Posted by Carrie B. Reyes | Jun 16, 2020 | Feature Articles, Laws and Regulations, Property Management | 0

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

November 2020 update: Proposition 21, which sought to expand local governments’ ability to enact rent control laws, was defeated at the ballot box.

Rent control — the controversial solution to California’s rental shortage and rapidly escalating rents — is up for debate again.

Rent control keeps rents from rising beyond the financial abilities of long-term tenants. In theory, rent control creates more stable neighborhoods since tenants won’t be forced out due to rising rents, especially in neighborhoods where gentrification is occurring.

Rent control laws are broadly governed at the state level through the Costa-Hawkins Rental Housing Act (Costa Hawkins) and adapted through local rent control ordinances by individual cities.

In 2018, voters rejected Proposition 10, which would have repealed Costa Hawkins and allowed local governments to take rent control into their own hands. Just two years later, another ballot measure has qualified to appear on the 2020 ballot, titled the California Local Rent Control Initiative or the Rental Affordability Act. This newest measure seeks to rollback certain parts of Costa Hawkins, while leaving much intact.

Under Costa Hawkins, local rent control measures are prohibited for housing units:

• with single titles, like:
  • single family residences;
  • condo units;
  • townhomes; and
• first occupied on or after February 1, 1995.

Thus, Costa-Hawkins only permits local governments to enact rent control measures on a limited number of older multi-family units. This has become a big problem in recent years, as the number of residents who can benefit from rent-controlled housing continues to rise with our growing population, while the number of units eligible for rent control remains static.

The 2020 ballot initiative changes the law by instituting an active date that moves with the calendar. It allows local governments to enact rent control measures on units:

• first occupied within 15 years prior to the date the landlord seeks to establish the initial or subsequent rent rate; and
• owned by natural persons who own no more than two separate-title housing units, like:
  • SFRs;
  • condos; and
  • some townhomes or duplexes.

This measure is a nod to 2018’s Prop 10, meeting the voters who rejected it halfway.

Rent control’s promises

2020’s ballot measure seeks to add more units to the inventory of rent-controlled housing. Additional qualified housing would help millions of low-income residents who are unable to find affordable housing.

This need is evidenced by California’s worsening housing crisis. For reference, the state is home to 12% of the U.S. population, but 22% of the nation’s homeless population, according to the California Department of Housing and Community Development.

However, rent control is a quick fix to a complex issue. Like most quick fixes, it does not hold up in the long run and can do more harm than good.

Perhaps the biggest issue created by rent control is that landlords of rent-controlled apartments have no reason to maintain or improve their properties. Their only duty is to maintain habitable living conditions, and beyond that, any improvements made won’t provide the landlord any return. This leads to decaying rent-controlled units, blighting neighborhoods and making life harder for tenants.

A 2019 Stanford study looked into the impact of rent control on San Francisco’s rental housing market and found rent control did help low-income renters remain in their homes. But this was achieved at the cost of a:

• 20% decrease in mobility for renters of rent-controlled units; and
• 15% decrease in rental housing stock in the city.

Better than rent control

There is a more desirable alternative to rent control: simply put, more rental housing.

Our state’s rental housing crisis is responding to an acute imbalance between low-tier rental supply and demand for this type of housing.

California’s legislature has made several steps toward increasing the low-tier housing stock in recent years, including:

• adjusting how local governments determine housing need;
• authorizing the creation of accessory dwelling units (ADUs) in areas zoned for SFRs;
• removing parking requirements in areas near public transit;
• tightening rules regarding landlord conduct during Ellis Act evictions; and
• streamlining zoning and permitting approvals for low-income housing developments.

While these steps are all positive moves toward providing more low-tier housing, they have thus far been insufficient — and rent control is not the final answer lawmakers are searching for.

The solution requires a combined effort from builders and government. But local efforts to enact zoning changes are often met with vocal not-in-my-backyard (NIMBY) advocates who seek to preserve their neighborhood’s “character” by restricting building height and density.

NIMBYs tend to be the most vocal — and sometimes the only — voices at city council meetings whenever proposals to increase low-tier housing in the area come up.

Yet, as a real estate professional, you also have an equal stake in zoning regulations and development in your local community. You can help by getting involved and making sure NIMBYs’ concerns are balanced by the real need to increase housing and decrease the strained reliance on outdated rent control measures by:

• attending council meetings;
• discussing the need for zoning changes with other professionals in the industry; and
• showing support for progressive zoning reform.

Related article:

Change the law: amend zoning laws to promote multi-family construction

Related topics:
costa hawkins, rent control

Posted by ft Editorial Staff | Jun 22, 2020 | Feature Articles, Forms, New Laws, Property Management | 19

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

This article is part I of a two-part series covering California’s Tenant Protection Act. This first part goes over just cause eviction laws. For information on the new rent caps enacted by the TPA, see Part II.

This past fall, Assembly Bill (AB) 1482 enacted California’s Tenant Protection Act (TPA) of 2019. The law made several significant changes pertaining to landlords and tenants, which will impact landlord practice in a big way going forward.

These changes will be effective until they are repealed on January 1, 2030. [Calif. Civil Code §1946.2(j)]

Who the TPA impacts

The applicability of the TPA is comprehensive, covering most multi-unit residential real estate housing in California and those single family residential (SFR) units owned by a REIT, a corporation or an LLC with a corporate member. However, there are numerous, sizable exemptions for multi-family units and conditions for SFRs to be excluded.

Properties exempt from the TPA

Multi-unit residential real estate exempt from the “just cause” eviction procedures include:

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

To notify the tenant of the property’s exempt status from the TPA, the landlord uses a checkbox in the rental or lease agreement to indicate whether the property is subject to just cause eviction requirements with the following statutory language:

[] This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12(c)(5); (d)(5) and 1946.2 (e)(7); (e)(8) of the Civil Code and the owner is not any of the following:

(1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code;

(2) a corporation; or

(3) a limited liability company in which at least one member is a corporation. [See RPI Form 550 §10.1 and Form 551 §9.1]

For tenancies entered into prior to July 1, 2020 which do not include the notice, the landlord will provide the notice and, if applicable, indicate their exempt status using the separate Just Cause and Rent Cap Addendum, doing so no later than August 1, 2020. [See RPI 550-3]

When a residential property or tenancy does not meet any of the criteria for exemption, the landlord is to abide by the TPA limiting their ability to increase the rent or evict a tenant to regain possession.

Landlords exempt from the TPA requirements may continue to use all existing RPI forms, as these are unchanged by the TPA.

What the TPA does

Broadly, the TPA:

• caps annual rent increases at 5% plus the rate of inflation for much of California multi-unit residential properties; and [See Part II of this series, forthcoming]
• requires “just cause” to evict tenants in place for 12 months or more.

Requiring a just cause for eviction makes it far harder for landlords to evict tenants in order to rent out their properties to new tenants at a higher rate. Further, if a tenant is being evicted at no fault of their own, the landlord may also be required to provide modest financial relocation assistance.

In response this change in tenant notice procedure, RPI (Realty Publications, Inc.) has published a new library of landlord-tenant forms to be used by landlords of properties subject to TPA limitations and procedures.

The new forms include the:

• Just Cause and Rent Cap Addendum [See RPI Form 550-3];
• 60-Day Notice to Vacate Under a No-Fault Eviction – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 569-2];
• 30-Day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements [See RPI Form 570-1];
• Three-Day Notice to Quit – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 577-1];
• Three-Day Notice to Pay Rent – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-3];
• Three-Day Notice to Pay Rent with Related Fees – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-4]; and
• Three-Day Notice to Perform – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 576-1]

Further, both the residential lease and month-to-month rental agreement have been revised to be compliant for both exempt and non-exempt properties.  [See RPI Form 550 and 551]

All new and revised forms are available for free download on the RPI Forms Download page.

“Just cause” required for certain evictions

For tenancies commenced or renewed on or after July 1, 2020, tenants are to be notified of the new “just cause” and rent cap protections extended to residential tenants by the TPA.

The following statutory language is to be a provision in all residential rental and lease agreements, written in no less than 12-point type:

California law limits the amount your rent can be increased. See Section 1947.12 of the Civil Code for more information. California law also provides that after all of the tenants have continuously and lawfully occupied the property for 12 months or more or at least one of the tenants has continuously and lawfully occupied the property for 24 months or more, a landlord must provide a statement of cause in any notice to terminate a tenancy. See Section 1946.2 of the Civil Code for more information.

This is incorporated as a boilerplate notice of tenant rights into RPI Form 550 §10 and Form 551 §9, our residential occupancy agreements.

Further, landlords of property exempt from the TPA need to notify the tenant in writing of their exempt status to qualify themselves for the exemption. The landlord notifies the tenant by using a checkbox in the rental or lease agreement to indicate whether the property is subject to rent limits and just cause eviction requirements. [See RPI Form 550 §10.1 and Form 551 §9.1]

For tenancies entered into prior to July 1, 2020 which do not include the notice, the landlord will provide the notice and, if applicable, indicate their exempt status using the separate Just Cause and Rent Cap Addendum, doing so no later than August 1, 2020. [See RPI 550-3]

Landlords of non-exempt property seeking to evict tenants need to show just cause when:

• all tenants have continuously and lawfully occupied the unit for 12 months or longer; or
• at least one tenant has continuously and lawfully occupied the unit for 24 months or longer. [CC §1946.2(a)]

At-fault just cause evictions

Just cause evictions notices are of two types, based on whether the tenant is:

• at fault, called an at-fault just cause eviction [CC §1946.2(b)(1)]; or
• not at fault, called a no-fault just cause eviction. [CC §1946.2(b)(2)]

An at-fault just cause eviction is further categorized as either:

• curable; or
• incurable.

To qualify for an at-fault just cause eviction, the tenant:

• defaulted on a rental payment;
• failed to enter into a landlord-requested renewal or extension of a lease which terminated on or after January 1, 2020 [See RPI Form 565];
• breached a material term of the lease;
• committed or permitted a nuisance or waste to occur on the property;
• conducted criminal activity on the premises or common areas, or used the premises for an unlawful purpose;
• assigned or sublet the premises in violation of the expired lease;
• refused the landlord’s authorized entry into the premises; or
• failed to deliver possession after providing the landlord notice to terminate the tenancy or surrender possession. [CC 1946.2(b)(1); See RPI Form 576-1]

Also classified as an at-fault just cause eviction is a tenant’s failure to vacate when the tenant was a resident manager or other employee of the landlord and their occupancy was provided in conjunction with their employment status and limited to the period of employment, and the employment has been terminated. [CC §1946.2(b)(1)(K)]

Editor’s note — When occupancy under a lease agreement expires, a landlord may require the tenant to enter into a written extension or renewal, rather than allow the tenancy to remain, converting the fixed-term tenancy to a periodic month-to-month tenancy. However, if the tenant fails to enter into a lease renewal or extension agreement and the landlord has not accepted rent for a holdover period, this is considered an at-fault just cause for eviction. [CC §1946.2(b)(1)(E)]

When the tenant under an at-fault just cause tenancy breaches a nonmonetary performance provision of a rental or lease agreement, the landlord of a non-exempt property serves the tenant a Three-Day Notice to Perform – For Properties Subject to Just Cause Eviction Requirements. [See RPI Form 576-1]

When the failure to perform is incurable – such as when a tenant commits waste to the property or engages in overt criminal activity – the landlord uses the Three-Day Notice to Quit, requiring the tenant to vacate and deliver possession within three days of service. [Calif. Code of Civil Procedure §1161(4); See RPI Form 577-1]

However, when the failure to perform is curable, such as the breach of a lease term which may be fully corrected within a three day period, the landlord uses the Three-Day Notice to Perform to state what the tenant needs to do to rectify or cure the breach in order to remain in possession. [See RPI Form 576-1 §4]

Unique to properties subject to the just cause eviction requirements, when the tenant does not cure the breach by full performance within three days after service of the notice to perform, the landlord may not immediately begin legal proceedings to regain possession by pursuing an unlawful detainer (UD) action.

Rather, if the breach remains uncured on expiration of the Notice to Perform, the landlord is required to prepare and serve the tenant with the Three-Day Notice to Quit. [CC §1946.2(c); See RPI Form 577-1]

Here, the tenant who is served a notice to correct a curable breach and fails to fully perform or quit, is given three additional days to vacate — quit — after service of the final notice. When the tenant then fails to vacate and deliver possession, the landlord’s remaining legal remedy is to file a UD action to regain possession based on the tandem quit notices and seek an award for rent owed and associated costs. [CC §1946.2(c)]

Related, when the tenant commits a curable monetary breach, in order to initiate the eviction, the landlord uses a Three-Day Notice to Pay Rent (with or without related fees). These notices include sections which identify the tenant as being under a lease which requires just cause to terminate the tenancy and indicates their failure to pay rent constitutes just cause for eviction. [See RPI Form 575-3 and Form 575-4]

Once the three days have passed and the tenant has still not paid the appropriate amount(s) – a curable breach – the landlord may serve the tenant with a Three-Day Notice to Quit without the further opportunity to cure the violation. [See RPI Form 577-1]

No-fault just cause evictions

Alternatively, a no-fault just cause eviction exists when the tenant is being evicted under no fault of their own for any of the following reasons:

• the landlord or their spouse, domestic partner, children, grandchildren, parents or grandparents intend to occupy the premises;
• the property is withdrawn from the rental market;
• the property is unfit for habitation as determined by a government agency and through no fault of the tenant; or
• the landlord intends to demolish or substantially renovate the property. [CC 1946.2 (b)(2); See RPI Form 569-2 §3]

An improvement qualifies as a substantial remodel or renovation when any structural, electrical, plumbing or mechanical system is replaced or substantially modified, requiring a permit from a government agency. This includes the abatement of hazardous materials like lead-based paint, mold or asbestos, which cannot be completed with the tenant residing in the unit, requiring the tenant to vacate for 30 days or longer.

Cosmetic improvements like painting or minor repairs that don’t require the tenant to vacate to ensure their safety are not considered substantial remodels. [CC §1946.2 (b)(2)(D)(ii)]

Recall that the notice to quit discussed above is used in the context of an at-fault eviction — the tenant has materially breached the terms of a rental or lease agreement and the landlord is using the breach to terminate the lease or rental agreement. [See RPI Form 577-1]

Alternatively, a notice to vacate is used in the context of a no-fault eviction to terminate a rental agreement and interfere with the automatic renewal of the periodic tenancy when a breach of the rental agreement has not occurred or is not an issue. [See RPI Form 569-2]

To terminate the tenancy of a residential tenant who has resided on the property for one year or more, residential landlords are required to give the tenant a 60-day notice to vacate.

Relocation assistance

Further, when a no-fault just cause eviction occurs for a non-exempt property, the landlord is required to provide relocation assistance to the tenant. Relocation assistance is equal to one month’s rent and is to be made:

• as a direct payment within 15 calendar days of the notice to vacate; or
• in exchange for the landlord’s waiver of the payment of rent for the final month before it becomes due. [CC 1946.2(d)(1); See RPI Form 569-2 §7]

Further, the landlord needs to notify the tenant of their right to relocation assistance in writing. This notice is provided within the body of the specialized 60-Day Notice to Vacate required for tenants who have resided in the property for 12 months or longer. [CC §1946.2(d)(2); See RPI Form 569-2 §7]

If the landlord fails to provide relocation assistance, the notice to vacate is void. [CC §1946.2(d)(4)]

Further, if the tenant receives the relocation assistance and then fails to vacate at the end of the notice period, the landlord is able to recover the relocation assistance as part of the damages in their action to retake possession. [CC §1946.2(d)(3)(B)]

If it was through the actions of the tenant that the property was rendered unfit for habitation, the tenant is not entitled to relocation assistance. [CC §1946.2(b)(2)(C)(iii)]

Tenants may not waive their rights provided to them under the just cause eviction laws. Any waiver made in the agreement is void as contrary to public policy.

Related topics:
eviction, tenant

Posted by ft Editorial Staff | Jun 25, 2020 | Feature Articles, Forms, New Laws, Property Management | 0

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

This article is part II of a two-part series covering California’s Tenant Protection Act of 2019. This second part goes over the new rent cap laws. To learn about the Act’s just cause eviction rules, see Part I.

This past fall, Assembly Bill (AB) 1482 enacted California’s Tenant Protection Act (TPA) of 2019. The law made several significant changes pertaining to landlords and tenants, which will impact landlord practice in a big way going forward.

These changes will be effective until they are repealed on January 1, 2030. [Calif. Civil Code §1946.2(j)]

Who the TPA impacts

The applicability of the TPA is comprehensive, covering most multiple unit residential real estate housing in California and those single family residential (SFR) units owned by a REIT, a corporation or an LLC with a corporate member. However, there are numerous exemptions for multiple family units and conditions for SFRs to be excluded.

Properties exempt from the TPA

Multi-unit residential real estate exempt from TPA rent caps include:

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

To notify the tenant of the property’s exempt status from the TPA, the landlord uses a checkbox in the rental or lease agreement to indicate whether the property is subject to rent limits and just cause eviction requirements. [See RPI Form 550 §10.1 and Form 551 §9.1]

For tenancies entered into prior to July 1, 2020 which do not include the notice, the landlord will provide the notice and, if applicable, indicate their exempt status using the separate Just Cause and Rent Cap Addendum, doing so no later than August 1, 2020. [See RPI 550-3]

When a residential property or tenancy does not meet any of the criteria for exemption, the landlord is to abide by the TPA limiting their ability to increase rent.

Landlords exempt from the TPA requirements may continue to use all existing RPI forms, as these are unchanged by the TPA.

What the TPA does

Broadly, the Tenant Protection Act of 2019:

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

In response this change in tenant notice procedure, RPI (Realty Publications, Inc.) has drafted a new library of landlord-tenant forms to be used by landlords of properties subject to TPA limitations and procedures.

The new forms include the:

• Just Cause and Rent Cap Addendum [See RPI Form 550-3];
• 60-Day Notice to Vacate Under a No-Fault Eviction – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 569-2];
• 30-Day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements [See RPI Form 570-1];
• Three-Day Notice to Quit – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 577-1];
• Three-Day Notice to Pay Rent – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-3];
• Three-Day Notice to Pay Rent with Related Fees – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-4]; and
• Three-Day Notice to Perform – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 576-1]

Further, both the residential lease and month-to-month rental agreement have been revised to be compliant for both exempt and non-exempt properties.  [See RPI Form 550 and 551]

All new and revised forms are available for free download on the RPI Forms Download page.

Rent caps enacted by the TPA

The TPA enacts a limitation on rent increases for non-exempt residential rental properties.

For rent increases occurring on or after March 15, 2019, an owner of residential real property may not, over the course of any 12-month period, increase the gross rental rate for a unit more than the lesser of:

• 5% plus the percentage change in the applicable Consumer Price Index (CPI); or
• 10% of the lowest gross rental rate charged for that dwelling or unit at any time during the 12 months prior to the effective date of the increase. [CC §1947.12(a)(1); CC §1947.12(h)(1)]

How does a landlord go about properly raising rents under the TPA?

The landlord provides the tenant of a month-to-month rental agreement with a 30-day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements. Notice of the limitations on rental increases is included in this variation of the 30-Day Notice of Change. [CC §1947.12(e); See RPI Form 570-1]

Calculating rent increases

When calculating rent increases, rent discounts or credits are not included. [CC §1947.12(a)(1)]

The cost of living adjustment is considered to be from April 1st of the previous year to April 1st of the current year in the regional CPI for the region where the rental property is located. This information is published by the Bureau of Labor Statistics.

When a regional index is not available — as is the case for rentals located in smaller metros and rural areas — the index used is the California Consumer Price Index for All Urban Consumers for all items, published by the Department of Industrial Relations. These numbers can be found on the California Department of Industrial Relations’ website, here.

If a landlord has already increased the rent by more than is allowed under the TPA between March 15, 2019 and January 1, 2020, the landlord needs to revert the rent amount as of January 1, 2020 to the rent amount charged as of March 15, 2019, plus the maximum permissible increases.

Further, the landlord is not held responsible for any corresponding overpayment in rent. [CC §1947.12(h)(2)]

Further, for tenancies beginning or renewed on or after July 1, 2020, any written notice informing tenants their rental is exempt from the rent increase caps needs to be included in their lease or rental agreement. [CC §1947.12(b)(5)(B)(ii); See RPI Form 550 §10.1 and 551 §9.1]

For new tenancies — when no tenant remains from the prior tenancy — the landlord may establish the initial rental rate as they choose, limited only by current market factors and sound economic reason. However, subsequent increases throughout the duration of the tenancy are subject to the rent increase caps. [CC §1947.12(b)]

Related topics:
landlords and tenants, real estate forms, rent control

Posted by Emily Kordys | Sep 8, 2020 | Laws and Regulations, Real Estate | 3

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

This article is a first in a series covering AB 3088: the Tenant, Homeowner and Small Landlord Relief and Stabilization Act of 2020.

California Governor Gavin Newsom and legislative lawmakers signed a new law to halt evictions for thousands of tenants who are unable to pay rent as a result of the coronavirus (COVID-19) pandemic through January 31, 2021.

Newsom previously issued an executive order in March 2020 placing a moratorium on evictions through the end of May. The order was extended two separate times, with California’s Judicial Council voting in August to end it on September 1, 2020.

Protections for Tenants

AB 3088, also known as the Tenant, Homeowner, & Small Landlord Relief and Stabilization Act of 2020, is helping to provide temporary relief to thousands of Californians. A recent UCLA and USC study found that between 58% and 68% of tenant households in the Los Angeles area lost income since mid-March. Without the new law, renters would have been left more vulnerable since income losses are widespread throughout the state.

The bill protects renters from being evicted if they failed to make rental payments due to COVID-19-related financial distress between March 1, 2020 and January 31, 2021.

Under the new law, a tenant may not be evicted before February 1, 2021 as a result of unpaid rent related to the pandemic between March 4, 2020 and August 31, 2020. Tenants who are unable to pay rent due to COVID-19 between September 1, 2020 and January 31, 2021 must pay at least 25% of the rental payments due in that time period to avoid eviction.

For example, consider a tenant who losses their job in August due to the pandemic and is unable to pay the full amount due for rent. The tenant continues to pay 25% of their rent to their landlord each month. The tenant may not be evicted since they are paying the correct amount due, under the new law. A tenant may pay 25% each month or pay one lump sum by February 1, 2021 to avoid eviction.

Tenants are still responsible for paying all unpaid amounts to landlords.

To be eligible for the new protections, tenants need to provide a declaration of COVID-19-related financial distress to their landlord. COVID-19-related financial distress refers to:

• loss of income caused by the pandemic;
• increased out-of-pocket expenses directly related to performing essential work;
• increased expenses directly related to the health impact of the pandemic;
• child or elder care responsibilities, disabled or sick family member directly related to the pandemic that limits the ability to earn income; or
• other circumstances related to the pandemic which have reduced income or increased expenses.

Before a landlord may evict a tenant under this law, they are required to give tenants a 15-day notice that informs them of the amounts owed and include a blank declaration form to use to comply with this requirement.

Editor’s Note – RPI is currently drafting new landlord-tenant notice forms to comply with these new requirements. The new and updated forms will be posted to the Forms Download page once they are completed.

It is important for tenants to not ignore a 15-day notice to pay rent or quit or a notice to perform covenants or quit from their landlord. If a tenant is served with a 15-day notice and does not submit the declaration form before the notice expires, they may be evicted.

Tenants who make more than 130% of the area income where they live may also be required to provide additional documentation of financial hardship to their landlord.

Protections for landlords

Tenants who failed to pay rent during the specified period will have their rent balance turned into consumer debt, which can be pursued in small claims court starting March 1, 2021.

Landlords who do not follow the court evictions process will face increased penalties.

Evictions not related to unpaid rent – such as nuisance complaints or health and safety violations – may still take place.

Additionally, landlords who own fewer than four units and do not live in them will receive some foreclosure protections under the Homeowners Bill of Rights, which was passed in the wake of the late 2000’s foreclosure crisis. The rights refer to specific guidelines mortgage servicers need to obey when communicating with borrowers. It also prohibits “dual track” foreclosures, in which lenders pursue foreclosures while simultaneously negotiating loan modifications.

The new tenant and landlord protections will help to momentarily stave off the looming foreclosure crisis. More protections and laws will need to be passed as we head further into the recession.

Check back for more updates as the recession continues to impact tenants, landlords and the housing market.

Related article: Foreclosure moratorium extended by FHA, Fannie Mae, Freddie Mac

Related topics:
covid-19 pandemic, landlords, tenants

Posted by ft Editorial Staff | Dec 15, 2020 | Brokerage Reminder, Buyers and Sellers, Real Estate | 1

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

A competent seller’s agent will aggressively recommend the seller retain a home inspector before they market the property. The inspector hired will conduct a physical examination of the property to determine the condition of its component parts. On the home inspector’s completion of their examination, a home inspection report (HIR) will be prepared on their observations and findings, which is forwarded to the seller’s agent.

A home inspector often detects and reports property defects overlooked by the seller and not observed during a visual inspection by the seller’s agent. Significant defects which remain undisclosed at the time the buyer goes under contract tend to surface during escrow or after closing as claims against the seller’s broker for deceit. A home inspector troubleshoots for defects not observed or observable to the seller’s agent’s eye. [Calif. Business and Professions Code §7195]

To greatly reduce the potential of buyer claims and eliminate to the extent possible the risk of negligent property improvement disclosures, the HIR is coupled with preparation of the seller’s Transfer Disclosure Statement (TDS). Both are presented to buyers before the seller accepts an offer.

A home inspector’s qualifications

Any individual who holds themselves out as being in the business of conducting a home inspection and preparing a home inspection report on a one-to-four unit residential property is a home inspector. No licensing scheme exists to set the minimum standard of competency or qualifications necessary to enter the home inspection profession. [Calif. Business and Professions Code §7195(d)]

However, some real estate service providers typically conduct home inspections, such as:

• general contractors;
• structural pest control operators;
• architects; and
• registered engineers.

Home inspectors occasionally do not hold any type of license relating to construction, such as a person who is a construction worker or building department employee. However, they are required to conduct an inspection of a property with the same “degree of care” a reasonably prudent home inspector would exercise to locate material defects during their physical examination of the property and report their findings. [Bus & P §7196]

Hiring a home inspector

Sellers and seller’s agents are encouraged by legislative policy to obtain and rely on the content of an HIR to prepare their TDS for delivery to prospective buyers.

The buyer’s reliance on an HIR at the time a purchase agreement is entered into relieves the seller and their agent of any liability for property defects they did not know about or were not observable during the mandatory visual inspection conducted by the seller’s agent.

However, for the seller’s agent to avoid liability in the preparation the TDS by relying on an HIR, the seller’s agent needs to select a competent home inspector to inspect and prepare the HIR. Thus, the seller’s agent needs to exercise ordinary care when selecting the home inspector.

The inspection and report

A home inspection is a physical examination conducted on-site by a home inspector. The inspection of a one-to-four unit residential property is performed for a noncontingent fee.

The purpose of the physical examination of the premises is to identify material defects in the condition of the structure and its systems and components. Material defects are conditions which affect the property’s:

• market value;
• desirability as a dwelling;
• habitability from the elements; and
• safety from injury in its use as a dwelling.

Defects are material if they adversely affect the price a reasonably prudent and informed buyer would pay for the property when entering into a purchase agreement. As the report may affect value, the investigation and delivery of the home inspection report to a prospective buyer is legislated to precede a prospective buyer’s offer to purchase. [Bus & P C §7195(b)]

The home inspection is a non-invasive examination of the mechanical, electrical and plumbing systems of the dwelling, as well as the components of the structure, such as the roof, ceilings, walls, floors and foundations.

Non-invasive indicates no intrusion into the roof, walls, foundation or soil by dismantling or taking apart the structure which would disturb components or cause repairs to be made to remove the effects of the intrusion.

The home inspection report is the written report prepared by the home inspector which sets forth the findings while conducting the physical examination of the property. The report identifies each system and component of the structure inspected, describes any material defects the home inspector found or suspects, makes recommendations about the conditions observed and suggests any further evaluation needed to be undertaken by other experts. [Bus & P C §7195(c)]

Mandatory inspection by the seller’s broker

A seller’s agent (or seller’s broker) is obligated to personally carry out a competent usual inspection of the property. The seller’s disclosures and defects noted in the HIR are entered on the TDS and reviewed by the seller’s agent for discrepancies. The seller’s agent then adds any information about their knowledge of material defects which have gone undisclosed by the seller (or the home inspector).

A buyer has two years from the close of escrow to pursue the seller’s broker and agent to recover losses caused by the broker’s or agent’s negligent failure to disclose observable and known defects affecting the property’s physical condition and value. Undisclosed and unknown defects permitting recovery are those observable by a reasonably competent broker during a visual on-site inspection. A seller’s agent is expected to be as competent as their broker in an inspection. [CC §2079.4]

However, the buyer will be unable to recover their losses form the seller’s broker if the seller’s broker or agent inspected the property and would not have observed the defect and did not actually know it existed. [CC §1102.4(a)]

Following their mandatory visual inspection, the seller’s broker or agent needs to make disclosures on the seller’s TDS in full reliance on specific items covered in a home inspector’s report the seller obtained on the property. If the HIR is relied on after the seller’s agent property inspection when preparing the TDS and the TDS is later contested by the buyer as incorrect or inadequate in a claim on the broker, the broker and their agent are entitled to indemnification – held harmless – from the home inspection company issuing the report. [Leko  v. Cornerstone Building Inspection Service (2001) 86 CA4th 1109]

As the buyer’s agent, remember that home inspection requests and reports are between your buyer and the inspector. Consult, assist and recommend – but leave the selecting to your buyer when you order out that home inspection – even if your buyer is a speculator.

This article was originally published in August 2013 and has been updated. 

Related topics:
home inspection

Posted by ft Editorial Staff | Jun 17, 2020 | Fundamentals, Laws and Regulations, Recessions, Your Practice | 0

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

Updated July 19, 2020 to reflect Governor Newsom’s Executive Order N-71-20.

On June 30, 2020, Governor Newsom granted an extension for California Department of Real Estate (DRE) licensees and exam applicants.

The order extends the timelines and deadlines related to:

• exam application expiration dates;
• license expiration dates;
• payment of license application fees;
• payment of renewal fees; and
• continuing education (CE) requirements.

If your license or exam application expiration date occurs after April 16, 2020, your deadlines have been extended through December 31, 2020. Under previous executive orders, the extensions gave an additional 120 days from the licensee’s original deadline or expiration. But now all deadlines have been extended through the end of 2020.

If the order applies to you, there is no need to contact the DRE for an extension, it is automatic.

Visit the DRE’s frequently asked questions page for more information.

Follow first tuesday’s full coverage of how the novel coronavirus (COVID-19) is impacting real estate here.

Related topics:
covid-19 pandemic, department of real estate (dre)

Posted by ft Editorial Staff | Apr 21, 2020 | Fundamentals, Laws and Regulations, Your Practice | 0

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

The pleasant surprise of finding a crumpled-up bill in last season’s jacket pocket is possible for your business, too. How? Through a legal process called escheat.

Escheat is the process of transferring abandoned property to the state. 

For example, banks possessing an individual’s property (read: money) have a duty to return the property to the owner after three years of inactivity. [California Code of Civil Procedure §1513(a)(a)(A)]

Intangible personal property escheats to the state when:

• the last known address of the apparent owner is in California;
• no address of the apparent owner appears on the records of the holder and:
  • the last known address of the apparent owner is in California; or
  • the holder resides in California and has not previously paid the property to the state of the last known address of the apparent owner; or
  • the holder is part of California’s government and has not previously paid the property to the state of the last known address of the apparent owner;
• the last known address of the apparent owner is in a state that does not provide by law for the escheat of such property and the holder is:
  • domiciled in this state; or 
  • a government or governmental subdivision or agency of this state; or
• the last known address of the apparent owner is in a foreign nation and the holder is:
  •  domiciled in this state; or 
  • a government or governmental subdivision or agency of this state. [CCP §1510]

Holders of unclaimed property have a duty to notify owners of unclaimed property valued over $50 before reporting it to the state. [CCP §1520(b)]

For more information on notification requirements, holders may see guidance from the State Controller’s Office, here.

To find out if the state has money that belongs to you, visit the lookup tool at the California State Controller’s Office. However, the State Controller warns consumers not to respond to mailings prompting recipients to call a toll-free number, contact an attorney or pay any upfront fees regarding unclaimed property. These types of notices are fraudulent.

To ensure you’re not being defrauded, always go directly through the State Controller’s office. Here, anyone can access the public interface to determine whether the state holds any unclaimed property that has been escheated to the state after a period of inactivity.

Just as one regularly checks their credit score, brokers and other small business owners ought to make it a habit to periodically determine whether they have any unclaimed property with the state so they may get it back.

See additional guidance from the State Controller, here.

Related topics:

Posted by ft Editorial Staff | Apr 28, 2020 | Fundamentals, Laws and Regulations, Market Watch, Recessions | 1

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

Even as millions of residents continue to shelter in place across California, a few industries have been identified as critical to keeping life going during the coronavirus (COVID-19) pandemic.

The following real estate and real estate adjacent professionals are classified as essential by the U.S. Department of Homeland Security:

• individuals who provide residential and commercial real estate services, including settlement services;
• government staff who perform title search, notary and recording services in support of mortgage and real estate services and transactions;
• workers who repair, install or service residential and commercial HVAC systems and other heating, cooling, refrigeration and ventilation equipment; and
• workers who provide services necessary to maintaining the safety, sanitation and essential operation of residences and buildings, including:
  • plumbers;
  • electricians;
  • exterminators;
  • builders;
  • contractors; and
  • landscapers.

This list is meant to be used as guidance for individual states to make their own laws about who may continue to practice during the pandemic.

State restrictions are tighter

Here in California, at first Governor Newsom’s shelter-in-place order reflected the above Homeland Security guidelines, including residential real estate service providers under the exception. In fact, most private sources continue to espouse this is still the case, with many real estate agents continuing to give in-person home tours and interact with members of the public despite the change.

However, the most recent guidance from the State Public Health Officer excludes real estate providers, limiting related essential industries to:

• construction workers; and
• workers who provide services necessary to maintaining the safety, sanitation and essential operation of residences and buildings.

However, these statewide rules follow the federal government’s lead, passing the buck along to local governments.

Cities and counties across California have issued their own rules about which professionals are critical to maintaining a safe and healthy community during the pandemic. However, at the time of this writing, most local restrictions reflect those at the state level. For example, the list of essential workers related to real estate for major cities like San Diego and Los Angeles align with the statewide list, which include workers like plumbers, electricians and construction workers, but exclude real estate agents.

Check local guidance for information on what is allowed. Further, even if your city or county allows real estate service providers to continue working during the pandemic, it’s important to follow social distancing precautions, like refraining from holding open houses and conducting virtual tours and meetings when possible.

Anyone with the ability to do so can continue to work from home without physically interacting with the public. This can be done through:

• virtual tours;
• remote signings;
• building out an online presence; and
• advancing career paths by:
  • forming real estate syndicates;
  • becoming a foreclosure expert;
  • getting a mortgage loan originator (MLO) endorsement; or
  • becoming a notary public.

Related articles:

How legislation is helping brokerages, homeowners and renters during COVID-19

How legislation is helping independent contractors during COVID-19

Related topics:
covid-19 pandemic, virtual reality

Posted by Emily Kordys | Aug 17, 2020 | Finance, Laws and Regulations, Real Estate | 0

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

The August 2020 DBO focuses on continuing safety compliance for coronavirus (COVID-19), the California Residential Mortgage Loan Act, additional loan accommodations related to COVID-19 and imposter scams.

The California Department of Business Oversight (DBO) 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 DBO shares the responsibility for overseeing MLOs depending on their license use.

Licensees, read on for the latest DBO happenings.

DBO monitoring face covering compliance

In accordance with Governor Newsom’s directive on face coverings, the DBO is reminding all licensees to ensure all employees and clients comply with the latest guidance from the California Department of Public Health (CDPH).

All clients and customers are required to wear face coverings in accordance with CDPH guidance.  Those who refuse to wear masks or do not meet CDPH exemptions are not allowed to enter places of business.

The DBO conducted drive-by spot checks of branch and storefront locations to confirm compliance. These brief inspections checked for publicly visible notices and greeters providing personal protective equipment at the entrance.

Anyone with questions may email the DBO at Ask.DBO@dbo.ca.gov.

Report on the California Residential Mortgage Loan Act

The 2019 Annual Report of activity under the California Residential Mortgage Lending Act (CRMLA) provides comprehensive information on residential mortgages, rates, foreclosures and consumer complaints. The report consists of data submitted by residential mortgage lenders and servicers.

The report found the number and principal amount of loans originated by licensees increased significantly in 2019 from 2018. The number of loans in this period grew to 552,687, an increase of 51.4%. In addition, the number mortgages originated in 2019 also went up from 2018, by 37.6%.

Additional loan accommodations related to COVID-19

The Federal Financial Institutions Examination Council (FFIEC) issued a statement regarding risk management and consumer protection principles for financial institutions to consider when working with borrowers as the initial coronavirus-related mortgage accommodation periods come to an end.

The Council urges licensees to consider additional accommodations that ease pressure on affected borrowers, improve their capacity to service debt and facilitate prudent management of mortgages. To help avoid delinquencies and other adverse consequences, the FFIEC recommends:

• reassessing risk ratings for each mortgage;
• applying appropriate loan risk ratings and grades; and
• making appropriate accrual status decision on loans affected by COVID-19.

The statement also asks financial institutions to consider additional accommodations for borrowers struggling financially.

The FFIEC is an interagency body which prescribes uniform principles and standards, and reports forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and more.

COVID-19 imposter scams

An advisory alert to financial institutions has been issued by the Financial Crimes Enforcement Network (FinCEN) regarding consumer fraud. The advisory includes descriptions of imposter scams and money mule schemes, financial red flags, and information on reporting suspicious activity.

The alert advises imposters are posing as officials and representatives from the Internal Revenue Service (IRS), the Centers for Disease Control and Prevention (CDC), the Federal Bureau of Investigation (FBI) and the World Health Organization (WHO) to target individuals directly. Some of the red flags discussed include:

• contact from a government agency by phone, email, or social media promising to process or expedite unemployment benefits in exchange for sensitive financial information;
• receiving a document that appears to be a check or a prepaid debit card from the U.S. Treasury with instructions to contact the fraudulent government agency;
• unsolicited communications from trusted sources or government programs related to COVID-19, instructing readers to open or embed links to give personal information; and
• email addresses in COVID-19 correspondence which do not match the name of the sender, contain grammatical errors or do not end in a corresponding domain such as “.gov.”

The advisory is based on COVID-19 related information taken from Bank Secrecy Act (BSA) data, open source reporting and law enforcement.

That’s a wrap on another DBO bulletin digest! As always, you can find the complete DBO bulletin on their website.

Related topics:
covid-19 pandemic

Posted by ft Editorial Staff | Jan 22, 2020 | Finance, Laws and Regulations, Real Estate | 0

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

The first DBO Bulletin Digest of 2020 gets right to business with a DBO overhaul and fintech initiatives.

The California Department of Business Oversight (DBO) 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 & Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DBO shares the responsibility for overseeing MLOs depending on their license use.

Licensees, read on to start your decade on the right foot.

Newsom proposes DBO revamp

Governor Gavin Newsom recently unveiled an ambitious plan to overhaul the DBO as part of California’s 2020-21 budget. The proposal is to change the Department’s name to the Department of Financial Protection and Innovation (DFPI) and expand its consumer protection role. According to the proposal, its goal is to provide consumers with more protection against unfair, deceptive and abusive practices when accessing financial services and products.

Currently, the DBO’s regulatory jurisdiction is limited to certain financial services and state-licensed financial institutions like banks, credit unions and money transmitters. Some real estate agents are already well acquainted with the DBO as it also licenses and regulates mortgage lenders, escrow agents and other commercial and consumer lenders.

To meet evolving consumer needs, the proposal expands the DBO’s regulatory powers into new and under-regulated industries, including debt collection, fintech and credit reporting. If approved by state lawmakers, the DFPI’s new offerings will include:

• consumer education on sound financial protection practices;
• licensing and examinations for new and under-regulated industries;
• market analyses to inform policy and enforcement;
• enforcing legislation that prohibits unfair, deceptive and abusive practices;
• establishing a Financial Technology (fintech) Innovation Office that develops new consumer financial products;
• providing legal support for the administration of the new law; and
• expanding existing administrative and information technology staff to support the Department’s new responsibilities.

If you’re experiencing déjà vu, you may be thinking of the Consumer Financial Protection Bureau (CFPB). In fact, the proposed DFPI is modeled after the CFPB. According to the proposal, the new Department is meant to fill a void at the federal level left by the CFPB’s rollback.

The plan still requires the approval of state lawmakers and details of its implementation are expected by February 1, 2020. In the meantime, you can read the proposal here.

CSBS Accountability Report

This month, the Conference of State Bank Supervisors (CSBS) released an Accountability Report that outlines progress made toward its Vision 2020 fintech initiatives. The Conference, which is made up of financial regulators from all 50 states, acts on recommendations by an advisory panel of fintech leaders as part of the Vision 2020 program.

Vision 2020’s main objective is to modernize state regulation through a networked system of nonbank licensing and supervision. The Accountability Report highlights a few developments toward this goal, including:

• expanding NMLS use for managing an increasing number of license types;
• increasing state regulation transparency through the CSBS State Regulatory Guidance Portal; and
• drafting a model state money services business (MSB) law to clarify activities requiring licensure.

Read the full CSBS Accountability Report here.

Reminders

The DBO issues licensees a few friendly reminders in this month’s bulletin, including one concerning Assembly Bill 857. The bill, which went into effect January 1, 2020, allows local governments to establish public banks. With this new legislation in place, the DBO stresses that establishing a bank under this law requires a DBO certificate of authorization and Federal Deposit Insurance Corporation (FDIC) insurance. Read the full bill text here.

Separately, the DBO reminds licensees that all commercial banks, industrial banks and trust companies need to file with the DBO a list of the offices they maintain and operate.

The deadline was January 1, 2020, but the DBO urges stragglers to file as soon as possible to avoid possible fines and penalties. If you have not done so already, email your filing to Licensing@dbo.ca.gov or mail to:

Department of Business Oversight
Division of Financial Institutions
Attn: Licensing & Information Reporting Office
One Sansome Street, Suite 600
San Francisco, CA  94104-4428

That’s a wrap on the first DBO Bulletin Digest of 2020! Check back next month for February’s DBO Bulletin Digest. As always, you can read the full DBO bulletin on their website.

Related topics:
department of business oversight (dbo), department of financial protection and innovation (dfpi), dfpi bulletin digest

Posted by Emily Kordys | Jul 28, 2020 | Finance, Laws and Regulations, Real Estate | 0

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

The July 2020 DBO Bulletin focuses on safety compliance for coronavirus (COVID-19), the Responsible Small Dollar Loans Pilot Program and assessment rates.

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

Continue reading for a rundown of July’s most important DBO happenings.

Compliance with face covering guidance

The DBO is reminding licensees to make sure all employees and customers are complying with the latest guidance on face masks from Governor Newsom and the California Department of Public Health (CDPH) in regards to COVID-19.

Anyone who refuses to wear masks and those who do not adhere to the exemptions outlined by the CDPH will not be allowed to enter any places of business, including real estate offices, banks credit unions. If you have any questions about face-mask guidance and enforcement, email Ask.DBO@dba.ca.gov.

New report on Pilot Program for Responsible Small Dollar Loans

The DBO recently published the 2019 Annual Report on the Responsible Small Dollar Loans (RSDL) Pilot Program. It contains detailed information from the RSDL Pilot Program, including data on loan size, annual percentage rates, delinquencies, loan terms and borrower income.

The DBO states lenders approved more than 320,000 loans last year, which represents a 40% increase since 2017 and 8% increase since 2018. The total principal amount of loans created last year was more than $428 million, representing a 30% increase since 2018.

The Pilot Program was created to increase accessibility of responsibility small dollar installment loans ranging from $300 to $7,500. The program provides an alternative to payday loans and other forms of consumer credit.

No assessment rate increases planned

In annual assessment invoices mailed to financial institutions, the DBO approved no assessment rate increases for fiscal year 2020-21. Assessments are due July 30 and payments made via electronic funds transfer (EFT) by August 6.

The DBO also released assessment rates for different financial institutions, including trust companies and money transmitters. The base rate is set at:

• $1.39 per $1,000 of assets for trust companies;
• $0.02 per $1,000 received for money transmissions by a licensee; and
• $0.63 per $1,000 of total payment instruments and stored value sold by a licensed money transmitter.

Any questions regarding assessment payment processing should be directed to AccountingAR@dbo.ca.gov.

That’s a wrap for the July 2020 DBO Bulletin! Don’t miss next month’s update and make sure to subscribe to the first tuesday Newsletter to get the latest real estate news and education straight to your inbox every week.

As always, you can read the full DBO Bulletin on their website.

Related topics:
covid-19 pandemic, department of business oversight (dbo)

Posted by ft Editorial Staff | Mar 24, 2020 | Laws and Regulations, Real Estate | 0

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

The March 2020 DBO Bulletin focuses on COVID-19 and proposed regulations.

The California Department of Business Oversight (DBO) 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 & Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DBO shares the responsibility for overseeing MLOs depending on their license use.

Continue reading for a rundown of March’s most important DBO happenings.

Coronavirus update

In light of the recent coronavirus (COVID-19) outbreak, the DBO reminds readers of the Centers for Disease Control and Prevention (CDC) recommendations for staying healthy and slowing the spread of COVID-19 in their course of business. The CDC recommends:

• washing your hands with soap and water for at least 20 seconds;
• practicing social distancing;
• avoiding touching your eyes, nose and mouth;
• staying home when you are sick;
• disinfecting frequently touched surfaces; and
• using protective facemasks only when showing symptoms of COVID-19.

Be sure to bookmark the first tuesday journal for the latest updates on how COVID-19 is impacting the real estate market and your clients.

Related article:

Are we heading toward a foreclosure crisis in 2020?

DBO Commissioner

The California State Senate voted to confirm Manuel P. Alvarez as the DBO Commissioner on February 24, 2020.

Alvarez has served as Commissioner since his appointment by California Governor Gavin Newsom on March 28, 2019. With the Senate’s confirmation, Alvarez’s title and role will be made official.

Before his appointment, Alvarez worked as Chief Compliance Officer for San Francisco tech startup Affirm Inc. since 2014. But Commissioner Alvarez is also a seasoned civil servant; he was an enforcement attorney at the Consumer Financial Protection Bureau (CFPB) from 2011 to 2014.

With his confirmation, Alvarez officially succeeds Commissioner Jan Lynn Owen, who served the DBO since its creation in 2013.

NASAA and COVID-19 scams

The fear and economic instability surrounding the COVID-19 outbreak has prompted the DBO and other securities regulators to issue a warning to readers about con artists running sophisticated coronavirus scams. In turn, the North American Securities Administrators Association (NASAA) has provided three rule-of-thumb questions to consider before making a new investment:

• Is the investment guaranteeing a high return with little or no risk?
• Is there a sense of urgency or scarcity tied to the investment?
• Is the person offering the investment unlicensed and unregistered?

If you answer “yes” to any of these questions, the NASAA reminds investors that all investments carry a risk of loss. It’s wisest to walk away from high-pressure sales tactics and to avoid unregistered investment salespeople.

State Examination System

The Conference of State Bank Supervisors (CSBS) announced the rollout of the new State Examination System (SES), a single nationwide platform meant to connect state regulators and companies in the examination process. The CSBS expects the SES to improve transparency and collaboration, state regulator oversight of nonbanks and the examination process for both regulators and companies alike.

The SES rollout is an important milestone of Vision 2020, a CSBS initiative to modernize state regulation of nonbank financial companies. The tools created under this initiative, including the SES, are designed to protect consumers by facilitating greater understanding between regulators and financial institutions.

Comment period

The DBO is accepting comments on proposed regulations that clarify the agent-of-payee exemption in the Money Transmission Act (MTA). The Act exempts money transmitters from the license requirement for the activity of receiving money from a person for payment to another. The agent-of-payee exemption was added in response to new online payment technologies.

You can review the notice, text and initial statement of reasons for this proposition here. Submit your comment to regulations@dbo.ca.dov by the April 20 deadline.

The DBO also seeks comments on the proposed regulations that implement Assembly Bill 857, which allows California cities and counties to establish public banks through the DBO. Banks organized under AB 857 would be regulated by the DBO and FDIC just as privately owned banks are now. Read the full bill text here.

Access the DBO’s public comment request here, and submit your comment to regulations@dbo.ca.gov by the April 4 deadline.

And we’ve come to the end of another DBO Bulletin Digest! Don’t miss next month’s update; make sure to subscribe to the first tuesday Newsletter to get the latest real estate news and education straight to your inbox every week.

As always, you can read the full DBO bulletin on their website.

Related topics:
covid-19 pandemic, department of business oversight (dbo)

Posted by Emily Kordys | Sep 28, 2020 | Finance, Laws and Regulations, Real Estate | 0

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

The September 2020 DBO Bulletin focuses on new tenant and landlord protections and regulatory assistance for communities impacted by California wildfires.

The California Department of Business Oversight (DBO) 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 DBO shares the responsibility for overseeing MLOs depending on their license use.

Continue reading for a breakdown of September’s DBO happenings.

Landlord and Tenant Protections

In September, Governor Gavin Newsom signed a new state tenant protection measure, known as the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020.

The new statewide tenant protection measure protects millions of tenants from eviction and property owners from foreclosure due to economic impacts of COVID-19. These protections apply to tenants who declare an inability to pay rent due to COVID-19-related financial distress.

The governor additionally launched the “Housing is Key” campaign to accompany the new Act. The campaign, which is coordinated by the Business Consumer Services and Housing Agency (BCSH), is meant to connect renters and landlords experiencing pandemic-related economic hardships with helpful information and resources related to the temporary moratorium on evictions.

On the Housing is Key website, renters and landlords can also use a new app for information on the moratorium. The California COVID-19 Information App for Tenants and Landlords uses a survey to provide a personalized, downloadable report that explains the user’s specific protections and obligations under the new law.

Related Articles:

AB 3088: New eviction protections to last through January

Regulatory assistance provided for disaster areas

The Office of the Comptroller of the Currency, the Federal Reserve’s Board of Governors, the Federal Deposit Insurance Corporation, the National Credit Union Administration and state regulators issued a statement on California’s devastating wildfire season. The statement covers financial institutions’ customers and operations and providing appropriate regulatory assistance.

Banks and mortgage lenders are encouraged to work with borrowers in communities affected by the wildfires. Efforts to adjust or alter terms of existing loans in affected areas may be more lenient due to the wildfires. Modification of existing loans need to be evaluated individually to determine whether they represent troubled debt restructurings. The evaluation needs to be based on the facts and circumstances of each borrower and loan, which requires judgment, as not all modifications will result in troubled debt restructurings.

The statement also provides guidance on facilities, regulatory compliance and reporting requirements for financial institutions. You can read more here.

DBO suggestion box

Licensees are invited by Commissioner Manuel P. Alvarez to submit creative ideas and suggestions to help make the DBO more efficient.

Commissioner Alvarez says the DBO wants to hear how they can ease some of the burdens through regulatory efficiencies and the use of technology while they conduct business during the COVID-19 pandemic.

You can send any ideas by email to efficiencies@dbo.ca.gov by October 16, 2020.

New Sacramento address for DBO

The DBO office in Sacramento has relocated. To ensure mail is property delivered to the Department, please send all mail to:

2101 Arena Boulevard

Sacramento, CA 95834

If you need to reach the DBO by phone, call (916) 576-4941.

That’s another DBO Bulletin in the can! As always, you can find the complete DBO Bulletin on their website.

Related topics:
department of business oversight (dbo), landlords, tenants

Posted by Guest Author Summer Goralik | Jun 2, 2020 | Laws and Regulations, Real Estate, Your Practice | 0

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

Real Estate Compliance Consultant and former Department of Real Estate (DRE) Investigator, Summer Goralik, shares advice on complying with digital advertising regulations in 2020. Visit the original post on her blog here.

While a real estate broker needs to manage and oversee myriad areas of compliance, there is definitely one “hot spot” lurking among them that will quickly garner the attention of the California Department of Real Estate (DRE). That hot spot is digital advertising. A broker’s digital advertisements are out there, everywhere, and can be quickly viewed and analyzed by the DRE at any time.

Digital marketing refers to advertising materials that rely on the internet and online-based technology to promote real estate services and products. This type of advertising includes, without limitation, websites, social media platforms (e.g., Facebook, Instagram), and electronic solicitations. It is precisely this type of technology-fused marketing which real estate brokerages and agents heavily depend upon in order to build their brand, reach consumers and hopefully expand their business.

Low-hanging fruit for DRE investigators

Although the world of digital media has transformed the real estate space in so many ways, ultimately bringing brokerages and the buying and selling public together in a more expedient and efficient fashion, it has not been without some drawbacks. As a former DRE Investigator, I have seen countless examples of real estate licensees running afoul of the real estate law, ranging from minor non-compliance to major violations. In turn, I can tell you that a broker’s digital advertising is “low-hanging fruit” for DRE and may lead to investigations that could have been avoided.

Within just a few minutes, DRE Investigators can examine and discover a broker’s non-compliance on the world wide web, without ever leaving their desks or calling a witness. A problematic digital footprint, which is not always easy to unwind, is all the DRE needs to open an enforcement case, gather supportive evidence in connection with an existing complaint, or even further a larger investigation against the broker involving more serious violations. And with COVID-19 shutting the government’s doors and some DRE Investigators now stationed at home or no longer in the field, I imagine that desk investigations are the current status quo across the state.

Challenges in the digital realm

While a brokerage can prioritize and control the compliance of their “online” presence, ensuring that all of their advertising is 100% compliant, the real challenge seems to be making sure their entire salesforce is doing the same. For example, a corporate broker’s digital advertising is typically being prepared, reviewed, supervised, and essentially controlled from a central source. But how does the responsible broker of the corporation review, supervise and/or monitor all of their agents’ digital media? I picture agents’ advertising like tentacles sprawled out from the corporate center, each one representing potential liability for the brokerage.

If you have one or two agents, this is likely an easy task to accomplish. And honestly, you have no real excuse but to get it right. But it’s the larger brokerages that find themselves, or rather, their agents, in hot water with DRE due to some bad marketing.

There are some common denominators when it comes to advertising non-compliance in the digital space. Agents’ digital marketing often reveals their use of unlicensed fictitious business names, unlawful team names and advertising, lack of required licensing disclosures, unlicensed branch offices, or worse, the solicitation or engagement of activities which are altogether illegal.

When digital media is not properly reviewed and filtered for compliance, it can expose both agents’ disregard for DRE’s advertising requirements and a broker’s failure to establish or enforce policies and procedures in this area. If the responsible broker of a firm is not acting as the gatekeeper for compliance in the advertising arena, then I shudder to think what other compliance issues are also being missed.

Going back to how I started this piece, digital media is always on display. If it’s not your local real estate competitor (but it often is) or third-party watchdog, it might be a well-informed consumer who takes notice of your questionable advertising and raises concerns with the DRE. A bad digital ad will get the DRE in the door, and as I often warn brokers, they might be inclined to stay awhile depending on what they find.

Avoiding non-compliance

So how do you avoid all of this compliance trouble in the first place? Here are some tips.

1. In order to make sure your advertising is DRE-compliant, beware of the baseline requirements:
   • All “first point of contact materials” need to disclose the licensee’s name, DRE license identification number (and Nationwide Mortgage Licensing System and Registry [NMLS] unique identifier, if you are a mortgage loan originator) and responsible broker identity. Regarding the latter, responsible broker identity means the name under which the responsible broker is currently licensed by the DRE and conducts business in general or is a substantial division of the real estate firm, or both the name and the associated license identification number.
   • If you advertise your real estate services in any newspaper or periodical, or by mail, you also need to disclose your license designation (e.g., broker, agent, Realtor).
   • The type size of your DRE license identification number shall be no smaller than the smallest size type used in the solicitation material.
   • Please refer to California Business and Profession Code (B&P) 10140.6 for more information, including the coverage of exceptions regarding “for sale,” “open house,” rent and directional signs.
   • Because these areas deserve special attention, if you are advertising a team name, salesperson-owned fictitious business name, or engage in mortgage loan activities, please refer to the DRE’s website and guidelines for specific advertising requirements.

2. Except for lawful team names (see B&P 10159.6 and 10159.7), no broker or agent may ever use or advertise any name in the course of licensed real estate activity that is not first properly licensed by the DRE. If the name is not printed on the broker’s license certificate (and/or reflecting on the broker’s online DRE public license record), it is not licensed by the DRE.
3. Putting the “fine print” aside, one of the most important topics for discussion is broker supervision. As I always say, broker supervision is everything and I promise you that I am not wrong. If the responsible broker has an organized system of review and supervision in place, to ensure that all digital advertising is compliant before being published, or “going live”, on the internet, then you can successfully filter out flawed ads. You might even catch or prevent other unlawful activity too.

Or, a broker may opt for establishing advertising templates which agents can safely use for all of their real estate advertising needs. Regardless of how you get it done, the ultimate idea here is that broker supervision is required and an effective plan outlining what you are going to do, as well as how and when you are going to do it, are warranted.

The takeaway

A broker’s investment in advertising compliance, with special attention on digital marketing, is not futile. And while some argue that DRE advertising inquiries are generally harmless and short-lived, thanks to the timely correction of issues by licensees, some cases do lead to other layers of investigation and headache.

Bottom line: If you focus your efforts on compliant digital media, this is surely one way to limit your regulatory exposure and prevent unwanted DRE scrutiny.

Related topics:
advertising, compliance, dre, license, nmls, regulation, supervision

Posted by Emily Kordys | Dec 4, 2020 | Laws and Regulations, Mortgages, Real Estate | 0

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

Temporary relief is in sight for homeowners with single-family federally backed mortgages. The Federal Housing Finance Agency (FHFA) announced another extension of their foreclosure moratorium, this time through January 31, 2021.

This marks the fourth time government agencies have announced an extension to California’s foreclosure moratorium. The previous extension ended on December 31, 2020.

The moratorium specifically applies to those with mortgages insured by the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac. It also extends the eviction moratorium for residents of real estate owned (REO) properties.

The FHFA estimates 28 million homeowner mortgages are backed by government sponsored entities.

The moratorium continues to direct mortgage servicers to:

• halt all new foreclosure actions and suspend all foreclosure actions currently in process for FHA-insured single-family properties; and
• cease all evictions of persons from FHA-insured single-family properties.

Homeowners with FHA-insured mortgages protected from foreclosure should make their mortgage payments if they are able to do so or seek mortgage payment forbearance under the Coronavirus Aid, Relief and Economic Security (CARES) Act from their mortgage servicer.

Under the CARES Act, the FHA requires mortgage servicers to:

• offer borrowers with FHA-insured mortgages delayed payment forbearance when the borrower requests it, with the option to extend the forbearance for up to a year;
• assess borrowers who receive COVID-10 forbearance for the special COVID-19 National Emergency Standalone Partial Claim; and
• assess borrowers who are not eligible for the National Emergency Standalone Partial Claim for one of FHA’s COVID-19 expanded home retention solutions.

The FHFA announced they will continue to monitor economic conditions and will extend the deadline again as needed. You can read their full release here.

Related Article: Foreclosure moratorium extended by FHA, Fannie Mae, Freddie Mac

Related topics:
foreclosure, moratorium

Posted by Emily Kordys | Dec 1, 2020 | Laws and Regulations, New Laws, Real Estate | 0

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

Lawmakers are shaking up Wall Street with the signing of a new law aimed at changing the foreclosure process in California. SB 1079, also known as Homes for Homeowners, Not Corporations, was designed to prevent a repeat of a scenario seen during the Great Recession: large corporations bulk-purchasing foreclosed homes, causing a steep decline in homeownership.

The Great Recession’s casualties were devastating: between the years 2007 and 2011, over 785,000 California families lost their homes to foreclosure. This number does not include the more than 1.5 million Californians who also received notices of default (NOD) on their homes.

And yet Wall Street banks enjoyed an unbalanced advantage in the economic disaster they incubated by playing fast and loose with underwriting standards. Today, Wall Street owns a whopping  $60 billion worth of single-family rental housing in the United States.

Further, many of those who lost their homes never recovered. Between 2006 and 2012, the number of owner-occupied homes in California plummeted by more than 320,000, while the number of renter-occupied single-family homes rose by more than 720,000.

SB 1079 seeks to right the wrongs of the Great Recession, but only time will tell if it actually goes far enough. The success of this bill depends on keeping Wall Street and private firms at bay, giving renters a greater chance at becoming homeowners.

On the dark side of the bill, naysayers believe the law will trigger substantial litigation and require the courts to step in for clarification. There is also the mystery of how post-auction bidders will affect foreclosure sales themselves. Detractors argue AB 1079 could ultimately harm both lenders and homeowners.

Rid to bid after auction

The new requirements and rights under SB 1079 will ultimately extend the foreclosure process, giving interested buyers more time to secure a home.

Effective January 1, 2021, foreclosed properties will no longer be permitted to be sold in bundles at trustee’s sales, unless the security instrument provides otherwise. Instead, the foreclosed properties will be bid on separately.

Further, eligible tenant buyers and eligible bidders will have 45 days to purchase the foreclosed property after the trustee sale closes. However, if the prospective owner occupant is the last and highest bidder at the trustee sale, the sale is final. Eligible tenant buyers may purchase the foreclosed property by:

• delivering written notice of intent to place a bid to the trustee within 15 days after the trustee sale;
• submitting a bid so the trustee receives it no more than 45 days after the trustee’s sale; or
• matching the last and highest bid price at the auction.

Eligible bidders have the same rights as eligible tenants but need to exceed, not match, the last and highest bid price at the auction.

These protections end on January 1, 2026.

What is an eligible buyer v. an eligible bidder?

For the purposes of bidding on foreclosed properties at auctions, there are different sets of requirements as stated above for both eligible buyers and eligible bidders.

Eligible tenant buyers refer to persons who at the time of the trustee’s sale:

• are occupying the property as their primary residence;
• are occupying the property under a rental agreement entered into as the result of an arm’s length transaction with a mortgagor or trustor on a date prior to the recording of the Notice of Default against the property; and
• are not the mortgagor or trustor, or the child, spouse or parent of the mortgagor or trustor.

Eligible bidder means any of the following:

• an eligible tenant buyer;
• a prospective owner-occupant;
• a nonprofit association, nonprofit corporation or cooperative corporation in which an eligible tenant buyer or a prospective owner-occupant is a voting member of director;
• an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing;
• a limited partnership in which the managing general partner is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable housing;
• a limited liability company in which the managing member is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing;
• a community land trust;
• a limited-equity housing cooperative; and
• any county, city, district, public authority, public agency and any other political subdivision or public corporation in the state.

Additional protections under SB 1079

SB 1079 provides additional protections which also extend beyond an auction and foreclosure sale.

Owners of vacant properties that were purchased at foreclosure sales are required to maintain acquired properties. Currently under California law, government entities may impose civil fines of $1,000 per day when an owner fails to maintain a purchased vacant property. Under SB 1079, the civil fine increases to $2,000 per day for the first 30 days the property is not properly maintained, and up to $5,000 per day thereafter.

SB 1079 is a necessary piece of the puzzle to prevent past mistakes from resurfacing. Big corporations will not be able to benefit from the foreclosure crisis and homeownership rates will not suffer like they did in 2008. While this looks good on paper, the full effect of SB 1079 remains to be seen.

Related topics:
foreclosure

Posted by Danielle Keating | Jul 14, 2020 | Feature Articles, Forms, Laws and Regulations, Real Estate | 0

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

Beyond the agent’s scope of services

Brokers and their agents often encounter prospective clients who need brokerage services beyond their business operations. These situations are often about the property’s location or an expertise outside the broker’s scope of practice.

Here, brokers and agents best serve their clients by referring them to another broker or agent capable of providing the service the client needs. Thus, the agent making the referral properly asks for a fee from the brokerage office accepting the referral. The referral fee is earned when the client enters into a real estate transaction in which the other brokerage office is paid a fee.

The referring agent needs to document the referral to ensure collection of the fee from the other licensee. A referral fee agreement form is the most reliable evidence of the arrangement. [See RPI Form 114]

Referrals may be made by:

• brokers;
• agents; or
• unlicensed finders.

Licensed brokers and sales agents owe fiduciary duties to the principals they represent. Fiduciary duties require brokers and their agents to perform on behalf of their client with the utmost care and diligence, as a protective shield in transactions.

Conversely, an unlicensed finder has no such has no such responsibility. A finder’s function is limited to identifying and referring potential real estate participants to brokers, agents or principals in exchange for the promise of a fee. They are locators, period.

Related Video:

Finders: a Nonlicensee Referral Service

Although not licensed by the California Department of Real Estate (DRE) or any real estate trade association, finders are authorized by state codes to solicit prospective buyers, sellers, borrowers, lenders, tenants or landlords for referral to real estate brokers, agents or principals. Thus, they provide leads about individuals who may become participants in real estate transactions.

The Broker Referral Fee Agreement

When an agent refers a prospective client to another agent, a referral fee agreement is used to document the referral. The referral fee agreement is a broker-to-broker referral form. A referral between brokers and is not to be confused with a finder’s fee agreement, as a finder is an unlicensed individual who locates clients for a broker and their agent. [See RPI Form 115]

The Broker Referral Fee Agreement published by RPI (Realty Publications, Inc.) is used by an agent when agreeing with another broker or their agent for their payment of a fee in exchange for the referral of a client. Further, the Broker Referral Fee Agreement is used to identify the person referred and document the amount and terms for payment of the referral fee. [See RPI Form 114]

The first section of the Broker Referral Fee Agreement identifies the agents involved in the referral as the Referring Broker and the Recipient Broker, as well as their Associate Licensees. It also designates the prospective client as either a:

• buyer;
• seller;
• tenant/lessee;
• landlord/lessor; or
• borrower. [See RPI Form 114]

The referring broker will receive no other fees on transactions the referred prospective client enters into through the services of the other broker. Further, the referring broker and their agents undertake no activities after making the referral. Their involvement is limited to the referral of the prospective client only. Accordingly, a provision in the referral fee agreement states the referring broker will not advise or participate in any negotiations with the prospective client.

The remaining sections of the form provide for:

• the identity of the prospective client;
• a description of the real estate involved, if applicable;
• the compensation to the referring broker;
• the conditions under which the referral fee is earned by the referring broker; and
• a mediation provision. [See RPI Form 114]

An oral agreement between brokers for a referral is fully enforceable, but a documented agreement clearly sets:

• the agreed conditions for the fee to be earned;
• the amount to be paid; and
• when the fee will be paid.

The written Broker Referral Fee Agreement acts as documentation for the agreed referral fee, which might not be fully clarified or forgotten in an oral agreement.

Referrals from finders

A finder providing referral services in California for a fee may:

• find and introduce parties;
• solicit parties for referral to others [Tyrone Kelley (1973) 9 C3d 1]; and
• provide referrals to principals or brokers.

Related article:

Finders

The Finder’s Fee Agreement published by RPI documents an agent’s use of a finder to locate, solicit and refer or identify persons who need the services of the broker. [See RPI Form 115]

Written contracts are entered into with the purpose of clearly delineating the responsibilities each participant has undertaken, and the scope of an employee’s duties. Provisions limit an employee’s conduct to what regulations allow for their licensed or unlicensed status. [See RPI Form 115, 505, 506 and 510]

The Finder’s Fee Agreement provides for:

• the identity of the prospective client;
• a description of the real estate involved, if applicable;
• the compensation due to the finder; and
• the conditions under which the referral fee is earned by the finder. [See RPI Form 115]

Generally, a finder’s fee is a lump sum amount or a percentage of the fee received by the broker on a transaction which is closed due to the finder’s referral. Only sound economics control the amount of the fee a broker, agent or principal should pay a finder for a lead.

Though referral fees to finders are permitted under California law, they are prohibited in certain transactions by the federal Real Estate Settlement Procedures Act (RESPA).

No person in a RESPA-controlled transaction may give or accept a referral fee, kickback or any other thing of value for advising a homebuyer, seller or owner participating in the transaction to employ a particular service provider. The act of referring is not a service and no service provider, such as a transaction agent, may collect a fee for such a referral.

This article was originally posted June 2016 and has been updated.

Related topics:
agents, broker fees, referral fee

Posted by Emily Kordys | Oct 13, 2020 | Laws and Regulations, Real Estate | 0

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

The Department of Business Oversight (DBO) is getting a facelift.

Governor Gavin Newsom signed A.B. 1864 into law on September 25, 2020 to revamp and modernize the DBO. The transition begins with a name change aimed at cementing its position as a leading financial regulator and model for consumer protection.

The bill, also known as the California Consumer Financial Protection Law (CCFPL), renames the DBO the Department of Financial Protection and Innovation (DFPI), effective September 29, 2020. But this is only the tip of the iceberg.

Beginning January 1, 2021, the new law expands DFPI powers to protect California consumers from pandemic-inspired scams and allows some regulatory federal agencies to step back, including the Consumer Financial Protection Bureau (CFPB).

Further, the DFPI will:

• expand the state’s consumer protection capacity by adding additional investigators and attorneys to supervise financial institutions and crack down on financial predators;
• create a team to monitor financial markets to identify emerging risks to consumers;
• create a team committed to consumer education, outreach, listening and responding to consumers in specific communities; and
• implement a new Office of Financial Technology and Innovation, dedicated to cultivating financial technology to serve consumers.

first tuesday will continue to follow the DFPI’s progress toward these goals.

Related topics:
department of business oversight (dbo), department of financial protection and innovation (dfpi)

Posted by Carrie B. Reyes | Oct 6, 2020 | Laws and Regulations, Property Management, Real Estate | 1

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

The U.S. Department of Housing and Urban Development (HUD) recently replaced an old fair housing rule with something resembling less a rule and more a suggestion.

The old rule, Affirmatively Further Fair Housing (AFFH), was put in place in 2015 to encourage HUD recipients to meaningfully address housing discrimination and segregation. It did this by making guidance for identifying impediments to fair housing and by requiring recipients of HUD funds to submit plans that incorporated steps to reducing or eliminating these impediments.

In January 2020, HUD released a new plan for public comment that rolled back some of the AFFH. The January plan would have required recipients to submit at least some certification that they were furthering fair housing. While many of the public comments said HUD was rolling the AFFH back too far, HUD decided to go in the opposite direction and roll it back even further.

The final rule was released in July 2020 with no option for public comment and took effect on September 8, 2020.

Now, HUD recipients are merely required to submit that they “took affirmative steps to further fair housing policy during the relevant period.”

HUD’s decision to eliminate the AFFH rule was due to its “federalism,” or overstepping of the federal government on local housing decisions. In its place, HUD has introduced the Preserving Community and Neighborhood Choice rule, which, like the name, leaves the implementation of fair housing law basically in the hands of individual communities.

What is fair housing, anyway?

Fair housing organizations across the nation cried foul when the AFFH was rescinded and replaced by a gutted rule, without even allowing public comment. The new rule leaves the term fair housing up to individuals to decide. However, by eliminating all prior guidance, how is anyone to evaluate the level or quality of recipients’ fair housing steps? With no data required to be reported, how will anyone know whether fair housing goals are being met?

No one will know!

Real estate professionals may not think this new hands-off approach to fair housing regulation is necessarily a big deal. After all, focusing on home sales, they don’t often get involved with affordable housing struggles, which most often impact renters.

But fair housing is an integral part of the system that makes up our housing market.

Here in California, only 68 low-income units exist for every 100 low-income households, according to the Low Income Housing Coalition. The statistic worsens for very-low-income households, with only 32 affordable units available per 100 very-low-income households.

Everywhere across the state, but especially in our major coastal cities, we have seen the impact the low-income housing shortage has had on homelessness, which has skyrocketed over the past decade. Aside from the enormous social issue this has caused, rising homelessness is bad for home values and the broader community’s quality of life.

Further, there are plenty of lower-income households that could qualify to become homeowners — if the units existed and if they had access to rents that didn’t require them to spend half their income on housing, leaving nothing leftover to save for down payments. Think of the teachers, first responders and public service providers across the nation unable but willing and eager to buy who will be negatively impacted by this rule.

Fortunately for Californians, we have many, many more rules that encourage more housing for low- and moderate-income households. But our state’s progressive policies will not completely isolate us from federal rollbacks. After all, HUD still operates the Federal Housing Administration (FHA), public housing, Government National Mortgage Association (Ginnie Mae) and various Community Development and Planning Block Grants.

Related video:

https://journal.firsttuesday.us/civil-rights-and-fair-housing-laws-2/72…

Related topics:
department of housing and urban development (hud),

Posted by ft Editorial Staff | Apr 21, 2020 | Buyers and Sellers, Economics, Feature Articles, Recessions, Your Practice | 0

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

This article is Part I in a series explaining the legal assistance offered to individuals impacted by the novel coronavirus (COVID-19), relating to real estate and the housing market. Check in next week for an explanation of legal assistance available to independent contractors.

Updated April 26, 2020.

CARES Act for real estate

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law at the end of March 2020 and provides nearly $2 trillion in stimulus to individuals and businesses affected by the novel coronavirus (COVID-19).

The CARES Act helps homeowners by:

• creating a mortgage forbearance program for federally-backed mortgage loans;
• protecting borrowers’ credit scores from negative reporting during the crisis; and
• allowing financial institutions to temporarily suspend some requirements related to troubled debt restructurings (TDRs).

It also provides assistance to small businesses in the form of forgivable loans and paycheck protection. Read on for more details.

Homeowner assistance

Under a mortgage forbearance program, the property owner who is unable to make mortgage payments come to an agreement with their servicer to temporarily forego exercise of the servicer’s rights on a default to foreclose, while the owner takes steps to bring their mortgage payments current.

To be eligible for mortgage forbearance under the CARES Act, the mortgage modification needs to be:

• for a mortgage owned or backed by a federal entity, including:
  • Fannie Mae;
  • Freddie Mac;
  • the Federal Housing Administration (FHA);
  • the U.S. Department of Veterans Affairs (VA); and
  • the U.S. Department of Agriculture (USDA);
• related to COVID-19;
• executed on a mortgage no more than 30 days past due as of December 31, 2019; and
• executed between March 1, 2020 and the earlier of:
  • 60 days after the end of the declared national emergency; or
  • December 31, 2020.

In return for giving homeowners and commercial property owners a temporary pass on mortgage payments, these property owners may not evict any tenants unable to pay rent during the crisis.

Property owners unable to pay their mortgage need to contact their servicer to find out if they are eligible to enter a forbearance program. Read more about COVID-19 mortgage forbearance here.

Small business assistance

Thousands of small businesses have been impacted by COVID-19 shutdowns, including many real estate brokerages. To that end, the CARES Act sets aside $350 billion to assist small businesses.

The CARES Act instituted some measures to provide loans and grants to small businesses, including the Paycheck Protection Program (PPP) and extending the Economic Injury Disaster Loan (EIDL) grants program to businesses impacted by COVID-19.

However, both programs ran out of money in mid-April. There is talk of increasing these programs’ budgets though, so brokers in need of additional funds to stay afloat ought to keep watch in case more funds become available.

Update: On April 24, 2020, the Small Business Association (SBA) announced additional funding for the PPP. Therefore, beginning April 27, 2020, the program will resume accepting applications. Learn how to apply here.

The PPP helps businesses continue to pay their employees during the COVID-19 crisis. The assistance is structured as a loan, which will be forgiven as long as the money is used as intended: to keep all employees on payroll for eight weeks and to pay rent, mortgage interest or utilities.

Eligible entities include:

• sole proprietors;
• independent contractors;
• self-employed individuals;
• small businesses (including franchises) with 500 or fewer employees; and
• larger businesses in key, identified industries.

For brokers who employ both employees and independent contractors, they only need to account for payroll of their employees since independent contractors may apply for the loan on their own behalf.

The EIDL program is a program regularly offered by the Small Business Administration (SBA) in response to past disasters. However, during the COVID-19 crisis, the SBA is also offering EIDL forgivable loan advances of $10,000, which may be granted within three days of receiving the loan application.

While these two programs are both out of funding at the time of this writing, there is a possibility that more funding will be extended.

More information is available at the SBA website.

Buyer, seller assistance

Real estate was recently declared an essential business at the federal level. But that doesn’t mean that agents and brokers can go about their practice as usual.

Here in California, laws regulating how agents operate during the COVID-19 crisis vary by locale. For example, open houses are still banned since they can attract large crowds. However, some cities allow photographers to take listing pictures and some do not, making new homes especially difficult to list in these areas.

For an extensive list of county-by-county orders on buying, selling and moving, see this Redfin map.

Related article:

California’s home sales volume slump settles in

At the national level, the federal government is attempting to move along the closing process by loosening their appraisal requirements.

As the impacts of COVID-19 first began to rock the real estate scene, many lenders began to accept appraisals conducted remotely. Now, appraisals may be deferred for up to 120 days following the close of a transaction for residential and commercial transactions. Excluded from the appraisal extension are loans related to new residential and commercial construction, as these loans present higher risks.

While the in-person appraisal may be deferred, each financial institution is expected to make their best effort to create a valuation on the property based on data available. This temporary rule is good for transactions closed between April 17, 2020 through December 31, 2020.

Related video:

Rules Controlling Appraisals

Renter assistance

One-third of renters did not pay rent on time in April, according to the National Multifamily Housing Council. Job losses and reduced incomes threaten homelessness for millions, but federal and state laws are now in place to protect renters from evictions in 2020.

Here in California, renters impacted by COVID-19 may not be evicted due to an inability to pay rent through May 31, 2020. To avoid eviction, the tenant needs to notify the landlord in writing of their inability to pay due to COVID-19 no more than seven days after the missed rent payment.

But this order doesn’t let the tenant off the hook. When the moratorium is lifted, the tenant will be responsible for paying back the missed rent. This will be extremely difficult when the economy is in the depths of recession. Tenants unable to pay missed rent payments will face eviction come June 1.

As discussed above, a longer, 120-day eviction moratorium is in place for landlords with federally-backed mortgages.

At the local level, many cities and counties have also enacted longer moratoriums and extended periods of time to repay missed rent. For example, in the city of Los Angeles, tenants have up to a year after the city’s emergency declaration expires to repay missed rent.

Landlords and tenants: visit your city’s website for information on which protections are available.

Read the statewide executive order here.

Related topics:
california legislation, covid-19 pandemic, forbearance

Posted by Carrie B. Reyes | Aug 4, 2020 | Fair Housing, Feature Articles, Laws and Regulations, Real Estate, Your Practice | 0

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

This article provides practical advice for how real estate and mortgage professionals can address and counter harmful attitudes and actions toward Black, Latinx and Asian homebuyers and renters.

 

Racism impacts real estate

There are two types of racism in real estate:

• implicit racism, the more common, but harder to spot form; and
• explicit racism.

Explicit racism occurs when an individual or company in a position of power takes actions against individuals because they are members of a specific racial or ethnic group. For example, a real estate agent or landlord who refuses to show homes to or accept applications from members of a protected group is guilty of explicit racism.

Another specific example occurred during the Millennium Boom, when Countrywide, a subsidiary of Bank of America, targeted thousands of Black and Latinx homebuyers in well-documented instances of predatory lending.

Countrywide discriminated against Black and Latinx homebuyers by:

• charging higher fees even when these homebuyers had equivalent qualifications of White homebuyers;
• encouraging Black and Latinx homebuyers to take on high debt-to-income (DTI) ratios; and
• steering Black and Latinx homebuyers into subprime mortgage products, even though many of the targeted homebuyers had equal or better qualifications than the White homebuyers to whom Countrywide originated mortgages.

This led to targeted homebuyers paying much higher upfront fees, and over time, higher mortgage payments. Therefore, when the housing market crashed in 2007-2009, these homebuyers were much less likely to be able to keep their home. Bank of America ended up paying $335 million to the Countrywide victims in 2012.

Racist actions by lenders, landlords and real estate agents keep qualified participants out of the housing market, reducing turnover and sales. In fact, here in California, we consistently have the third-lowest homeownership rate in the nation, higher only than New York and the District of Columbia. With so many roadblocks in place to prevent much of the state’s large Latinx population from attaining homeownership, the ripples spread far across California’s housing landscape.

Laws to prevent discrimination

Both federal and state laws exist to provide protections against housing discrimination.

California’s Unruh Civil Rights Act protects against discrimination due to:

• age;
• ancestry;
• color;
• disability;
• genetic information;
• national origin;
• marital status;
• medical condition;
• race;
• religion;
• sex (including gender identity and gender expression);
• pregnancy; and
• sexual orientation. [Calif. Civil Code §51(e)]

The highest number of fair housing complaints received each year are in regard to disability status, followed by race-based discrimination, according to California’s Department of Fair Employment and Housing (DFEH).

California’s Fair Employment and Housing Act (FEHA) also offers protections due to an individual’s source of income — including Section 8 housing assistance vouchers — familial status and veteran or military status. It applies to property owners, real estate brokers and agents and financial institutions. [Calif. Government Code §12900 et seq.]

Under the FEHA, the following discriminatory acts are prohibited:

• refusing to sell, rent or lease housing;
• misrepresenting the availability of housing;
• including inferior terms to protected groups;
• publishing advertisements containing discriminatory information or preferences;
• failing to design a multi-family building with four or more units to allow access and use to disabled persons;
• inquiring orally or through writing about a purchaser’s or renter’s protected status;
• refusing to lend or provide financial assistance;
• inducing a person, for profit, to sell or rent a home based on the prospective entry into the neighborhood of a person of a particular protected status;
• denying access to a multiple listing service (MLS), brokerage or other real estate service;
• making housing unavailable to protected groups through planning and zoning decisions; and
• using a financial or income standard in rental housing that treats married couples’ finances differently than non-married individuals residing together. [Gov Code §12955(a)]

Further, the Housing Financial Discrimination Act of 1977, known as the Holden Act, prohibits discriminatory loan practices. This applies to:

• financial institutions;
• mortgage loan brokers;
• mortgage bankers;
• banks;
• savings and loan associations; and
• public agencies that regularly make, arrange or purchase loans for the purchase, construction rehabilitation, improvement or refinancing of housing. [Calif. Health & Safety Code §35800 et seq.]

At the federal level, the Federal Fair Housing Act (FFHA), administered by the U.S. Department of Housing and Urban Development (HUD), prohibits discrimination by real estate owners and agents. This includes prohibitions against:

• blockbusting, when White owners are convinced to sell property at a discounted price out of fear of racial minorities moving in and decreasing property values, and the purchasers then sell the property at a premium to racial minorities, thus profiting off of racist attitudes;
• steering;
• retaliating against someone who has filed a fair housing complaint or assisted in a fair housing investigation;
• harassing people due to their protected status;
• discriminating in the appraisal of a home;
• limiting privileges, services or use of facilities of a home;
• delaying or failing to perform maintenance or repairs; and
• refusing to provide or providing inferior terms of homeowners insurance due to a person’s protected status. [42 United States Code §3601 et seq.]

The takeaway here is that numerous laws exist to prevent discrimination. But the prohibition alone isn’t enough to ensure equal access to housing for all. Acts of implicit discrimination are especially prone to occur, as they can happen without the perpetrator even realizing they are being discriminatory. But this type of discrimination is just as harmful and sometimes more harmful, since it is so prevalent.

Steps to avoid implicit discrimination

The first thing a real estate professional can do to address potential discrimination issues is to identify their blind spots and where there is the widest opportunity for discrimination.

For example, a landlord of a community with few children living on the premises needs to be careful not to advertise their community as an “adult community” or to discourage families with children from moving in. Even if it is well-meaning — “Your children may not enjoy living here because there aren’t any other kids for them to play with” — it is still discriminatory.

Steps that all real estate professionals can take to avoid implicit discrimination include standardizing practices, including the:

• types and amounts of information given to each client, prospective client, renter or prospective renter;
• questions asked of prospective renters;
• forms used to screen prospective renters; and
• fees and rents.

Landlords ought to limit their questions to matters that directly impact their tenancy. For example, ask if they have pets or a waterbed, but don’t ask if they are pregnant or how old they are.

Editor’s note — An exception exists for senior-only housing. A housing project qualifies as senior housing if it is occupied only by persons who are 62 years of age or older. [24 CFR §100.303]

Real estate professionals also need to be careful about their advertising practices.

Related video:

Advertising Guidelines for Sales and Rentals

For example, a phrase like “perfect for newlyweds” indicates a preference for married couples. Likewise, “walking distance to synagogue” indicates a preference for Orthodox Jewish applicants. Even mentioning a nearby exclusive country club may indicate a preference for homebuyers or renters who have membership in the club, which may cater to a certain type of clientele and present income barriers.

Further, the images used in marketing materials may also indicate a discriminatory preference. For example, religious symbols or flags can indicate a preference for a certain type of homebuyer, renter or client. Even if a client asks for a discriminatory phrase or symbol specifically, the broker seeking to protect themselves from legal action will refuse.

To notify clients and current and potential renters of their rights, real estate brokers are required to display a fair housing poster notifying clients and current and potential renters of their rights:

• in their place of business; and
• at any non-single family residential (SFR) dwelling offered for sale. [24 Code of Federal Regulations §110.10(a)]

Actively combatting racism

Aside from being extra careful to avoid implicit racism, real estate brokers can take positive actions in their offices and communities to encourage equality.

Encourage inclusive language not just in your marketing, but in how you show property. For example, the term “master bedroom” has recently come under fire as an antiquated reference to slavery and plantation life.

Real estate licensees are required to complete Fair Housing education as part of their regular continuing education (CE) every four years. Beyond this, anti-bias trainings for the office are also positive steps brokers can take to get their agents thinking about how they interact with Black, Latinx and Asian clients. Making them aware that these clients are on average shown fewer properties and given less information will help them examine and adjust their own implicit behaviors.

Brokers and agents ought to keep records for each client. This not only helps them identify potential biases but can protect them in case the client or other party files a discrimination case against the agent.

Real estate brokers: How are you combatting racism in real estate in your practice? Share your ideas and experiences with other agents in the comments below.

Related topics:
blockbusting, discrimination, federal fair housing act, ffha

Posted by Carrie B. Reyes | Feb 11, 2020 | Fair Housing, Property Management | 4

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

It may seem obvious, but now the research can back it up: landlords are firmly biased against tenants using housing vouchers.

The government distributes vouchers to subsidize a portion of a tenant’s rent. Typically, renters pay 30% of their income on rent and the vouchers cover the rest. This system helps low-income households stick to paying the recommended 30% of their income on housing, and allows landlords to collect fair market rents.

Housing vouchers — called Section 8 vouchers — provide low-income tenants with access to high-opportunity neighborhoods. Research shows that children who grow up in wealthier, high-opportunity areas are more likely to earn more income later in life, and thus less likely to need to rely on housing vouchers in the future. For governments, housing vouchers require immediate pay-outs, but can be a forward-thinking solution for the next generation.

But vouchers are no guarantee for housing. Landlords are the gatekeepers to neighborhoods with high economic opportunity, using vouchers to screen out tenants, according to a recent study by the Cleveland Federal Reserve Bank. This is true regardless of the voucher amount, even when vouchers allow for renters to pay above market rent.

In the study, researchers examined high-opportunity neighborhoods. Tenants showed bias against voucher renters in these neighborhoods under the regular voucher system.

Further, when the voucher amount increased $450 on average for high-opportunity neighborhoods, the bias continued even when the vouchers were worth more money. In some cases, the increased voucher amount gave the landlord the opportunity to collect above market rent. Even with the possibility to collect higher rents compared to renting to non-voucher tenants, most landlords chose to screen out tenants using vouchers.

Tenants contacting landlords without the need of a housing voucher received a 50% positive response. Tenants who contacted landlords that mentioned the need for a housing voucher received only a 23% positive response.

The small percentage of landlords who responded positively to higher voucher payments were landlords of single residences. Landlords of multi-family properties showed bias no matter the voucher payment amount.

The experiment was conducted in Washington, D.C. but the researchers claim the results have national implications.

Housing vouchers are a poor substitute for sufficient housing

Is it even legal to deny a tenant due to their reliance on housing vouchers?

In California, it is unlawful for a landlord to discriminate based on a tenant’s source of income. In other words, they may not refuse to rent to a tenant just because a certain amount of their income comes from, say, Social Security payments. [Calif. Government Code §12955(a)]

Until January 1, 2020, Section 8 vouchers were an exception to this law. But with the passage of Senate Bill (SB) 329, Section 8 vouchers are now included under the law prohibiting discrimination due to source of income.

However, while it is no longer lawful for landlords to screen out tenants with housing vouchers, it’s not too difficult for landlords to do so regardless. With today’s high demand for rentals and low vacancy rates, landlords can afford to be picky about their preferences.

Another solution to counteract landlord discrimination against voucher holders is found in Los Angeles, which rolled out two programs to incentivize landlords in 2017. Under the programs, any damages remaining after a Section 8 tenant moves out will be reimbursed. The programs can also cover the tenant’s security deposit and provide utility assistance.

However, both types of solutions are band-aids for the real problem: a lack of affordable rentals in California’s major metro areas.

Households using vouchers are already paying 30% of their income on housing. Wouldn’t it be ideal if enough rentals existed so that all households could find housing at this cost threshold, without the need for government assistance?

To reach this housing utopia, builders need to construct more low-tier, multi-family rentals. Due to the high cost of land in California’s major metro areas, to enable lower rents, local governments will need to get involved. They can encourage more low-tier rentals by taking actions like:

• waiving permit fees;
• expediting the environmental review process;
• waiving parking requirements; and
• providing tax benefits to builders of low-tier, multi-family rentals.

Some of this action is already occurring in California, encouraged by recent law changes. Read about these efforts here.

Related topics:
landlord, section 8

Posted by Carrie B. Reyes | Nov 9, 2020 | New Laws, Property Management, Real Estate | 0

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

With the passage of SB 1157, tenants in multi-family developments receiving government assistance will have a new way to add to their credit histories. Longer and more robust credit histories help potential homebuyers build up their credit scores, necessary to qualify for a mortgage without undergoing manual underwriting.

For leases entered into beginning July 1, 2021 through July 1, 2025, landlords of assisted housing developments in California will need to give tenants the option to have their rental payments reported to at least one consumer reporting agency that resells or furnishes rental payment information to a nationwide consumer reporting agency. [Calif. Civil Code §1954.06]

An assisted housing development is a multi-family rental housing development which receives government assistance. [Calif. Gov. Code §65863.10(a)(3)]

Landlords are exempt who manage a building containing 15 or fewer units, unless the landlord:

• owns more than one assisted housing development; and
• is a:
  • real estate investment trust (REIT);
  • corporation; or
  • a limited liability company (LLC) in which at least one member is a corporation. [CC §1954.06(j)]

The landlord needs to offer tenants the rent reporting option for leases beginning July 1, 2021 and annually thereafter. [CC §1954.06(b)]

The landlord’s offer to report rent payments needs to include:

• the statement that reporting of the tenant’s rental payment information is optional;
• the names of each consumer reporting agency to which rental payment information will be reported;
• a statement that all of the tenant’s rental payments will be reported, regardless of whether the payments are on time, late, or missed;
• the amount of any fee charged for the reporting, not to exceed the lesser of $10 a month or the landlord’s actual reporting costs;
• instructions on how to submit the written election of rent reporting to the landlord by mail;
• a statement that the tenant may opt into rent reporting at any time following the initial offer by the landlord;
• a statement that the tenant may stop rent reporting at any time, but they will not be able to resume rent reporting for at least six months after their election to opt out;
• instructions on how to opt out of reporting rental payment information; and
• a signature block for the tenant to date and sign to accept the offer of rent reporting. [CC §§1954.06(c); 1954.06(f)]

If a tenant fails to pay a reporting fee required by the landlord:

• it shall not be cause for termination of the tenancy;
• the landlord shall not deduct the unpaid fee from the tenant’s security deposit; and
• if the fee remains unpaid for 30 days or more, the landlord may stop reporting the tenant’s rental payments and the tenant shall be unable to elect rent reporting again for a period of six months from the date on which the fee first became due. [CC §1954.06(g)]

The long, slow overhaul of credit scores continues

Credit scores receive a huge amount of attention from lenders, and yet, lenders are not beholden in any concrete way to credit reporting agencies. They are not codified in our legal system, yet the mortgage market treats credit scores as law.

The current credit score model is mostly dictated by Fair Isaac Corporation (FICO), and is calculated by each individual’s:

• payment history (35%);
• amounts owed (30%);
• length of credit history (15%);
• types of credit used (10%); and
• credit inquiries or new accounts opened (10%).

But this model leaves out a significant portion of the population who have non-traditional credit histories. In other words, these people don’t have credit cards or auto loans, but they do likely pay rent or have a cell phone plan. There is a small effort to include these nontraditional credit histories in the underwriting process, but it involves manual underwriting, which is time-consuming and avoided by many lenders.

However, in order to take advantage of positive payment history, landlords and creditors need to report these payments to credit reporting agencies. This process can be cumbersome and unreliable for applicants, making non-traditional credit difficult to actually use in scoring.

With the changes made by SB 1157, some California renters take one step closer to filling out their credit histories. For the rest, access to credit remains limited.

Considering their significance in getting approved for a mortgage, and at what terms, credit scores get relatively little attention from homebuyers. When first tuesday last ran the poll at the top of this article in 2016, just 44% of agents said most of their homebuyer clients check their credit reports before applying for a mortgage.

Real estate agents need to discuss credit scores with their clients right away, before the home search even begins. Your clients have access to a free annual credit report, so there’s no reason they shouldn’t head into discussions with their lender unprepared. And when their credit scores are unavailable due to a lack of credit history, manual underwriting is still a possibility they can discuss with their lender.

Related topics:
credit score, fico, landlords and tenants

Posted by Carrie B. Reyes | Nov 2, 2020 | New Laws, Real Estate, Your Practice | 0

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

California employers — including real estate brokers — need to be aware of new notification requirements for employees exposed to COVID-19.

Previously, under California’s COVID-19 Employer Playbook, employers were strongly encouraged to follow guidelines to inform employees of potential COVID-19 exposure. With the passage of AB 685, these guidelines have now become law.

Beginning January 1, 2021 through January 1, 2023, employers need to inform employees of potential exposure to COVID-19 at the workplace. Within one business day of receiving notice of potential COVID-19 exposure, the employer needs to provide:

• written notice to all employees, including the employers of any subcontracted employees, who were on the premises at the time the infected individual was present during the infectious period;
• any disinfection or safety plan the employer will implement to address the COVID-19 exposure;
• information regarding COVID-19 related benefits to which the employee is entitled, such as:
  • workers’ compensation;
  • COVID-19-related leave;
  • company sick leave;
  • state-mandated leave; and
  • anti-retaliations and anti-discrimination protections. [Labor Code §6325 (a)]

For these purposes, written notice includes any usual way of communicating employment-related information which can be expected to be received within one business day, including:

• email;
• text message; or
• personal service. [Lab C §6325 (a)(1)]

When a COVID-19 outbreak occurs among employees, the employer needs to notify the local public health agency, providing the names, number, occupation and worksite of the infected employees. The California Department of Public Health defines an outbreak as three or more COVID-19 cases occurring within a two-week period.

Further, when a working environment poses an imminent risk of infection, the employer needs to prohibit entry into the immediate area where such risk exists. [Lab C §6325 (b)]

Of note: California’s new notification requirements are not a free pass to violate privacy laws. Any notifications provided to employees may not include identifying characteristics or names of the infected individuals.

COVID-19 safety compliance

These new notification requirements are on top of a growing list of laws brokers and other employers in California need to stay on top of to maintain a safe workplace in the time of COVID-19.

For example, the Department of Financial Protection and Innovation (formerly known as the Department of Business Oversight) has conducted checks of branches to confirm all licensees and clients are complying with the latest guidance on face masks from the California Department of Public Health (CDPH).

All clients and customers are required to wear face coverings in accordance with CDPH guidance.  Those who refuse to wear masks or do not meet CDPH exemptions may not enter places of business.

While not a legal requirement, agents and brokers also ought to be ready with a plan to show clients. This includes information on what precautions the brokerage is taking to keep everyone safe and healthy, and what precautions the brokerage expects their clients to take, too. This will put everyone’s minds at ease and allow agents and clients to focus on completing the home sale.

Related FARM Letters:

FARM: Health precautions when buying a home

FARM: Health precautions when listing your home

Related topics:
covid-19 pandemic

Posted by ft Editorial Staff | Jun 9, 2020 | Buyers and Sellers, Letters to the Editor, Your Practice | 0

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

Question: When is it permissible for a broker licensed by the California Department of Real Estate (DRE) to receive a fee from conducting or assisting in a transaction for an out-of-state property?

Answer: This depends on the state in which the property is located.

Real estate and licensing law — and thus the broker’s right to collect a fee — differs from state to state. In order to represent a buyer or seller in an interstate transaction, and obtain a fee in return, a California broker enters into two separate contracts:

• a listing agreement with their buyer or seller; and
• a cooperation agreement with a broker licensed in the state where the property is located. [See RPI Forms 102; 103; 105]

Out-of-state brokerage activity stays out-of-state

Consider a broker licensed only in California. Their client is moving to a nearby state and contacts the broker to help them locate their next home. How does the California broker assist their client, obtain a fee and follow real estate laws in the state where they are not licensed?

A California broker avoids transgressing the licensing laws of another state when:

• all brokerage activities are conducted by phone, direct mail, email or fax from California, the state of the broker license [Consul LTD. v. Solide Enterprises, Inc. (9th Cir. 1986) 802 F2d 1143];
• the listing and purchase agreements are negotiated, prepared and handled in the state of the broker license [Gold v. Wolpert (7th Cir. 1989) 876 F2d 1327];
• all brokerage activities and negotiations are completed in the state issuing the broker license and these facts are known to the client when the property is located in a different state [Coldwell Banker & Company v. Karlock (7th Cir. 1982) 686 F2d 596]; and
• the broker limits their out-of-state activity to no more than their property inspection and information gathering. [Coldwell, supra]

However, a California broker who sues in another state to collect their fee will be denied recovery by the out-of-state court when they conduct brokerage activities while physically present in that state, such as:

• showing the property to prospective buyers without being accompanied by a broker licensed in that state [Harrison & Bates, Inc. v. LSR Corp. (1989) 385 SE2d 624];
• negotiating on behalf of the buyer or seller located in that state [Paulson v. Shapiro (7th Cir. 1973) 490 F2d 1; Fields v. McNab (1984) 70 OrApp. 154]; or
• negotiating, preparing, signing or delivering the listing or purchase agreements in that state. [Baron & Company, Inc. v. Bank of New Jersey (1981) 504 F.Supp 1199]

Thus, California brokers soliciting and negotiating a transaction across state lines are to:

• physically stay in California, with the exception of property inspections while accompanied by an out-of-state broker;
• conduct all negotiations from California by phone, email, direct mail or fax;
• include a California choice-of-law provision in all fee provisions in purchase agreements [See first tuesday Forms 102 §4.8 and 103 §3.4];
• prepare and send all documents from California;
• require the principals to directly pay them their share of the fee through escrow, not through the out-of-state broker (unless otherwise required by their cooperation statutes); and
• sue to collect any earned and unpaid fee in a California court.

California brokers who negotiate to receive a fee from an out-of-state broker for an out-of-state deal are best served by confirming with the out-of-state real estate agency whether they may:

• be paid a share of any fee collected by the out-of-state broker; or
• travel into the other state to conduct activities such as inspecting, gathering data, showing the property or preparing documents.

Different states, different laws

When a California broker is assisting a client to purchase property outside the state, the rules that govern that transaction depend on the state in which the property is located.

For example, Nevada permits interstate cooperation, but requires out-of-state brokers who wish to conduct Nevada brokerage activity on behalf of California buyers to first obtain a certificate of cooperation from Nevada’s Real Estate Commissioner. [Nev. Rev. Stat. §645.605; Nev. Adm. Code §645.185]

California brokers who acquire a Nevada certificate of cooperation must work under the supervision of a Nevada broker. Under Nevada’s collaboration statutes, the Nevada broker is to be in charge of the interstate transaction at all times, including:

• accompanying the California broker and the California client to view the property;
• negotiating transactions with Nevada buyers;
• co-signing all documents dealing with the Nevada property transaction in cooperation with the California broker; and
• handling, accounting for and keeping records of all fees received in the cooperative transaction. [Nev. Adm. Code §645.185]

Further, to buy, sell or lease Washington real estate, a California broker may either:

• cooperate with a Washington broker; or
• obtain a Washington broker license. [Washington Administrative Code §308-124A-720]

To show properties, conduct negotiations or perform other real estate activities within Washington, a California broker is required to first obtain a Washington broker license. Washington has education and exam requirements. A California license allows brokers to bypass Washington’s education requirements, but still requires them to pass Washington’s state licensing exam. [WAC §308-124A-720]

A California broker who cooperates with a Washington broker rather than obtaining a Washington real estate license may not perform any real estate activities within the state of Washington. Instead, the California broker relies on the Washington broker to conduct all real estate activities in Washington. The California broker then shares in a portion of the fees received by the Washington broker. [Revised Code of Washington §18.85.301]

Editor’s note — Brokers involved in interstate real estate transactions are best served by including a choice-of-law provision in their listing and purchase agreements with their clients (be they buyers, sellers, landlords, tenants, borrowers or lenders). A California choice-of-law provision mandates that disputes arising from the brokerage fee arrangements are to be decided based on California law, even if litigated in federal or out-of-state courts. [See RPI Forms 102 §4.8 and 103 §3.4]

Related topics:
broker fees

Posted by Gregory Bretado | Oct 29, 2020 | Laws and Regulations, Property Management, Recent Case Decisions | 0

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

Graylee v Castro

Facts: A residential tenant enters into an occupancy agreement with the landlord agreeing to pay rent monthly. Several years into the tenancy, the landlord serves the tenant with a Three-Day Notice to Pay Rent or Quit claiming delinquent rent. The tenant does not pay the amount demanded or vacate. The landlord files an unlawful detainer (UD) action. Prior to the UD trial, the landlord and tenant enter into a settlement agreement setting a date and time of day the tenant will vacate in exchange for the landlord waiving its pursuit of the alleged unpaid rent. . The tenant vacates the unit on the day agreed but misses the move-out deadline by a few hours.

Claim: The landlord seeks compensation equal to the amount of alleged unpaid rent and reasonable attorney fees, claiming the tenant violated the settlement agreement since they did not vacate the premises by the agreed time of day.

Counterclaim: The tenant claims the settlement agreement is unenforceable since the amount of the penalty bears no reasonable relationship to the money losses incurred by the landlord due to the inconsequential delay in delivering possession.

Holding: A California appeals court holds the settlement agreement constitutes an unenforceable penalty since it is unrelated to any money losses incurred by the landlord due to the tenant’s negligible tardiness in vacating. [Graylee v. Castro  (July 13^th, 2020)__CA6th__]

Editor’s note – Realty Publications, Inc. (RPI) deliberately excludes provisions in our forms which increase the risk of litigation or generally work against the best long-term interests of the participants in the agreements, especially the brokers. As a matter of policy, liquidated damages provisions – penalties – are not included in RPI forms. They create an unenforceable expectation of windfall profits for a transaction participant and thus constitute forfeitures, as the Graylee case holds.

 

Read the whole case here

Related topics:

Posted by Emily Kordys | Nov 17, 2020 | Laws and Regulations, New Laws, Real Estate | 1

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

California lawmakers recently declared victory in the passing of AB 2345, a bill aimed at easing the state’s housing crisis. Signed into law by Governor Gavin Newsom on September 28, 2020, the new law will expand the state’s current Density Bonus Law, boosting housing production and providing developers even more incentives to build affordable housing units.

So, what’s different?

The existing Density Bonus Law has been on the books for 40 years, but has failed to draw interest from developers and builders around the state.

Currently, when a developer agrees to construct a certain percentage of units for a housing development for very low-income or low-income households, the city or county in which they are building may grant them one or more concessions, such as reduced setback and minimum square footage requirements or reduced parking requirements, and a “density bonus.” The density bonus allots the builder a density increase over limits allowable under existing zoning laws and ordinances.

The law currently allows for a maximum density bonus of 35% to projects that comply with requirements for any existing dwelling units and restricts at least:

• 11% of project units to very low-income households
• 20% of units to low-income households; or
• 40% percent of for-sale units to moderate-income households.

When a developer fails to meet the 35% threshold for the maximum density bonus, they are still eligible to receive lesser benefits.

Starting January 1, 2021, AB 2345 recalibrates the density from 35 to 50% for projects not composed exclusively of affordable housing. To receive the maximum bonus, a project needs to comply with unit replacement requirements and set aside:

• 15 percent of units for very-low income housing;
• 24 percent of units for low-income housing; and
• 44 percent of for-sale units for moderate-income housing.

Further, the bill allows local governments to grant additional waivers for projects located within half a mile of transit and which are 100% affordable under the new density bonus law requirements. It also incentivizes additional density bonus projects by reducing the maximum parking required by lowering the maximum amount of spaces allowed per housing unit.

A proven track record

Experts say the change is much needed as the current law is lacking. A 2018 California Residential Land Use Survey conducted by the University of California, Berkley’s Terner Center for Housing Innovation found that most cities see little to no use of the Density Bonus Law. Housing builders have shown they do not believe the incentives go far enough to make new developments worth it, leading to an even further plunge in housing with not enough affordable units for those looking to move out.

How did they determine the change? AB 2345 is modeled after successful legislation that significant increased housing production in San Diego. In 2016, the city of San Diego expanded upon the state Density Bonus Law and increased the maximum bonus from 35 to 50% if developers provided 15% very-low income units, 24% low income units or 44% moderate income units.

According to Circulate San Diego’s 2020 report Good Bargain, data shows the expansion of the Density Bonus Law created more homes with annual increases including:

• a 490 percent increase in the number of projects applying to use the program;
• a 551 percent increase in the number of deed-restricted affordable homes entitled; and
• a 356 percent increase in combined affordable and market-rate homes entitled.

AB 2345’s legacy

Lawmakers expect to see the effects of AB 2345 and its impact on California housing for years to come.

According to an analysis by Up For Growth, the state could see as many as 195,000 additional homes produced over a five-year period under the new law. 47,000 of those would be slated for very-low income housing.

And the best part about AB 2345? It kills two birds with one stone by increasing the amount of housing supply in the state, while lowering prices all around.

These housing projections show that lawmakers are looking ahead to the future and pushing back against not in my backyard (NIMBY) advocates, who have obstructed housing growth in favor of maintaining neighborhood character.

AB 2345 is hopefully just the beginning of a concentrated effort by California lawmakers to strike at the heart of the state’s housing issues.

Related topics:
affordable housing

Posted by Emily Kordys | Nov 10, 2020 | Laws and Regulations, Real Estate, Recessions | 0

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

Economic hardships brought on by the recession and coronavirus (COVID-19) pandemic are hitting California households hard. Homeowners and renters alike are struggling to make housing payments, but a subset of this group is especially vulnerable.

A study released in June 2017 by the Rosen Consulting Group and the University of California, Berkeley warned that a widespread economic crisis would disproportionately impact mobilehome residents, who are typically older than the general population.

Nearly three years after the study’s publication, its catastrophic message has become a reality. Nine counties and more than 80 cities throughout the state have enacted mobilehome rent stabilization ordinances since March 3, 2020 in response to the pandemic.

Even so, residents and health officials have called on government legislators to do more. Enter AB 2782.

Rental tenancies under AB 2782

Signed into law by Governor Gavin Newsom on August 31, 2020, AB 2782 protects mobilehome owners and tenants from inflated rental increases. Residents of California’s approximately 560,000 mobile and manufactured homes can breathe a small sigh of relief.

Under the new legislation, mobilehome rental agreements are exempt from any ordinance, rule, regulation or initiative measure adopted by any local government which establishes a maximum amount that a landlord may charge for rent. The terms of a rental agreement may prevail over any of the above only during the term of the rental agreement or one or more continuously uninterrupted extensions.

When the rental agreement is not extended and no new rental agreement in excess of 12 months’ duration is entered into, the rent for the space under the previous rental agreement will be the base rent for issues concerning rent regulation. [Calif. Civil Code §798.17 (a)]

The new legislation also calls for an additional disclosure at the top of rental agreements entered into on or after January 1, 1993. The disclosure is to notify the tenant of its rent cap exemption status.

To qualify for AB 2782 protections, the rental agreement needs to:

• be greater than 12 months in duration;
• be entered into between the landlord and a tenant for the personal and actual use of the residence;
• allow the tenant at least 30 days from the date the rental agreement is first offered to accept or reject the rental agreement; and
• allow the tenant who signs a rental agreement to void the rental agreement by notifying the landlord in writing within 72 hours of returning the signed rental agreement. [CC §798.17 1-4]

When the tenant rejects an offered rental agreement or rescinds a signed rental agreement, they are entitled to accept a rental agreement for a term of 12 months or less from the offered rental agreement’s start date. [CC §798.17(c)]

Further, a tenant who elects to have a rental agreement for a term of 12 months or less is entitled to the same rental charges, terms and conditions as the rental agreement offered. [CC §798.17(c)]

When a rental agreement is first offered to a mobilehome tenant, the landlord needs to provide written notice of their rights:

• to have at least 30 days to inspect the rental agreement; and
• to void the rental agreement by notifying the landlord in writing within 72 hours of receiving a copy of the rental agreement. [CC §798.17 (f)]

The failure of the landlord to provide the written notice makes the rental agreement voidable by the tenant upon their discovery of the failure.

Any rental agreement entered into on or after January 1, 1993 needs to include a provision authorizing automatic extension or renewal of the rental agreement for a period beyond the initial stated term. [CC §798.17(g)]

The section on rental tenancies in AB 2782 does not:

• apply or supersede other provisions of this law or other state law;
• apply to any rental agreement entered into on or after January 1, 2021; or
• include any rental agreement entered into from February 13, 2020 to December 31, 2020.

Termination of tenancies under AB 2782

AB 2782 also protects tenants from wrongful termination. Under the new law, a tenancy may be terminated by the landlord for:

• failure of the tenant to comply with a local ordinance, state law or regulation relating to mobilehomes within a reasonable time after they receive a notice of noncompliance from a government agency;
• conduct by the tenant on the premises, which constitutes a substantial annoyance to others;
• conviction of the tenant for prostitution or a felony controlled substance offense, which was committed on the premises; or
• the tenant’s failure to comply with a reasonable rule or regulation of the park that is part of the rental agreement. [CC §798.56 (a)(b)(c)(d)]

Further, the landlord needs to give written notice of the violation and seven days to comply. When a tenant has been given a written notice of an alleged violation of the same rule or regulation three times or more within a 12-month period, no written notice is required. [CC §798.56]

A tenant who fails to pay rent, utility charges or reasonable incidental service charges and has been given five days from the due date will be given a three-day written notice to pay the amount due or vacate. [CC §798.56(e)]

Payment by the tenant prior to the expiration of the three-day notice will cure the default. When the tenant does not pay prior to the expiration of the notice, they will be liable for all payments due up until the time the tenancy is vacated. [CC §798.56 (2)]

Further, payment by the legal owner, any junior lienholder or the registered owner within 30 days following the mailing of the notice may cure the default. However, this may not occur more than twice during a 12-month period. [CC §798.56 (e)]

When a tenant has been given a three-day notice to pay the amount due or vacate the tenancy on more than three occasions in a 12-month period, the landlord may give written notice to remove the mobilehome from the park within 60 days.

The legal owner, junior lienholders and the registered owner of the mobilehome may cure the default on behalf of the tenant within 30 days of the 60-day notice’s mailing, if:

• a copy of a three-day notice sent to a tenant for the nonpayment of rent, utility charges or reasonable incidental service charges was not sent to the legal owner, junior lienholder or registered owner of the mobilehome during the 12-month period;
• the legal owner, junior lienholder or registered owner of the mobilehome has not previously cured a default of the tenant during the preceding 12-month period; and
• the legal owner, junior lienholder or registered owner is not a financial institution or mobilehome dealer. [CC §798.56 A-C]

When the default is cured by the legal owner, junior lienholder or registered owner within the 30-day period, the notice to remove the mobilehome is rescinded.

Change of use of mobilehome park

New rules apply under AB 2782 for those in management looking to change the use of their mobilehome park.

The new law states tenants need to be given at least 60 days’ written notice that management will be appearing before a local governmental board, commission or body to request permits for a change of use of the mobilehome park. [CC §798.56 (l)]

When the permits are approved by the local government or board, the landlord is required to give tenants six months’ or more written notice of termination of tenancy. If the change of use requires no local government permits, then tenants are to be given 12 months’ notice or more prior to the management’s determination that a change of use will occur. [CC §798.56 (2)]

Conversion of mobilehome park

Before the mobilehome is converted for another use, the persons or entity proposing the change need to file a report on the impact of the conversion, closure or cessation of use of the mobilehome park. This includes a replacement and relocation plan. [CC §65863.7 (a)(1)]

When a resident does not obtain adequate housing in another mobilehome park, the persons or entity responsible for proposing the change of use need to pay the displaced resident the in-place market value of their mobilehome.

The in-place market value will be determined by an appraiser with mobilehome experience, paid for by those responsible for the park’s change of use.

Further, those proposing the change in use need to provide a copy of the appraisal report to a resident of each mobilehome in the mobilehome park at least 60 days prior to the hearing, if any, on the impact report by the advisory agency or legislative body. [CC §65863.7 (C)]

When the impact report is filed prior to the closure or cessation of use of the mobilehome park, the entities responsible for proposing the change need to provide a copy of the report to all mobilehome residents. Park residents may request a hearing before the legislative body on the sufficiency of the report. [CC §65863.7 (C)(d)]

Before any change of use is officially approved, the legislative body must:

• review the report and any additional relevant documentation; and
• make a finding as to the approval of the park closure and the park’s conversion into its new intended use, including taking into consideration the impact report and housing availability within the jurisdiction.[CC §65863.7(A)(AB)]

These new protections for mobilehome residents under AB 2782 offer a sigh of relief for some of California’s most vulnerable residents. As the recession and pandemic drag on, residents will look to Sacramento and Washington D.C. to continue to pass legislation to protect homeowners and renters in California.

Related topics:
mobilehomes, tenant protections

Posted by Carrie B. Reyes | Dec 21, 2020 | Economics, New Laws, Real Estate | 1

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

With much public disagreement and little time to spare, Congress has finally reached a deal for a new economic stimulus package.

The major developments provided by the new stimulus deal include individual payments, extra unemployment benefits and an extension of the eviction moratorium.

The stimulus provides one-time $600 payments to individuals who earn up to $75,000 annually, or up to $150,000 a year for couples who file jointly. Likewise, qualifying households with dependent children receive an additional $600 per child. This second stimulus payment is half the $1,200 amount taxpayers received under the first stimulus package.

The stimulus bill also adds an additional $300 weekly unemployment benefit, on top of any state unemployment benefits. For reference, the first stimulus bill provided an additional $600 a week, which expired at the end of July. The $300 benefit will expire in March 2021.

Gig workers who earned at least $5,000 in self-employment income last year receiving the $300 unemployment benefit may also qualify for an additional $100 weekly payment.

The Centers for Disease Control’s (CDC’s) rental eviction moratorium is extended another month, through January 31, 2021. It was previously set to expire at the end of 2020. Eligible renters need to earn less than $99,000 (or $198,000 for joint filers) in 2020 and to have experienced:

• a substantial loss of household income;
• extraordinary out-of-pocket medical expenses; or
• a layoff.

The new stimulus program does not impact the foreclosure moratorium, which continues depending on the type of mortgage affected. For example, mortgages backed by Fannie Mae and Freddie Mac remain under the foreclosure moratorium through January 31, 2021. The foreclosure moratorium for Federal Housing Administration (FHA)-insured mortgages remains in effect through the end of 2020, though this will likely be extended.

The limitations of stimulus

The effects of the new stimulus will largely echo the first stimulus, consisting of a brief and minor injection of cash into circulation, as most consumers will spend their $600 payments (just 12% of individuals put most of the first stimulus payment into savings, with the majority spending it on household essentials, utilities and housing payments). Further, the timing of the new stimulus may mean that much of the individual payments goes toward paying off debt accrued during the holiday shopping season. The same goes for the reduced additions to unemployment benefits, which are also temporary. This windfall will add support to the economy for a matter of months in 2021.

What the new stimulus won’t do is support job creation, much needed here in California where 1.5 million jobs are still missing from the pre-pandemic peak.

The eviction and foreclosure moratoriums are essential during the pandemic surge, as keeping individuals housed prevents the mixing of households and the virus’ spread. But the impact on the housing market is less positive.

As of Q3 2020, 5% of all residential mortgages and 11% of Federal Housing Administration (FHA)-insured mortgages are 90 or more days delinquent, according to the Mortgage Bankers Association (MBA). When the foreclosure moratorium lifts, these homes will be quickly on their way to foreclosure. The wave of coming foreclosures will inflate the multiple listing service (MLS) inventory with distressed sales, dragging down home values and discouraging homebuyers.

For rentals, tenants unable to repay months of missed rent will lose their housing and vacancies will rise rapidly. The result will be rent cuts and decreased values for multi-family rentals. Worse, renters lack the anti-deficiency protections given to defaulting homeowners, as missed rents may be collected by money judgments in court. Some protections exist at the local level, but no legislation exists to protect tenants from landlords seeking to collect months of missed rent payments, as under our present eviction moratorium situation.

The foreclosure and eviction wave is coming with or without the current moratorium, it’s only a question of when. The best medicine for today’s recessionary environment is job creation, which of course is not addressed in today’s new stimulus bill. Only a return of the millions of jobs lost in 2020 will provide the foundation for a sustainable economic recovery.

Expect the recession to drag on in 2021, bottoming around Q1 2022. The recovery is expected to take hold in 2023 with the return of jobs.

Related topics:
2020 recession, economic stimulus, eviction moratorium

Posted by Emily Kordys | Oct 13, 2020 | Laws and Regulations, Real Estate | 2

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

Dozens of measures are on California’s November 2020 election ballot, several of which will impact real estate, rent control and property taxes. If passed, these measures will change the state’s landscape for the next decade to come. To this extent, agents and brokers hold an especially large stake in Proposition 15.

What is Prop 15?

Proposition 15 (Prop 15) is a November 2020 ballot measure created to split roll the state’s property tax, subjecting commercial property owners to billions of dollars in additional taxes each year. The measure is aimed at closing a major loophole which allows investors and businesses to take advantage of reduced property taxes each year.

Under the ballot measure, commercial and industrial properties, excluding those zoned as commercial agriculture, would be taxed based on their current market value (CMV). Commercial property owners whose holdings are valued at $3 million or less are also protected from Prop 15.

In addition to small businesses, the bill also carves out an exemption for residential properties, which would remain subject to measures under Proposition 13 (Prop 13). Prop 13 caps property taxes at 1% of the purchase price with annual increases of no more than 2%.

Related Article:

Letter to the Editor: Does California have statewide rent control?

Why the change? Measures similar to Prop 15 have been on several past ballots. The state Legislative Analyst’s Office found market values in California typically increase faster than 2% each year, meaning the taxable value of commercial and industrial properties is often lower than the current market value.

So, what exactly would change?

Commercial properties would be taxed on their CMV instead of their purchase price.

The change from the purchase price to CMV would be phased in beginning the fiscal year of 2022-2023 and occur over three to four years. Commercial property owners affected by Prop 15 would need to pay taxes based on the new assessed value of their property, beginning with the lien date for the fiscal year in which the property’s CMV is reassessed.

The California Legislature would be required to ensure that phase-in provisions provide affected owners of under-assessed commercial and industrial real estate reasonable time to pay any increase in tax obligations resulting from the measure.

Prop 15 would require commercial and industrial real estate to be reassessed at least every three years. Under Prop 13, real property is only assessed when it is sold or undergoes significant construction.

Properties whose business owners have $3 million or less in holdings in California would continue to be taxed based on their purchase price.

Further, the ballot measure would eliminate the business tangible personal property tax on equipment and features for small businesses and provide a $500,000 per year exemption. The California Legislature may not reduce the exemption but may increase it.

Small businesses are defined as those which are independently owned and operated, own California property and have 50 or fewer employees.

Where would the revenue go?

Prop 15 would provide between $6.5 and $11.5 billion dollars in new property taxes funding local schools and governments. Sixty percent would go to cities, counties and special districts, and around 40 percent would increase funding for schools and community colleges.

The measure will distribute the revenue from the revised tax on commercial and industrial properties to the state to:

• supplement decreases in revenue from the state’s personal income tax and corporation tax due to increased tax deductions; and
• counties to cover the costs of implementing the measure.

The state has long searched for a solution to separate commercial and residential property taxes. If passed, Prop 15 will place a bigger tax burden on commercial property owners while residential and small business owners will remain subject to current property tax law under Prop 13. California has found a veritable loophole closer in Prop 15.

Related topics:
commercial real estate, prop 13, property tax

Posted by Emily Kordys | Oct 20, 2020 | Laws and Regulations, Real Estate | 12

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

The November 2020 election is right around the corner and a measure which could impact real estate is up for grabs on the ballot. Agents and brokers need to know the ins and outs of Proposition 19 (Prop 19) and learn how it could impact them moving forward.

What exactly is Prop 19?

Prop 19 would impact California homebuyers (and their heirs) in two big ways:

• it would eliminate provisions which allow parents to transfer ownership of a home to their children without tax consequences; and
• expand rules allowing California residents age 55 or older to transfer the tax value of their home when they purchase a new one.

In short, Prop 19 would let more homeowners take their already steep tax breaks with them anywhere in the state when they sell their home, even if they’re upsizing. And they would be allowed do this back-to-back-to-back.

Why is Prop 19 on the ballot now? Similar propositions, such as Prop 5 in 2018, have been on the ballot before and failed. Prop 19 is aimed at changing the inequities stemming from Proposition 13 (Prop 13).

Prop 13 caps property taxes at 1% of the purchase price with annual increases of no more than 2%. When property is sold, the tax value is reset to match the sale price. It benefits wealthy property owners disproportionately and places the greatest tax burden on new homebuyers and current renters, those typically least financially able to bear it.

Editor’s Note – The California Association of Realtors (C.A.R.) is one of the sponsors behind this measure. The trade association has long supported legislation that boosts tax incentives for senior homeowners to move them into new homes. Prop 19 is C.A.R.’s second shot at Prop 5, an initiative California voters rejected in 2018 which would have had the same effect.

How would Prop 19 affect tax assessment transfers?

Prop 19 would add and extend certain rights under a measure previously passed in 1986. Proposition 60 (Prop 60) allows property owners age 55 or older one chance to purchase a cheaper home in the same county and transfer the tax value of their former home to their new home.

More specifically, Prop 19 would further extend rights under the previous measure by:

• allowing moves anywhere in the state, meaning homeowners would be able to keep their lower property tax bill when moving to another home;
• allowing the purchase of a more expensive home which would increase property taxes, but to an amount lower than what other homebuyers would be taxed; and
• increasing the number of times a homeowner can use these special rules from one to three.

The measure would apply to persons over 55 years old and those with severe disabilities. Disaster victims would still be allowed only one transfer.

No more free inherited properties

In California, parents and grandparents may transfer primary residential properties to their children or grandchildren without the property’s tax assessment resetting to the market value.

Prop 19 would end the parent-to-child and grandparent-to-grandchild exemption in cases where the child or grandchild does not use the inherited property as their primary residence, but instead uses it as a rental property or second home.

When the inherited property is used as the main residence and is sold for $1 million more than the property’s taxable value, an upward adjustment in assessed value would occur.

Starting February 16, 2023, the taxable value of an inherited principal residential property would be adjusted each year at a rate equal to the change in the California House Price Index.

The reason this provision is part of the measure is because past investigations, including a report by the Los Angeles Times, have found 64% of inherited homes were second residences. The resulting tax break deprived schools, cities and county governments of nearly $300 million in taxes.

The two provisions in Prop 19 would further exacerbate California’s housing crunch. It heightens hurdles for first-time homebuyers who will face older, tax-advantaged buyers in an already tight housing market.

While Prop 19 would boost home sales volume in the short run, it would create more problems than it solves in the long run. Prop 19 only serves to further entrench Prop 13’s inequities.

Stay with first tuesday as we continue to analyze the November election’s potential impact on California real estate.

Related topics:
proposition 13 (prop 13)

Posted by Emily Kordys | Nov 3, 2020 | Laws and Regulations, Real Estate | 0

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

California has reached a boiling point when it comes to its long-simmering housing crisis. The lack of available homes throughout the state has led to rising homelessness and decreased household formations.

On February 19, 2020, lawmakers working to address the housing shortage introduced the latest legislative push toward more affordable housing in the low- and mid-price tiers.

Breaking down SB 1120

Senate Bill 1120 (SB 1120), which was introduced as a solution to help combat California’s housing shortage, ultimately failed at the end of the legislative season in August 2020. And while SB 1120 is dead for now, its call for more affordable housing keeps coming back to life.

The bill stemmed from the defeat of controversial Senate Bill (SB 50) in January, which would have allowed fourplexes on most single-family lots and low and mid-rise apartment buildings in places near transit and job centers.

SB 1120 was introduced in February as a stronger alternative to SB 50 by Senate President pro Tempore Toni Atkins. She argued the bill would respect neighborhood character by forgoing towering apartment buildings, while adding much-needed density. Property owners would have been permitted to convert their single-family homes into duplexes or demolish their house and build two new single-family homes or a duplex.

Further, property owners would also have been able to split their property in two and build three additional units, thus creating four homes where there was originally just one.

Support and opposition for SB 1120

Supporters saw the bill as a way to ease housing affordability in the state by creating small-scale duplexes and single-family homes, making them cheaper than traditional units on the market.

Community and neighborhood groups voiced fierce opposition against SB 1120. NIMBY (not-in-my-backyard) activists claimed the bill would ruin single-family neighborhoods and create more gentrification, leading to high-end housing instead of affordable housing.

However, YIMBY groups claimed the bill had the potential to achieve what previous legislation could not. SB 1120 sought to bridge the gap between these warring housing factions. The bill did not call for high or even mid-rise housing in residential neighborhoods, which was why many community and neighborhood groups opposed SB 50. Instead, it would have created duplexes and additional single-family homes in residential neighborhoods. The focus would have been on making the housing units as affordable as possible.

So why did it fail? Lawmakers ran out of time and failed to pass the bill on the very last day of the 2020 legislative session: August 31.

While the bill fell short by three votes earlier that day, the Assembly passed SB 1120 the same evening with a margin of 42 to 17. But it was a Pyrrhic victory as the 11:57 P.M. vote left only three minutes to clear both houses.

Needless to say, the state Senate didn’t even get to vote on the bill before the midnight deadline.

The bill’s tragic and very public bungling has led to embittered finger pointing on the Capitol. Senator Atkins blamed the pandemic for slowing down the legislative process, but also faulted the Assembly for failing to bring up the bill in time. She more notably laid blame at her Republican colleagues for continuously obstructing SB 1120’s progress.

Atkins and other lawmakers plan to take up SB 1120 when they readjourn in Sacramento for the new legislative season in January. Will it be enough to reach Californians this time?

Impact on housing

SB 1120 legislation may have been scratched for now, but its failure continues to highlight the need for more housing in the state.

An analysis by the Terner Center for Housing Innovation at the University of California, Berkley shows 5,977,061 single-family parcels in the state would have been eligible for a lot split under SB 1120.

For example, if just five percent of all the parcels in the analysis created two-unit structures, it would result in nearly 600,000 new homes in California.

With legislation like SB 1120, the state would be able to pull itself out of the housing crisis and have enough housing units for our ever-growing population. The affordable units would also help pull the state out of its worsening homeless crisis.

Only time will tell how serious lawmakers are about passing meaningful legislation which will help turn the housing crisis around.

Related article:

Legislative steps towards more affordable housing

Related topics:
housing crisis

Posted by Bethany Correia | Dec 29, 2020 | Laws and Regulations, New Laws, Real Estate | 2

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

Low-income housing legislation gets the lion’s share of media attention — and rightly so — but what of America’s shrinking middle class? Amid a flurry of housing bills passed in California’s 2019-2020 legislative session, AB 725 stands out for real estate professionals serving moderate income clients.

On September 28, 2020 California lawmakers passed AB 725, a planning and zoning law aimed at producing housing units suitable for the “missing middle” households that earn too much to qualify for subsidized housing and too little to afford high-income properties. The plan is to require California cities to plan for more moderate-density housing like duplexes, fourplexes and townhomes in high-cost coastal areas.

More specifically, metropolitan and suburban cities in California need to allocate at least one-fourth of their state-mandated Regional Housing Needs Allocation (RHNA) for moderate income housing parcels zoned for at least 4 units. The requirement is capped at 100 units per acre and applies to housing units due beginning January 1, 2022.

It also requires local governments to allocate one-fourth of their RHNA to above-moderate income housing, also zoned for at least 4 units, due beginning January 1, 2022.

AB 725 defines land suitable for residential development as:

• vacant sites zones for residential use;
• vacant site zoned for nonresidential use that allows residential development;
• residentially zoned sites that are capable of being developed at a higher density, including sites owned or leased by a city or county; and
• sites zoned for nonresidential use that can be redeveloped for residential use and rezoned for as necessary to permit residential use (including sites owned or leased by a city, county or both).

What does this mean for my service area?

Prepare for another housing tug-of-war with this bill. California cities bristle at every perceived relinquishment of power to Sacramento, and this state-mandated local housing program is no exception.

This requirement for multi-family homes is already seeing pushback from not-in-my-backyard (NIMBY) advocates as cities prepare to satisfy this 25% allotment. Any promise of added density looms large over existing homeowners.

As part of California’s ongoing mission to increase multi-family housing, homeowners and real estate professionals alike need to familiarize themselves with their city’s building plans to see how their neighborhood or service area will be affected by this measure.

What are the risks?

The bill does not guarantee or require affordable housing, it merely addresses an abundance of housing without considering the root of income disparity. Developers are more likely to set a price which may not actually meet the appropriate income benchmarks for each individual city and further estrange middle income Californians from homeownership.

It will be on California cities to plan accordingly. Rapid development of poorly occupied or underdeveloped areas risks pricing out lower-income residents. The urbanization process may cause more congestion in already underserved areas.

In addition, AB 725 fails to address the need for infrastructure as a consequence of increased density, like local transit and traffic systems.

California is neck-deep into a financial deficit due to COVID restrictions and the 2020 recession, but the bill does not provide financial resources to cities for building to address their individual middle-income housing shortages. This bill could easily result in chasing out the very people it was meant to aid and exacerbate the housing crisis.

Even so, the measure has arrived too late for many residents, as record numbers of Californians left the state in 2020.

How can real estate professionals get involved?

As gatekeepers to the Golden State, real estate professionals are in a unique position to grasp the nuances of today’s housing crisis. Your local government’s development plans require your scrutiny; attend city housing measures and ordinances and be a vigilant participant in your community and local city government.

Related article:

Fannie Mae, optimistic, forecasts an improving housing market

Related topics:
housing

Posted by Emily Kordys | Nov 24, 2020 | Laws and Regulations, Real Estate | 0

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

California’s housing production has failed to keep pace with the state’s growing population for decades now. The lack of affordable housing is causing average housing costs, particularly for renters, to rise significantly. So why does legislation boosting alternative types of housing keep failing?

A.B. 69, also known as the Help Homeowners Add New Housing Program, was supported by lawmakers around the state, but ultimately failed after a veto by Governor Gavin Newsom. He argued the financial structure proposed in the bill would negatively impact affordable housing production and the California Housing Finance Agency’s (CalFHA) credit ratings. Newsom directed the Business, Consumer Services and Housing Agency to increase access to capital markets and opportunities to encourage broader adoption of ADUs and JADUs.

Widening the range of housing types in the mid- and low-price tiers will not only increase supply, but also help lower-income households thrive instead of just survive. California lawmakers have two promising tools in the fight against the state’s affordable housing shortage:

• accessory dwelling units (ADUs), also referred to as second units, in-law units, casitas, or granny flats; and
• junior accessory dwelling units (JADUs).

Lawmakers have recently lowered regulatory barriers which have historically prevented homeowners from developing additional housing units on their single-family properties. As a result of new legislation, construction of accessory dwelling units has increased by 50%. In Los Angeles alone, the number of permits has soared by nearly 3,500% from 2016 to 2018.

And while the number of accessory dwelling units being built shows promise, there are still bigger issues at play. Many homeowners cannot afford to build ADUs due to a lack of financing options and the growing cost of construction.

A.B. 69 would have established a state-backed lending mechanism to encourage banks, credit unions and other mortgage originators to make construction loans to homeowners to bridge existing federally backed loans.

Much Ado about ADU

ADUs and JADUs are one of the many possibilities to help ease the state’s housing crisis. But what are they?

An ADU is an accessory dwelling unit with complete independent living facilities for one or more persons and can be:

• detached, where the unit is separated from the primary structure;
• attached, where the unit is attached to the primary structure;
• space, such as a master bedroom or attached garage, on the lot of the primary residence converted into an independent living unit; and
• a junior accessory dwelling unit, where the conversion of existing space is contained entirely within an existing or proposed single-family residence.

ADUs are less expensive to build and offer more long-term benefits for owners. These units do not require owners to pay for new land or dedicate parking since they are built on existing or proposed housing lots.

Further, ADUs are cheaper to build than actual homes. Homebuyers have a host of choices when searching for prefabricated ADUs, and many can be purchased directly from the manufacturer. This shaves off a considerable amount of the time and money new construction demands.

ADUs and JADUs also offer flexibility to homeowners who are looking to share independent living areas with family members and others. Seniors and children who are returning from college or looking to pay up debt can live on the property with close family members, but still be afforded a greater sense of privacy.

So, what does that mean in the long run? A study from the Terner Center on Housing Innovation noted that one unit of affordable housing in the Bay Area costs about $450,000 to build. ADUs and JADUs can be built at a fraction of that price. In turn, the rent generated can pay for the entire project in a matter of years.

At stake with AB 69 was easier access to federally backed mortgages, allowing more homeowners to build granny flats and casitas.

And while the governor cut this legislation down with a pen, other parallel financing support systems can emerge bringing homeowners and builders together. It takes brokers with an eye for clients who have a little money saved, own a home on a lot bigger than 7,000 square feet and improvements configured and located on the parcel to allow another unit to be separately built.

This will help bring owners and builders together for a fee – paid either by the owner or builder, depending on who is the primary client. Financing is absolutely imperative for ADU situations to come alive.

Real estate agents are the lifeblood of the communities they serve; no other players are uniquely positioned to realize the long-term effects of legislation like AB 69. Learn more about ADUs and the vital role they have to play in California’s housing recovery.

Related article: New law requires to incentivize ADUs

Related topics:
adu, affordable housing

Posted by Guest Author Summer Goralik | Sep 25, 2020 | Fundamentals, Laws and Regulations, Real Estate | 0

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

Real Estate Compliance Consultant and former Department of Real Estate (DRE) Investigator, Summer Goralik, shares advice on avoiding and responding to a Corrective Action Letter. Visit the original post on her blog here.

Working in the area of real estate compliance, I often get asked, “Am I going to lose my license?” Depending on the situation and degree of non-compliance involved, these questions are either easy or not so fun to answer. Having worked as a California Department of Real Estate (DRE) Investigator for several years, playing an active role in the regulation and enforcement of the Real Estate Law, I know firsthand that with non-compliance comes a regulatory menu of progressive discipline. Put another way, the DRE has a few tools that they can use when they investigate and hold licensees accountable for violations of the law. The topic of this article is the “Corrective Action Letter,” the first stop on the DRE’s discipline train.

What is a Corrective Action Letter?

The DRE’s Corrective Action Letter, also known as a “CAL,” is just that: a letter, requesting corrective action. This type of letter is typically issued by the DRE after their investigation of a complaint or compliance matter has concluded. It identifies any violations found during their investigation and requests that the real estate broker and/or salesperson present evidence to the DRE that the violations have ceased and/or been corrected. Additionally, it requires written assurance from the real estate licensee that the violations will not recur.

Who might receive a Corrective Action Letter?

A real estate salesperson or broker may receive a corrective action letter from the DRE. If a salesperson, acting on behalf of a brokerage, is found to have violated the Real Estate Law, the responsible broker will likely be copied on the correspondence, and/or may even receive their own corrective action letter in connection with the matter.

Which violations rise to the level of a Corrective Action Letter?

The types of violations that typically result in the issuance of a corrective action letter are usually minor and/or did not cause any public harm. A CAL might be issued for advertising violations, such as failing to include your DRE license number or responsible broker identity in an advertisement, or for non-compliant team name advertising which is a common culprit. Another activity which might trigger a corrective action letter is the use of an unlicensed fictitious business name by a broker or salesperson.

Other situations which might call for a CAL are the failure to comply with basic DRE requirements like reporting a change in address or contact information. On the other hand, if a broker or salesperson is issued a CAL for something more serious, it’s usually because the licensee has already proven to the DRE that they corrected the violation and that there are new measures in place to avoid future compliance issues. For example, if a brokerage has undergone a DRE audit, oftentimes minor trust fund handling issues noted at the conclusion of the examination might lead to the issuance of a corrective action letter by the Enforcement Unit.

How do I respond to a Corrective Action Letter?

The first rule of thumb is to always respond. If you fail to respond to a CAL, you may actually find yourself on the next stop on the DRE’s discipline train, which could be a citation and fine or formal action. Thankfully, the CAL usually provides a clear, written disclaimer to licensees about the regulatory consequences of failing to respond to the DRE’s notice.

In order to avoid such unnecessary trouble, you will need to promptly acknowledge the violation in writing, provide the DRE with sufficient proof that the violation has ceased and/or been corrected, and identify the course of action you have taken or plan to take which will ensure that the violation will not occur again.

If you are a real estate salesperson and receive a corrective action letter, it is important to inform your affiliated brokerage about the notice right away. It might be wise to work closely with your affiliated brokerage in connection with your response, ensuring that your corrective actions and efforts are in sync with the firm’s policies and procedures.

As a “Responsible Broker”, tasked with overseeing the activities of your entire brokerage and agents, your call to action is multifaceted. In addition to addressing the specific violation directly, it is also important to think more “high level,” focusing on your firm’s overall risk management plan and asking the right questions.

For example, you might ask, was the CAL unavoidable or does your system of supervision need to be reassessed? Does the DRE matter and uncovered violation involve a “rogue agent,” a salesperson who disobeyed your firm’s policies, or is the violation a symptom of a larger problem such as ineffective policies, procedures or delegation of responsibility?

Pursuant to Commissioner’s Regulation 2725, a broker is responsible for establishing policies, procedures, rules and systems which review, oversee, inspect and manage, without limitation, agents’ activities, real estate transactions, file management and storage, advertising, and trust fund handling. Perhaps a CAL will inspire new rules, policies or systems which are needed to help avoid non-compliance, tighten business practices, and protect your brokerage not only from the DRE’s scrutiny, but the relentless world of civil liability.

While a CAL could leave you feeling deflated about your business, it is actually the perfect push to start thinking more boldly and productively about compliance. It’s a regulatory “time out” where you can revisit your priorities and turn constructive words into action. Hopefully, an articulate and thoughtful response to the DRE, with sufficient proof of your corrective actions, will convince the State that you have properly and sufficiently complied with their corrective action letter.

How do I avoid a Corrective Action Letter?

Well, the answer is easy; it’s compliance, but wholeheartedly investing in your compliance is not without its challenges, especially if you are juggling too many tasks and priorities. As licensees, part of your job is to keep your daily real estate activities and craft in check with the laws and regulations enforced by the DRE. More than that, responsible brokers should be in a constant state of review and supervision over the brokerage in order to ensure regulatory compliance. It is prudent to regularly evaluate your policies and procedures, identify risk or violations, and correct issues in a timely manner.

Remember, a CAL is only the first rung on the disciplinary ladder. If any violation “tips the scale,” you could easily find your case subject to a citation and fine, or worse, a legal accusation filed by the Department. Unfortunately, I know too many brokers who put compliance on the back burner until it was too late and they could not unwind the damage done. It is those same brokers who would have gladly welcomed a corrective action letter and second chance on addressing compliance.

Final thoughts

Some licensees reading this article have likely received a corrective action letter from the DRE at some point in their careers, while others may be learning about this type of discipline for the first time. Either way, remember this: a corrective action letter is a good thing. While it puts brokers and agents on formal notice about violations of the Real Estate Law, it also provides licensees with a golden opportunity to correct their non-compliance and without the risk of formal disciplinary action.

I hope that the DRE will continue to use this regulatory tool to enforce compliance; it affords deserving licensees, who try very hard to stay compliant, but sometimes make mistakes, the ability to reset, correct business practices, and return to the right side of compliance.

Related topics:
agents, broker, compliance, department of real estate (dre), dre

Posted by Emily Kordys | Sep 22, 2020 | Feature Articles, Fundamentals, Laws and Regulations, New Laws, Property Management, Real Estate, Recessions | 1

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

January 29, 2021 update: AB 3088 expires on January 31, 2021. In its place, SB 91 extends California’s eviction moratorium through June 30, 2021. These dates have been updated in the text below, in red. Read more about SB 91 here.

This article is part I of a two-part series covering California’s Tenant, Homeowner, and Small Landlord Relief Stabilization Act of 2020. This first part reviews the temporary moratorium on tenant eviction.

The Tenant, Homeowner, and Small Landlord Relief Stabilization Act of 2020

The Tenant, Homeowner, and Small Landlord Relief Stabilization Act of 2020 (Tenant Relief Act), also known as AB 3088, is an unprecedented statewide law which imposes a temporary moratorium on eviction of residential tenants for nonpayment of rent that became delinquent between March 1, 2020 and June 30, 2021 due to the tenant’s coronavirus (COVID-19)-related financial distress.

The Tenant Relief Act (TRA) protects a wide range of residential tenants who occupy:

• apartments;
• single family residences (SFRs);
• mobile homes; and
• accessory dwelling units. [Code of Civil Procedure 1179.02(h)(1)]

The TRA does not provide protection for commercial – non-residential – tenants. [Code of Civil Procedure §1179.02(h)(1)]

COVID-19-related financial distress experienced by a residential tenant necessary to avoid eviction for non-payment of rent includes:

• loss of income caused by the COVID-19 pandemic;
• increased out-of-pocket expenses directly related to the health impact of COVID-19;
• increased expenses directly related to the health impact of the COVID-19 pandemic;
• childcare responsibilities or responsibilities to care for an elderly, disabled or sick family member directly related to the pandemic; and
• other circumstances related to the COVID-19 pandemic which have reduced a tenant’s income or increased a tenant’s expenses. [CCP 1179.02]

15-Day Notice to Pay and COVID-19 Declaration

The TRA protects financially disrupted tenants from being evicted when they fail to make rental payments due to COVID-19-related financial distress during an eviction moratorium period running from March 1, 2020 through June 30, 2021. [CCP §116.223]

The eviction moratorium contains two periods of delinquent rent – separated by September 1, 2020 – each with different rent payment obligations to avoid eviction. Importantly, to act on their right to evict under the TRA, the landlord serves separate and different 15-day notices on a tenant to demand payment of rent which became due and is now delinquent for each of these two periods.

The Three-Day Notice to Pay Rent has been temporarily superseded by a 15-day Notice to Pay Rent to evict a tenant for a monetary default on their lease or rental agreement.

Critically, a blank COVID-19 Declaration form is delivered to the tenant with the service of any of 15-day notice to pay. The declaration, entitled a Tenant Declaration of COVID-19-Related Financial Distress, is prepared and returned by a tenant who has experienced a COVID-19-related financial hardship which renders them unable to pay rent as agreed.

Editor’s note – A blank COVID-19 Declaration is included at the end of all RPI 15-day notices in use through June 30, 2021. It is numbered RPI Form 575-4.

The tenant’s declaration alone relieves the tenant from eviction for nonpayment of any amount of rent during the first delinquent rent period, but requires payment of 25% of the agreed rent during the second delinquent rent period.

Landlords need to give at least 15 days’ notice to tenants, excluding weekends or judicial holidays, to return a COVID-19 Declaration, pay rent or be subject to a Three-Day notice to quit and evicted. [See RPI Form 577-1]

Each of the two 15-day Notice to Pay Rent forms only applies to rent due and payable during one of the two delinquent rent periods. The first Notice to Pay Rent is for March 1, 2020 to August 31, 2020 delinquencies, known as the protected time period. The other Notice to Pay Rent is for September 1, 2020 to June 30, 2021 delinquencies, known as the transition time period. On July 1, 2021, the eviction moratorium ends and use of the 15-day notice reverts back to the Three-Day Notice to Pay.

Related Writings:

2020’s Tenant Protection Act Part 1: Just Cause Eviction

2020’s Tenant Protection Act Part 2: Rent Caps

Realty Publications Inc. (RPI) previously published four separate three-day notice forms based on the Tenant Protection Act (TPA)of 2019:

• Three-day Notice to Quit – for properties subject to cause eviction requirements [See RPI Form 577-1]
• Three-day Notice to Pay Rent – for properties subject to just cause eviction requirements [See RPI Form 575-3];
• Three-day Notice to Pay Rent with Related Fees – for properties subject to just cause eviction requirements [See RPI Form 575-4]; and
• Three-day Notice to Perform – for properties subject to just cause eviction requirements [See RPI Form 576-1]

The 15-day Notice to Pay Rent supersedes these four forms when the default is monetary in nature and occurred during the eviction moratorium – March 1, 2020 through June 30, 2021.

When the tenant breaches a nonmonetary term of the lease or rental agreement during the eviction moratorium, such as for performance issues other than rent, the landlord continues to use a Three-Day Notice to Perform to start the termination of the tenancy. [See RPI Form 576 and 576-1]

Alternatively, a tenant, residential or nonresidential, who intends to vacate and avoid further liability under a month-to-month rental agreement, needs to give 30 days advance notice to the landlord. [See RPI Form 569 and 571]

Eviction avoidance for COVID-19-related financial distress

A tenant who has experienced financial distress from the pandemic and is unable to pay part or all of their rent to their landlord during the first delinquent rental period between March 1, 2020 and August 31, 2020 may by a declaration avoid eviction through June 30, 2021, for failure to pay any delinquent rent for this first period of the moratorium.

The landlord is the first to act by serving the tenant with the 15-day Notice to Pay and the COVID-19 Declaration. The tenant then has 15-days to fill, sign and return the declaration to the landlord in order to avoid eviction. [CCP §1179.03(d); See RPI Form 575 (COVID-19) and 575-1 (COVID-19)]

Thus, a COVID-19 distressed tenant only needs the declaration to avoid eviction through June 30, 2021 for COVID-19-related defaults occurring between March 1, 2020 and August 31, 2020, the protected time period.

The transitional time period has different requirements for landlords and tenants regarding delinquent rent and eviction. When, between September 1, 2020 and June 30, 2021, a tenant becomes delinquent on rent due and payable, the landlord needs to serve the tenant with a separate 15-day Notice to Pay, together with the COVID-19 Declaration.  Tenants who experience continued financial hardship due to COVID-19 during this second transitional time period can avoid eviction for failure to pay rent as agreed when they:

• sign and return the declaration of COVID-19-related financial distress to the landlord within 15-days; and
• pay at least 25% of each rental payment as they become due and payable between September 1, 2020 and June 30, 2021. [See RPI Form 575-2 (COVID-19) and 575-3 (COVID-19)]

For example, consider a tenant who provides a declaration form to the landlord regarding decreased income or increased expenses due to COVID-19 which prevented them from making a rental payment in the months of September 2020 through June 2021. The landlord cannot evict the tenant when, on or before June 30, 2021, the tenant makes a payment equal to 25% of each month’s rental payment.

However, a tenant who is unable to pay any part of the rental payments during the second delinquent rent period who timely provided the landlord  the COVID-19 declaration in response to each 15-day notice the landlord sent during that time period, cannot be evicted when, by June 30, 2021, the tenant pays the landlord an amount equal to 25% of all rental payments due from September through June.

Residential tenants who are not classified as high income do not need to provide proof they are financially distressed due to COVID-19-related financial issues.

Also, landlords are required to provide a translated version of the Declaration of COVID-19-related financial distress in the original language their rental contract or agreement was negotiated. [Code of Civil Procedure §1179.03(d)]

The California Department of Real Estate (DRE) has provided these 15-day Notice to Pay Rent translations, along with the COVID-19 Declaration, in the following languages:

• Chinese;
• Korean;
• Spanish;
• Tagalog; and
• Vietnamese.

The translated notices can be can be accessed here.

RPI (Realty Publications Inc.) has published four separate English 15-day Notice to Pay Rent forms as called for by the TRA. The form variations cover the two delinquent rent periods and mandatory notices, with an option for recovery of only rent or rent plus rent-related fees.

Form 575 (COVID-19) and Form 575-2 (COVID-19) are used by a property manager or landlord when a tenant is delinquent on amounts due under a rental or lease agreement during one of the delinquent rent periods, to notify the tenant of the amount of the delinquent rents and related fees payable within 15 days, and inform the tenant of the protections provided to them under the COVID-19 Tenant Relief Act of 2020. [See RPI Form 575 (COVID-19) and 575-2 (COVID-19)]

Form 575 (COVID-19) is used when default occurred during the period of March 1st, 2020 through August 31st, 2020. [See RPI Form 575 (COVID-19)]

Form 575-2 (COVID-19) is used when default occurred during the period of September 1, 2020 through June 30, 2021. [See RPI Form 575-2 (COVID-19)]

Examples of amounts of money due periodically under a rental or lease agreement, in addition to scheduled rent, include:

• common area maintenance charges;
• association charges;
• pro rata insurance premiums;
• property taxes and assessments;
• late payment and bad check charges;
• expenses incurred by the landlord to cure waste or failure to maintain the property; and
• other amounts of money property due as compensation or reimbursement of expenses arising out of the occupancy.

Alternatively, Form 575-1 (COVID-19) and Form 575-3 (COVID-19) are used when the landlord may only collect the delinquent rent without rent-related fees.

Some trial judges in UD action declare late charges are not rent for purposes of enforcing residential rental and lease agreements.

Before a landlord or a property manager includes any late charge (or other amounts due besides amounts stated in rental or lease agreements as base rent) in a notice as part of the total amount, a landlord needs to determine whether the judge presiding over UD actions in their jurisdiction will allow the inclusion of late charges and other rent-related fees in the 15-day notice and UD action.

Judges in UD actions on residential rental or lease agreements vary in their approach to late charges:

• some allow masked late charges built into the scheduled monthly rent and cloaked as a forgiveness of 6% to 10% of the state rent when paid on or before the due date or within a grace period;
• some allow a late charge of up to 6% of the delinquent rent as a reasonable charge;
• some disallow fixed-sum late charges as an unenforceable penalty for being delinquent;
• some disallow late charges as a forfeiture of money (since the amount exceeds the costs of collection); and
• some just disallow late charges altogether as an exercise of their discretion.

Information on the treatment given by the local UD trial judge can be obtained from an attorney or other landlords who have experience appearing before the judge.

When the judge will not allow the late charge as part of the amount due from the tenant, the landlord needs to leave it out of the 15-day notice. Instead, the landlord’s best practice is to either deduct the late charge they have demanded from the security deposit or pursue collection in a separate action for money.

Form 575-1 (COVID-19) is used when default occurred during the period of March 1st, 2020 through August 31st, 2020. [See RPI Form 575-1 (COVID-19)]

Form 575-3 (COVID-19) is used when default occurred during the period of September 1st, 2020 through June 30, 2021. [See RPI Form 575-3 (COVID-19)]

Tenants still owe any unpaid rent to the landlord and may be sued for the money in small claims court starting March 1, 2021 for rent which was unpaid between March 1, 2020, and June 30, 2021.

Additionally, on or before September 30, 2020, a landlord is required to provide a mandatory Notice from the State of California concerning the Tenant Relief Act, to tenants who as of September 1, 2020 are delinquent on one or more rental payments that came due during the protected time  period of March 1, 2020 to August 31, 2020. [CCP §1179.04(a)]

A landlord includes the mandatory State notice with service of a 15-day Notice to Pay Rent demanding payment of rent due and delinquent during the period from March 1, 2020 to August 31, 2020, unless the notice was previously given. [CCP §1174.09(c)]

A landlord may not evict a tenant who defaulted during the protected time period from March 1, 2020 to August 31, 2020 after September 30, 2020 when the tenant did not receive the mandatory State notice of the Tenant Relief Act along with the 15-day notice.

Editor’s note – The mandatory State notice is incorporated into both RPI forms which are used for defaults occurring during the protected period of time.

Service of the 15-Day Notice to Pay and COVID-19 Declaration

The first attempt at serving an eviction notice and mandatory State notice of new tenant protections is through personal delivery, called personal service. Personal delivery may be made wherever the tenant is located.

Personal service is to be attempted at both the tenant’s residence and place of business, when known. These two attempts to personally serve the notice are a prerequisite to an attempt at substitute service.

Second, the attempt to personally serve the tenant will fail when they are absent from both their residence and place of business (when known).

In this event, a copy of the notice may then be:

• handed to a person of suitable age and discretion at either the tenant’s residence or place of business; and
• mailed to the tenant at their residence, called substituted service.

Third, both the tenant’s residence and place of business may be unknown or the tenant cannot be found for personal service at either the residence or business addresses, or a person of suitable age and discretion cannot be found for substituted service at either place.

In this event, the notice may be:

• posted on the leased premises; and
• mailed to the tenant at the address of the leased premises, loosely deemed service by “nail and mail.”

Usually, a landlord’s resident manager or property manager is responsible for preparing and servicing a notice as part of their employment to the landlord. The attorney or unlawful detainer (UD) service handling the anticipated eviction often prepares and causes the notice to be served. The individual who serves the notice will complete a form confirming they served the notice and the method of service completed. This form is called a proof of service.

The 15-day time limit for the tenant to sign and return the Declaration of COVID-19-related financial distress starts the day after the 15-day Notice to Pay is serviced on the tenant and ends 15 business days later, excluding weekends and holidays. [CCP §1179.03(b)(1) and (c)(1)]

For example, when a landlord provides the tenant with a 15-day eviction notice and a Declaration of COVID-19-related financial distress form on Monday, September 21^st, the tenant has until Monday, October 12^th to return the signed form to the landlord.

Tenants may deliver the declaration of COVID-19-related financial distress to the landlord:

• in person, when the landlord indicates in the notice an address at which the declaration may be delivered in person;
• by email, when the landlord indicates an e-mail address in the notice to which the declaration may be received;
• through U.S. mail to the address indicated by the landlord in the notice. When the landlord does not provide an address for delivery in person, then upon the mailing of the declaration by the tenant to the address provided by the landlord, the declaration is deemed received by the landlord on the date posted, in the event the tenant can show proof of mailing to the address provided by the landlord; and
• through any of the same methods that the tenant can use to deliver the payment pursuant to the notice when delivery of the declaration by that method is possible. [CCP 1179.03(f)]

Tenant failure to comply

When a tenant fails to return the signed declaration within 15 business days, the landlord may begin the eviction process. The three-day Notice to Quit for properties subject to just cause eviction requirements is used when a tenant has been previously notified of a curable breach and failed to correct it — in this case nonpayment of rent –  to notify the tenant of the breach and indicate they are to vacate and deliver possession within three days. [See RPI Form 577-1]

Tenants may have a backstop to this as long as they can prove they failed to return the hardship declaration due to a mistake, inadvertence, surprise or excusable neglect. [CCP §1179.03(h)(1)(B)]

Though a landlord may act to evict a defaulting tenant and regain possession when the tenant has not complied with the Declaration requirement of the Tenant Relief Act, courts will not engage in formal UD actions until July 1, 2021.

Proof of income

Unless classified as a high-income tenant, tenants do not need to supply proof of their COVID-19-related financial losses. Rather, the COVID-19 Declaration is signed under penalty of perjury.

A high-income tenant has an annual household income of 130% of the median income for the county in which the residential rental property is located. [CCP §1179.02.5(a)(1)(A)]

This does not include a tenant with a household income of less than $100,000.[CCP §1179.02.5(a)(1)(C)]

A landlord may require a high-income tenant to provide documentation supporting the tenant’s claim they have suffered financial difficulties due to COVID-19 when the landlord already has proof of the tenant’s income. A landlord who does not have evidence of high-income status of a tenant may not:

• require a tenant to provide proof of income when the landlords purpose is to determine whether the tenant is a high-income tenant; or
• seek confidential financial records from a tenant’s employer, bank, or any other source. [CCP 1179.02.5(b)]

Additionally for high-income tenants, the landlord needs to also serve the 15-day Notice to Pay Rent demanding the payment of rent that came due during the period from March 1, 2020 to August 31, 2020 or during the period from September 1, 2020 to June 30, 2021. Again, the 15-day notice is served with a blank copy of the COVID-19 Declaration.

To trigger the high-income tenant’s need to supply proof of income, the landlord checks the appropriate box in the 15-day Notice to Pay Rent. [See §5 in all RPI 575 (COVID-19) Forms]

The landlord’s proof of income for a high-income tenant includes:

• a tax return;
• a W-2;
• a written statement from a tenant’s employer that specifies the tenant’s income;
• pay stubs;
• documentation showing regular distributions from a trust, annuity, 401K, pension or other financial instrument;
• documentation of court-ordered payments including, but not limited to, spousal support or child support; and
• documentation from a government agency showing receipt of public assistance benefits including, but not limited to, social security, unemployment insurance, disability insurance or paid family leave. [CCP 1179.02.5(a)(2), (c)]

Landlords who try to evict a tenant for non-payment and resort to self-help, such as locking the tenant out and shutting off utilities, will face a penalty between $1,000 and $2,500.  [Calif. Civil Code §789.4 and CCP §116.223(c)]

The new law also limits public disclosure of eviction cases involving nonpayment of rent between March 4, 2020 and June 30, 2021.

Evictions still possible

Just cause under the Tenant Protection Act (TPA) is extended to all tenants until June 30, 2021. This means a landlord may not evict a tenant without just cause or good reason.

Beginning July 1, 2021, just cause under the TPA will revert back to normal exceptions under the law.

Before July 1, 2021, a tenant is guilty of unlawful detainer when one of the following applies:

• the tenant was guilty of the unlawful detainer before March 1, 2020;
• the tenant failed to respond to the notice demanding payment of COVID-19 rental or submit the Declaration of COVID-19-related financial hardship;
• an at-fault just cause eviction occurred; and
• a no-fault just cause eviction occurred. [CCP 1179.03.5]

An at-fault just cause eviction includes any of the following:

• a tenant committed or permitted a nuisance or waste to occur on the property;
• a tenant conducted criminal activity on the premises or common areas, or used the premises for an unlawful purpose;
• a tenant assigned or sublet the premises in violation of the expired lease;
• a tenant refused the landlord’s authorized entry into the premises; or
• failed to deliver possession after providing the landlord notice to terminate the tenancy or surrender possession.

A no-fault just cause eviction occurs under any of the following reasons:

• the landlord or their spouse, domestic partner, children, grandchildren, parents or grandparents intend to occupy the premises;
• the property is withdrawn from the rental market;
• the property is unfit for habitation as determined by a government agency and through no fault of the tenant; or
• the landlord intends to demolish or substantially renovate the property. [CC 1946.2(b)(2)]

An improvement qualifies as a substantial remodel or renovation when any structural, electrical, plumbing, or mechanical system is replaced or substantially modified, requiring a permit from a government agency. This includes the abatement of hazardous materials like lead-based paint, mold, or asbestos, which cannot be completed with the tenant residing in the unit, requiring the tenant to vacate for 30 days or longer.

Cosmetic improvements like painting or minor repairs that do not require the tenant to vacate to ensure their safety are not considered substantial remodels. [CC §1946.2(b)(2)(D)(ii)]

For performance-based defaults by a tenant, the landlord uses the 3-day Notice to Perform or Quit to evict a tenant. [See RPI Form 576 and 576-1]

Unlawful detainers for evictions which are non-monetary began on September 2, 2020.

Admonitions for tenants

The moratorium on evictions for tenants who are facing COVID-19-related financial distress ends on February 1, 2021. Landlords may then begin evictions of tenants who fail to pay all past delinquent rent.

Tenants need to now determine a course of action as an alternative – a proverbial Plan B – to remaining where they are.  When a tenant does not pay rent and remains in possession of the residential unit, the accrued rent stacks up for collection by a court award money judgment after the moratorium expires  – no eviction first required.

Tenants are best served negotiating with their landlord now. The objective is an agreement on a reasonable rent under COVID-19 pandemic conditions. The framework of this discussion includes a reduction of 20% to 40% or more of rent due through July 1^st. Thus, the tenant remains in their residential unit and the landlord receives some amount of payment – better than 25% for the second delinquent rent period through June 30, 2021.

Landlords generally are inflexible, and the more units they own they more inflexible they are.

Fixations most landlords have are a demand for a lease term rather than a flexible month-to-month rental agreement, and resistance or refusal to agree to rents lower than they have been getting in the past.  They will insist upon these conditions in the face of fast increasing vacancies and delinquencies, part of the sticky-price syndrome of property owners.

A backup plan for tenants faced with an intransigent landlord is to shop for rentals offered at COVID-19-compatible rental rates and move to one they know they can afford.

Related topics:
eviction moratorium, landlords, tenants

Posted by Emily Kordys | Oct 6, 2020 | New Laws, Real Estate | 0

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

January 29, 2021 update: AB 3088 expires on January 31, 2021. In its place, SB 91 extends California’s eviction moratorium through June 30, 2021. These dates have been updated in the text below, in red. Read more about SB 91 here.

This article is part II of a two-part series covering the California’s Tenant, Homeowner, and Small Landlord Relief Stabilization Act of 2020. This second part reviews mortgage foreclosure restrictions created by the TRA. For part I, click here. 

Mortgage lender foreclosure restrictions

A moratorium has been placed through February 1, 2021 on the eviction of residential tenants and the collection of rent that became due and unpaid during the period of March 1, 2020 to June 30, 2021 under the Tenant, Homeowner, and Small Landlord Relief Stabilization Act of 2020 (TRA).

As a matter of public policy, the TRA intends to maintain the status quo for tenant occupancy and shelter during the pervasive financial distress brought on by the coronavirus (COVID-19) pandemic of 2020.

Similarly, the TRA also extends foreclosure protections to owner-occupants of a home and residential landlords who own four-or-less dwelling units secured by a first trust deed mortgage. It also extends other protections under prior legislation called the Homeowners’ Bill of Rights (HBOR).

For small residential landlords to qualify for relief from lender interference, at least one tenant who occupies the landlord’s property needs to be delinquent on rent that became due during the moratorium period. This is documented by the tenant’s declaration of their reduction in income related to the COVID-19 pandemic. [Code of Civil Procedure §2924.15(a); see part I of this series]

Landlords who own five-or-more residential units are not protected by the TRA.

At least 30 days before a mortgage servicer or lender may start the foreclosure process, they are to contact the delinquent homeowner or small landlord and explore options to avoid foreclosure, called a foreclosure avoidance assessment.

The servicer may:

• advise the homeowner or small landlord at their first contact of their right to request another meeting about foreclosure within 14 days; or
• discuss the homeowner’s or small landlord’s right to authorize a lawyer, Department of Housing and Urban Development (HUD)-certified housing counseling agency or other advisor to talk on their behalf with the servicer about ways to avoid foreclosure.

If the homeowner or small landlord and mortgage servicer do not work out a plan to avoid foreclosure within 30 days, the servicer or lender may start the foreclosure process by recording a notice of default (NOD).

Within five days after recording an NOD, the mortgage servicer or lender needs to provide information to the homeowner or small landlord about options available to terminate the foreclosure process. [CCP §2923.55, 2924.9]

A homeowner or small landlord with a federally-backed mortgage may also request forbearance by the mortgage servicer to avoid foreclosure under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.

A federally-backed mortgage is owned or guaranteed by:

• Fannie Mac;
• Freddie Mac;
• the Federal Housing Administration (FHA);
• the U.S. Department of Veterans Affairs (VA); or
• the U.S. Department of Agriculture (USDA.

To initiate foreclosure protections under the CARES Act, the homeowner or small landlord first contacts the mortgage servicer – the company where mortgage payments are sent. [CCP §3273.10(d)]

A mortgage servicer who denies a forbearance on any mortgage owed by a homeowner or small landlord is to provide a written explanation detailing why the forbearance request was rejected when the homeowner or small landlord meets the following conditions:

• they were current on mortgage payments due on or before February 1, 2020; and
• they are experiencing financial hardship which prevents them from making timely mortgage payments, directly or indirectly due to the COVID-19 pandemic. [CCP §3273.10(1)(2)]

The servicer’s written notice of rejection of the borrower’s forbearance request is to:

• specifically identify any curable defect in the written notice, such as an incomplete application or missing information;
• provide the homeowner or landlord 21 days from the mailing date of the written notice to cure the identified defect;
• accept receipt of the homeowner’s or landlord’s revised request for forbearance before the 21-day period lapses; and
• respond to the homeowner’s or landlord’s revised request within five business days of receipt of the revised request. [CCP §3273.10(b)]

The mortgage servicer’s communications of forbearance and post-forbearance options are to be conducted in the language the servicer regularly uses to communicate with the homeowner or landlord. [CCP §3273.14]

Mortgage servicers are required to file the forbearance denial notice along with the declaration when recording an NOD to start the foreclosure process.

Homeowners and small landlords harmed by a servicer’s violation of the forbearance and foreclosure communication requirements may file an action for injunctive relief, damages, restitution and any other remedy to redress the lender or servicer’s violation. [CCP §3273.15]

HBOR also imposes dual tracking restrictions on the lender. A mortgage servicer or lender needs to temporarily halt the foreclosure process while deciding whether to accept or reject a completed mortgage-modification application until after it gives the homeowner or landlord time to appeal a denial.

Also, a servicer may not foreclose while the homeowner or small landlord is complying with the terms of an approved loan modification, forbearance, repayment plan or other foreclosure-prevention option. [CC §2923.6, 2924.11]

The small landlord and homeowner protections under the TRA remain in effect until January 1, 2023.

Local ordinances provide additional protections

Several counties and cities in the state have adopted their own local eviction moratoria ordinances in response to the COVID-19 pandemic, including moratoria on the collection of delinquent rent.

To set a statewide standard, local ordinances in effect on August 19,2020 which set the time period for a tenant to pay COVID-19-related delinquent rent are modified as follows:

• When the payment of COVID-19-related delinquent rent was to commence on or before March 1, 2021, the ordinance may not later extend commencement of the collection of the delinquent rent.
• When the payment period was set to commence after March 1, 2021, the COVID-19-related delinquent rent payment period now begins March 1, 2021.
• When the time period was set for a tenant to pay COVID-19-related delinquent rent, the ordinance may not later extend the collection period and the collection period may not be extended later than March 31, 2022. [CC §1179.05]

Guidance for landlords

Landlords need to determine the best course of action for working with tenants and negotiating the payment of rent which is delinquent due to COVID-19-related financial distress.

Further, a significant percentage of tenants delinquent on rent payments due to COVID-19-related financial distress will not be able to pay whether or not the landlord pursues a court money judgment award.

Recall that going into this pandemic, rents across the more densely populated parts of California were eating up 50% of a tenant’s gross income. This is a stark distortion from the historic mean rent amount of 1/3^rd of a tenant’s income. Recessions always bring on pricing adjustments to fit the income of the local population, as is occurring now.

Landlords are advised to consider negotiating with their tenants to agree on a reasonable month-to-month rental rate, taking into account both the COVID-19 pandemic and underlying 2020-2021 recession conditions.

The framework for this rent-adjustment discussion includes a reduction of 20% to 40%, or more, of rent due through February 1, 2021 – the point at which tenant eviction and rent collection protections expire. Thus, the tenant remains in occupancy and the landlord presently receives some amount of payment for the delinquent rent period through June 30, 2021 while the unpaid portion of the rent accrues to be paid another day.

Besides doing nothing, the alternative for the landlord is a vacant unit with no rent amount accruing owed by an occupant.

Worse, there are no sufficient prospects for a replacement tenant. The market will be flush with vacancies and very short on individuals and families who are able to pay rent for vacant units. This gap between able tenants and total rental units in the fall of 2020 may well be 15% to 20%.

To be diligent, landlords and their property managers need to retain a paper and digital trail of all communications with tenants, lenders, mortgage servicers and their representatives. The information trail includes copies of rent payment histories, telephone and messaging communications and notices sent to tenants or received from the tenant.

Without a file of information containing all interactions with a tenant, negotiating a solution with a tenant undergoing COVID-19-related financial distress, meeting with a legal assistant, or filing an action to collect delinquent rent will be chaotic and onerous.

Related topics:
forbearance, landlords

Posted by Carrie B. Reyes | Jul 27, 2020 | Fair Housing, Feature Articles, Laws and Regulations, Real Estate, Tax | 15

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

This article examines the unequal property taxes paid by Black and Latinx homeowners and the implications for homeownership rates in California.

Everyone pays taxes, but how much?

Nationally, the average Black household has a 13% higher property tax burden than the average White household. That’s mainly due to the unbalanced assessed values of homes in non-White neighborhoods. Homes in Black and Latinx neighborhoods have 10% higher values for tax assessment purposes relative to the actual sales price, according to a study by researchers from the University of Utah and Indiana University, as reported by the Washington Post.

Why do Black and Latinx households pay higher property taxes?

According to the study, two reasons stand out:

• with more generational experience in both owning homes and successfully challenging legal systems, White households are more likely to appeal their assigned property taxes; and
• higher tax rates have been used by local governments to push long-term residents out of gentrifying neighborhoods.

However, this national assessment excludes California due to the wonky tax rates produced by Proposition (Prop) 13. More on that below.

The situation

The Washington Post examines America’s deep-seated conviction, countered by sociologist W.E.B. Du Bois over a century ago, that White people are “makers” and Black people are “takers,” receiving more in public services than they contribute. But this is objectively untrue, as research shows Black residents pay higher effective tax rates than White residents — including property taxes and regressive taxes.

Generally, the bigger your paycheck, the more taxes you pay. However, the rate of taxes varies based on what type of income and what type of payments are being made.

For example, capital gains are taxed at 20% for the highest income bracket, compared to a maximum 37% tax rate for regularly earned income for this bracket. A capital gain is the profit realized from the sale of an asset or other investment, like a home sale. On top of this limit, the principal residence profit exclusion allows qualifying homeowners to exclude the first $250,000 — or $500,000 for joint filers — from the sale of their personal residence. Any additional profit is taxed at the lower capital gains rate. [26 United States Code §121(b)]

Further, owners of investment property have the option to re-invest profit from the sale of property into like-kind property. This is called a §1031 exchange and it allows an investor to defer their taxes owed on the sale of their investment property. [Internal Revenue Code §1031]

This system favors households who already own property with lower tax rates, despite the likelihood of six-figure gains on many of these transactions. On the other hand, households that do not own property don’t have access to these tax savings, thus all of their income is taxed at the higher income tax rates.

Similarly, regressive taxes are taxes that favor high-income earners by imposing a higher burden on low-income earners. For example, a high-income earner pays the same sales tax as a low-income earner, despite the fact that they earn more money and thus have more available to spend, save and invest. This means the low-income earner ends up spending a higher percentage of their income on things like sales taxes than high-income earners.

Over generations, this unequal tax burden allows wealth to build for those able to access the tax benefits, while leaving others behind.

Related article:

The U.S. Tax System: Inequality’s best friend

Prop 13 just makes things worse

Here in California, we also need to consider the impacts of Prop 13.

Some background: Prop 13 was voted into California law in 1978. It caps the amount property taxes may increase each year, limiting property taxes to 1% of the property’s assessed value, which equals the property’s base value, or the value at the time of purchase, plus an inflation factor.

For example, a homeowner who has owned their home since the law was passed pays a tax rate based on their home’s value in 1975.

The people who voted for Prop 13 in 1978 were mostly seeking to protect older homeowners on fixed incomes from losing their homes due to an inability to keep up with property tax increases. However, it has turned into a regressive tax, with new homeowners shouldering the burden. This is why Prop 13 is often referred to as the “welcome stranger” law.

Further, while this is good for neighborhood stability — it’s less tempting to move when you know your property taxes are going to jump even when purchasing within the same tier — it’s bad for turnover, inventory and home sales, which real estate professionals can appreciate.

Editor’s note — While real estate agents stand to benefit from amending Prop 13 to reduce the burden on new homeowners while continuing to protect seniors from tax increases, every year first tuesday surveys readers on the issue and the majority continue to support Prop 13 as it stands.

A study by the Tax Foundation finds that across the board, governments are forced to compensate for low property taxes (as with Prop 13) by instilling:

• higher income tax rates (California has some of the highest in the nation);
• higher sales taxes (a regressive tax on low-income earners); and
• more business taxes (bad for investment).

Discriminatory homeownership practices

On top of higher property taxes, Black and Latinx households contend with additional obstacles when trying to achieve homeownership.

For example, homeownership rates plummeted for all demographics following the Millennium Boom. But Black and Latinx homeowners were the greatest impacted, as they were favored targets of predatory lending during the Boom. This is the ugly cousin of redlining, wherein lenders refuse to provide financing or insurance to communities with majority Black or Latinx populations.

For example, one of the largest recognized cases of predatory lending was settled by Bank of America (BofA) in 2012 for their subsidiary company, Countrywide’s discriminatory lending practices. Countrywide discriminated against minority homebuyers by:

• charging higher fees to minority homebuyers, even when they had equivalent qualifications of White homebuyers; and
• steering minority homebuyers into subprime mortgage products, even though many minority homebuyers had equal or better credit histories than other White homebuyers who were not shown bad mortgages.

Since Black and Latinx households were more likely to be steered into subprime mortgages during the Millennium Boom, when it crashed in 2007-2009, this group of new homeowners was less likely to be able to continue their higher mortgage payments.

Related article:

https://journal.firsttuesday.us/civil-rights-and-fair-housing-laws-2/72…

Homeownership as the wealth generator

In California, 39% of the population is Hispanic or Latinx and 7% is Black, according to the U.S. Census. Therefore, discriminatory practices have a far-reaching impact on our state’s housing market.

The average household wealth of White households was $114,785 as of 2011, according to an analysis of wealth, homeownership and race by Zillow. This was more than four times greater than the average Black household’s wealth of just $24,792.

This wealth gap can largely be explained by lower homeownership rates among Black and Latinx households.

Homeownership is the largest source of wealth for Americans, with a home purchase the largest financial decision most individuals will make in their lifetimes. But homeownership rates continue to be highest for White households. From the 2004 peak to 2016, the average homeownership rate for Black households dropped 4%, while homeownership for White households declined just 1%, according to an Urban Institute report. The divide is even more significant in California.

The housing market has the opportunity to benefit from more qualified homeowners entering the market. But as long as discriminatory practices in lending, taxation and real estate practices continue, Latinx and Black households will continue to be left out, and our state’s homeownership rate will continue to be one of the lowest in the nation.

Editor’s note — Stay tuned for next week’s article focused on solutions for eliminating discriminatory practices in real estate.

Related topics:
black homeownership, homeownership, latinx, property tax, proposition 13 (prop 13)

Posted by Carrie B. Reyes | Aug 24, 2020 | Economics, Pending Laws, Real Estate, Recessions | 0

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

August 27, 2020 update: On August 27, 2020, the U.S. Department of Housing and Urban Development (HUD) along with the Federal Housing Finance Agency (FHFA) announced an extension of the foreclosure moratorium for single family homes through December 31, 2020. For information, read more here.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, promised nearly $2 trillion in stimulus to individuals and businesses impacted by the coronavirus (COVID-19) pandemic. Now, despite the continued impact of the virus, many of the benefits of the Act are expiring, leaving us to wonder: what happens next?

The foreclosure moratorium is one such benefit scheduled to expire soon. Under the current law, lenders and servicers may not foreclose on the residences of homeowners falling under CARES Act protections through August 31, 2020. Further, homeowners experiencing financial hardship due to COVID-19 maybe request mortgage forbearance for 180 days, which may be extended. See the CFPB’s coverage of the CARES Act for more information.

The Federal Financial Institutions Examination Council (FFIEC) is encouraging additional and extended loan accommodations to help homeowners affected by COVID-19.

The FFIEC consists of key representatives from the:

• Federal Reserve (the Fed);
• Federal Deposit Insurance Corporation (FDIC);
• National Credit Union Administration (NCUA);
• Comptroller of the Currency;
• Bureau of Consumer Financial Protection (formerly the Consumer Financial Protection Bureau or CFPB); and
• State Liaison Committee.

In a recent statement, the council suggests further accommodations are needed as the initial relief period comes to an end.

Potential accommodations include agreements to:

• defer payments;
• forbear delinquent amounts; and
• modify the loan terms to increase the borrower’s long-term ability to pay.

But any additional accommodations will be largely left up to individual lenders and servicers to decide, meaning the fate of struggling homeowners will be left up to the pure chance of who their servicer is. Worse, none of these loan accommodations are long-term solutions to the coming foreclosure wave, which can only be reduced by more access to jobs, and soon.

Foreclosures will continue to build in 2020

Don’t panic — yet — it’s unlikely this fall will see a surge of notices of default (NODs).

The current August 31 expiration date was extended from a previous June expiration date, so it is possible the federal foreclosure moratorium may be extended again. In fact, a legally dubious executive order was recently released seeking to extend the foreclosure moratorium. However, it reads more like a promise for future action than a fact and may not prove to be of any real merit to homeowners without congressional agreement.

Further, the current moratorium prohibits lenders and servicers from even initiating the foreclosure process, so foreclosing entities will need to start at square one whenever the moratorium is lifted. Foreclosures don’t happen overnight. They begin with a delinquency, followed by a notice of default and eventually a foreclosure sale and redemption period.

California is a nonjudicial foreclosure state. Unlike a judicial foreclosure, nonjudicial foreclosures do not involve the court system. The mortgage holder may foreclose by a trustee’s sale. For this to occur, a mortgage first needs to be classified as delinquent, or at least 30 days past due. A leading indicator of future foreclosures is the share of mortgages 90 days or more past due. For a principal residence, an NOD is recorded when the mortgage is at least 120 days past due. [12 Code of Federal Regulations §1024.41(f)(1)]

Related article:

Foreclosures, explained

Beyond the CARES Act, some California cities and counties have more protections in place to keep homeowners (and renters) in their homes during the pandemic. However, no statewide law is on the books to protect against COVID-19 related foreclosures past the current federal expiration — yet.

Assembly Bill (AB) 2501, which would prohibit foreclosure actions during the 12-month period following the bill’s passage, is currently being considered by lawmakers. The bill also seeks to require mortgage servicers to offer up to 360 days of mortgage forbearance to homeowners experiencing financial hardship, ensuring the missed payments are not due in a lump sum or through increased payments at the end of the forbearance period.

California’s Judicial Council recently voted to let lawmakers have the final say on lifting foreclosure and eviction moratoriums, refraining from extending state protections beyond September 1, 2020. Therefore, whether or not California’s housing market experiences a rush of foreclosures in the next year will depend largely on whether bills like AB 2501 are passed.

One thing is clear: the social and economic effects of COVID-19 along with the 2020 recession will continue to impact residents for months, or more likely, years. Without legislation to prevent today’s delinquencies from becoming tomorrow’s foreclosures, today’s foreclosure moratorium will simply continue to dam up the inventory of distressed sales, to be released once the moratorium is lifted and the floodgates are opened.

Keep reading for updates as we wait to find out how California lawmakers act to protect homeowners now, and in the months to come.

Related page:

Recession 2020

Related topics:
2020 recession, consumer financial protection bureau (cfpb), foreclosure