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7 steps to close the Black-White homeownership gap

7 steps to close the Black-White homeownership gap somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jul 15, 2021 | Economics, Fair Housing, Laws and Regulations, Real Estate | 0

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

The gap between Black and White homeowners is larger now than it was 60 years ago, before the 1968 Fair Housing Act prohibited discrimination against homeowners based on their race.

In the U.S., the gap between Black and White homeowners is 31%. Here in California, the gap is slightly smaller, at 27%, but still significant. When comparing national figures today and as far back as 1960, the gap between Black and White homeowners is 4% higher today than it was 60 years ago, according to the Urban Institute.

In response to this stark contrast between Black and White homeownership rates, the Mortgage Bankers Association (MBA) has endorsed a detailed 7-point plan proposed by the Black Homeownership Collaborative which seeks to increase Black homeownership by three million new homeowners by 2030.

Three million additional homeowners will increase the Black homeownership rate by 10%. As of the first quarter (Q1) of 2021, the Black homeownership rate is 45%. This 10% boost will bring the rate of Black homeownership to levels it has never previously seen – about 55%. For reference, this is still below the national average homeownership rate, which is 65.6% as of Q1 2021, according to the U.S. Census Bureau.

The 7-point plan to boost Black homeownership includes the following steps:

homeownership counseling, which will educate first-time and especially first-generation homebuyers, as well as those re-entering the homebuyer market on navigating the homebuying process;
down payment assistance through a targeted and sustainable down payment assistance program;
housing production, especially greater construction of those entry-level, lower-priced homes first-time homebuyers gravitate towards;
credit and lending opportunities such as increasing innovation in mortgage credit scoring and mortgage products;
civil and consumer rights, including how the federal government enforces the nation’s fair housing and consumer protection laws;
homeownership sustainability so that those with homes do not lose their homes; and
marketing and outreach to successfully reach mortgage-ready Black homebuyers.

These steps are complementary and intended to be worked on simultaneously. After successful implementation of this plan, new strategies will be created to close the racial homeownership gap completely.

Financial literacy, down payment assistance and more construction

Here in California, real estate professionals are also pressed to consider the divide between White and Latinx homeowners since California is home to the largest Latinx population in the U.S.

Nationally, a 26% gap exists between White and Latinx homeowners as of 2019, according to the U.S. Census Bureau.

Homeownership rates for all demographics are hovering around 55% in California as of 2019, about ten percentage points below the national average.

Two strategies to improve California’s low homeownership rate promoted by firsttuesday are to increase the state’s:

financial literacy requirements in school; and
construction of low- and mid-tier homes.

Financial literacy enables adults to participate in society in a financially responsible way. In terms of homeownership, financial literacy allows buyers to know how to save up for a down payment and which mortgage options are available to them.

Financial literacy is partly what contributes to gaps found between Black, Latinx and White homeowners. For instance, White homeowners are much more likely to take advantage of falling interest rates by refinancing. Thus, between 2005 and 2020, Black homeowners paid 50 basis points higher on interest rates than White homeowners, according to a recent report from the Federal Reserve Bank of Atlanta.

Observable differences such as credit scores and loan-to-value (LTV) ratios account for 80% of the difference between Black and White homeowners. However, different levels of financial literacy contribute to the remaining ambiguous gap between interest rate amounts paid. Financial literacy also partially contributes to that 80% gap. It teaches homebuyers how to raise their credit score and maintain a high score, while also helping buyers keep a low LTV ratio by teaching them how to pay off debts and save.

In addition to financial literacy, the 7-point plan also proposes down payment assistance.

Down payment gifts are an already well-established form of assistance for homebuyers with wealthy relatives, but Black young adults are less likely to receive down payment gifts. In fact, down payment gifts account for 30% of the Black-White homeownership gap, as found in a recent study from the Consumer Finance Protection Bureau (CFPB). Thus, increasing access to down payment assistance for those demographics least likely to receive it will be a boost for homeownership.

Increasing construction of low-tier homes – the third step on the list – will make one of the biggest impacts in increasing the homeownership rate for Black and Latinx households. But here in California, that construction hurdle is a difficult one to cross. Strict zoning laws have made it increasingly difficult to build new single-family residential (SFR) and multi-family housing.

SFR starts were 26% below a year earlier in the six-month phase ending in March 2021. Multi-family starts were down 25% during that same six month period, accelerating a downward trend that began in 2019 and persists today.

Without access to a healthy supply of housing – especially low-tier housing – homeownership remains out of reach for an increasing number of people. For agents, this is a critical concern. When homeownership rates are higher, agents have access to a larger client base, and thus, receive a more stable supply of fees. Closing racial gaps and boosting homeownership is beneficial to all groups – especially agents.

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AB 3182: New California HOA Rental Restrictions

AB 3182: New California HOA Rental Restrictions somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Jan 5, 2021 | Fair Housing, Laws and Regulations, Real Estate | 0

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

On September 28, 2020, Governor Newsom signed AB 3182 into law, ending homeowner’s association (HOA) restrictions on rental units. This bill may greatly affect rental restrictions in community associations throughout California since it disallows associations from limiting or prohibiting rentals.

Prior to this legislation, California homeowners’ association boards were given a wide berth to adopt and enforce rental restrictions as they saw fit. Reasonable rental restrictions were seen as necessary to promote stability in ownership, maintain property values and preserve a community’s residential character. AB 3182, in an attempt to address California’s housing and homelessness crisis, risks undercutting some of these initiatives.

Amendments to the Davis-Stirling Act

AB 3182 amends California Civil Code §4740, also known as the Davis-Stirling Act, which allows the limitation or prohibition of rentals, and adds §4741, which allows common interest developments (CIDs) to:

adopt and enforce rental restrictions that prohibit transient occupancy or short-term rentals of separate interests for 30 days or less; and
construct an accessory (ADU) and junior accessory dwelling unit (JADU) on the same lot.

However, California Civil Code §4741 prohibits CIDs from:

restricting the rental or lease of separate interests in the community to less than 25% of separate interests (a percentage increase, however, is allowed);
treating ADUS and JADUs as separate interests; and
counting the residence as being occupied by a tenant when the owner also occupies a separate interest, ADU, or JADU on the property.

The 25% cap applies to all associations including condominiums, stock cooperatives, and planned developments, but makes exceptions for ADUs and JADUs. The owner-occupied rule offers a loophole where owner-occupied rental properties are essentially exempt from these rental restrictions under the new law.

What does this mean for your HOA?

All associations are required to comply with these changes by January 1, 2021, and all governing documents are to be amended in compliance no later than December 31, 2021. AB 3182 provides no shortcuts for associations to comply with this statute; associations will need to go through the regular membership approval process to amend their documents as needed.

Any new rental restrictions cannot be enforced against any owners who purchased their property before the new rental restrictions were enacted. This will create a situation in which all homeowners within an association are grandfathered in and exempt from these rental restrictions.

Nevertheless, AB 3182 may upend some homeowners’ association development plans. Consult with your homeowners’ association on how AB 3182 will affect your community and how to remain in compliance.

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Brokerage Reminder: Buckle up and look both ways!

Brokerage Reminder: Buckle up and look both ways! somebody Fri, 09/22/2023 - 10:10 pm

Posted by Casandra Lopez | Sep 17, 2021 | Brokerage Reminder, Laws and Regulations, Real Estate | 0

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

Real estate professionals are rarely in the office, often traveling as part of the job to properties and meetings with clients. Since a majority of time is spent outside of the office and on the road, it’s important to be cautious of possible car accidents and maintain road safety.

Still, accidents do happen, so how would you secure your business against accidents?

Nationwide, 45% of motor vehicle crash deaths in 2019 occurred in rural areas, according to data from the U.S. Department of Transportation’s Fatality Analysis Reporting System (FARS).

In contrast, California had a relatively high 68% of crash deaths in urban areas and low 31% of crash deaths in rural areas. At 39.5 million residents, California has the highest population in the country, along with the highest number of fatal car accidents, with 3,300 fatal crashes occurring in 2019.

In 2019, 50% of all drivers killed in motor vehicle crashes, who were tested, tested positive for legal and/or illegal drugs, an increase of 8% from 2018 according to the California Office of Traffic Safety.

The top reasons for fatal car crashes often include:

speeding;
intoxication;
drug use;
distracted driving;
auto defects;
bad weather, and
no restraint use.

Even a perfect driver may find themselves in the path of another driver who is under the influence or simply not paying attention. Therefore, it’s important to practice defensive driving at all times. Practice using driving strategies that minimize risk and help avoid accidents by:

obeying all road laws and signs;
respecting all drivers on the road, and
maintaining your vehicle.

Defensive Driver Training (DDT) was developed to help reduce the number, severity, and cost of vehicle-related collisions. Drivers can enroll in DDT online at dgs.ca.gov and become certified in defensive driving. Many insurance companies provide discounts to drivers who take defensive driving classes as an incentive.

Broker is listed as an insured

Salespersons are employees of the broker, even when their employment is classified as an independent contractor. [Calif. Business & Professional Code §10160]

Related article:

Consider an employee who gets into an at-fault car accident while driving to visit a prospective client. The employer’s business is named in a lawsuit and is liable since at the time of the accident, the employee was working for the employer. [Moradi v. Marsh USA (September 17, 2013) 219 CA4th 886]

To minimize risk, brokers can require their agents to add their firm as an “Additional Insured” on their vehicle insurance policy. Brokers need to receive written documentation from the auto insurer as proof the broker is covered. Save a copy of this policy and keep track of expirations and renewals of policies.

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Realty Publications, Inc. (RPI) publishes two employment agreements used by a broker employing a licensee to perform agency duties on the broker’s behalf. Both forms provide automatic coverage to the broker.

The Independent Contractor Employment Agreement form is used by an employing broker when entering into an agreement employing a sales agent or a broker. [See RPI Form 506]

The terms of the form:

call for the employee to be treated for tax purposes as an independent contractor;
establish the duties and earned fees of the broker and agent, and
detail how the fees due to the employee will be allocated and shared.

Alternatively, brokers may choose other pay and tax withholding arrangements documented by a Broker-Agent Employee Agreement form. [See RPI Form 505]

The terms of this form:

call for income tax withholding and tax treatment as an employee;
establish the duties and earned fees of the broker and agent, and
detail how fees due the employee will be allocated and shared.

Both forms require the agent to furnish their own transportation and carry a liability and property damage insurance policy in an amount satisfactory to the broker with a policy rider naming the broker as co-insured.

Brokers need to ensure their sales agents are properly insured to avoid liability in the case of a car accident. Brokers may need to purchase a separate business auto insurance policy or obtain a special endorsement covering their business use.

Visit our Form of the week: Agent and Broker-Associate Employment Agreements — RPI Forms 505 and 506 page for more information.

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brokers

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Brokerage Reminder: Property tax reassessment 101

Brokerage Reminder: Property tax reassessment 101 somebody Fri, 09/22/2023 - 10:10 pm

Posted by ft Editorial Staff | Jun 21, 2021 | Laws and Regulations, Real Estate, Tax | 0

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

A change of ownership

In California, local tax assessors reassess a property’s fair current market value on each change of ownership — typically a sale. Unavoidably, reassessment at a higher value causes an increase in property taxes. [Calif. Revenue and Taxation Code §§63 et seq.]

A change in ownership that triggers reassessment establishes a new base year value equal to the property’s sales price (or fair market value (FMV), whichever is higher) at the time of transfer. However, Proposition 13 (Prop 13) automatically excludes many transfers from reassessment.

In addition to these automatic exclusions, a property or a portion of a property may also be eligible for exclusion with a properly filed claim. [Rev & T C §§63 et seq.]

Clients often consult their agents when seeking to add or remove persons from title in conveyances not part of a transaction the agent negotiated. The agent’s advice is based on their knowledge about conveyances or other transfers which change title and trigger reassessments as dictated by Prop. 13 legislation — and, subsequently, Proposition 19 (Prop 19).

By knowing which transactions are excluded from reassessment, an agent properly advises their client on the effect any change in ownership will have on their property taxes.

Related article:

Exclusion profusion

Transactions which do not trigger reassessment of any kind include:

a transfer solely between a husband and wife [Rev & T C §63];
a transfer between registered domestic partners [Rev & T C §62];

a title update to properly reflecting the name(s) of the person(s) holding title to the property (e.g., a name change upon marriage) [Rev & T C §62];
a change to title recorded only as a requirement for financing purposes or to create, terminate or reconvey a security interest (e.g., co-signer) [Rev & T C §62];
the recording of a document to substitute a trustee of a trust, mortgage or other similar document [Rev & T C §62];
a transfer that results in the creation of a joint tenancy in which the seller (transferor) remains as one of the joint tenants [Rev & T C §65];
a transfer that returns the property to the person who created the joint tenancy (original transferor) [Rev & T C §65];
a transfer between an individual and a legal entity (or between legal entities) that results solely in a change in the method of holding title (the proportional ownership interests of the transferors and transferees remain unchanged) [Rev & T C §62]; or
a transfer of 50 percent or less of the voting stock or ownership interest in a legal entity holding real property. [Rev & T C §64]

With the passage of Prop 19, some changes of ownership previously excluded from reassessment entirely are now treated differently.

For these transactions, the property’s base year value is reassessed at the property’s FMV on the transfer of title, but $1,000,000 is excluded from the taxable value of the property.

Changes of ownership that fall under the Prop 19 $1,000,000 exclusion include:

a transfer between parent(s) and child(ren) [Rev & T C §63];
a transfer from grandparent(s) to grandchild(ren) where the parents of the grandchild(ren) are deceased [Rev & T C §63.1(a)(3)];
the replacement of a principal residence by a person of 55 years of age or older [Rev & T C §69.5]; or

the replacement of a principal residence by a person who is severely disabled. [Rev & T C §69.5]

A sibling rivalry

A common misconception among property owners is that any transfer between immediate family members is excluded from reassessment. This is not the case.

Consider two siblings who co-own a property they purchased together. Several years later, one of the siblings decides to relinquish their ownership interest to the other. The property’s market value has increased significantly since they purchased the property. Does the transfer trigger reassessment?

Yes! The transfer triggers reassessment of 50 percent of the property to current market value. Thus, half of the property assessment remains at its prior base year value while the other half is assessed at the new base year value.

Unless the transaction qualifies for exclusion under Prop 13 or Prop 19, transfers between siblings — or anyone else — trigger reassessment.

Related article:

This article was originally posted April 2017, and has been updated.

Related topics:
property taxes, proposition 13, reassessment

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Brokerage Reminder: Protect yourself – and your clients – against adverse possession

Brokerage Reminder: Protect yourself – and your clients – against adverse possession somebody Fri, 09/22/2023 - 10:10 pm

Posted by ft Editorial Staff | Sep 3, 2021 | Brokerage Reminder, Laws and Regulations, Real Estate | 2

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

Vacant properties are a lure for aspiring adverse possessors. The method by which property can be “stolen” is known as adverse possession.

Adverse possession exists for two primary reasons:

to encourage full use of land; and
to eliminate conflicts in title after a prescribed time period has passed.

While it is possible to “steal” the rights of ownership to real estate, very specific requirements need to be fulfilled in order to do so successfully – that is, if the would-be adverse possessor is not first caught trespassing and ejected.[See RPI e-book Legal Aspects of Real Estate Chapter 23]

Adverse possession criteria

Perfecting ownership by an adverse possession claim requires:

a color of title or claim of right to title;
actual, notorious and open possession;
hostile, adverse and exclusive use;
continuous and uninterrupted possession for five years; and
payment of current and delinquent real estate taxes and assessments. [Gilardi v. Hallam (1981) 30 C3d 317]

Related Video: Title by Claims of Adverse Possession

Click here for more information on this topic.

Color of title or claim of right

Two distinct types of adverse possession claims exist:

color of title, which is a claim of ownership based on a (typically defective and unenforceable) written instrument [Calif. Code of Civil Procedure §322]; and
claim of right, which is a claim of ownership made without any documentation, except possession and payment of taxes. [CCP §324]

Actual, notorious and open possession

Adverse possessors are required to show they have been in actual possession of the property to which they are claiming ownership. They are to demonstrate actual possession of the property by:

surrounding the property with a substantial, protective enclosure;
cultivating the property; or
improving the property. [CCP §325]

Additionally, the owner of the property against which the adverse possession claim is made needs to be on notice of the adverse possession. This notice may be either:

actual, meaning the owner is personally aware of the occupancy or claim against their land; or
constructive, meaning a reasonable person would know the adverse possessor appears to hold some interest in the property due to their occupancy. [Myran v. Smith (1931) 117 CA 355]

Hostile and adverse use

Hostile and adverse use is established when:

a document exists, purporting to vest title in the adverse possessor in conflict with the true title; or
the adverse possessor uses the property without permission or consent from the legal owner.

Exclusive, continuous and uninterrupted use

To perfect any adverse possession claim, use of the property needs to be exclusive. If another person concurrently or intermittently uses the property without the consent of the adverse possessor, the adverse possession claim will be defeated. [Laubisch v. Roberdo (1954) 43 C2d 702]

However, the occasional use of the property by the public (i.e., for recreational activities, as a right of way, etc.) will not affect an adverse possession claim. [Webber v. Clarke (1887) 74 C 11]

The adverse possessor is to also occupy the property continuously for at least five years in order to acquire title through adverse possession. [CCP §325]

The continuous possession under a claim of right needs to encompass a constant, definable portion of the property. A claim-of-right possessor who uses different portions of a property at different times for a total of five years will not satisfy the continuity requirement. [Zimmer v. Dykstra (1974) 39 CA3d 422]

Want to learn more about this topic? Click an image below to download the RPI book cited in this article.

This article was originally posted [December, 2012 of Protect yourself against adverse possession], and has been updated.

Related topics:
adverse possession, homeownership,

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California crime-free housing policies disproportionately harm Black and Latinx renters

California crime-free housing policies disproportionately harm Black and Latinx renters somebody Fri, 09/22/2023 - 10:10 pm

Posted by Benjamin J. Smith | Mar 14, 2021 | Fair Housing, Laws and Regulations, Real Estate | 0

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

A state of discrimination

Since the Great Recession, a series of “crime-free housing” policies have swept through California. These policies range from mandatory eviction of tenants with arrest records by landlords to the outright denial of rental applications to anyone with a criminal record of any kind.

Often, these laws hold landlords legally accountable for tenants’ activities, leading to an uptick in evictions. In some cases, tenants do not need to be convicted of a crime — an accusation is enough to warrant mandatory eviction.

According to a report by the Los Angeles Times, these policies disproportionately impact Black and Latinx renters.

In fact, the report also found that in many cases, such as in localities like Hemet and Hesperia, crime-free housing initiatives have taken hold where Black and Latinx populations rise, even as crime rates have leveled off, or are actively decreasing.

While proponents of these policies hold up isolated successes as proof-of-concept, the Times reports that statistical evidence paints a much different picture across the board.

For example, according to the Times, “Black tenants were almost four times as likely as white renters to be evicted under Hesperia’s law.”

This law has since lost some of its teeth in response to a U.S. Justice Department investigation and lawsuit, but plenty of others remain intact.

These policies are indicative of an all-too-familiar pattern. Local governments enact crime-free housing policies in response to complaints by residents — often predominantly White — who cite anecdotal evidence to support their claims that local crime is on the rise, even when statistics do not buoy those claims.

The one thing that has risen consistently in all of these communities, however, is the percentage of Black and Latinx residents.

Related article:

Dog whistle fever

Policies that tie rising minority populations to a higher crime rate, or a decline in the value of real estate, are not new. Neither are they simply relics of a pre-civil rights movement era.

Take the well-established practices of redlining — where lenders refuse to provide financing or insurance based on community demographics — or blockbusting — the practice of persuading a property owner to sell in response to a perceived change in neighborhood demographics.

These are persistent historical precedents for institutional support of discriminatory acts, and modern “crime-free housing” laws are only a systemic extension of practices like this.

By implicitly targeting specific demographics, localities that have enacted these laws are sending a clear message about who is — and is not — welcome in their community.

For California real estate agents, this matters not only on a human level, but on an industry level.

California’s diversity is well-documented — according to the U.S. Census, nearly 40% of the state’s population identifies as Hispanic or Latino, over 14% identify as Asian and almost 7% identify as Black or African American. Minority renters and would-be homebuyers make up a huge chunk of the California real estate market, and discriminatory policies only serve to depress the market in a state with an already low homeownership rate.

Related article:

However, it isn’t all bad news — as in Hesperia, some of these laws have been amended, repealed or struck down over the last few years.

For example, in January of 2020, the California Department of Fair Employment and Housing cracked down on mandatory evictions based on emergency calls, as well as policies that target would-be tenants with criminal records.

It’s a good start, but statewide mandates need to pressure more individual communities to address specific crime-free housing laws — to ensure their tenants and would-be residents are safe not only from crime, but from discrimination.

Related topics:
black homeownership, california renters, crime, latinx, redlining

Legislative steps towards more affordable housing

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California grants statewide entitlement extensions

California grants statewide entitlement extensions somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Feb 12, 2021 | Feature Articles, New Laws, Real Estate | 0

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

To lessen housing production delays amidst California’s affordable housing shortage, Governor Gavin Newsom signed into law Assembly Bill (AB) 1561 on September 28, 2020. This bill extends certain housing entitlements, in an effort to decrease disruptions in housing financing, planning and construction.

Why are extended housing entitlements necessary?

Previously, cities and counties addressed permit extensions on a case-by-case basis, which required significant resources especially during the COVID-19 pandemic. Given these constraints, AB 1561 pushes back the expiration of all permits issued and in effect before March 4, 2020, setting them to expire on December 31, 2021.

AB 1561 limits housing permit extensions to:

• legislative, adjudicative, administrative, or any other kind of approval, permit, or other entitlement for housing development projects issued by a state agency;
• approval, permit, or other entitlement issued by a local agency for a housing development project that is subject to the Permit Streamlining Act;
• a ministerial approval, permit, or entitlement by a local agency required for a housing development project;
• a requirement to submit an application for a building permit within a specified period of time after the effective date of a housing entitlement described in the second and third bullets above; and
• a vested right associated with an approval, permit, or other entitlement described in the first and fourth bullets above.

California is in the clutches of an affordable housing shortage, and more construction is the only answer to the problem. During the six-month phase ending in December 2020, single family residential (SFR) starts were 24% below one year earlier and multi-family construction starts were down 41%.

Though the pandemic has intermittently shut down construction and added to delays, this downward trend began in 2019. The pandemic’s effect on the economy has stalled builders throughout much of last year, but hopefully this legislative shortcut will expedite sorely needed construction.

Related topics:
covid-19 pandemic, housing crisis, housing shortage

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Can a residential landlord evict a tenant when a certificate of occupancy has not been issued for the unit?

Can a residential landlord evict a tenant when a certificate of occupancy has not been issued for the unit? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Ariel Calvillo | Nov 9, 2021 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Yanez v. Vasquez

Facts: A residential landlord enters into a month-to-month rental agreement for the tenant’s occupancy of a converted garage which lacked a certificate of occupancy. The tenant refuses to allow the landlord access to the unit for repairs. The landlord serves the tenant a three-day notice to perform or quit for failure to allow the landlord access to the unit. The tenant does not perform or vacate and the landlord files an unlawful detainer (UD) action to evict the tenant.

Claim: The tenant claims the notice to perform or quit is unenforceable in a UD action since the landlord failed to obtain a certificate of occupancy for the conversion of the garage to a residential unit.

Counterclaim: The landlord claims they have the right to enforce the notice to perform or quit by a UD action since the tenant breached the obligations of the tenancy and failed to respond to perform or vacate the premises.

Holding: A California appeals court holds the landlord may not enforce a notice to perform or quit in a UD action since the underlying rental agreement is void and unenforceable due to the lack of a certificate of occupancy for the unit rented. [Carlos Yanez v. Omar Vasquez (2021) 65 CA5th 1]

Editor’s note – Under a controlling local rent stabilization ordinance, the landlord may have successfully evicted the tenant by filing a Declaration of Intent to Evict and serving the tenant with a 30- or 60-day notice of eviction attached to a copy of the Declaration of Intent to Evict and providing relocation benefits. Thus, the landlord had means to properly evict the tenant and regain possession, though a UD action based on the tenant’s failure to comply with the notice to perform or quit was not the proper procedure.

Further, California’s Tenant Protection Act (TPA) recently altered eviction practices for properties subject to “just cause” eviction procedures. For more information, click here.

Chapter 25: Delinquent rent and the three-day notice
Chapter 26: Three-day notices to quit for nonmonetary breaches

Related Readings:

Real Estate Property Management

Real Estate Principles

Chapter 81: Notices to vacate

Related topics:
three-day notice, unlawful detainer (ud)

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Change the law: Create a state agency to fund small residential builders

Change the law: Create a state agency to fund small residential builders somebody Fri, 09/22/2023 - 10:10 pm

Posted by ft Editorial Staff | Aug 8, 2021 | Change The Law, Real Estate | 0

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

New construction is the lifeblood of the housing market, ensuring our state’s growing demand for housing is continuously met.

But here in California, population growth has outweighed new construction for the past decade, causing the imbalance to tip further towards disaster.

Our state’s housing shortage continues to escalate, causing prices to rise well beyond the rate of incomes and contributing to lower homeownership rates, rising homelessness and a decreased quality of life. It’s estimated that California needs an additional 3.5 million housing units to address need and demand, according to the McKinsey Global Institute.

In this legislative proposal, firsttuesday suggests the creation of a new state agency with the sole function to lend to builders who will use the funds to construct more housing to be set aside for renters or owner-occupants. Preference will be given to smaller builders without great access to capital, or those who complete 250 units or fewer a year.

Related article:

Where will the money come from?

The initial funds will come straight from the state’s $38 billion budget surplus available to allocate in 2021-2022. Notably, this does not include the $25 billion in federal stimulus also reaching the state in 2021.

Further, as a loan program, builders will be required to repay the funds upon the completion and sale of the units. Thus, the majority of funds will continue to be renewed.

With, say, $10 billion set aside for the initial program, an additional 25,000 low- to mid-tier housing units will be started in the first year. However, fewer units will be completed when more of these new developments are concentrated in desirable (read: expensive) coastal cities, like the Bay Area. After five years, the housing inventory will have grown by 125,000 units.

While this does not come close to addressing the estimated 3.5 million gap in housing units, it makes a dent while laying the foundation for future state-sponsored construction investment. It will also help the industry by growing and investing in smaller builders who lack the capital of larger builders. With today’s focus on improving infrastructure, this program will ensure the budget surplus will go toward making lasting change by creating more homeowners and easing the burden of high housing costs on residents.

Related article:

Related topics:
california legislation, construction

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Change the law: Grant anti-accrual protections for residential tenants

Change the law: Grant anti-accrual protections for residential tenants somebody Fri, 09/22/2023 - 10:10 pm

Posted by ft Editorial Staff | Feb 1, 2021 | Change The Law, Property Management, Real Estate | 5

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

Our proposal: We propose California grant residential tenants protection against liability for the accrual of unpaid rents exceeding their security deposit, while empowering landlords to collect a security deposit equal to three month’s rent to cover rent accruing while they diligently process notices to pay, to quit, and to evict by an unlawful detainer (UD) action and recover possession.

Why: Like defaulting owner-occupants who receive anti-deficiency protection against their purchase-money mortgage debt for housing, limiting the mortgage holder’s remedy solely to the value of the property when the owner-occupant fails to make monthly payments, defaulting tenants also need equal-type protection for their leasing arrangement debt for housing, limiting the landlord’s remedy solely to recovery of possession of the property when the tenant fails to make monthly payments.

Here, when a tenant becomes a non-paying tenant, the landlord, unlike the mortgage holder against a non-paying owner-occupant, has the tenant’s security deposit as security for recovery of accruing unpaid rent.

To equalize the risk of loss for the landlord under an anti-accrual rule, a sufficient security deposit is one that covers the landlord’s losses accrued during a diligent effort by management to promptly serve the tenant with all notices required to evict for failure to pay rent. A lack of diligence in serving documents means an increase in the landlord’s risk of loss, the duty to mitigate losses by re-renting already existing in landlord-tenant law.

Homeowners and tenants have common ground

As it stands currently, a landlord with a non-paying tenant may first deduct the cost of unpaid rent from the tenant’s security deposit. However, any additional unpaid rent may be pursued in small claims court. [Calif. Civil Code §§1950.5(a)(4); 1950.5(n)]

There is common ground between residential tenants/landlords and homeowners/lenders, as both tenants and mortgaged homeowners are being lent something — either a property to occupy or money to purchase property to occupy. In terms of shelter, the different is a paperwork technicality, even when the owner pays off the mortgage or the tenant exercises an option to buy.

And yet, anti-deficiency laws have been on the books in California since the 1930s when homeowners were struggling to make ends meet during the Great Depression and were hit with money judgement awards to their mortgage holders. However, there are no equivalent anti-deficiency or anti-accrual laws in place for renters.

Consider a homeowner who purchases at the height of the market with a mortgage secured by their primary residence. After the market cools off and home values drop, they lose their job and are no longer able to make mortgage payments. They default on their housing payments and the lender forecloses, repossessing the property. However, the value of the foreclosed property is lower than the remaining mortgage debt (a cyclically familiar condition called negative equity). To make up the difference, is the lender able to collect additional money from the foreclosed homeowner?

No. Due to California’s anti-deficiency protections on nonrecourse mortgages — purchase-money debt incurred for housing — the collection of any underpaid amount is limited by anti-deficiency rules to the value of the property at the time of payoff, in this case, the foreclosure sale. [California Code of Civil Procedure §580b(a)]

Of course, the homeowner loses any investments they made in the property, including their original down payment. But all missed (unpaid) mortgage payments accrued until up to the time of the foreclosure sale are essentially forgiven since the lender cannot enforce collection.

Contrast this owner-occupant reality with tenant-occupants who lose their job and stop paying rent. On top of these tenants losing their initial investment in securing shelter — their security deposit and any tenant improvements (TIs) — they will risk being further pursued by the landlord to a money judgment for the property’s rental value during the tenant’s occupancy (or longer, subject to landlord mitigation of their losses), which a non-diligent landlord allows to accrue before re-renting the property.

Anti-accrual for renters

firsttuesday proposes to grant residential renters similar protections as homeowners. In the case of a defaulting homeowner, they have the option to walk away from their property prior to repossession by the mortgage holder without fear of recourse for money owed, beyond losing the right to occupy the property. But renters have no such luxury when it comes to providing shelter for themselves and their household.

During the early months of 2020, over 2.7 million Californians lost their jobs. We were in a recession worsened by the coronavirus pandemic. Going into 2021, 1.35 million — a full half of those who lost jobs — are still without work in California. The majority of job losses took place in low-paying industries, primarily those who rent their shelter since they cannot generally qualify to own it.

With millions out of work, the impact on tenants’ ability to pay rent — and, likewise, landlords’ ability to cover their ownership costs — has been devastating. At the end of 2020, a whopping 20% of tenants were behind on their rent in California and 18% were behind nationwide, according to the U.S. Census. For reference, 15% of California’s mortgaged homeowners were behind on their payments, compared to 11% nationwide.

Since we’re in the middle of a global pandemic, the state initiated an eviction moratorium to keep individuals housed, an effort needed to contain the spread of the deadly coronavirus (COVID-19). This moratorium was recently extended through June 30, 2021. This means many tenants have occupied their units for months, accumulating thousands and thousands of dollars in unpaid rent. Without income to pay the landlord back, these tenants eye the moratorium’s expiration with dread.

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When the moratorium ends, what then?

Along with the recent extension, the new law gives landlords access to federal funds to cover much of the rent tenants have missed. However, only landlords of low-income tenants — who earn 80% or less of the area’s median income — are eligible, and even then, they will only receive the equivalent of 80% of the missed rents, needing to make up the 20% difference on their own.

Of course, the pandemic and recession of 2020-2021 have caused huge abnormalities in the normal flow of rental housing. Still, the many months of unpaid rent on landlords’ balance sheets only highlights the need for a sustainable, long-term solution to ordinary rent obligations for residential property. After all, when a landlord eventually is able to evict a tenant and take them to small claims court to recover unpaid rent, a recovery of costs is not always successful, particularly when the tenant doesn’t have access to funds or simply relocates out of the county.

Our proposal is to eliminate the ability of residential landlords to take tenants to small claims court. They have no need for this crutch to fall back on as, in a normal market, they have the ability to diligently deliver timely notices for a UD action and hold the tenant’s security deposit to cover the unpaid rent. When the diligent landlord timely acts to evict the non-paying tenant, they regain possession of the property quickly – in less than three months. Like a mortgage holder who has repossessed a home and now needs a buyer, the landlord’s property is returned to the marketplace to locate a tenant – all about market conditions every property is subject to.

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DFPI Bulletin Digest: April 2021

DFPI Bulletin Digest: April 2021 somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Apr 19, 2021 | Mortgages, Pending Laws, Real Estate | 0

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

The April 2021 DFPI Bulletin focuses on COVID-19 relief, PACE solicitor sanctions and financial education grants.

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 on April 2021’s MLO news and events below.

Consumer, Homeowner and Renter Relief during COVID-19

Under the new California Consumer Financial Protection Law (CCFPL), the DFPI has begun collecting data on and enthusiastically regulating the larger groups of financial services that now fall under their umbrella of authority. These range from credit repair and credit reporting agencies to debt collection and debt relief agencies.

Thus, the DFPI has recently sanctioned an unlawful solicitor of the troubled Property Assessed Clean Energy (PACE) program, as well as issuing cease-and-desist order against a debt relief operation. In line with this, the DFPI has increased measures to monitor and discover scams as they emerge, such as:

stepping up response to growing consumer inquiries and complaints;
ensuring compliance with both state and federal laws to protect homeowners from foreclosure; and
making resources available and known to struggling consumers.

This is only the latest of the department’s regulatory flexing. Other notable campaigns resulted in annual, regulatory examinations for DFPI servicers now containing questions on COVID-19 compliance on both federal and state laws, such as the COVID-19 Tenant Relief Act (Assembly Bill 3088) and extensions to the California Homeowner’s Bill of Rights. Also, at a time when consumers are in a dire need of credit availability, the DFPI has launched an investigation into lender attempts to evade the state’s new, tightened interest rate caps.

The DFPI reports a 40% increase in consumer calls, complaints and inquiries since the onset of COVID-19, especially concerning mortgages, personal loans, questionable investments and potentially fraudulent schemes. Among those fraudulent schemes, some involve federal stimulus payments and fake default notices, of which the DFPI has posted and circulated consumer alert warnings.

Former PACE solicitor sanctioned

James Jacob Berry and any company he owns or controls were barred by the DFPI from future PACE solicitor or PACE solicitor’s agent enrollment after he and his companies were found guilty of misleading consumers by marketing their product as a “no-cost” government-funded program. By using an unenrolled company to advertise and solicit customers for PACE financing, Berry and his companies further evaded PACE laws.

These companies were previously outside of DFPI regulatory oversight until the recent passing of the CCFPL. The DFPI further ordered Berry and his companies to discontinue offering PACE financing and the use of “PACE” in their business, websites, marketing materials and communications.

This action is a single point in a string of solicitor transgressions that has plagued the PACE program since its inception. Some local governments have opted to cut the program entirely.

Second round of DFPI Grants

The DFPI began a second round of applications for the CalMoneySmart grants that support financial empowerment and education programs for unbanked California consumers. The grants of up to $100,000 ($1 million per year) to nonprofit organizations that help provide lower-cost financial services, establish and improve credit, increase savings or reduce debt for unbanked California consumers.

Additional information on the grant program can be found on the DFPI website or CalMoneySmart’s Facebook page.

Questions, comments may be submitted at CalMoneySmart@dfpi.ca.gov.

Public Comment Period for Proposed Financial Regulations

The DFPI proposed revisions to Senate Bill (SB) 1235 and seeks public comment on the changes by April 26, 2021. SB 1235 requires clearer and more consistent disclosures to small business owners by lenders and other commercial financing companies.

Questions or comments may be emailed to regulations@dfpi.ca.gov.

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

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New California law tackles bias in real estate appraisals

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DFPI Bulletin Digest: December 2021

DFPI Bulletin Digest: December 2021 somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Dec 30, 2021 | Laws and Regulations, Mortgages, New Laws, Real Estate, Your Practice | 0

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

The December 2021 DFPI Bulletin focuses on new state laws affecting licensees and the 2021-22 escrow special assessment, 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, keep abreast of December 2021’s MLO news and events below.

New State Laws

The DFPI has curated a list of new state laws likely to affect MLOs. The page includes a brief description and a link to the text of each bill.

One of the most important pieces of legislation in the DFPI’s list is Assembly Bill (AB) 948, which seeks to combat racism and bias in real estate transactions. The law attacks the issue from both ends of the appraisal process: during the complaint process which may take place after an appraisal, and pre-appraisal, with additional training added to appraisal licensees’ continuing education requirements.

2021-22 Escrow Special Assessment

The DFPI Commissioner is authorized to levy a special assessment on all escrow licensees to cover the DFPI’s licensing and examination expenses under Financial Code section 17207 (h)(1).

Each year, the DFPI conducts a revenue and expenditure review. Based on this year’s review, DFPI projects the escrow program will have a deficit of $1,289,000 for year 2021-2022. This deficit amount will be assessed evenly among the total number of licensed locations (1,032) as of the fiscal year end, June 30, 2021. The special assessment is $1,000 per licensed location.

Escrow licensees will be receiving an invoice for its special assessment in early 2022. Payment must be made within 60 days of the date of the invoice. If payment is not made within 60 days, the Commissioner may assess penalties.

The special assessment is in addition to the regular assessment of $2,800 per licensed location, which will be billed separately on May 30, 2022.

Escrow licensees may contact Paul Liang, Special Administrator for Escrow Law, with any questions about these assessment calculations at (213) 576-7535 or Escrow.Licensing@dfpi.ca.gov.

Any questions regarding the processing of the assessment payment should be directed to the DFPI accounting department at (916) 576-4949.

Lists of offices due December 31

All commercial banks, industrial banks, and trust companies need to file a list of offices they maintain and operate. This report also needs to designate the type and address of each office by December 31, 2021. It needs to include:

the name of the bank;
the popular name of branch offices and facilities;
the office type (include the head office, branch, and facility locations; do not include free-standing ATMs);
and the street address, including city, state, country, and ZIP code.

Responses may be emailed to Licensing@dfpi.ca.gov or mailed to:

The Department of Financial Protection and Innovation

One Sansome Street, Suite 600, San Francisco, CA 94104

Attn: Licensing Section.

For questions, contact Patrick Carroll at Patrick.Carroll@dfpi.ca.gov or (415) 263-8559.

Office of Financial Technology Innovation Office Hours

The DFPI encourages MLOs to meet with the Department’s Office of Financial Technology Innovation (OFTI). Share your company’s story in your way and on your terms by requesting an introduction to one of the Department’s subject matter experts. This helps ensure your regulator is informed and truly understands what your team’s goals, or what’s happening in the market as you see it.

The OFTI holds weekly virtual Office Hours every Tuesday from 9 – 10 AM PST and invites interested fintech leaders and entrepreneurs to schedule a visit. Register to reserve a 20-minute slot as they are offered on a first-come, first-served basis.

Alternatively, users may schedule a longer meeting with the Office by emailing OFTI@dfpi.ca.gov or by using this OFTI contact form. To learn more about the Office and its work, please visit the OFTI webpage.

CSBS Community Bank Sentiment Index Survey

Banks are encouraged by the DFPI to participate in the current Conference of State Bank Supervisors (CSBS) Community Bank Sentiment Index (CBSI) survey, which is open until December 31. With only nine questions, the survey will take but a moment to complete — yet it provides critical insight into the economic outlook of community banks.

For more information about the survey can be found on the CSBS website. To validate the legitimacy of this email and survey, please review the message on the CSBS homepage.

Results will be released in January.

Escrow Reports Due

For escrow agent licensees whose fiscal year ended on August 31, 2021, annual reports were due December 14, 2021. Licensee may submit their reports by email to ESCAnnualReportFiling@dfpi.ca.gov or mail to:

Sultanna Wan, Senior Financial Institutions Examiner, Escrow Law
Department of Financial Protection and Innovation
320 West Fourth Street, Suite 750, Los Angeles, CA 90013

For questions about the annual reports, contact Sultanna Wan at (213) 576-7647.

The penalties for failing to file this report by the due date or to include required information are $100 per day for the first five days a report is late, and $500 per day thereafter. It may also result in the suspension or revocation of an escrow agent’s license, and even prompt an immediate examination.

That’s a wrap on the December 2021 DFPI Bulletin. Find out more about the topics mentioned here by reading the full bulletin on the DFPI website. Happy New Year!

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DFPI Bulletin Digest: January 2021

DFPI Bulletin Digest: January 2021 somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Jan 19, 2021 | Laws and Regulations, Real Estate | 0

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

The January 2021 DFPI Bulletin focuses on new laws, annual report deadlines, and California’s newly launched COVID-19 Relief Grant Program.

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, keep abreast of January 2021’s MLO news and events below.

California Consumer Financial Protection Law newly enacted

With this new California Consumer Financial Protection Law, the DFPI has expanded their existing jurisdiction as well as acquired further powers to protect consumers from predatory business practices. The DFPI can now begin to review and investigate previously unregulated financial products and services ranging from debt collectors to private school financing. With so many turning to less-than-reputable or atypical financial products and services amidst the pandemic, many Californians will be saved from further financial scams and fraud.

Annual report deadlines

CRMLA licensees must electronically file their annual report by the March 1^st, 2021 deadline through the DFPI self-service portal. A notice about the annual report filing was sent to every licensee’s designated email address. Missing the deadline can incur financial penalties, no extensions will be granted and failure to file is grounds to revoke your license. Email any questions to CRMLA.Licensing@dfpi.ca.gov.

Licensees under the California Financing Law (CFL), Property Assessed Clean Energy (PACE) Financing and the Responsible Small Dollar Loan (RSDL) programs need to submit their annual reports for the 2020 calendar year by the March 15, 2021 deadline. These reports are also to be submitted through the DFPI self-service portal.

Frequently Asked Questions regarding the 2020 CFL Annual Report can be found here.

Mortgage lending licensees are to file their Residential Mortgage Loan Report, also known as a Holden Act Report, by March 31, 2021 at the latest. Not all licensees are required to report; those unsure of their reporting status are encouraged to consult with their internal compliance officers for more information.

Reports may be scanned or emailed on or before March 31, 2021 to Holden.Inquiries@dfpi.ca.gov or call (866) 275-2677 for information regarding the report.

California’s COVID-19 Relief Grant Program

California’s launched a $500 million relief grant program for eligible small businesses owners and non-profits impacted by COVID-19 and/or the health and safety restrictions that came with it and further impaired businesses during this arduous time. To help cover expenses during the pandemic, grants up to $25,000 will be available.

The first round of applications has closed, but a second round is to be announced. To find out more, visit www.CAReliefGrant.com

That’s a wrap on January’s DFPI Bulletin. You can always find out more by reading the full bulletin on the DFPI website.

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DFPI Bulletin Digest: March 2021

DFPI Bulletin Digest: March 2021 somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Mar 17, 2021 | Laws and Regulations, Real Estate | 0

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

The March 2021 DFPI Bulletin focuses on the upcoming Economic Equity Conference, Assembly Bill (AB) 857, CalMoneySmart grants and annual report deadlines.

Licensees, stay on top of March 2021’s MLO news and events below.

Economic Equity Conference hosted by DFPI

The DFPI will be virtually hosting their first ever Economic Equity Conference on April 21, 2021 for banks and credit unions. Highlights of the conference are to include diversity-focused banking guidance, results of the first-of-its-kind State Bank Diversity Survey presented by Commissioner Alvarez and a racial wealth gap panel discussion.

Invitations were sent via GovDelivery to all state banks and credit unions in February. Questions about the event or regarding invitations may be emailed to DEI@dfpi.gov.

Given that California’s racial equity divide has only grown during the pandemic, the chance for MLOs to hear directly from industry leaders on this issue is critical. firsttuesday will continue to follow and report on the DFPI’s commitment to combating racial inequities in the mortgage lending space.

Public Comment Period for Public Banking Bill

Assembly Bill (AB) 857, better known as the California Public Banking Bill, was proposed on October 2, 2019 by Assemblymembers David Chiu and Miguel Santiago. The bill authorizes local agencies to transact business as a bank by applying for a certificate of authorization. Following the 45-day public comment period that has already passed, Commissioner Manuel P. Alvarez modified the initially proposed rules. These modified rules are now open for a 15-day public comment period, which ends on March 26, 2021.

AB 857 would make California the second state (after North Dakota) to allow public banking. Proponents of the bill argue commercial banks are more concerned with shareholder returns and higher profit margins over the individual customer or funding local community projects. Public, locally funded financial institutions in place of commercial banks are seen as a win for local communities to whom those funds will be reinvested through businesses, infrastructure, affordable housing and more.

Pointing to North Dakota’s example, others posit the idea that public banking is not more widely available because of the lengthy maturation time required before public banks bear their state public benefits. With this legislation, California stands to carry even further the legislative torch that ignites other states to follow suit.

Licensees may submit their comments to regulations@dfpi.ca.gov.

CalMoneySmart Grants

Starting April 5, 2021, the DFPI will be accepting grant applications to support financial empowerment and education programs for underbanked California consumers. This will be their second round of grant applications, with their first round in 2020 yielding one million in grant funding to twelve nonprofits.

Similar to the California Public Banking Bill, the CalMoneySmart grant program’s goals benefit and strengthen local communities and consequentially licensees. Forward-thinking agents understand that by supporting underbanked individuals with the financial tools to become more active consumers today, they are sowing the seeds for a healthier housing market tomorrow. With the support detailed in the CalMoneySmart program, underbanked households gain the tools to become more successful and knowledgeable homebuyers, sellers or business owners.

Additional information on the CalMoneySmart grant program can be found on the DFPI website or their Facebook page. Licensees may submit their questions or comments to CalMoneySmart@dfpi.ca.gov.

Annual report deadlines

The Residential Mortgage Loan Report, also known as Holden Act Report, is to be submitted by mortgage lending licensees by March 31, 2021. Per the Home Mortgage Disclosure Act of 1975, this report must be filed by all residential mortgage lenders that do not report data to a state or federal agency.

Instructions for filing can be found the DFPI website here and completed reports may be scanned and submitted to Holden.Inquiries@dfpi.ca.gov. Any further questions can be answered by contacting (866) 275-2677.

Licensees under the California Financing Law (CFL), Property Assessed Clean Energy (PACE) Financing and the Responsible Small Dollar Loan (RSDL) programs need to submit their annual reports for the 2020 calendar year by the March 15, 2021 deadline. These reports are also to be submitted through the DFPI self-service portal.

Frequently Asked Questions regarding the 2020 CFL Annual Report can be found on the DFPI website here.

For escrow agent licensees whose fiscal year ended on Nov 30, 2020, annual reports are due March 15, 2021. Reports may be submitted through a certified public accountant via email to ESCAnnualReportFiling@dfpi.ca.gov using an encrypted delivery system or secured dropbox. Reports that cannot be submitted electronically may be mailed to:

Sultanna Wan, Senior Financial Institutions Examiner, Escrow Law Department of Financial Protection and Innovation

320 West Fourth Street, Suite 750, Los Angeles, CA 90013

Failure to include information vital to report or not meet the report deadline will result in penalties of $100 per day for the first 5 days and $500 per day thereafter and/or license suspension or revocation.

Licensees may also call Sultanna Wan at (213) 576-7647 for questions.

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

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DRE Hot Seat: Making substantial misrepresentations constitutes dishonesty

DRE Hot Seat: Making substantial misrepresentations constitutes dishonesty somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Aug 30, 2021 | Laws and Regulations, Property Management, Real Estate, Your Practice | 0

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

This article is part of an ongoing series covering violations of real estate law. Here, the Department of Real Estate (DRE) revoked the California real estate license of a broker who made substantial misrepresentations to his clients, mishandled a trust account, and more.

In June 2021, the California Department of Real Estate (DRE) revoked the license of Philip J. Suhr, a broker since 2012 operating out of Cerritos, California.

The DRE conducted an audit of Suhr’s records between January 1, 2017 and April 30, 2018. During the entirety of this targeted period, the DRE discovered Suhr failed to maintain a trust account record detailing all trust funds received, deposited and disbursed in the course of his real estate sale and leasing activities.

Related Video: Maintaining Trust Account Integrity

Click here for more information on this topic.

Apart from his mishandling of trust funds, Suhr also made false representations to his clients. Suhr represented to his commercial tenant clients they were able to conduct their cannabis retail business in a city which prohibited the sale of cannabis. Induced by this misrepresentation, the tenants entered into a lease agreement for the property and paid rent and fees. Suhr agreed to compensate the tenants for their money losses after the DRE’s audit was complete.

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Suhr also failed to provide the tenant with a fully signed and executed copy of their Commercial Lease Agreement. [See RPI Form 552]

Finally, Suhr operated under a fictitious business name without holding a license that bears the same name used to conduct property management services.

Honesty and fair dealing

Under California real estate law, an agent or broker who makes a substantial misrepresentation or false promise in an attempt to influence, persuade or induce the behavior of another may have their real estate license revoked. [Calif. Business and Professions Code §10176(a); Calif. Bus & PC §10176(b)]

The duties owed to various participants in a transaction by a sales agent or broker include:

the fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with a client; and
the general duty use of skill, care, honesty, fair dealing and good faith in dealings with all parties to a transaction in the disclosure of information which adversely affects the value and desirability of the property involved. [Calif. Civil Code §2079.16]

Suhr induced his client to rent commercial property while ignoring the legality of the client’s business in their jurisdiction – a lapse in the broker’s due diligence obligations owed to his client. As the retail sale of cannabis was illegal, it was a crucial fact which adversely affected the value of the property as the tenant was unable to use the property for their desired purpose.

Of course, Suhr’s poor practice was not limited to that one incident, though it alone is grounds for suspension or revocation. Failing to maintain accurate trust account records is a common reason for disciplinary action from the DRE and is also a form of dishonesty and bad faith. All trust fund records are required to be retained by the broker for three years after the closing or cancellation of the transaction involving the trust funds. The DRE may audit trust fund accounts. [Calif. Bus & PC §10148(a)]

Recordkeeping and accounting requirements are imposed on brokers when they receive, transfer or disburse trust funds. [See RPI e-book Real Estate Principles Chapter 6]

To be eligible for obtaining a broker or agent license, the DRE requires an applicant to be honest and truthful. Thus, honesty, fair dealing and good faith are fundamental aspects of a licensee’s requirements – always.

When these aspects are taken lightly – or flat out ignored – the consequences include losing the ability to practice the trade.

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

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Dept of Housing and Community Development flexes new enforcement powers

Dept of Housing and Community Development flexes new enforcement powers somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Oct 11, 2021 | Laws and Regulations, New Laws, Real Estate | 0

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

Cities beware: California is bringing the hammer down on affordable housing noncompliance.

This comes as a consequence of the California Surplus Land Act, which requires a percentage of units developed in a sale of surplus public land to be offered for low-income housing. [Calif. Government Code §54222.5]

Local agencies such as cities and counties that violate the requirements are subject to penalties, and the California Department of Housing and Community Development (HCD), which oversees the process, is beginning to issue warnings to some jurisdictions.

The Act was established in 1968 and prioritizes the use of surplus public land for public parks, schools and housing. Surplus land includes land owned by any local agency that is determined to be no longer necessary for the agency’s use. [Gov C §54221]

Several amendments were recently added to the Act, including Assembly Bill (AB) 2135 in 2014, followed by AB 1486 in 2019.

These amendments focused on:

prioritizing surplus public land for low-income housing above all other uses;
introducing penalties for local agencies who side-step the requirements; and
adopting an inventory of surplus land available which local agencies need to submit annually to the HCD.

The HCD is tasked with enforcing the Act. So far, no penalties have been processed. However, some currently pending investigations may result in penalties of 30% of the final sale price of the land. Most notably, Anaheim, Alameda County and Santa Monica are involved in Surplus Land Act disputes.

Anaheim

In April 2021, the HCD sent a letter to the Anaheim city attorney informing him that the city may have violated the Act and might face the 30% sale price penalty.

The HCD’s claim refers to a December 2019 sale of Anaheim’s city-owned Angel Stadium, originally priced at $325 million.

The HCD maintains that even though the sale occurred prior to the January 2020 effective date of AB 1486, the sale is still subject to the most recent version of the Act. The HCD’s argument hinges on a section of the Act which states the effective date for the application of the law runs between September 30, 2019 and December 31, 2019 before being fully implemented by statute. [Gov C §54234(a)(1)]

The HCD also disputes the city’s classification of the land. The City of Anaheim classified the stadium as exempt surplus land because the property is subject to a restriction in the form of a lease between the city and Angels Baseball. The HCD argues the city cannot claim the stadium as exempt surplus land since they voluntarily agreed to Angels Baseball’s restrictions — so the Act applies to the sale.

The City of Anaheim refuted the HCD’s claims in a June 2021 response letter. The city reasserts that the 2019 amendments to the Act are unenforceable because the city was involved in exclusive negotiations for the sale of the stadium prior to September 30, 2019.

When the HCD determines a local agency has violated the Act, the 30% penalty against the land sale is deposited into a local housing trust fund to finance new construction of low-income housing. [Gov C §54230.5(a)(2)]

If the HCD decides the City of Anaheim broke state law with its sale of Angel Stadium, Anaheim taxpayers will foot the bill — at least $96 million, according to CalMatters.

Alameda County

The HCD also sent a letter to Alameda County demanding proof that the county followed the Act when it sold a portion of its Oakland Coliseum in October 2020 for $85 million.

The county has until October 18, 2021 to produce evidence that it followed the newly amended law or the HCD will pursue legal action, according to a letter obtained by The Chronicle.

The August 19, 2021 letter from the HCD states the department did not receive a record from the county declaring the public land as surplus land or exempt surplus land as the Act requires.

The HCD also requested proof from the county that it followed proper notification protocols on the sale.

If the county’s response does not satisfy the HCD and the county is found to be in violation of the Act, the 30% penalty will be levied, and the county will be fined up to $25.5 million.

Santa Monica

A third dispute surrounding the application of the newly amended Act involves a lawsuit from a local nonprofit against the City of Santa Monica.

In 2015, Santa Monica entered into an exclusive negotiating agreement with a commercial developer for a three-acre project, The Plaza at Santa Monica.

Santa Monica’s city council halted negotiations on the project over concerns that it might not meet the requirements of the Act in February 2020. City officials sought guidance from the HCD on whether the Act will be violated.

The HCD stated in a letter to the developer’s attorney that because the exclusive negotiation agreement was orally conducted before September 30, 2019, the effective date set by the amended law, the city qualifies for an exemption. With the HCD’s approval, the city moved forward with negotiations.

But a local nonprofit group is challenging the sale in court. On September 25, 2020, the Santa Monica Coalition for a Livable City (SMCLC) filed a lawsuit against the City of Santa Monica for violating the Act by not offering at least 25% of the property to low-income housing developers, parks or other open space purposes.

In May 2021, the city council of Santa Monica voted to award $100,000 in attorney fees to the SMCLC, according to the Santa Monica Lookout. Though the city does not admit fault or even agree that the attorney fees are merited, the council members nevertheless voted six to one to cover the legal fees in a historical and unusual decision. The SMCLC stated they will use the funds for future campaigns.

Tackling the housing crisis

The Act’s newest amendment is an effort to address the state’s housing crisis where supply has not kept up with demand for housing.

California is short 1.4 million housing units to accommodate its 2.1 million very-low- and extremely-low income population. Residential construction levels have been a fraction of what is needed to meet demand. Homelessness is on the rise.

AB 1486 works to address low-income housing needs, but the Golden State’s application of the newest amendment is still in its infancy.

Barriers to California’s execution of the new amendment include:

existing agreements that span years or decades;
limited flexibility for local agencies;
confusion over how the amendment interacts with other statutes; and
burdening local agencies’ workload to ensure compliance.

Despite these complications, further amendments to the Act are pending, including:

AB 1271, which includes an exemption for military bases;
SB 719, which provides a limited exemption for the former Tustin Air Force Base;
SB 791, which establishes the California Surplus Land Unit within the HCD to help develop and construct housing on surplus land; and
AB 1180, which alters the definition of exempt surplus land to include land transferred by a local agency to a federally recognized California Indian tribe.

Related article:

The applicability and real-world implications of the Act are being realized as some cities and counties might have to face hefty fines for violating it. If a local agency is found to have violated the Act, subsequent violations will be even more expensive — 50% of the sales price.

Such substantial penalties have the potential to impact the way local agencies operate and greatly incentivizes them to prioritize low-income housing in public land negotiations.

Incentives to build housing for low-income households are needed in California, where the housing shortage impacts all price tiers of properties — high, mid and low. But because higher tiers provide more generous profits for builders, there is a natural incentive to build housing in the high and mid tiers, and less of an incentive to build properties priced in the low tier.

But these low-tier properties are precisely the category most feasible for first-time homebuyers and prospective buyers with low incomes to purchase. Yet, the inventory of low-tier homes falls short of meeting homebuyer demand.

When only high-income earners are able to break through to homeownership, agents are wedged into a free-for-all for meager listings. A state capable of housing a healthy supply of first-time homebuyers and homebuyers purchasing in the lower price tier gives agents greater access to fees for representing those clients.

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Related topics:
low-income housing

Brokerage Reminder: Prop 13 – transactions excluded from reassessment

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Disaster relief: avoiding reassessments

Disaster relief: avoiding reassessments somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Feb 1, 2021 | Laws and Regulations, New Laws, Real Estate | 1

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

California’s 2020 fire season was the largest recorded in the state’s modern history. In total, it claimed over 10,000 structures and displaced countless more Californians.

On September 24, 2020, Governor Newsom signed into law Assembly Bill 2013, a bill protecting victims of natural disasters from unintended tax consequences. It allows homeowners to rebuild a comparable replacement property on their site within five years of a disaster without triggering a reassessment.

For a property to qualify:

more than 50% of the home needs to have been substantially damaged or destroyed; and
the value of the reconstructed home must not exceed 120% of the value of the home that was damaged or destroyed.

This legislation is part of a greater effort to help homeowners recover from the unthinkable destruction and tragedy that has become all too common in California’s high fire hazard severity zones. AB 2013 strengthens benefits available to disaster victims who choose to rebuild on the same site, which now match those offered to disaster victims who relocate.

Prior to this bill, California’s property tax laws worked against disaster victims who chose to rebuild on their site over relocating, by triggering reassessment.

A Prop 13 loophole

Proposition 13 (Prop 13), the regressive tax scheme that makes reassessments so dreaded in California, threatens a financially fatal one-two punch for disaster survivors committed to their communities. On top of rebuilding their lives, these homeowners were often cornered into costly reassessments.

AB 2013 conforms with other areas of property tax law to create a safe harbor from reassessment, allowing disaster victims to invest in fire-retardant materials and improvements to structures on their property. This bill also retroactively extends these same protections to victims of the Thomas, Camp and Woolsey fires in 2017 and 2018, respectively.

Real estate professionals can advise rebuilders on how to protect their homes from future wildfire damage, starting with this wildfire readiness survey courtesy of the California Department of Forestry and Fire Protection (CAL FIRE). It offers simple but effective landscaping measures such as:

removing any dead or dry leaves, vegetation or trees;
trimming or cutting down unsafe trees or overgrown shrubs; and
removing any flammable debris from the yard, driveway, gutters and roof.

Home-hardening improvements also recommended by CAL FIRE include:

re-roofing or building a roof from materials such as fiberglass, metal or tile;
using ember or flame-resistant vents or covering all vent openings with metal mesh; and
installing dual-paned and/or tempered glass windows.

More intense fire seasons are the new normal but rebuilding from scratch doesn’t have to be. AB 2013 puts Californians one step closer to that reality.

Newer homes proved significantly safer in Camp fire

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Does a national bank on acquiring a mortgage originated by a federal savings association need to pay interest on an impound account?

Does a national bank on acquiring a mortgage originated by a federal savings association need to pay interest on an impound account? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jan 26, 2021 | Finance, Interest Rates, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

McShannock v. JP Morgan Chase Bank

Facts: An owner of a one-to-four unit residential property obtains a mortgage originated by a federal savings association for the purchase of their property. An impound account is set up for handling taxes and insurance payments received by the lender. No interest is paid by the originating lender as they are a federal savings association exempt from California law calling for payment of at least 2% simple interest on funds held in the account. The mortgage is sold to a national bank which is not exempt from paying interest on impound accounts.

Claim: The property owner seeks to collect the accrued interest on their impound account claiming the present holder of the mortgage is not exempt from paying at least 2% simple interest per annum on funds held in an impound account.

Counterclaim: The mortgage holder claims the California requirement to pay interest does not apply to the mortgage they hold since the mortgage was originated by a federal savings association.

Holding: The federal ninth circuit district court holds a mortgage originated by a federally controlled savings association now held by other than a savings association need not pay interest on an impound account for the mortgage since participation as a holder of a mortgage originated by savings associations are preempted by federal law which does not call for the payment of interest on impound accounts. [McShannock v. JP Morgan Chase Bank NA (September 22, 2020) __ F. Supp 2nd_]

Editor’s note — Allowing states to impose requirements on mortgages originating from savings associations restricts the securitization of those mortgages, in turn decreasing the value of loans being held by savings associations, as found in de la Cuesta v. Fidelity Federal Savings & Loan Assoc. This outcome more than incidentally effects the lending operations of savings associations, thereby necessitating preemption.

[de la Cuesta v. Fidelity Federal Savings & Loan Assoc. (1981) 121 CA3d 328 (Disclosure: the legal editor of this publication was the attorney of record for the homeowner in this case.)]

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Down payment gifts and the bank of mom and dad

Down payment gifts and the bank of mom and dad somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jun 21, 2021 | Economics, Fair Housing, Laws and Regulations, Real Estate, Recessions | 0

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

Down payment gifts to adult children are quite common in the U.S., especially among young adults, and a recent study reveals how widespread they really are.

Young adults enter the economy with low wealth and income, and are often saddled with student debt. These obstacles make saving to buy a house a long process. But parents, who are at their peak of wealth and income, sometimes choose to transfer money to their children to alleviate minimum down payment requirements.

31% of young adult homebuyers aged 25-44 received down payment gifts from 2009-2016, as found in a recent study from the Consumer Finance Protection Bureau (CFPB). The average amount of down payment assistance received was $48,000.

Without down payment gifts, the homeownership rate decreases dramatically. Imagine if the 31% of young homebuyers who received a down payment gift and purchased from 2009-2016 were forced to delay homeownership as they were required to save up for a down payment. For reference, the homeownership rate for 18-44-year-olds only decreased by about 15% between the third quarter (Q3) of 2006 when homeownership peaked, and Q2 2016 when homeownership was at its lowest here in California. This comparison illustrates the vast contributions parental transfers make to the homeownership rate.

Thus, down payment gifts are a critical foundation for homeownership.

However, having wealthy parents to contribute to down payment funds also decreases savings rates. Households with wealthier parents are also willing to buy sooner. When they do, they tend to have higher loan-to-value (LTV) ratios. The age of first purchase decreases from 37.5 to 33 and children of wealthier parents are more likely to buy larger homes as their first residence.

On the flip side, parental transfers also account for 30% of the Black-White homeownership gap, as found in the study. In the U.S., young White households are twice as likely to be homeowners as are similarly aged Black households.

The report presents three main takeaways:

parental transfers greatly contribute to the homeownership rate of young adults;
homeownership is less attractive without down payment gifts; and
down payment gifts are the main driver behind the correlation between parent wealth and housing outcomes.

Parent transfers prevent “skin in the game”

While these down payment gifts from parents promote a higher homeownership rate among the young, they still contain pitfalls.

As indicated in the study, access to down payment assistance from wealthy relatives results in a decreased necessity to muster savings, which are a necessary step in demonstrating to a lender that the buyer has their own personal skin in the game. When the cash is their own, homebuyers facing financial distress are less willing to default since they have invested their own savings into their home.

The ability to meet the traditional 20% down payment requirement has dwindled as California jobs took a hit during the 2020 recession. Jobs are now 9.3% or 1.7 million below the pre-recession peak reached in December 2019.

With fewer jobs available, fewer Californians qualify for a mortgage. The reliance on family members to help assist with down payments does not appear to be going away anytime soon. Though personal savings peaked at record levels in 2020, and are still high as of March 2021 due to continued stimulus injections, without access to jobs, many homebuyers will be burdened and unable to meet down payment requirements.

One way to address the obstacles first-time homebuyers face in saving up for a down payment is the creation of a down payment savings program for first-time homebuyers. firsttuesday has advocated for a tax deductible savings program for first-time homebuyers, which has the potential to decrease the homeownership gap between White and Black households. Much like a retirement account, this type of savings program will allow renters to save up more quickly, setting aside dedicated, tax-free contributions to their first home purchase.

While not yet a reality for Californians, real estate professionals can encourage first-time homebuyers by targeting rental communities with marketing materials geared toward future homebuyers who are still in the saving stage.

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Downpayment Toward Equity Act proposes lifeline for disadvantaged homebuyers

Downpayment Toward Equity Act proposes lifeline for disadvantaged homebuyers somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Jun 14, 2021 | Fair Housing, Interest Rates, Laws and Regulations, Loan Products, Mortgages, Real Estate | 1

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

Downpayment Toward Equity Act of 2021

One of President Joe Biden’s campaign promises was to help Americans buy quality housing through financial assistance. To make good on this promise, his administration is to introduce the Downpayment Toward Equity Act of 2021.

While the bill has not yet been submitted to the House floor, is merely in discussion, these are the details we have thus far. The Downpayment Toward Equity Act would aim to reduce racial disparity and increase generational wealth by improving renters’ financial access to homeownership. Essentially, this bill would help level the real estate playing field for disadvantaged Americans.

Who is eligible?

Since the bill has not yet passed into law, its eligibility standards are still subject to change. As of this writing, eligible homebuyers need to meet all of the following requirements:

first-time homebuyer (someone who has not owned a home in the last 3 years);
first-generation homebuyer (someone whose parents have not owned a home in their lifetimes), with exceptions for:
- first-time, first-generation homebuyers whose parents or legal guardians owned a home, but it was lost due to foreclosure or short sale and the parents or legal guardians do not presently own a home; and
- homebuyers who have ever lived in foster care;
earn at most 120% of the area median income (AMI) or 180% of the AMI in high-cost areas for either the area where the home being purchased is located or the area where the homebuyer currently resides; and
use a qualified mortgage eligible for purchase by Freddie Mac or Fannie Mae, insured by either the FHA or USDA.

Editor’s note — need help determining eligibility for your clients? Calculate their AMI here by entering your selected area and multiplying the median household income listed by 1.2 (120%) or 1.8 (180%).

How much money is received?

Firstly, the program will not be a loan or tax credit — it will be a cash grant to eligible homebuyers.

Secondly, the standard cash grant for first-time homebuyers is to be $20,000. An additional $5,000 is granted to first-generation homebuyers who are socially and economically disadvantaged, totaling up to $25,000.

The bill defines socially disadvantaged individuals as those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. An economically disadvantaged individual is defined simply by the bill’s income requirements.

Any individual who identifies as Black, Hispanic, Asian American or Native American (or any combination of these ethnicities) will meet the definition of a socially disadvantaged individual. Those who do not identify as such will need to either provide evidence they are socially disadvantaged or settle for the standard $20,000 cash grant.

How is the grant received?

No action is required on the part of the homebuyer; qualifying mortgage lenders will automatically process the grant at closing.

However, all homebuyers receiving assistance under this bill will be required to complete a home purchase counseling program from a HUD-approved counseling agency. States would be allowed to waive this requirement for homebuyers who meet specific HUD-established underwriting criteria.

Does it need to be repaid?

Those who no longer occupy their home less than a year after purchase will be required to repay the entirety of their cash grant. This amount owed decreases by 20% for each year the owner lived in the home. So long as one lives in the purchased property for at least five years, no repayment is required.

This financial assistance may be coupled with financial assistance from other sources such as federal, state and local programs and private and nonprofit sources. It can be used towards the purchase of a home either through assisting with the down payment, closing costs, or payments to reduce the interest rate on a mortgage.

Qualified homebuyers may apply the grant amount toward home-buying costs as they please. This means they can simply allot the entire amount towards a down payment, or half of it towards the down payment and the other half toward closing costs — and so on. Homebuyers may even apply part of their grant toward mortgage discount points for access to a lower rate.

A step in the right direction

The Downpayment Toward Equity Act seeks to narrow the homeownership gap for disadvantaged Americans. Not only does it aim to rectify longstanding racial and economic inequities in the housing space, it serves agents by boosting turnover — and earned agent fees.

Agents, keep an eye on the firsttuesday Journal as we follow this historic piece of legislation. Paired with other pro-housing and job creation policies, the bill stands to galvanize a generation of renters and secure future home sales transactions for years to come.

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Federal foreclosure moratorium extended through mid-year

Federal foreclosure moratorium extended through mid-year somebody Fri, 09/22/2023 - 10:10 pm

Posted by Carrie B. Reyes | Mar 8, 2021 | Economics, Laws and Regulations, Real Estate, Recessions | 0

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

How will the end of the foreclosure moratorium affect real estate sales volume?

Sales volume will rise. (66%, 115 Votes)
Sales volume will fall. (22%, 38 Votes)
The moratorium expiration will have no effect on sales volume. (13%, 22 Votes)

Total Voters: 175

The foreclosure moratorium that has kept jobless Californians in their homes during the ongoing recession has been extended yet again.

The foreclosure moratorium is now in place through June 30, 2021. The enrollment window for mortgage forbearance programs is also extended through June 30 and an additional six months of forbearance is provided to homeowners enrolled in a forbearance program before June 30, 2021.

Of those 2.7 million U.S. homeowners currently in forbearance programs, 2.1 million are delinquent on their payments. The remaining 600,000 are making payments.

Further, 1.1 million homeowners are delinquent on their mortgages and not enrolled in a forbearance program. These homeowners may be headed for foreclosure immediately upon expiration of the foreclosure moratorium.

As the expiration continues to be pushed back and delinquent levels build, it leads us to question what will happen when the expiration deadline finally does arrive. Will a flood of foreclosures hit the market, as during the fallout from the 2008 recession?

firsttuesday has forecasted the end of the moratorium will impact home sales volume and prices later in 2021. But the extent and duration of the impact will continue to depend on government intervention. After all, California alone is still missing 1.4 million jobs compared to the December 2019 peak. Without jobs, homeowners and renters will be unable to resume paying their housing payments when the moratorium is up, let alone pay back missing payments.

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An alternate path

The Urban Institute believes the consequences of the moratorium expiration may not be as bad as many expect.

First, the Urban Institute notes Fannie Mae and Freddie Mac — which cover roughly two-thirds of U.S. mortgages — have established a “loss mitigation waterfall” which allows homeowners to push the payments accumulated during the forbearance program through to the life of the loan. Thus, they will not owe a lump sum of missed payments at the end of the forbearance period, simply continuing their pre-forbearance payment. As long as these homeowners are able to obtain a job with roughly the same level of income as before they entered the program (presumably due to a job loss), they will be able to resume mortgage payments, avoiding foreclosure.

The Urban Institute also points out that many of these delinquent homeowners not in a forbearance plan may actually have sufficient home equity to sell their home without the need for foreclosure. Since home values have yet to decline during this recession, this positive equity condition is a stark contrast from the 2008 recession, which plunged those who purchased during the latter half of the Millennium Boom into negative equity. Underwater and jobless, a distressed sale was the only option. That is not the case in 2021.

While positive equity and the ability to put off repaying missed payments will be enough for some, they will not save everyone from foreclosure.

The underlying recession accompanying the pandemic continues to hinder the jobs recovery, hence the continued need for the band-aid solution of additional stimulus payments. It’s impossible to believe that all jobs lost will be fully returned by mid-2021. (For comparison, it took over a decade for California to regain all jobs lost when counting population gain following the 2008 recession).

Therefore, even if everyone in a forbearance program takes advantage of the option to push the missed payments down the road, there will still be plenty of homeowners not in a forbearance program who will be forced to sell their home, be it through foreclosure or through a traditional positive equity sale. Either way, multiple listing service (MLS) inventory will swell. Rising inventory, alongside the recent increase in interest rates which has reduced purchasing power, will tip the market into a vicious cycle, and home values will decline, pushing more homeowners underwater.

To be certain, no one expects the same level of foreclosure crisis that occurred in the years following the Millennium Boom. But real estate professionals who prepare now for the return of distressed sales will be in the best position to continue to make a living in the coming months when the shifting housing market emerges.

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Related topics:
2020 recession, forbearance, foreclosure moratorium

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Form-of-the-Week: Homestead exemption, an asset preservation declaration – Form 465

Form-of-the-Week: Homestead exemption, an asset preservation declaration – Form 465 somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Feb 18, 2021 | Forms, New Laws, Real Estate | 0

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

Form-of-the-Week: Declaration of Homestead and Automatic Homestead – Form 465

Two types of homestead procedures are available to California homeowners:

the declaration of homestead, which is recorded [Calif. Code of Civil Procedure 704.920; See RPI Form 465]; and
the automatic homestead, also called a statutory homestead exemption, which is not recorded. [CCP §704.720]

The recorded declaration of homestead

A declaration of homestead is a recorded statement designating a particular dwelling as the owner’s principal place of residence.

The declaration gives a homeowner priority rights to preserve the equity in their home from loss — due to a creditor’s foreclosure on a judgment lien recorded after the declaration — in the dollar amount of the homestead exemption the owner qualifies to claim. [CCP §§704.910, 704.995; See RPI Form 465]

For a homeowner to qualify for a declaration of homestead:

they need to occupy the home as their principal residence at the time a judgment is recorded; and
when married, at least one spouse needs to continually reside in the home until the court determines their home is a homestead. [CCP 704.710(c)]

The recorded homestead declaration includes:

the name of the homeowner declaring the homestead;
a description of the property homesteaded; and
a statement that the declared homestead is the principal dwelling in which the homeowner resides on the date the homestead is recorded. [CCP §704.930(a)]

The declaration is signed, notarized, and recorded before it is effective. [CCP §704.930]

The homestead declaration may be signed and recorded by any one of several individuals, including:

the owner of the homestead;
the owner’s spouse; or
the guardian, conservator, attorney in fact
, or a person otherwise authorized to act for the owner or the owner’s spouse. [CCP §704.930(b)]

A homestead may also be declared by anyone who has an interest in the property and resides there.

Further, the vesting of title to an individual’s personal residence may also be vested as a revocable inter vivos (living) trust or other type of title holding arrangement established for the benefit of the homeowner. [Fisch, Spiegler, Ginsburg & Ladner v. Appel (1992) 10 CA4th 1810]

A declaration of homestead in no way restricts the homeowner’s ability to voluntarily sell, lease, or further encumber their homesteaded property. [CCP §704.940]

Properties on which a declaration of homestead may be recorded include a:

real estate dwelling (and its outbuildings);
mobilehome permanently affixed to the ground and established as real estate;
condominium;
unit in a planned unit development (PUD);
stock cooperative; or
community apartment project together with the land it rests on.

A change in equity

Effective January 1st, 2021, California homeowners qualify for a net equity homestead protection of up to $300,000 or the median sale price for a single family residence (SFR) in the homeowner’s county in the calendar year prior to the year in which they claim the exemption, not to exceed $600,000 (adjusted annually for inflation). [CCP §704.730]

This increase in equity protected considerably enlarges the amount homeowners may exempt from a forced sale of their home in the event of a judgment creditor enforcing judgment.

The automatic homestead

An automatic homestead is always available on the principal dwelling occupied by the homeowner or their spouse when:

a judgment creditor’s abstract is recorded against the homeowner and attached as a lien on the property; and
the occupancy by the homeowner continues until a court determines the dwelling is a homestead. [CCP §704.710(c)]

The automatic homestead exemption applies to the equity in a:

real estate dwelling (and its outbuildings);
mobilehome permanently affixed to the ground and established as real estate;
condominium;
unit in a planned unit development (PUD);
stock cooperative;
community apartment project together with the land it rests on; or
houseboat or other waterborne vessel used as a dwelling. [CCP §704.710(a)]

Both homestead arrangements provide the same dollar amounts of home-equity protection in California.

However, a homeowner needs to record a declaration of homestead to receive all the benefits available under the homestead laws. These benefits allow homeowners:

the right to sell their home;
the ability to receive the net sales proceeds up to the dollar amount of the homestead; and
the ability to reinvest the funds in another home. [See RPI Form 465]

Neither a recorded homestead declaration nor an automatic homestead appears in credit reports or alters the homeowner’s credit score and ability to borrow funds. Title companies disregard recorded homestead declarations, except in litigation guarantee policies.

The homestead exemption does not affect:

voluntary liens, such as trust deeds, previously or later placed on title to the property by the homeowner;
involuntary liens, which are given priority to the homestead exemption under public policy legislation; or
the homeowner’s credit ratings or title conditions.

The Declaration of Homestead form published by RPI (Realty Publications, Inc.) contains:

the name of the individual entitled to the homestead exemption [See RPI Form 465 §1];
the city and county in which the homestead is declared [See RPI Form 465 §2];
the identity of the principal resident [See RPI Form 465 §3];
the identity of the individual executing the declaration of homestead [See RPI Form 465 §4]; and
the signature of the individual executing the declared homestead [See RPI Form 465 §5].

This article was originally published July 2013, and has been updated.

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automatic homestead, equity, lien

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Four key housing bills agents need to watch in 2021

Four key housing bills agents need to watch in 2021 somebody Fri, 09/22/2023 - 10:10 pm

Posted by ft Editorial Staff | May 24, 2021 | Laws and Regulations, Pending Laws, Real Estate | 1

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

Californians are in for a healthy dose of housing policy déjà vu this legislative session.

With so many high-profile housing bills in the pipeline, lawmakers slated 2020 to be a banner year for affordable housing legislation. But that ambition fell flat; the major housing production bills aimed at increasing density and easing environmental restrictions all met their demise in 2020.

In 2021, California lawmakers are bringing back their greatest hits. This time around, they are focusing on bills that lower regulatory barriers to greater housing density, direct more money into affordable housing programs and encourage local governments to keep up with state housing goals.

firsttuesday has singled out four key housing bills for real estate professionals to watch in 2021.

Duplexes, triplexes and fourplexes

In 2020, California Senator Scott Wiener was the driving force behind the ill-fated Senate Bill 50 (SB 50), which had the potential to increase housing density by allowing four-to-five-story apartment buildings and up to fourplexes near mass transit stops and job centers. While the bill failed, its legacy continues to fuel new legislation.

California Senator Toni Atkins’s Senate Bill 9 (SB 9), also known as the California Housing Opportunity & More Efficiency Act, is a spiritual successor to SB 50. The bill aims to streamline the process for a homeowner to create a duplex or subdivide an existing residential lot into up to four units. This change stands to benefit Californians by providing a potential income source for homeowners and adding affordable housing stock to the market.

Just as with SB 50, SB 9 draws the ire of vocal not-in-my-backyard (NIMBY) activists who fear such legislation will trigger overdevelopment in their neighborhoods. But SB 9 seeks to build on the successful approach of previous increased density programs — much like that of legislation supporting accessory dwelling units (ADUs).

A homeowner splitting a single residential lot into two duplexes is a far cry from the luxury high-rise apartment supercomplexes NIMBY activists warn of — reasonably maintaining the all-important “character” of affected neighborhoods. More importantly, the bill empowers individual California homeowners to increase housing density on their own terms. SB 9’s strategy presents a workable solution to the Golden State’s affordable housing shortage.

Transit- and jobs-oriented density

Similar to SB 9, Senate Bill 10 (SB 10) focuses on increasing density, specifically near transit- and jobs-rich areas. The bill, which Senator Wiener introduced, will give local governments the power to override zoning restrictions and establish zones allowing up to 10 residential units per lot near transit, jobs or urban infill sites on a voluntary basis.

The difference between Wiener’s approach in 2020 and 2021 is the word “voluntary.” Cities will not be obligated to approve 10-unit housing developments in single lots under SB 10; they merely have the option to. This lighter touch is designed to appease critics who saw heavy-handed big government intrusion in SB 50.

Despite the new approach, opponents are lobbing familiar criticisms. By overriding local zoning restrictions, detractors warn SB 10 will silence local citizen initiatives. This is despite the bill’s requirement for a local legislative body to pass a resolution adopting the plan. More salient still is the warning that even if a city can zone for naturally lower-cost dwellings under SB 10, the housing produced will be quickly consumed by high earners.

Nevertheless, zoning for low- and moderate-income earners in high opportunity neighborhoods nets momentum for real estate professionals as well. Today’s reduced inventory leads to decreased turnover in both rentals and home sales, a serious issue for real estate agents who rely on transaction fees to make a living.

Regional housing accountability

California sets out regional housing needs about once every decade. This is the amount of new housing each region of the state needs to build to meet local residents’ needs. But with few enforcement options, cities often abandon these goals as quickly as they are set.

Introduced by Assemblymember David Chiu of San Francisco, Assembly Bill 215 (AB 215) adds teeth to California’s regional housing needs assessments by creating a checkpoint halfway through a region’s housing plan to assess its progress. Cities that fall short of the regional average by more than 10 percentage points will be required to adopt policies that encourage housing planning and production.

This bill is critical as California families and licensees are directly affected by their local government’s housing plans. Homebuilders often rely on funding from state and federal housing programs to produce new housing. In some cases, this funding is only accessible (or more accessible) when the jurisdiction in which a builder is building has a compliant housing plan — meaning it adequately addresses housing needs for its residents according to the state’s requirements.

While opponents of the bill cast it as an unnecessary intrusion into local government (are you sensing a theme here?), proponents tout it as a flexible way to make cities accountable for the housing plans they set out. With single family residential starts 26% below one year earlier in the six-month phase ending March 2021, it’s clear that California’s current housing production policies are sorely lagging. Ultimately, this leaves fewer new homes for agents to sell and slows turnover of current inventory.

Upholding zoning for smaller-scale developments

Builders in California are plagued by a gamut of restrictions and regulations when developing housing, some of which are contradictory.

For example, consider the current ratio restrictions for floor areas to minimum lot size requirements. Often, floor area ratio restrictions are set too low to build multi-family housing on a parcel already zoned for it.

Minimum lot size requirements also have a dampening effect on construction. These are requirements that identify the smallest parcel that can be created in a local jurisdiction. Jurisdictions with large minimum lot size requirements discourage building when the minimum is much larger than needed for the actual building.

Senate Bill 478 (SB 478), also introduced by Senator Wiener, looks to secure these loopholes that have frustrated smaller-scale housing developments in California. It establishes a 1.5 floor area ratio standard for land zoned for between two and 10 homes. It also sets a minimum lot size for two-to-four-home parcels and another for five-to-10-home parcels.

Unlike floor area ratios, minimum lot size requirements are commonly cited standards for residential housing development. The Terner Center for Housing Innovation found that an overwhelming majority of cities require minimum lot sizes greater than 2,500 square feet for single-family and multi-family developments.

Proponents argue that adjusting these standards will prevent local governments from employing underhanded practices that block multi-family housing development. More important still is the flexibility smaller-scale developers gain from modernizing these outdated restrictions.

Stay tuned to the firsttuesday Journal’s Legislative Gossip page for continued coverage on these bills’ progress — and visit our Change the Law feature, which outlines our legislative proposals for the state (including proposals enacted by the California Legislature).

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Freddie Mac study bares ugly truth of racial appraisal gap

Freddie Mac study bares ugly truth of racial appraisal gap somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Nov 15, 2021 | Appraisal, Fair Housing, Laws and Regulations, Real Estate, Your Practice | 2

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

A seller’s worst nightmare is receiving an appraisal value lower than the original purchase price. But what causes this horror? Is it obsolescence? Or maybe economic, social and government considerations?

One uncomfortable but inescapable factor is the neighborhood’s racial makeup. If real estate professionals are to thrive in California’s increasingly diverse market, they will need to learn how to spot remnants of the industry’s racist past.

An opinion of value

An appraisal is an opinion estimating a property’s value by analyzing facts about the property. The most common way to establish the fair market value (FMV) of residential real estate through appraisal is by applying the market comparison approach.

With the market comparison approach, also known as the sales comparison approach, the appraiser examines recent selling prices of nearby properties with similar characteristics to establish the property’s comparable value.

To deliver a fair and unbiased report, appraisers analyze property data on comparable properties (comps) and are required to apply uniform standards across the board on each property. Yet, the appraisal process still relies on a significant amount of subjectivity.

Appraisers determine the value of property characteristics by pulling from a range of prices, rather than one singular, easily defined price point. An aspect of the property, an attached garage, for example, may be calculated at a value between $10,000 and $20,000, but the appraiser is the one who determines whether that valuation will be in the upper or lower part of that range.

Despite all efforts to make appraisals fair, equitable and based on facts, racial appraisal gaps persist.

Related Video: Three Appraisal Approaches: Market Comparison

Click here for more information on this topic.

An observable gap

A recent report conducted by Freddie Mac found that appraisers’ opinions of value are more likely to fall below the purchase price originally paid for in majority Black and Latinx neighborhoods than in majority white neighborhoods. Further, the extent of the gap increases as the percentage of Black and Latinx people in the neighborhood increases.

The research is based on 12 million nationwide appraisals for sales transactions submitted to Freddie Mac between 2015 and 2020. Neighborhood demographics are established through 2010 Census data. When the share of Black or Latinx people in a neighborhood exceeds 50% of the population, the neighborhood is classified as Black or Latinx. When the share of Black or Latinx people in a neighborhood falls below 50%, the neighborhood is classified as white.

Properties in Black and Latinx neighborhoods receive appraisal values lower than the purchase price more often than properties in white neighborhoods. 12.5% of the properties in Black neighborhoods receive appraisal values lower than the purchase price compared to 7.4% in white neighborhoods.

Thus, a 5.2% appraisal gap emerges between white and minority neighborhoods. Based on the research, single family residential (SFR) properties receive undervaluations more frequently in minority neighborhoods than in white ones. This phenomenon partly contributes to a widening wealth gap between racial groups in the U.S. and here in California.

Moreover, this disparity is only growing. In fact, as the population of Latinx individuals increases, the appraisal gap for properties in Latinx neighborhoods — the percentage of properties being undervalued — increases from 7.7% to 9.4%.

Mind the appraisal gap

These appraisal gaps are not driven by a small number of appraisers in select areas. Rather, a significant portion of appraisers serving both minority and non-minority areas produce a measurable racial appraisal gap in their valuations, suggesting a systemic problem.

Several contributing factors might explain the racial appraisal gap, including:

comp distance, the distance between a subject property and its comps;
comp reconciliation, a metric gauging how far away the appraisal value is from the lowest comp;
comp variance, a metric capturing the variation in sales prices for comps; and
purchaser overpayment, the tendency for minority buyers to pay more for similar properties than non-minority buyers.

The report applies these factors to statistical models to determine how much they contribute to the observable racial appraisal gap, but only finds that they explain a modest amount of the gap. It also suggests more research is needed to accurately target the forces causing the disparity.

Addressing racial inequities

Today, the wealth gap between Black, Latinx and white families persists.

In addition to the body of research substantiating undervaluation claims in majority Black and Latinx neighborhoods, research also points to a measurable gap between Latinx homeownership rates and property values and white homeownership rates and property values, both in the U.S. and here in California.

For example, an average home owned by a Latinx homeowner is worth nearly 13% less than the average home owned by a white homeowner in the U.S. Meanwhile, the Latinx home value gap is even larger in some of California’s major metros.

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The homeownership gap between Black and white homeowners presents yet another significant divide.

In fact, the homeownership gap between Black and white homeowners in the U.S. is 31% as of 2020. When comparing national figures, the gap between Black and white homeowners is 4% higher today than it was in the 1960s, before the 1968 Federal Fair Housing Act officially prohibited discriminatory actions against racial groups in residential real estate transactions. [See RPI e-book Real Estate Principles Chapter 7]

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Black and Latinx homeowners are also less likely than white homeowners to refinance when interest rates are low. This leaves them paying higher interest rates for a mortgaged home — up to 50 basis points higher than white homeowners between 2005 and 2020, according to the Federal Reserve Bank of Atlanta.

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All these compounding factors contribute to a racial wealth gap — from homeownership rates, to property values, to discriminatory housing practices such as redlining that still affect property values today.

Addressing these racial inequities is no easy task. It is often difficult to determine a root cause for some of the statistical gaps between racial groups. That happened to be the case with the Freddie Mac study, which failed to provide comprehensive answers for why appraisal gaps exist between neighborhood demographics. But their research did indicate a gap indeed exists.

In response to these ambiguities (and realities) in real estate ownership and valuations, recent California legislation requires all California real estate applicants and licensees to complete a two-hour implicit bias training course beginning in 2023.

The aim of the legislation is to guide real estate professionals towards understanding and recognizing biases so that the pervasive gaps between racial groups does not continue to stretch on throughout the years and decades to come.

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Want to learn more about fair housing laws? Click the image below to download the RPI book cited in this article.

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Is a contractor digging a trench liable for killing a boundary-line tree and timber trespass when a city code forbids digging in a tree’s critical root zone?

Is a contractor digging a trench liable for killing a boundary-line tree and timber trespass when a city code forbids digging in a tree’s critical root zone? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Feb 4, 2021 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Russell v. Man

Facts: A contractor buys a vacant lot to build a residential improvement. A large pine tree straddles the common lot line with a neighboring property. A development code in the city forbids digging in a tree’s critical root zone. During construction, a trench is dug which cuts the roots of the tree owned by the neighboring property owner and kills it.

Claim: The neighbor seeks money losses from the contractor claiming the boundary tree died due to the contractor wrongfully and negligently cutting the roots creating a timber trespass onto the neighbor’s property which subjects the contractor to treble money liability.

Counterclaim: The contractor claims they injured the tree while on their own property, not while trespassing on the neighbor’s property and did not act maliciously and thus no treble damages can be awarded.

Holding: A California appeals court holds no trespass occurred on the neighbor’s property permitting treble damages but awards the neighbor the cost to replace the tree since the contractor’s negligence killed the tree by digging in a tree’s critical root zone, an unlawful act under city codes. [Russell v. Man (November 17, 2020) _CA6th_]

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Is the public entitled to an easement to use trails on a property whose owner continuously attempts to deter trespassers?

Is the public entitled to an easement to use trails on a property whose owner continuously attempts to deter trespassers? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jan 27, 2021 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Tiburon/Belvedere Residents United to Support the Trails v. Martha Company

Facts: A parcel of undeveloped land features several trails across the property. For at least a five-year period, the owner has erected, maintained and repaired fences, gates and “no trespassing” signs throughout the property. During this period, the primary users of the trails are children of neighbors for recreational purposes. A community association seeks to establish a recreational easement for trails on the property for use by the public.

Claim: The community association claims the doctrine of implied dedication establishes the easements since the public used the land for a period greater than five years with the full knowledge of the owner.

Counterclaim: The owner claims no public recreational activities can take place on the property since fences, gates and “no trespassing” signs were installed and continuously maintained on the property.

Holding: A California appeals court holds the public is not entitled to a recreational easement to use trails on the property since the owner’s efforts to avoid public use of their property by erecting and maintaining fences, gates and “no trespassing” signs to deter public use during the five-year period were sufficient. [Tiburon/Belvedere Residents United to Support the Trails v. Martha Company, (October 23, 2020) _CA6th_]

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Latinx homeownership still trails behind white homeownership

Latinx homeownership still trails behind white homeownership somebody Fri, 09/22/2023 - 10:10 pm

Posted by Casandra Lopez | Sep 24, 2021 | Fair Housing, Laws and Regulations, Real Estate | 0

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

Racial wealth gaps severely impact California’s homeownership rate and as a result, agent’s businesses.

Between 2016 and 2019, household wealth increased:

65% for Latinx households;
33% for Black households;
3% for white households; and
8% for other households.

“Other” households include Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other races, and all respondents reporting more than one racial identity. These households have lower wealth than white families but higher wealth than Black and Latinx households.

Despite the rapid rise in wealth for Black and Latinx households, the wealth gap between Latinx and Black households alongside white households remains significant.

The average white household has eight times the wealth of the average Black household and five times the wealth of the average Latinx household, according to the Federal Reserve.

Many factors contribute to wealth growth and financial security, including:

inter-generational wealth transfers (such as received inheritance and down payment gifts from relatives);
homeownership opportunities;
access to tax-sheltered savings plans and individuals’ savings; and
investment decisions.

But not all homeownership opportunities are created equal. For example, across the U.S., the average home owned by a Latinx homeowner is worth about 12.8% less than the average home owned by a white household at:

$246,300 for Latinx owned homes, and
$282,400, for white owned homes according to Zillow.

In California’s major metros, the Latinx home value gap compared to white households is even larger at:

-35% in Los Angeles;
-29% in San Jose;
-23% in San Francisco;
-20% in San Diego;
-7% in Sacramento, and
-4% in Riverside.

While home values tend to be significantly lower for Latinx households, the actual Latinx homeownership rate gap relative to white households is also lower, at:

-24% in San Jose;
-23% in Sacramento;
-22% in San Diego;
-21% in San Francisco;
-18% in Los Angeles, and
-13% in Riverside, according to Zillow.

Latinx people make up 39% of the population in California, according to the U.S. Census Bureau, and their homeownership and home value rates fall well below California’s white population. Overall, there remains a large wealth gap between Latinx families and white families, and this unequal wealth distribution negatively impacts our housing market.

The next decade

The future stability of our housing market depends on homebuyers from various economic backgrounds having the opportunity to participate freely and openly in homeownership. A steady supply of new first-time homebuyers support agents’ businesses in the long term.

But homeownership rates have been declining every decade since the 1970s and it doesn’t look to be picking up anytime soon. California has the lowest homeownership rate in the nation and it’s steadily decreasing every year. California’s homeownership rate in Q2 2021 decreased further to 53.9%, below its historical average of 55% and well below the national average of 65%.

If we are to close the homeownership gap, it’s imperative that California legislators work to develop non-white homeownership opportunities. Saving our market depends on supporting our current demographic of homebuyers.

Agents can take matters into their own hands by supporting non-white homeownership. For example, agents can keep an eye out for predatory lending and discriminatory housing practices, which both contribute to the low rate of non-white homeownership.

The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency that makes sure banks, lenders, and other financial companies treat everyone fairly. Agents can direct all homebuyers to the CFPB’s mortgage shopping tools for homebuying and mortgage guidance.

To ensure brokers, agents, lenders, and landlords don’t violate non-discrimination laws — even unintentionally — professionals need to:

ask the same questions of all applicants — for landlords, feel free to ask about matters that will actually impact tenancy like pets or water beds, but never ask about a protected status like race, religion, sexual orientation, pregnancy, etc.;
keep records of client interactions — while a client is unlikely to pursue legal charges for discrimination, it’s best practice for an agent to keep track of all client interactions and property tours for several reasons, including identifying any unintentional biases; and
when in doubt, contact a local fair housing expert for advice — find a list of experts at HUD’s website.

To learn the basics of housing discrimination or to file a complaint, visit hud.gov.

Editor’s note — Mandatory anti-bias training may soon become part of agent and brokers’ regular licensing and continuing education courses. Senate Bill 263, which requires anti-bias training as part of the required course load for real estate licensees and license applicants beginning in 2023, is heading toward the governor’s desk at the time of this writing. Follow along for updates at firsttuesday’s Legislative Gossip page.

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Licensee beware: a lapsed license is risky real estate business

Licensee beware: a lapsed license is risky real estate business somebody Fri, 09/22/2023 - 10:10 pm

Posted by Guest Author Summer Goralik | Jul 6, 2021 | Fundamentals, Laws and Regulations, Licensing and Education, Real Estate, Your Practice | 0

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, highlights the importance of maintaining an active real estate license. Visit the original post on her blog here.

In the world of real estate compliance, one basic rule of thumb is to keep your license in good standing. By good standing, I mean, active, valid, and not subject to any formal disciplinary action. While seemingly simple, the failure to do so may cause regulatory havoc, not only for the licensee who, for example, lets their license lapse or expire, but also for the unknowing responsible broker who neglects to supervise and monitor this area of compliance.

Although there are myriad compliance requirements and issues that impact real estate licensees, the purpose of this article is to highlight the fundamental task and importance of successfully renewing your real estate license. Admittedly, the topic of license renewals could cover several different elements, including the application and/or process itself, the DRE’s required disclosure questions on the renewal form, and of course, the fulfillment of continuing education. However, this piece will focus on unintentional license lapses and/or expirations, and the domino effect of violations which can occur.

Trending violations

While this topic is always important and timely, it just happens that I have witnessed an uptick in such violations. As a real estate compliance consultant and former California Department of Real Estate Investigator, I am constantly reviewing the DRE’s public enforcement actions. Such actions provide a lot of insight into the types of violations that are taking place in the industry, the non-compliant issues that the DRE finds “formally” actionable, as well as their disciplinary reactions to such matters. After examining some of their recent actions over the last several months, there were a few cases filed in a short period of time involving the engagement of licensed acts by agents whose licenses lapsed or expired.

Additionally, I have been working with several clients who have been contacted by the DRE regarding unlicensed activities engaged by agents with expired licenses. Together, these public actions and DRE investigations serve as the ultimate reminder of simple licensing compliance (keeping your license active/unexpired while conducting licensed activity), but more importantly, the reach of the DRE and their regulatory response to these types of basic failures by licensees.

Admittedly, the best way to educate licensees about license renewals (gone wrong) is to showcase the attendant and problematic scenarios involved which undoubtedly expose licensees to regulatory risk. The following are scenarios that I have recently observed in this area.

For example, if an agent unknowingly lets their license lapse or expire and continues to perform real estate activities, the agent has engaged in unlicensed activity in violation of the Real Estate law. Aside from the agent’s unlawful activity, there is potential collateral damage with any license expiration. If the agent has been performing these unlicensed activities on behalf of an affiliated real estate broker, and the broker is compensating this agent for such activities, then the broker has also broken the law. Specifically, the broker is guilty of retaining or employing, and compensating, an unlicensed person to perform licensed acts.

Common licensing flub: no broker affiliation

Another example might look like the following: an agent renews their license by completing and mailing in the DRE’s salesperson renewal application (DRE Form RE 209) on time, but incorrectly completes it by accidentally disassociating from their affiliated brokerage. Specifically, the licensee incorrectly certifies that they will no longer be practicing real estate at the time of the renewal, and in turn, fails to complete their affiliated broker information and obtain their broker’s signature. In turn, these actions place the agent’s license status in no broker affiliation (NBA) status, or essentially, non-working status. It should be noted that if you think you are immune to this type of problem since you renew your license using the DRE’s eLicensing portal (online electronic licensing system), unfortunately, you are not. This same scenario can happen through eLicensing too, if the questions are answered incorrectly.

Speaking of the DRE’s eLicensing portal, here are a few other examples that I have encountered. Using eLicensing, an agent renews their license, on time, and fails to provide the correct affiliated broker’s license number and email address; or the agent provides the correct information, but the renewal application is never certified by the broker for whatever reason (e.g., the broker didn’t receive the email or inadvertently ignored the email). Either way, the agent unintentionally disaffiliates their license from their broker’s license and places themselves in NBA status with the DRE.

Now, here’s where this subject becomes more troubling. If an agent accidentally (or not) disaffiliates their license from their broker, transferring their status to “NBA” during the renewal process, the DRE does not alert the responsible broker to this licensing change. Therefore, if an agent believes they have renewed on time and continues to engage in real estate activities on behalf of their brokerage, and the broker is unaware that the agent’s license is no longer active and properly affiliated, then both the agent and broker have inadvertently engaged in violations of the law; unlicensed activity by the agent, and unlawful employment/compensation by the affiliated broker.

The “responsible” responsible broker

As a compliance consultant who has been helping brokers and agents navigate these types of situations and related DRE investigative inquiries, it’s a painful endeavor for the parties involved. Because of these mistakes, the agent, and responsible broker, are facing potential licensing discipline. But, let’s be clear. It’s not just the agent’s fault. The affiliated responsible broker bears some responsibility as well.

It should be strongly noted that a responsible broker is required to supervise and monitor, among other things, their agents’ activities and license expiration, which should also include the successful renewal of licenses. It’s not enough t

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MLO Mentor: Section 32 coverage tests

MLO Mentor: Section 32 coverage tests somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Dec 6, 2021 | Finance, Laws and Regulations, Loan Products, Mortgages | 0

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

This MLO Mentor guide helps you quickly identify when a loan falls under Section 32 requirements. Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California mortgage loan originator license and learn more about Section 32 loans in your practice.

The Home Ownership and Equity Protection Act (HOEPA) was amended to the Truth in Lending Act (TILA) in 1994 to protect homeowners from predatory lending practices related to high-cost home loans.

High-cost loans, better known as Section 32 loans (in reference to Section 32 of Regulation Z which governs them), carry higher risk and therefore come with a higher rate and cost to homeowners. As a mortgage loan originator (MLO), it’s imperative you provide the required timely disclosures, loan terms and restrictions to such loans.

The high-cost provisions required by HOEPA apply to a loan when either the interest rate or costs exceed a certain level, or trigger point, as they are more commonly referred to. The interest rate in question is that of the Annual Percentage Rate (APR) and not the interest rate shown on the promissory note. And the costs, or fees, refer to those the borrower(s) pay at or before closing. Here, we expand on the coverage tests an MLO uses to measure a loan against these trigger points so they may then assess your loan accordingly.

The annual percentage rate coverage test

A loan becomes subject to Section 32 requirements through the APR test if the APR on the total loan amount exceeds the Average Prime Offer Rate (APOR) for a comparable transaction on the same date by more than:

5 percentage points for first lien transactions;
5 percentage points for first lien transactions if the residence is personal property and the transaction is for less than $50,000; or
5 percentage points for junior lien transactions. [12 CFR §1026.32(a)(1)(i)]

The APR is measured on the date the interest rate for the transaction is set.

The interest rate used to calculate the APR is:

the rate in effect on the date the interest rate is set (whether the rate is locked, or at loan closing) for a fixed-rate loan;
the greater of the introductory interest rate or the fully indexed rate for a loan with a varying interest rate based on an index; or
the maximum rate allowed to be charged during the term of the loan for any other transaction in which the interest rate may vary. [12 CFR §1026.32(a)(3)]

Note that this calculation is different from general Reg Z APR calculations.

The APR thresholds will be compared against the APOR for a comparable transaction on the same date. The APOR is published on the website of the Federal Financial Institutions Examinations Council.

The APOR currently only covers closed-end transactions. Thus, a HELOC’s APR is to be compared to the APOR for the most closely comparable closed-end transaction.

To do this, first, identify whether the HELOC is a fixed or variable rate. If a HELOC has a variable rate, but an optional fixed-rate feature, assume the HELOC is a variable rate transaction for purposes of the Section 32 threshold test.

Compare the APR for a variable rate HELOC with the APOR for a variable rate closed-end transaction with a fixed-rate period comparable to the introductory period on the HELOC. If the HELOC has no initial fixed rate, assume an initial fixed-rate period of one year.

Compare the APR for a fixed rate HELOC with the APOR for a fixed rate closed-end transaction with the same loan term in years as the HELOC maturity term. If the HELOC has no definite maturity term, assume a 30-year term. [Official Interpretation of 12 CFR §1026.32(a)(1)(i)-2]

APR Testing

Testing an APR for Section 32 designation involves three steps:

determining which APR threshold applies to the transaction;
calculating the APR for the transaction according to the rules above; and
comparing the transaction’s APR to the APOR for a comparable transaction.

For these examples, assume other factors (points and fees and prepayments) do not alone make the loan a Section 32 loan.

Example 1

Consider a second-lien transaction of $10,000 secured by a primary residence. The APR on the loan is 6%. The APOR for a comparable transaction is 4%. Is this transaction a Section 32 loan?

No! Since the transaction involves a junior lien, the 8.5 percentage point threshold applies. The difference between the APR and the APOR is only 2%. Thus, the loan is not a Section 32 loan.

Example 2

Consider a first-lien transaction of $45,000, secured by an RV used as a primary residence. The APR on the loan is 15%. The APOR for a comparable transaction is 8%. Is this transaction a Section 32 loan?

No! Since the transaction involves a first-lien secured by personal property and is less than $50,000, the 8.5 percentage point threshold applies. The difference between the APR and the APOR is 7%. Thus, the loan is not a Section 32 loan.

Example 3

Consider a first-lien transaction of $150,000, secured by second home. The APR on the loan is 6.5%. The APOR for a comparable transaction is 6.0%. Is this transaction a Section 32 loan?

No! Since the transaction involves a first-lien secured by real property, the APR has to exceed the APOR by 6.5 or more percentage points. In this scenario, the APR is actually less than the APOR on a comparable transaction. Thus, the loan is not a Section 32 loan under the APR test.

The points and fees coverage test

A loan becomes subject to Section 32 requirements under the points and fees test if the points and fees payable by the borrower at or before closing exceed:

5% of the total loan amount for a loan of $22,969 (in 2022) or more; or
the lesser of 8% or $1,148 for a loan of less than $22,969 (in 2022). [12 CFR §1026.32(a)(1)(ii)]

These figures are adjusted annually for inflation. [12 CFR §1026.32(a)(1)(ii)]

The calculation of points and fees differs depending on whether the loan is closed-end or open-end.

For closed-end loans, points and fees calculations will fall in line with the ability-to-repay rule calculation of points and fees.

Mortgage insurance premiums & bona fide discount points excluded

Mortgage insurance premiums, whether government or private, are not considered in the points and fees calculations on closed-end loans. [12 CFR §1026.32(b)(1)(i)(B)-(C)]

A bona fide discount point is a discount point paid by the borrower in order to reduce the interest rate or time-price differential applicable to the mortgage. The interest rate reduction must be reasonable and consistent with industry norms. Bona fide discount points, up to the limits discussed below, are now excluded from points and fees calculations. [12 CFR §1026.32(b)(1)(i)(E)-(F)]

There are limits to how many bona fide discount points may be excluded from the points and fees calculation. These limits change depending on the loan’s interest rate. The closer the interest rate is to the APOR, the higher the threshold for excluding discount points. This is another way in which regulators are preventing lenders from overcharging borrowers.

Up to two bona fide discount points may be excluded if the interest rate before the discount is one percentage point or less below the APOR. However, only up to one bona fide discount point may be excluded if the interest rate exceeds the APOR by one to two percentage points.

No bona fide discount points may be excluded if the pre-discount interest rate exceeds the APOR by more than two percentage points. [12 CFR §1026.32(b)(1)(i)(F)]

Some loan originator compensation excluded

Compensation paid to loan originators is excluded from points and fees calculations if it:

has already been accounted for in the finance charge;
is paid by the loan originator’s employing mortgage broker;
is paid by the lender who employs the loan originator; or
paid by a retailer of manufactured homes to its employees. [12 CFR §1026.32(b)(1)(ii)]

This tightens up rules existing prior to January 10, 2014, which simply required the inclusion of all fees paid to mortgage brokers, regardless of whether they had already been accounted for. It also clarifies that this applies to fees paid to a “loan originator,” which includes mortgage brokers, their employees and loan officers employed by lenders.

Note that the compensation to be included in the points and fees calculation is to be attributable to the transaction. This is differentiated from compensation that is dependent on other factors (such as the long-term performance of a loan originator’s loans), or salary paid by the employer of the loan originator, which is excluded. A creditor shall maintain records sufficient to evidence all compensation it pays to a loan originator and the compensation agreement that governs those payments for three years after the date of payment. [12 CFR § 1026.25(c)(2)(i)]

Points and fees also include:

the maximum prepayment fees and penalties that may be charged under the terms of the credit transaction [12 CFR §1026.32(b)(1)(v)]; and
any prepayment fees or penalties incurred by the borrower if the loan refinances an existing loan made or held by the same lender. [12 CFR §1026.32(b)(1)(vi)]

In addition to the fees which are collected under a closed-end loan, open-end loans also take into account:

participation fees payable at or before account opening [12 CFR §1026.32(b)(2)(vii)]; and
transaction fees, including minimum fees or per-transaction fees, charged on a draw on the credit line. [12 CFR §1026.32(b)(2)(viii)]

The prepayment coverage test

A third coverage test applies: the prepayment coverage test. A loan is designated a Section 32 high-cost loan if the prepayment penalty charged:

more than 36 months after the loan transaction is consummated on a closed-end loan, or account opening on an open-end loan; or
exceeds, in aggregate, more than 2% of the prepaid amount. [12 CFR §1026.32(a)(1)(iii)]

For a closed-end loan, a prepayment penalty is any charge imposed for paying all or part of the transaction’s principal before the due date. [12 CFR §1026.32(b)(6)(i)] For an open-end loan, a prepayment penalty is any charge imposed for terminating the open-end credit plan before the end of its term. [12 CFR §1026.32(b)(6)(ii)]

Editor’s note — The following examples illustrate the prepayment coverage test.

Example 1

Consider a home-equity line of credit with an initial credit limit of $10,000. The HELOC requires the consumer to pay a $500 flat fee if the consumer terminates the plan less than 36 months after account opening. Is this loan a Section 32 loan?

Yes! The $500 fee constitutes a prepayment penalty under §1026.32(b)(6)(ii), and the penalty is greater than 2 percent of the $10,000 initial credit limit, which is $200.

Example 2

Consider a first-lien, closed-end mortgage secured by a borrower’s principal residence. A prepayment penalty of 2.5% of the amount prepaid applies during the first year after closing, 2% of the amount prepaid within the second year, 1.5% of the amount prepaid applies during the third year after closing and no prepayment penalty applies after the third year after closing. Is this loan a Section 32 loan?

Yes! Since the prepayment penalty in the first year exceeds the 2% threshold, the loan is considered a Section 32 loan under the prepayment penalty coverage test.

Section 32 loans are not as commonplace today as they once were. The additional disclosures required and heavy penalties for violations make them particularly unattractive to investors and therefore lenders and originators. However, knowing what constitutes a high-cost loan is part of how loan originators, brokers and lenders avoid making such loans, and why intimate knowledge and awareness of these coverage tests is prudent for your business.

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May a school district impose school impact fees on a development for university students without children?

May a school district impose school impact fees on a development for university students without children? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jan 27, 2021 | Finance, Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

AMCAL Chico LLC v. Chico Unified School District

Facts: A dormitory is constructed within the boundaries of a school district to house unmarried university students. The school district conducts a fee study which finds their existing school facilities are inadequate to accommodate additional public school students the development will likely generate. The school district levies an impact fee against the development to accommodate their anticipated student increase, which the developer pays.

Claim: The developer seeks a refund of the school impact fee claiming it is an invalid taking since no relationship exists between the fee and the impact of the newly constructed complex on their facilities and thus the fee is an invalid special tax.

Counterclaim: The school district claims the fees are valid since they are reasonably derived from a fee study which targets general types of construction, such as residential, and they comply with the Mitigation Fee Act.

Holding: A California appeals court holds the fees imposed by the school district are valid since the development is residential and the district’s impact study determined the development was subject to the district’s fees on residential housing. [AMCAL Chico LLC v. Chico Unified School District (November 5, 2020) _CA6th_]

Related topics:
residential housing

Chapter 23: Real estate can be stolen

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May an adverse possessor acquire title to a property when the underlying ownership of the property changes during the period of possession?

May an adverse possessor acquire title to a property when the underlying ownership of the property changes during the period of possession? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Ariel Calvillo | Dec 6, 2021 | Laws and Regulations, Los Angeles-Santa Barbara-Ventura, Real Estate, Recent Case Decisions | 0

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

Bailey v. Citibank, N.A.

Facts: A property goes into foreclosure though no notice of trustee’s sale is recorded, and the foreclosure process comes to a standstill for a decade leaving the property unoccupied. An adverse possessor occupies the property and pays the taxes. Four years into the occupancy, the mortgage is assigned to a new mortgage holder. The trustee of the mortgage holder initiates a trustee’s sale which is completed, and the mortgage holder acquires title to the property.

Claim: The adverse possessor seeks to quiet title to the property, claiming they own the property since they openly and adversely possessed the property and paid the property taxes for five years.

Counterclaim: The mortgage holder claims ownership of the property as the highest bidder awarded title to the property at the foreclosure sale since the adverse possessor was in possession for only one year after the mortgage holder acquired title.

Holding: The California appeals court holds the mortgage holder under the trustee’s deed issued to the highest bidder at the foreclosure sale is the owner of the property since the adverse possessor had been in possession and paid taxes less than the five-year period under the new ownership. [Bailey v. Citibank, N.A., (2021) 66 CA5th 335]

Editor’s note — To establish title by adverse possession, an occupant needs to show:

their possession is based on a claim of righto color of title;
they have occupied the property in an open and notorious way which constitutes reasonable notice to the record owner;
their occupancy is hostile and inconsistent with the owner’s title;
they have been in possession for a continuous and uninterrupted period of at least five years; and
they have paid all taxes assessed against the property during their occupancy. [Code of Civil Procedure §§318 et seq.]

Read Bailey v. Citibank, N.A. in full here.

Related Readings:

Legal Aspects of Real Estate

Real Estate Finance

Chapter 44: The nonjudicial foreclosure process

Related topics:
adverse possession, foreclosure, mortgage holder, quiet title

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New California law to increase density

New California law to increase density somebody Fri, 09/22/2023 - 10:10 pm

Posted by Casandra Lopez | Dec 20, 2021 | Laws and Regulations, Real Estate | 0

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

It will soon be easier for builders to receive permission to build near transit-rich areas. In another effort to combat the state’s severe housing shortage, California’s legislature recently passed Senate Bill (SB) 10 to smooth the way for these new developments.

Each city and county in California is required to develop a general plan that outlines the community’s vision of future development through a series of policy statements and goals.

Under SB 10, local governments may meet these plans by adjusting zoning for new developments of up to 10 units per parcel when they are located in a(n):

transit-rich area; or
urban infill site.

A transit-rich area is defined as:

a parcel within one-half mile of a major transit stop; or
a parcel on a high-quality bus corridor, or a fixed-route bus service that meets specified service interval times.

An urban infill site is defined as:

a site that is a legal parcel; or
parcels located in a city that includes an urbanized area or urban cluster.

California’s legislative members see the housing shortage as a statewide concern and will continue to work quickly to provide adequate housing, especially for low-to moderate-income earners. As useable land for building residential units dwindles in California’s most desirable cities, it’s important to consider these alternative sites for much-needed new housing. As a bonus, access to transit makes these sites more efficient for builders, as this eases the need for parking requirements while allowing for denser units.

Read more about California’s legislative efforts to combat the housing shortage at our Legislative Steps toward Affordable Housing page.

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New law requires implicit bias training for real estate professionals

New law requires implicit bias training for real estate professionals somebody Fri, 09/22/2023 - 10:10 pm

Posted by Oscar Alvarez | Oct 18, 2021 | Fair Housing, Fundamentals, Laws and Regulations, Licensing and Education, Real Estate, Your Practice | 2

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

California has just assigned real estate professionals a little extra homework — thanks to a new law.

On September 28, 2021, Governor Gavin Newsom signed Senate Bill (SB) 263 into law, requiring California real estate applicants and licensees to complete a two-hour implicit bias training course.

The new law takes effect January 1, 2023, and requires training to cover:

the impact of implicit, explicit and systemic biases on consumers;
the historical and social impacts of those biases; and
actionable steps licensees can take to recognize and address their own biases.

Implicit bias training is to be incorporated in both pre-licensing and continuing education courses. This means that, starting in 2023, applicants and licensees can expect to see a two-hour implicit bias component included in their Real Estate Practice and 45-hour renewal courses, respectively.

Editor’s note — Want to get a head start on fair housing and implicit bias topics? Download firsttuesday’s Fair Housing continuing education e-book, which already covers many of the topics outlined in SB 263.

A diverse market is a healthy market

The bill was met with little opposition and was passed alongside a similar new law requiring anti-bias training for California appraisers — no doubt thanks to shifting attitudes on race relations in America. The murder of George Floyd by Minneapolis police in 2020 sparked massive social unrest across the country, reigniting a long-simmering conversation about housing disparities across racial lines in California as well.

Americans largely agree that systemic racism hurts their communities and businesses. This damage extends to California brokers and agents as well, since such practices ultimately hurt turnover — meaning fewer transaction fees to go around.

Yet, the real estate industry still wrestles with the enduring legacy of its racist past. Take redlining, for example: the practice of denying mortgages and under-appraising properties in communities of color. Redlining was officially outlawed in the Housing Financial Discrimination Act of 1977, but the practice continues under the radar and dictates where families of color can access credit today.

Related article:

Understanding the detriments of biases and recognizing biases are different skills. SB 263 aims to shrink the homeownership gap for people color by first empowering licensees. It’s up to agents and brokers — California’s trusted neighborhood gatekeepers — to lead the charge toward more diverse neighborhoods.

Editor’s note — Bookmark our Legislative Gossip page for regular updates on new and pending laws affecting your California real estate practice.

Related topics:
implicit bias, implicit discrimination, redlining, sb 263

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New law to allow ADUs to be sold separately from main residence

New law to allow ADUs to be sold separately from main residence somebody Fri, 09/22/2023 - 10:10 pm

Posted by Madison Hart | Dec 15, 2021 | Laws and Regulations, New Laws, Real Estate | 0

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

On September 28, 2021 Governor Gavin Newsom approved Assembly Bill (AB) 345 to authorize local agencies to allow accessory dwelling units (ADUs) to be sold separately from the main residence.

This is a change to a 2019 law, which currently gives local governments the authority to allow ADUs to be sold separately when a qualified buyer purchases a property which is:

created by a nonprofit (such as Habitat for Humanity); and
part of a recorded tenancy in common (TIC) agreement.

Under AB 345, local governments are now required to allow ADUs to be conveyed separately. Further, for these types of TIC agreements recorded on or after December 31, 2021, each agreement needs to include information on:

how the property is delineated for the exclusive use of the ADU buyer;
the ADU purchaser’s financial responsibility for taxes, insurance, utilities, maintenance and improvements to the property; and
procedures for dispute resolution between the ADU purchaser and the other owners under to the TIC agreement.

The additions made to this particular law are meant to make it easier for non-profit organizations to sell ADUs to low- and moderate-income homebuyers. The new law also requires cities to add language in legal agreements to make the language more comprehensible to homebuyers.

By removing the requirement for local agencies to first pass local ordinances, nonprofits will be able to expand their reach and more units will become available for first-time homebuyers.

Related article:

A healthy housing market

ADUs are an important piece in solving California’s housing shortage. The government’s recognition of this with new legislation is an important step in the right direction. There has been a 30% year-to-year increase in ADU production, according to the Department of Housing and Community Development.

ADUs have many benefits, including:

they are more low cost than traditional housing options;
they offer stable rental income;
and they can increase property values.

A major contributing factor to creating these ADUs is the easing of zoning restrictions. Loosening zoning laws allows for more spaces for living – while also keeping construction in areas where it’s beneficial and most in demand. ADUs allow more units to be added to suburban neighborhoods, where zoning changes are met with the most resistance from not-in-my-backyard (NIMBY) advocates. Now, with the ability to create more homeowners, ADUs have gained yet another benefit.

The amendments to this bill are a step towards creating a much healthier housing market – with less restrictive zoning regulations and the creation of more housing.

Related topics:
adu, affordable housing, california zoning, home inventory

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New study sheds light on housing planning issues

New study sheds light on housing planning issues somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Oct 11, 2021 | Feature Articles, Laws and Regulations, Real Estate | 0

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

When housing planners zig, builders zag.

That’s the story of California’s Regional Housing Needs Allocation (RHNA), the instrument the state uses to determine where and how much affordable housing is to be built. But the Golden State’s reputation for affordable housing is long tarnished, leaving prospective homebuyers and real estate agents alike wondering about its effectiveness.

A recent UCLA Lewis Center report warns that California’s current RHNA system is woefully ineffective. Housing is more likely to be built outside of the sites cities earmark for affordable housing development. And what’s being built isn’t even making a dent in California’s housing deficit.

Can the Golden State modernize RHNA to meet its purpose?

Enter the Housing Element Law

Since 1969, California’s Housing Element Law has required local governments to plan and generate housing to meet its residents’ growing needs using RHNA requirements handed down by the state. A city’s RHNA requirements are a crucial tool in what determines these housing plans.

Before California’s Department of Housing and Community Development (HCD) issues RHNA plans, they conduct a Regional Housing Needs Assessment. The assessment attempts to address both existing and future housing needs, taking into account projections for population, job growth, and transportation costs, among other factors. The result then dictates housing allocations at both the city and county level.

The allocations are where things get sticky, encountering a lot of not-in-my-backyard (NIMBY) sentiment, especially in suburban or single-family zoned areas. In turn, housing production has remained slow and housing quotas have only increased. The state has even gone so far as recently adding penalties for failure to meet quotas hoping to incentivize development.

Troubleshooting the RHNA

Researchers from UCLA’s Lewis Center for Regional Policy Studies have scrutinized the RHNA mechanism. They find a fundamental flaw in that the right hand, cities, is not talking to the left hand, developers.

Cities estimate where developers can and will want to build based on local resources, projected populations, transportation needs and job growth. Nonetheless, their designations bear little resemblance to the resulting development. Developers instead end up building on sites marked for or previously used for other purposes.

This is not meant to assign blame solely to cities. Cities identify specific sites that best meet housing quotas, but housing development can be hard to anticipate. Planners tend to be more conservative in their zoning density estimates of a site, considering constraints like parking requirements, municipal rules and other setbacks toward development.

Furthermore, the study suggests California holds an abundance of buildable vacant land. The issue is not a matter of capacity, but rather correct designation and coordination with developers.

A more accurate RHNA

For agents, this breakdown in communication manifests as low inventory and high prices. A more accurate RHNA may significantly change the real estate market landscape for the better.

The Lewis Center offers a two-part resolution to this issue.

First, California needs to adjust the model by which its cities select sites for housing for likelihood of development. This includes identifying all potential sites for housing, rather than limiting themselves to traditional inventory sites. This would subsequently widen the net of sites available.

Regional councils of government need to develop and maintain geocoded databases of every parcel in their region with basic information regarding each parcel’s existing uses and zoning. Analysts could then develop regional models of site development, allowing the councils to better estimate development probability and apply them to their housing element updates.

Second, cities need a preemptive housing credit for housing expected to be built on sites not listed in their plan, incentivizing them to accommodate development. By coupling this credit with production of non-inventory sites from the previous housing cycle, cities are more likely to accommodate development when it’s proposed. Ideally, this would also allow for mid-cycle adjustments if the credited development fails to materialize.

These solutions points California toward more accurate housing plans in accordance with on-the-ground conditions — rather than what appears ideal on paper.

Developers have learned to game the state’s current housing planning mechanism, leaving out buyers, sellers and subsequently real estate agents. With such a distorted rule of thumb for housing planning, it’s no wonder agents are hurting for listings. Supporting small but targeted housing solutions like modernizing RHNA is a winning strategy for brokerages in the long run.

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Property tax inequality: shifting the burden to boost homeownership

Property tax inequality: shifting the burden to boost homeownership somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Apr 26, 2021 | Economics, Fair Housing, Laws and Regulations, Real Estate, Tax | 0

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

We all expect to pay our fair share for local public services, but in practice, how fair and equitable is our property taxation system?

Nationally, low-tier homes are assessed at a higher value, relative to their actual market value than are high-tier properties. In fact, properties in the bottom 10% of homes pay an effective tax rate that is more than double that paid by a property in the top 10% of homes within the same jurisdiction, on average, according to research from the University of Chicago.

As a result, those homeowners of less valuable homes and with lower incomes carry a disproportionate tax burden.

A regressive tax, by definition, imposes a harsher burden on lower-income households than households with higher incomes. For example, the most common type of regressive tax is sales tax, as everyone pays the same amount of tax for the same goods, regardless of their income level. Regressive taxes reduce the tax burden of the people who have a higher ability to pay and shift the relative burden increasingly to those with a lower ability to pay.

Homes across the county in multiple jurisdictions are over-assessed relative to their actual market prices in low-income neighborhoods, while those in wealthy neighborhoods are under-assessed.

Notably, the University of Chicago study excludes homes assessed in California, due to our state’s unique tax system. Here, Proposition (Prop) 13 ensures property taxes are reassessed at the time of sale rather than at regular intervals, as the rest of the nation experiences. Here, Prop 13 is its own type of regressive tax, with the tax burden disproportionately impacting new homeowners.

First step to a more equitable tax system – amending Prop 13

On top of the regressive nature of property taxes seen in America today, where high-tier properties are assessed at a lower ratio than their low-tier counterparts, California has its own burdens which allow some to reap the benefits of property taxation limits, while others are left to do the heavy lifting on the taxes needed.

Prop 13, or the People’s Initiative to Limit Property Taxation, passed in 1978, limits property taxes to 1% of the property’s assessed value at the time of purchase, plus an annual inflation factor. Reassessments occur upon a transfer of title, even when a property’s fair market value (FMV) is substantially higher than its assessed value.

Prop 13 is itself a regressive tax. In this system, property taxes place the greatest tax burden on new homebuyers and current renters, those who are the least likely to be able to afford it.

The original motive behind Prop 13 was to create a system that protects homeowners who are retired and living on fixed incomes from potentially dramatic increases in property taxes. However, this system brought with it several dynamics unfavorable for maintaining turnover and home sales volume.

For example, long-term homeowners are often hesitant to sell their home since any new home they purchase will bring with it a significantly higher tax rate, thus reducing their purchasing power.

Further, some owners have found ways to take advantage of Prop 13, avoiding reassessment. For example, the change of ownership of a limited liability company (LLC) (or other legal entity) does not constitute a change of ownership, unless an individual or entity acquires more than 50% of the membership interest in the LLC. [Calif. Rev & T C §64]

As long as this Prop 13 loophole exists, an entity vested in title to real estate may divide the sale of its membership interests while avoiding reassessment. The result is that investors who cunningly divide their interests under 50% of the total share avoid paying their fair share of local public services, while first-time homebuyers disproportionately shoulder the burden. Prop 13 can be amended to continue protections for retired and disabled homeowners, while removing the loopholes that allow LLCs to unfairly take advantage of the system.

While LLC ownerships avoid reassessment, new homebuyers and renters are left picking up the tab on public services. Throughout the nation and in the state of California, regressive taxation persists. Here in California, reforming our taxation process starts with fixing Prop 13.

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Redlining: its history and lasting impacts

Redlining: its history and lasting impacts somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Sep 27, 2021 | Economics, Fair Housing, Fundamentals, Laws and Regulations, Real Estate | 2

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

California law prohibits discriminatory lending practices so that the state may strive toward a healthier and more diverse real estate market. But it hasn’t always been that way.

The effects of discrimination in the mortgage and housing markets continue to reverberate in today’s housing landscape. Despite modern legal protections, homeowners in communities that lenders unfairly deemed “high-risk investments” in the past still contend with reduced access to credit and higher borrowing costs today.

This is a lose-lose situation for homeowners and real estate professionals alike. So, what can agents do to combat the lingering effects of discrimination in the industry? First, a little history lesson.

The history of redlining

One of the most insidious forms of discriminatory lending in California’s history is redlining. Redlining is the practice of denying mortgages and under-appraising properties in minority communities based on demographics. The Housing Financial Discrimination Act of 1977 outlawed the practice in California. [See RPI e-book Real Estate Principles Chapter 9]

Redlining emerged as a practice after the Great Depression when the federal government sought to limit foreclosures and stabilize the housing market by classifying communities on a scale from low risk to high risk for mortgage lenders.

The Home Owners Loan Corporation (HOLC) drew maps for over 200 cities nationwide between 1935 and 1940. The purpose of these maps was to color-code and document the creditworthiness of neighborhoods. The racial composition of neighborhoods was factored into the grades received, and often proved pivotal in assigning a certain grade.

The HOLC maps grouped neighborhoods into four classifications:

Grade A: “Best” (colored green), described as the most stable, homogenous and in demand during good times or bad;
Grade B: “Still desirable” (colored blue), described as somewhat stable and “still good,” posing an acceptable risk of default for mortgage lenders;
Grade C: “Declining” (colored yellow), posing a high risk of default for lenders and described as becoming obsolete with expiring restrictions or a lack of them and “infiltration of a lower grade population;” and
Grade D: “Hazardous” (colored red), posing the greatest risk of default for lenders and the least stable of all the categories.

Redlining has historically led to a decline in the quality and quantity of housing in communities that were deemed risky. Even though California outlawed the practice in 1977, the effects of the HOLC maps introduced in the 1930s persist today.

The lasting impacts of redlining

An August 2020 working paper from the Federal Reserve Bank of Chicago finds that the HOLC maps which contributed to redlining practices had measurable effects in subsequent decades. This includes reducing homeownership rates, home values and rents among neighborhoods with lower HOLC map grades like C and D, while also increasing racial segregation.

Over the 20^th century, redlined areas — those receiving D grades — became more Black than their bordering C-grade neighborhoods. The gap between D and C boundaries grew steadily from 1930 until the 1970s, before shrinking thereafter.

A similar pattern emerges in C neighborhoods bordering B neighborhoods. In fact, the effects on housing were more significant and longer lasting along the C-B boundaries than the D-C boundaries.

For example, the gap between C and B home values as of 2010 was 7.5 percentage points. The gap between D and C home values as of 2010 was 2 percentage points.

The paper demonstrates that the HOLC maps had economically significant negative effects on the lower half of the codes. It also reveals that yellowlining significantly impacts residents living in those areas. The negative effects on yellowlined areas were more persistent between 1930 and 2010 than they were in D-grade areas deemed hazardous.

Related Video: Office Hours with Professor Bill: Episode 8

Click here for more information on this topic.

What agents need to know about discriminatory practices

Federal and state laws exist to protect against housing discrimination.

The Federal Fair Housing Act (FFHA) prohibits the use of any discriminatory actions a seller, landlord or property manager might take against a prospective buyer or tenant based on an individual’s:

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

California law also bars discrimination in the sale or rental of housing accommodations. California’s list of protected classes is more extensive than federal protections, with discriminatory practices prohibited based on an individual’s:

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

Discriminatory practices include:

making an inquiry into the race, sex, disability, etc. of any individual seeking to rent or purchase housing;
publishing ads or notices which indicate a preference or limitation based on any of the prohibited discrimination factors;
use of prohibited discrimination when providing or arranging real estate mortgages and financing;
a broker’s refusal 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.

An individual who has been the victim of discriminatory housing practices may file a complaint with the Department of Fair Employment and Housing, the California government agency which enforces anti-discrimination law.

Brokers have a duty to advise their agents and employees of anti-discriminations rules and conduct. The broker is not only responsible for their own conduct, but also needs to ensure their employees follow anti-discrimination regulations when acting as agents on their behalf. [See RPI e-book Real Estate Principles Chapter 7]

Though housing discrimination is outlawed in California, redlining’s effects yet linger. Legislation alone is not enough to stamp out the legacy of racism — it’s up to agents and brokers to do their part as shepherds of the Golden State’s housing market.

Related Video: Civil Rights and Fair Housing Laws

Click here for more information on this topic.

Want to learn more about this topic? Click an image below to download the RPI book cited in this article.

Related topics:
discrimination, home values, homeownership rate, redlining

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Refinancing and race: Why the divide and how to close the gap

Refinancing and race: Why the divide and how to close the gap somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Jun 10, 2021 | Economics, Fair Housing, Laws and Regulations, Real Estate, Your Practice | 0

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

Many homeowners took advantage of historically-low interest rates in 2020 by refinancing. This tumultuous year witnessed the highest dollar amount of mortgage loan originations in U.S. history, with just over $4 trillion in mortgage originations occurring last year. Of this total amount, refinances made up 35% or $2.6 trillion.

However, the tendency to refinance mortgages differs among racial groups, leading to some groups being stuck with higher interest rates.

Black and Latinx homeowners paid higher interest rates than White homeowners between 2005 and 2020. Black homeowners paid up to 50 basis points higher on interest rates than White homeowners, according to a recent report from the Federal Reserve Bank of Atlanta. Refinancing into lower rates not only allows homeowners to save money, but it can also help them pay off their home more quickly and allows them to make improvements to their property.

Why does this disparity exist?

White homeowners pay lower interest rates because they are much more likely to take advantage of periods of falling interest rates by refinancing their mortgages or moving, as found in the report.

The report concludes that although Black and Latinx homeowners also benefit from periods of lower mortgage rates, they benefit much less than White homeowners.

These findings lead to a few key questions: First, why do Black and Latinx homeowners refinance less frequently than their White counterparts? Relatedly, why are they less responsive to dips in interest rates?

Observable differences such as loan-to-value ratios (LTVs) and credit scores across homeowners explain about 80% of the difference. However, a gap remains which has not been fully accounted for.

Numerous factors contribute to the remaining gap, including:

different levels of education and financial literacy;
exposure to employment shocks that may inhibit the ability to refinance into low rates; and
social networks.

What might be done to reduce these racial differences in interest rate payments?

The report offers a few suggestions:

expanding the use of adjustable-rate mortgages (ARMs), rather than relying on fixed-rate mortgages (FRMs) – though firsttuesday recommends ARMs for seasoned investors only, rather than the average homeowner due to the risk of payment shock when the ARM resets;
encouraging the mortgage industry to develop products that combine the benefits of FRMs and ARMs, such as mortgages that adjust down, not up; and
enacting complementary race-neutral policies that make it easier and less costly to refinance, such as providing streamlined refinancing programs.

With interest rates still near historic lows in 2021, as a real estate professional, you may want to advise all your clients to refinance to take advantage of today’s low rates.

One way to advise clients is to use FARM letters in your marketing to inform homeowners about their options. Click here to download free marketing material to share with your current and potential clients on the benefits of refinancing.

Other obstacles to homeownership for minority homebuyers

The decline in American homeownership rates since the Millennium Boom is most severe among Black Americans. The gap between White and Black homeownership rates is particularly wide.

During the Millennium Boom era, predatory lending practices steered minority homebuyers into subprime mortgages, a type of loan that mortgage holders were aware had a higher likelihood of default.

For a recent example of predatory lending practices, look no further than 2012, when Bank of America (BofA) settled a case for their subsidiary company, Countrywide, due to their discriminatory lending practices.

Countrywide discriminated against minority homebuyers by:

charging higher fees to minorities than White homebuyers with equivalent qualifications; and
steering minority homebuyers into subprime mortgages.

These factors led to minority homebuyers paying more for mortgages than similarly qualified White homebuyers. Thus, when the housing bubble burst following the Millennium Boom, these minority homeowners had more difficulty making mortgage payments than White homeowners, even when they had borrowed at equivalent levels and with the same qualifications.

Another homeownership obstacle for minority homebuyers is the statistical fact that Black and Latinx heads of households tend to be employed in professions more adversely affected by periods of economic downturn. Thus, in recessionary periods, they are more exposed to job losses than are White heads of households.

Predatory lending practices targeting minority homebuyers and increased employment instability for these demographics also leads to higher foreclosure rates.

As a real estate professional, consider the following tactics to ensure all clients have an equal chance at homeownership:

vigilantly observe and oppose predatory lending;
when mortgage applications are denied, discover the reason why; is it to do with observable differences such as high debt-to-income (DTI) ratios or another reason;
when denied for qualifying reasons, encourage your client to pay down debts and apply again in a few months or a year;
in the case of no observable reason for the denial or adverse mortgage terms offered, advise your client the options available to them, such as applying elsewhere or filing an official complaint; and
when the client suspects they may be the victim of discriminatory practices, they may report the incident to the U.S. Department of Housing and Urban Development (HUD) or the Consumer Financial Protection Bureau (CFPB).

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Rent or food — you pick

Rent or food — you pick somebody Fri, 09/22/2023 - 10:10 pm

Posted by Casandra Lopez | Nov 1, 2021 | Fair Housing, Real Estate | 0

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

Agents: how much income do your clients spend on housing costs? For renters, the rent-to-income share is growing at an alarming pace, especially here in California.

Cost-burdened households are those who pay more than 30% of their income on housing. These households often have difficulty affording necessities such as food, clothing, transportation, and medical care, according to the U.S. Department of Housing and Urban Development’s (HUD’s) Office of Policy Development and Research (PD&R).

In August 2021, the typical U.S. renter household spent 30.3% of its income on rent, just over the 30% threshold at which a household is considered rent burdened, according to a Zillow analysis of race, rent and income. For Black and Latinx renters, the housing costs-to-income ratio is even higher.

Across the nation, as of August 2021, Black and Latinx renters spent more of their incomes on rent than white and Asian renters. The share of income spent on rent is:

34% for Black households;
32% for Latinx households;
29% for white households; and
26% for Asian households.

Unsurprisingly, renters tend to spend even more of their income on rent here in California. Across California’s major metros, Black renters are the most cost burdened.

In San Jose, the rent-to-income ratio paid by each rental household is:

53% for Black households;
36% for Latinx households;
34% for Asian households; and
25% for white households.

In San Diego, the rent-to-income ratio paid by each rental household is:

53% for Black households;
39% for Latinx households;
34% for white households; and
33% for Asian households.

In Sacramento, the rent-to-income ratio paid by each rental household is:

52% for Black households;
37% for Latinx households;
33% for Asian households; and
31% for white households.

In Riverside, the rent-to-income ratio paid by each rental household is:

40% for Black households;
36% for Latinx households;
36% for Asian households; and
34% for white households.

In Los Angeles, the rent-to-income ratio paid by each rental household is:

41% for Black households;
35% for Asian households;
33% for Latinx households; and
31% for white households.

In San Francisco, the rent-to-income ratio paid by each rental household is:

43% for Black households;
33% for Latinx households;
27% for Asian households; and
24% for white households.

This data only further emphasizes California’s ongoing housing crisis. Wages have not increased at the same rate as housing prices, and that means renters end up with less disposable income. People of color (POC) can’t even afford to rent anymore without sacrificing basic necessities.

To make ends meet, renters are forced to move in with relatives or roommates. This doesn’t just impact renters, but also real estate agents. A renter paying more than 30% of their income on rent will never be able to save up for a down payment on a house. Without a steady stream of first-time homebuyers, agents’ businesses will ultimately suffer.

The effects of redlining continue in 2021

The fact that most renters who are housing cost burdened are people of color is no surprise.

This disparity between rentals available to POC and white communities in our current housing market is the direct result of decades of racial discrimination. This includes years of institutionalized redlining from which many communities are still recovering.

Redlining is the practice of denying mortgages and under-appraising properties in minority communities based on demographics. It led to a decline in the quality and quantity of housing in majority-POC communities. Redlining essentially isolated people of color in areas that would suffer lower levels of investment than in majority-white areas. The Housing Financial Discrimination Act of 1977 outlawed the practice in California, but the effects continue today.

Redlining of POC communities also impacted factors critical to social success, including educational achievement, income, access to credit and health. Stripped of the opportunity to fairly sell and buy in the housing market, people of color were boxed into leftover areas like urban housing projects and racial ghettos where the quality of housing and resources dramatically decreased.

Unable to sell an under-appraised property, people of color were forced to sell their land for a lot cheaper or remain in poverty. Those who wanted to buy faced rejected mortgages and self-segregating homeowners who fought to keep their communities white.

As time went on, the quality and quantity of housing in POC communities decreased, and so did the value of the land. People of color were stripped of the opportunity to fairly invest in housing and acquire their own land wealth. This greatly contributed to the racial wealth gap we see today, especially in housing. This is why we see so many people of color renting now, instead of as successful, established homeowners. People of color are decades behind their white counterparts when it comes to investing and acquiring land.

The generational wealth is just not there.

Reparations are in order. California legislators have yet to address the detrimental effects of redlining. Back in 2019, then-California Senator Kamala Harris revealed a $100 billion plan to invest in Black homeownership to tackle the U.S. racial wealth gap, as detailed in CNN politics. This plan aimed to assist homebuyers who rent or live in historically redlined communities by granting up to $25,000 to assist with down payments or closing costs. However, this plan never came to fruition, proving just how far we still need to go to overcome these housing inequities.

Agents’ businesses depend on a balanced demographic of real estate participants. Brokers have a duty to advise their agents and employees of anti-discriminations rules and conduct. The broker is not only responsible for their own conduct, but also for ensuring their employees follow anti-discrimination regulations when acting as agents on their behalf.

Agents can support non-white homeownership by keeping an eye out for predatory lending and discriminatory housing practices, which both contribute to the low rate of non-white homeownership.

To learn the basics of housing discrimination or to file a complaint, visit the U.S. Department of Housing and Urban Development.

Editor’s note — Mandatory anti-bias training may soon become part of agent and brokers’ regular licensing and continuing education courses. Senate Bill 263, which requires anti-bias training as part of the required course load for real estate licensees and license applicants beginning in January 2023, is heading toward the governor’s desk at the time of this writing. Follow along for updates at firsttuesday’s Legislative Gossip page.

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SB 1190 expands domestic violence lifeline for tenants

SB 1190 expands domestic violence lifeline for tenants somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Jan 7, 2021 | Fair Housing, Feature Articles, Laws and Regulations, New Laws, Real Estate | 1

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

As the COVID-19 pandemic stretches into its second year, California health officials are attempting to slow the spread with safer-at-home restrictions. However, for survivors of domestic abuse, home is often the most dangerous place.

On September 28, 2020, Governor Newsom signed Senate Bill 1190 to help more of California’s most vulnerable renters. This bill would expand tenancy termination protections for tenants who were victims of abuse.

Previously, California Civil Code §1946.7 authorized a tenant to terminate a tenancy and be released of any rent payment obligation without penalty when:

the tenant suffered domestic abuse, stalking, sexual assault, human trafficking or abuse by an elder or dependent adult; and
provided written notice of the abuse.

The law also required tenants to attach documentation evidencing the abuse or violence along with their written notice. Acceptable documentation was restricted to:

a restraining order;
police report; or
qualified third-party documentation evidencing treatment for physical or mental injuries due to the abuse or violence.

Immediately family members now qualify

Senate Bill 1190 widens these protections to include immediate family members of tenants who were the victim of a crime as well as lengthens the list of eligible crimes to include:

the use or threat of force;
use or threat of a firearm; and
bodily injury or death.

Documentation requirements under this bill would also be broadened to any form of documentation that reasonably verifies the qualifying act or crime occurred. Further documentation is required by the tenant when the immediate family member did not live in the tenant’s household at the time of the incident, or if any part of the incident occurred within the household or within 1,000 feet of it. This written documentation needs to include a statement of the incident the immediate family member was victim to and that the tenant intends to relocate as a result.

Under this bill, an immediate family member is defined as a parent, stepparent, spouse, child, child-in-law, stepchild, sibling, or any person living in the tenant’s household at the time the act or crime occurred. If a tenant is to exercise these rights under this immediate family member clause, the tenant is responsible for payment of rent for no more than 14 days following the giving of notice.

Further tenant protections now included

Additionally, Senate Bill 1190 now prohibits landlords from retaining the tenant’s security deposit or advance rent when a tenant exercises these rights.

Furthermore, as the tenant is not within breach of their rental or lease agreement when exercising these rights, refusal to rent to an otherwise qualified tenant based on the fact they exercised these rights is also prohibited under this new law.

As the first point of contact with the public, agents and brokers are in a unique position to understand the silent plight of domestic abuse survivors. SB 1190 is another step toward making housing insecurity a nonissue for those dealing with trauma.

Editor’s note: If you or someone you know is a victim of domestic violence, please contact the National Domestic Violence Hotline at 1-800-799-SAFE (7233) or thehotline.org.

Related topics:
tenant protections

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Survey says: 2021 is a seller’s market

Survey says: 2021 is a seller’s market somebody Fri, 09/22/2023 - 10:10 pm

Posted by Amy Platero | Aug 27, 2021 | Buyers and Sellers, Economics, Real Estate | 0

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

Homebuyer sentiment has waned to a new low in 2021.

A monthly national survey conducted by Fannie Mae provides data about the attitudes, intentions and financial considerations surrounding consumers as they relate to the housing market.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) is extracted from information collected in the survey, specifically relating to a few key questions pertaining to the housing and mortgage markets.

When asked about their views on the present and future of the national housing market:

28% said it’s a good time to buy a house, while 66% said it’s a bad time to buy; and
75% said it’s a good time to sell a house, while 20% said it’s a bad time to sell.

Looking ahead:

46% said home prices will go up in the next year; and
5% said mortgage interest rates will go down over the next year.

On the household finance side of things:

13% said they are concerned about losing their job in the next year; and
27% said their household income is significantly higher compared to the year before.

The HPSI decreased 3.9 percentage points in July 2021 to 75.8, up from 74.2 a year earlier. To arrive at an index figure, the researchers average the share of positive responses to each question.

Consumers’ views on buying in the current market are at the lowest level the survey has seen, which extends back to 2010.

How sentiment translates to real estate purchases

Despite the prevailing consumer attitude that now is the time to sell, it doesn’t mean homeowners are necessarily acting on those attitudes.

That’s because most homeowners who sell their homes end up buying replacement property. This means sellers will need to engage in buying, something consumers overwhelmingly recognize as a struggle in 2021.

The two main frictions causing a negative outlook on buying in the current housing market are:

high home prices; and
a low inventory of homes for sale.

Another factor keeping inventory low in 2021 is the continued impacts of the foreclosure moratorium, which have allowed many would-be sellers to remain in their homes under forbearance programs. While the foreclosure moratorium expired at the end of July, homeowners remain protected from eviction due to foreclosure through September 30, 2021. At that time, expect to see a rise in inventory for sale.

Though many will not act on selling due to the obstacles in buying a replacement residence, others will take advantage of this seller’s market.

But, although the rising home values and low multiple listing service (MLS) inventory numbers may signal it’s the time for sellers to sell, savvy investors know the housing market remains in a hold phase, and has been since the 2020 recession began. [See RPI e-book Real Estate Economics Chapter 2.4]

Although home prices are competitively high today, with low-tier home prices averaging 20% higher than last year in California, and mid- and high-tier home prices 21% higher than the year before as of May 2021, they won’t last for long.

As a result of rising 90+ day delinquencies and historic job losses stemming from the 2020 recession, today’s high prices will begin to drop. The federal foreclosure moratorium expired at the end of July and federally-backed mortgages will no longer offer forbearance by the end of September. When these programs expire, foreclosures will return to the market, as well as forced sales from homeowners with sufficient equity to avoid a foreclosure, but without the month-to-month income to make mortgage payments.

The significance of new inventory in the form of forced sales will drag down home prices, bottoming in 2023.

With the coming change in home prices and inventory levels, expect to see consumer sentiment shift in response to these changing conditions in the housing market. The business cycle will then produce a buyer’s market, anticipated to begin around 2023-2024 along with the jobs recovery.

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

Related topics:
consumer sentiment, home inventory, home prices, housing market

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The spirit of compliance: Career Compass sets itself against CAR and the DRE

The spirit of compliance: Career Compass sets itself against CAR and the DRE somebody Fri, 09/22/2023 - 10:10 pm

Posted by Benjamin J. Smith | Feb 1, 2021 | Feature Articles, Laws and Regulations, Real Estate, Your Practice | 1

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

This article details The Career Compass’s ongoing battle with the DRE, and by extension CAR, highlighting the need for the DRE to foment competition and compliance equally among all course providers — including CAR.

A real estate program for “success”

A real estate organization called The Career Compass, geared toward providing in-person seminars and other member benefits to California real estate agents, has been locked in a protracted legal battle with the California Department of Real Estate (DRE) for nearly a decade.

The Career Compass was founded in 2007 by Wellington Pendell, who is not a real estate licensee. Pendell spent much of his early career as a salesperson and manager in fields unrelated to real estate.

At its inception, The Career Compass grew by providing real estate success seminars. The company’s website describes these seminars as imparting “tools [and] techniques to increase listings and commissions.”

In 2010, the company began offering DRE-approved 45-hour continuing education (CE) courses for real estate agents to renew their licenses.

Coming to blows with the DRE

The Career Compass’s conflict with the DRE began in 2012, when, according to public DRE filings, The Career Compass engaged in the practice of awarding CE certificates of completion to students who had not met the requirements to renew their real estate licenses.

Editor’s note — Full disclosure: firsttuesday is a provider of CE courses for California real estate agents.

In 2014, the DRE responded by revoking The Career Compass’s — and Wellington Pendell’s — approval to provide CE. Pendell adamantly maintains all the company’s original practices were in accordance with real estate law and DRE regulations.

In light of the decision, The Career Compass took a page out of the California Association of Realtors (CAR)’s playbook, offering CE courses through an affiliate with the stated goal of continuing to provide consistent benefits to attendees of their seminars.

Again, the DRE took issue with The Career Compass’s methods, alleging the company misled attendees by claiming in various advertisements that The Career Compass offered DRE-approved continuing education — when in fact those courses were created and offered by an affiliate course provider.

Pendell, however, disputes these claims, maintaining The Career Compass “disclosed exactly what [they] do,” when it comes to the CE courses they facilitated at the time.

Nevertheless, the DRE stood by its characterization of The Career Compass’s advertisement as fraudulent and issued a desist and refrain order (DRO), disallowing The Career Compass from advertising CE courses as its own.

The Career Compass continued to partner with affiliate programs to offer CE courses to their attendees. One of these affiliates, CyberCE, founded and owned by Barry Caudill, was caught up in The Career Compass’s most recent run-in with the DRE.

In 2018, a DRE investigation found that The Career Compass materially altered DRE-approved content offered by CyberCE, changing test-taking time limits and improperly adapting DRE-approved online courses for live audiences.

More worrisome, the DRE alleges The Career Compass in some cases provided students with fraudulent certificates of completion — produced by The Career Compass but bearing the CyberCE name and logo — that did not reflect the proper completion of DRE requirements.

Barry Caudill declined to comment on the validity of the DRE’s allegations.

The investigation culminated in a bar order issued in November 2019, prohibiting The Career Compass not only from offering real estate seminars, but from conducting any real estate-related business whatsoever, even through affiliate entities.

Again, Pendell sees the situation quite differently, outright denying the DRE’s allegations.

“It’s very clear that The Career Compass has been politically targeted by the DRE and by CAR,” Pendell emphasizes, citing CAR’s outsized influence in the California real estate industry as motivation for the DRE to come down hard on The Career Compass. “CAR provides zero benefits, so The Career Compass is seen as a threat.”

According to Pendell, The Career Compass requested an administrative hearing to appeal the DRE’s bar order in 2019, and has yet to receive a reply.

Editor’s note — Though firsttuesday requested a statement, the DRE has yet to confirm or deny whether they received the Career Compass’s request for a hearing. Stay tuned for updates.

Briefly, in January 2021, the seminars previously listed on The Career Compass’s website were offered through the California Association of Real Estate (CARE) (not to be confused with any similarly named entity in Pendell’s crosshairs). According to its website, the seminars were “NOT in any legal way being conducted or promoted by The Career Compass Inc. or any subsidiaries therein.”

The website and all references to it on The Career Compass’s own site have been removed as of this writing, and those seminars are once again listed on The Career Compass’s website. However, firsttuesday captured screenshots of CARE’s website prior to its going dark, which can be viewed here and here.

Pendell, for his part, noted he had “no legal or personal involvement with the California Association of Real Estate.”

Editor’s note — firsttuesday reached out to the DRE regarding a number of Pendell’s statements prior to the removal of CARE’s website. The department appeared not to be aware of CARE.

The CAR connection

There’s no denying CAR and the DRE have a close relationship, but it’s not clear whether Pendell’s claims about the DRE’s motivation to target The Career Compass have any merit. Nevertheless, at least one of his underlying concerns is worth taking a look at — namely, the amount of political weight CAR wields in California, and how it throws that weight around.

Not only does CAR compel membership from nearly 60% of California licensees by misrepresenting MLS access as an exclusive member benefit, it also holds a virtual monopoly on the real estate forms market.

Editors’ note — firsttuesday, which once sold real estate forms, was on the receiving end of CAR’s ploy to include zipForms as a “free” member benefit in 2002. RPI Forms has since published its forms at no cost, without the prerequisite of a costly membership à la CAR.

However, The Career Compass’s primary beef with CAR goes back to the association’s attempted takeover of the California CE market. With the advent of OnlineEd’s full 45-hour course in 2017, CAR no longer purported to be only an avenue for a real estate agent’s day-to-day dealings, but a one-stop-shop for everything real estate, using its established member base to quell competition.

CAR’s CE is offered through a third-party provider, and worse, that provider is based out of state, meaning OnlineEd’s courses are not grounded in the specialized nuances of California real estate law.

According to Pendell, the way CAR markets its CE courses is indicative of a major discrepancy in the way the DRE treats its course providers.

After the DRE’s original revocation of The Career Compass’s license to provide CE, the DRE’s next major complaint with The Career Compass concerned advertising that led students to believe their courses were offered by The Career Compass, rather than through a third-party provider.

While it’s clear from the DRE’s public records that The Career Compass didn’t go to great lengths to dispel this notion, they did at least in the fine print disclose that their CE courses were not offered directly through The Career Compass — more than could be said for CAR.

Nowhere on CAR’s website does the association publicly disclose that its CE is offered by out-of-state OnlineEd. In fact, the website specifically states CAR’s CE is “brought to you by C.A.R. Education.”

No matter where you stand on The Career Compass’s scruples, it’s hard to deny there’s a double standard here.

The power of competition

All this matters because competition is good for the California real estate market. When the majority of real estate agents rely on an overstretched trade union ineffectively aiming to fulfill every professional need — or feel they are forced into it despite not believing its services are worth the cost of membership — the overall competency of the state’s real estate agents suffers. Worse, the California selling and buying public suffers alongside.

firsttuesday encourages all real estate agents and course providers to remain fully compliant with not only the letter, but the spirit of California real estate law, as regulated by the DRE. The DRE has made it clear that, over the course of the conflict, The Career Compass has continuously failed to do so.

But that doesn’t mean the DRE is entirely off the hook here. Whether or not some amount of bias is present in their treatment of The Career Compass, the onus is on the DRE to ensure there is no perception that organizations like CAR receive special treatment when it comes to enforcing that compliance, and when it comes to maintaining a healthy, competitive spirit within the California real estate industry.

Editor’s note — Let us know in the comments below or at editorial@firsttuesday.us if you are a member of The Career Compass or have attended a Career Compass seminar and would like to share your thoughts.

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What does the end of single-family zoning look like?

What does the end of single-family zoning look like? somebody Fri, 09/22/2023 - 10:10 pm

Posted by Bethany Correia | Sep 27, 2021 | Buyers and Sellers, Economics, Fair Housing, Feature Articles, Forecasts, Home Sales, Laws and Regulations, New Laws, Real Estate | 4

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

As California’s housing crisis and political divisions deepen, its lawmakers are trying every legislative trick in the book to get any relief to stick.

Senate Bill 9 (SB 9) is the latest of these efforts. The bill is only part of the California Senate’s Building Opportunities for All housing package, a multi-faceted approach to combat the state’s housing woes.

More specifically, 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. Proponents tout the bill’s potential to increase affordable housing stock in a tight real estate market and open up additional income sources for homeowners.

SB 9 was approved by the California Assembly on August 26, 2021, in a 44-16 vote, then approved by the Senate on August 30 in a 28-7 vote. Opponents of the bill hoped the recall of Governor Newsom would make the bill null and void, but in the wake of Newsom’s win, that strategy has met a dead end. Newsom officially signed SB 9 into law on September 16, 2021.

Now that SB 9 has been signed into law, how its effectiveness and reception unfolds in the long term remains to be seen.

YIMBY vs. NIMBY

Yes-in-my-backyard (YIMBY) activists view this law as a progressive step in the right direction, modernizing communities and making homeownership more accessible and affordable. They argue bans on duplexes perpetuate the legacy of redlining by making it more difficult for people of color to afford to live in high-opportunity neighborhoods.

High-opportunity neighborhoods are those classified as providing access to community attributes and amenities often indicative of increased economic mobility. These attributes and amenities include higher job density, higher income, lower poverty and unemployment rates, increased completion of higher education and are predominantly white in population.

In contrast, lower-opportunity neighborhoods are characterized by lower job density, lower income, higher poverty and unemployment rates, decreased completion of higher education and are predominantly populated by people of color. While these are not hard and fast rules, the pattern — and its discriminatory outcome — is hard to ignore.

Not-in-my-backyard (NIMBY) activists fear the bill threatens single-family zoning and subsequently homeownership in California. They claim that this one-size-fits-all statewide attempt at a housing solution is short sighted and usurps local control. Additionally, the risk of increased housing density may negatively affect property values. This is naturally concerning to them as homes are often people’s biggest financial asset.

However, SB 9 stipulates any new housing created under it must meet a specific list of qualifications that protect environmental quality, historic districts and existing tenants vulnerable to displacement. Additionally, it has been amended to require a three-year owner occupancy for lot splits.

Perhaps the most damning argument against SB 9 lies in how it will be enacted. The bill does not set a price cap for these new units, nor does it set out affordability requirements. Detractors point to this as evidence that SB 9 would bring the greatest benefit to the wealthiest homeowners and developers.

NIMBYs are correct that the law has no built-in affordability clause or amendment. YIMBYs assert the size and classifications of the units themselves with market rate will automatically be affordable. Still, there’s nothing to stop wealthy developers that only see dollar signs.

The political history of single-family zoning

Single-family zoning has long been painted as integral asset and part of the homeownership landscape that “preserves character.” Yet it has racist beginnings.

In 1916 Berkeley, California, single-family zoning was enacted to block a Black-owned dance hall from moving into a predominantly white neighborhood. This also precluded multi-family units, more commonly occupied by people of color, from being built.

Some argue as there’s no way to extricate this exclusionary zoning from its racist history and the echoes it carries in neighborhoods today as a symbol of segregation and racism, it should be done away with by default.

But the reality of California’s housing and political landscape rules out such a sudden and sweeping measure, despite its pro-housing intentions. Meaningful change often comes at a frustratingly slow pace, and California’s long-simmering housing catastrophe is no exception. Accordingly, lawmakers considerably focused SB 9’s scope compared to previous high-profile housing legislation like SB 50.

SB 9’s impact

Proponents of the law insist it is likely to result in “modest,” “light” or “gradual” density. Research by University of California Berkeley’s Terner Center for Housing Innovation confirms this claim of gradual density is accurate, stating development would only be realistic to 5.4% of land owned and occupied by single-family homes or 410,000 parcels in California at most.

Assuming every single homeowner with the potential to develop did, that would total to about 700,000 new units across California. The three-year owner occupancy amendment would cut this potential total unit number to 660,000 units. However, this number of units may not be realized because the average homeowner cannot afford to build a second unit, much less a third or fourth.

California is not the first state to ban single-family zoning. Minneapolis City Council elected to eliminate single-family zoning in 2018 and Oregon became the first state to ban single-family zoning in many of its cities in 2019. The single-family zoning ban in Minneapolis is still in its infancy, so long-term results are not yet known.

A 2019 Terner Center study suggests the single-family zoning ban in Minneapolis has displayed an increase in the price of some single-family homes. Even so, this rise proved essential to encouraging redevelopment resulting in affordable housing options.

For agents, SB 9 and California’s Building Opportunities for All package remains a double-edged sword. A transition away from single-family zoning complicates the suburban dream to which Californians have long aspired.

At the same time, shrewd agents understand that sales volume is the bottom line. Opening up California’s long-stagnant suburbs also represents more transaction fees. After all, there are only so many million-dollar transactions to go around.

Agents — keep up to date with your local governments to see how they choose to implement this policy going forward. How California’s cities embrace this new law will dictate how real estate professionals survive the recession hangover.

Related topics:
zoning