new plan somebody Fri, 09/22/2023 - 10:06 pm

Posted by Amy Platero | Jul 25, 2022 | Laws and Regulations, Real Estate, Recessions | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Word has gotten its way to the nation’s capitol: the U.S. is entrenched in a housing crisis.

The way to dig ourselves out seems obvious — build more housing to correct the supply-and-demand imbalance.

But that ostensibly simple solution hides significant roadblocks. The federal government is readying an arsenal of approaches to smooth over the stubborn barriers limiting housing supply.

The Biden administration boldly plans to help close the nation’s housing supply gap within the next five years, according to a White House press release.

The Housing Supply Action Plan includes:

increasing construction in 2022 to complete more home starts than in any other year since 2006 through increased resources and programs for builders;
creating a score system rewarding jurisdictions which have reformed zoning and land use restrictions, so that high-scoring jurisdictions will be more likely to receive federal grants;
introducing new financing arrangements to preserve vulnerable housing, such as manufactured housing, accessory dwelling units (ADUs), two-to-four unit properties and smaller multifamily buildings;
expanding existing forms of federal financing, including construction to permanent mortgages issued through Fannie Mae, using state and local COVID-19 recovery funds for increasing low-income housing stock and reforming the low-income housing tax credit (LIHTC); and
preventing institutional investors from purchasing real estate owned (REO) properties so that owner-occupiers may instead buy them.

The federal government has zeroed in on state and local zoning laws as a significant cause for the housing shortage and is now offering more incentives for local jurisdictions to relax them — and disincentives for maintaining them.

Related article:

California’s approach to affordable housing

The housing crisis has hit California harder than any other state in the union. When Washington introduces a new method to boost housing production, you can bet a similar approach is already in full swing here in California.

For example, California may enact strict penalties against local agencies who do not contribute a portion of their surplus land to low-income housing based on a 2019 legislative amendment to the Surplus Land Act.

In 2021, legislators passed Senate Bill (SB) 9 and SB 10 which seek to increase housing density through zoning reforms. To combat local jurisdictions’ resistance against these statewide policies, California’s Office of the Attorney General (OAG) established an anti-NIMBY Housing Strike Force, giving the state more leeway to enforce state housing and development laws. Together, SB 9, SB 10 and the Strike Force comprise a coordinated push to make affordable housing more accessible in California.

Related article:

Local agencies such as cities and counties and larger government entities like state and federal governments are battling it out over zoning and land use policies. As California’s housing crisis spills over into more states, larger government entities aren’t playing so nice anymore. Now, they are enforcing housing laws and enacting reward systems to see results at the local level.

At the same time, the federal government wants to amp up housing construction. They intend to partner with the private sector building industry to address supply and production issues, such as labor shortages, supply chain disruptions and rising building material costs so that more affordable housing units may be constructed over the next few years.

In California, an estimated 180,000 new housing units are needed annually to keep up with population growth. But new construction has not exceeded 80,000 housing units annually since 2008, and continues to fall short in 2022, according to the OAG.

To solve the housing crisis, California, as well as the wider U.S., needs to implement a multipronged approach. Diminished construction levels are not the only factor leading to today’s inventory shortfall — though patching up housing production barriers will streamline the process. Likewise, overly restrictive zoning regulations on the local level are not solely to blame, but easing some of them will enable more housing units to proliferate.

Until supply matches demand for housing, Californians should get comfortable with being cost burdened. In fact, roughly one-third of California renters commit over half of their monthly income to rent. As home prices and rents continue to outpace incomes, real estate professionals also suffer from lack of turnover among priced-out residents.

In 2027, a resurgence of new construction may take hold in California as the economy stabilizes. To get there, legislators will need to find the strength and sense to fight California’s NIMBY strongholds at the local level. Short of that, real estate professionals will need to get crafty and expand their practice to survive the next recession.

Related article:

Related topics:
housing crisis, new construction, nimby, supply and demand, zoning

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Wildfires spark price gouging of rents

Wildfires spark price gouging of rents somebody Fri, 09/22/2023 - 10:06 pm

Posted by Adam Kolvas | Oct 19, 2022 | Laws and Regulations, Property Management, Real Estate | 0

Reprinted from firsttuesday Journal — P.O. Box 5707, Riverside, CA 92517

Wildfires are once again wreaking havoc on California residents.

With the Fairview Fire burning in Riverside County and the Mosquito Fire chewing away El Dorado and Placer counties, residents find their homes — and their lives — in danger.

Many are evacuating their homes for the safety of nearby communities. In need of somewhere to live, homeowners and renters alike are turning to temporary rental housing, hoping they will have a home to return to when the wildfires have been extinguished.

This makes the unlawful practice of price gouging during a state of emergency even more exploitative.

Price gouging occurs when a landlord increases the price of rent by more than 10% the normal rental rate after a state of emergency is issued.

Additionally, landlords may not circumvent price gouging by hiding price increases in:

gardening services;
cleaning services;
utilities;
short-term lease agreements; and
evicting a tenant only to re-rent at a higher rate, according to the Attorney General.

New listing: exploitation doesn’t pay

Landlords who increase the rental rate during a state of emergency are committing a criminal misdemeanor.

Disciplinary action may result in upwards of a year in county jail and a $10,000 fine.

Even with these disciplinary actions in place, price gouging remains an ongoing battle for homeowners and renters during wildfire season.

During 2017’s Northern California firestorm, wildfires tore through several counties in northern California, leaving thousands of homeowners and renters seeking shelter from the flames.

One landlord, hoping to make a profit, was charged with a misdemeanor for price gouging after attempting to exploit evacuees. The landlord raised the price of their rental home in Santa Rosa from $3,400 per month to $10,000 per month after a state of emergency was issued, according to the Los Angeles Times.

Real estate licensees can check if a state of emergency has been declared or received an extension by visiting the proclamation section of the Governor’s website.

Victims of price gouging or witnesses of this malpractice can file a report directly with the Office of the Attorney General.