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

As you prepare 2017 taxes this tax season, take a look ahead to when you pay 2018 taxes next year. The deductions you will be able to take then — and how you take them — will be very different.

First of all, the standard deduction amount will now be about double the size of the 2017 standard deduction.

Standard deduction amounts

The new higher standard deduction amounts have two results:

1. Households that typically have taken the standard deduction will see a tax cut since the deduction is now much higher.
2. It will now make more financial sense for most people to take the standard deduction rather than itemize, resulting in higher taxes for about half the people who used to itemize under the old rules.

For real estate, this change is particularly important since the mortgage interest deduction (MID) can only be taken if a homeowner itemizes their taxes. Therefore, fewer homeowners will take the MID in future years.

Itemized deductions

For those who itemize their deductions — and will continue to itemize under the new plan — there are some significant changes in tax year 2018, including:

• State and local (SALT) taxes are now limited to $10,000 per tax return, whether the return is for an individual or couple;
• the ceiling for the mortgage interest deduction (MID) is lowered from mortgages of up to $1 million to $750,000 — and interest on home equity loans (HELOCs) can only qualify for the MID if they fund home improvements; and
• the deduction for moving expenses may now only be claimed by military families.

These changes will have a particular impact in states like California, which has the highest home prices in the nation (second only to the District of Columbia). Therefore, SALT taxes and mortgage amounts are both much higher than average here.

In other words, the state’s high standard of living translates to higher tax amounts for residents. But under the old tax rules, SALT taxes used to be fully deductible. Now, they will only be deductible up to $10,000. For reference, the average Californian pays $18,438 in SALT taxes.

The good news for California residents with high SALT bills is state legislators are working diligently on a workaround.

One such workaround was introduced in Senate Bill 227 in January 2018, which would allow residents to make a charitable contribution to the state on SALT bill amounts exceeding the $10,000 deduction cap. Individuals would still pay the same amount to the state, but by classifying whatever payment exceeds $10,000 as a charitable contribution, they are allowed to deduct their full payment.

Check back for details on how this bill pans out in the legislature.

Related topics:
mortgage interest deduction (mid), tax 2018, tax aspects

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

Is gentrification such an ugly word, after all?

Gentrification is the process of wealthy residents moving into previously low-income, urban neighborhoods. In the process, these mid- and high-income households displace long-term residents, giving gentrification its bad reputation.

However, a recent article in the Economist claims gentrification actually has more benefits than disadvantages — but does the argument hold up in California?

The benefits cited include:

• rising property values, which benefits long-time homeowners in gentrifying neighborhoods;
• the arrival of more goods and services to the neighborhood, which benefits all residents, old and new; and
• a reduction in crime.

Most importantly, the article claims there is little evidence to support the belief that when high-income residents move in, low-income residents need to move out. In fact, long-term residents are more likely to stay in gentrifying neighborhoods than residents of non-gentrifying, low-income neighborhoods.

How does that work?

Zoning laws are less strict in low-income parts of cities than in neighborhoods where high-income residents already live. Therefore, it’s easier to build up gentrifying neighborhoods than long-standing high-income areas. So, when a high-income household moves into the neighborhood, they aren’t necessarily taking the home of a low-income earner. They’re more likely moving into a newly built, luxury multi-family unit.

At least, that’s how it ought to work — but gentrification isn’t always so neat, especially in California’s vocal not-in-my-backyard (NIMBY) neighborhoods. But more on that in a bit.

Perhaps the biggest benefit of gentrification is its push against income segregation.

Income segregation is bad for real estate

When you hear the phrase income segregation, you probably think about pockets of low-income neighborhoods within your closest urban center. But in practice, income segregation means the isolation of high-income households, resulting in pockets of wealthy neighborhoods in an otherwise low-income cityscape.

Income segregation of wealthy households allows fewer individuals to benefit from a city’s wealth and resources. To translate into real estate terms, it means the majority of a city’s housing stock remains low-tier or simply rentals, while those coveted high-tier home sales are few and far between, accessed by only a select number of real estate professionals.

Income segregation occurs more often in metro areas where there is a high level of local participation in zoning decisions. In contrast, metros located within states that have more top-down state-level involvement in zoning laws see less income segregation, according to a UCLA study.

Here in California, we have a lot of local involvement in our desirable coastal cities. NIMBY advocates are on every block, most infamous in San Francisco.

The number of new jobs in San Francisco has increased at eight times the rate of new housing additions, according to the Economist. Normally, more jobs translates to more real estate transactions. After all, workers need somewhere to live. But San Francisco’s stubborn refusal to add to its existing housing stock has resulted in more people living in crowded situations, along with workers living further away from the city.

Gentrification has been rampant in San Francisco during the past couple of decades. For example, the median value of a home in the Mission District was $278,400 in 1998, compared to $1.49 million in 2018, according to Trulia. That’s an increase of 535% in 20 years.

During those years, the neighborhood has changed dramatically, as the children who grew up in the Mission became priced-out of the area as adults. Even their parents who lived in the neighborhood for decades are no longer able to stay, as renter protections designed to protect long-time residents fail when landlords ignore these laws.

Even though gentrification brings some advantages and improvements, the process is hard on long-term residents, to say the least.

Legislation for more construction

Local regulations have held back new construction and growth for too long now, causing housing costs to soar, holding back economic growth and forcing residents to leave for other states.

The good news: California state legislators have started to pay attention.

In late 2017, a package of bills aimed to increase the affordable housing stock passed in California. Among these bills are new laws that will:

• make it more difficult for local governments to re-zone neighborhoods to reduce density;
• streamline the approval process for new residential construction;
• limit parking requirements, making more efficient use of land near public transportation;
• advance the environmental review process for affordable housing projects; and
• set aside more money for homeless shelters and veteran housing.

Related article:

Legislative steps toward more affordable housing

For residents of gentrifying neighborhoods — and real estate professionals who rely on a steady flow of transactions to make a living — these new laws are a step in the right direction toward more financial stability.

The research tells us gentrification doesn’t have to be as painful or one-sided as it is in places like the Mission District. Ultimately, the diversity of incomes and services gentrification brings with it benefits residents. But only if these residents aren’t forced out of their neighborhoods.

The solution is more construction in these desirable areas, and quickly. Expect to see this happen in the coming years, as California’s legislation finally catches up to demand.

Related topics:
california zoning, gentrification, san francisco

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

Calif. Health and Safety Code §54000, 54004, 54006, 54007, 54009, 54010, 54016, 54018, 54026, 54028, 54034, Military and Veterans Code §998.600, 998.601, 998.603, 998.604, 998.608
Added by S. B. 3
Effective date: November 6, 2018

The Veterans and Affordable Housing Bond Act of 2018 will be voted on in the statewide general election on November 6, 2018. If passed, it will create the Affordable Housing Bond Act Trust Fund of 2018. The Housing Finance Committee (HFC) will authorize $3,000,000,000 of bonds to be issued and sold for these purposes. The bonds will have a maturity date of no more than 35 years from the date the bonds were issued. Allocations are set at:

• $1,500,000,000 to the Housing Rehabilitation Loan Fund, to be used for the Multifamily Housing Program for new construction, rehabilitation and preservation of permanent and transitional rental housing for people with up to 60% of the area median income;
• $150,000,000 to the Transit-Oriented Development Implementation Fund to assist in developing high-density uses close to transit stations to promote use of public transportation;
• $300,000,000 to the Regional Planning, Housing, and Infill Incentive Account, which this act also creates, to assist in developing high-density mixed-income housing in locations designated as infill;
• $150,000,000 to the Self-Help Housing Fund for use in the California Housing Finance Agency’s home purchase assistance program;
• $300,000,000 to the Joe Serna, Jr. Farmworker Housing Grant Fund, for the construction or rehabilitation of housing for agricultural employees or for acquisition of manufactured housing to remedy farmworker displacement from existing housing;
• $300,000,000 to the Affordable Housing Innovation Fund for the creation of local pilot programs which create and preserve affordable housing; and
• $300,000,000 to the Self-Help Housing Fund to assist the CalHome Program in the development of multifamily housing units, at least $30,000,000 of which will be used for the rehabilitation or replacement of mobilehomes.

Any funds not used by the program to which they are allocated will be reallocated to the Multifamily Housing Program. Programs will give preference to public works projects.

The Department of Housing and Community Development (HCD) may provide engineering assistance and environmental review for the Multifamily Housing Program, the Joe Serna, Jr. Farmworker Housing Grant Program and the CalHome Program using the bond proceeds allocated to those programs.

All premiums and accrued interest on sold bonds will be transferred to the General Fund as credit to expenditures for bond interest. Amounts derived from premiums may be reserved to pay the cost of bond issuance before transfer to the General Fund.

The state will collect an annual sum of money in addition to ordinary revenue to pay the principal and interest for the bonds, which may be refunded like any other government bond. Any refund bonds are authorized by the passage of the act.

In addition, the Veterans Finance Committee (VFC) may create a debt of the State of California of no more than $1,000,000,000 to provide farm and home aid for veterans.

When the state collects revenue for these bonds, money will be transferred to the Payment Fund to pay the debt service on all the money in the fund, not including refunding bonds. When the money transferred is less than debt service due, the unpaid balance will be transferred to the General Fund, with interest at the same rate of interest as the bonds, compounded semiannually.

Editor’s note — This is one of several bills passed by the California legislature to address the state’s housing shortage.

Read the bill text.

Related topics:
affordable housing

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

Changes at the Consumer Financial Protection Bureau (CFPB) are well underway.

The CFPB released their new strategic plan for 2018-2022. This replaces their last four-year plan, in place from 2013-2017.

The old plan was mostly focused on forging a path for what, at the time, was a new bureau, primed with optimism to change the financial landscape. The new plan is much less ambitious:

CFPB acting director Mick Mulvaney put it this way in the press release announcing the new plan: “we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.” Ambitious, indeed.

What happens when anti-regulators are in charge of the CFPB

These changes are the perfect realization of the current administration’s outlook on financial market regulation.

The former director the CFPB, Richard Cordray, was put in place by President Obama to lead the agency in its infancy. Cordray stepped down late in 2017 following several setbacks which had the CFPB butting its head against a regulation-resistant administration.

President Trump appointed Mick Mulvaney to head the CFPB in November 2017. Since then, Mulvaney has taken the initial steps to rollback and soften the significant strides the CFPB has taken in consumer protection. Some of these strides have included:

• making mortgage and other financial forms more accessible by abridging them and translating them into plain English;
• receiving and addressing consumer complaints;
• filing dozens of lawsuits against financial companies for harming consumers; and
• making and enforcing new consumer financial laws.

Now, the CFPB is turning its sights from protecting consumers to protecting Big Banks.

Or, as stated in the CFPB’s press release announcing their new strategic plan:

“… the Bureau will now focus on equally protecting the legal rights of all, including those regulated by the Bureau, and will engage in rulemaking where appropriate to address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.” [Italics added for emphasis]

In all likelihood, all of this points to fewer regulations over lenders, appraisers, banks and creditors. And we all know how well that turned out last time — the Millennium Boom was great for everyone — until it burst and plunged the nation into the worst financial crisis and recession since the Great Depression.

Want to weigh in? The CFPB is currently accepting comments on their future regulatory actions. Comments need to be submitted by April 13, 2018. Submit your comments at the Federal Register.

Related topics:
banks, consumer financial protection bureau (cfpb)

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

Big changes for financial regulation are on the horizon.

In a press release, the Consumer Financial Protection Bureau (CFPB) announced it will be reviewing its policies, rules and educational materials.

In the release, acting Director Mick Mulvaney says: “Much can be done to facilitate greater consumer choice and efficient markets, while vigorously enforcing consumer financial law in a way that guarantees due process.”

In other words, the CFPB is thinking about rolling back some of its regulation put in place under former leadership, put in place by the Obama administration.

Related article:

CFPB’s future uncertain as director resigns

The CFPB was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act and started formally practicing in 2011. Since then, the CFPB has changed the way real estate agents, lenders, appraisers and consumers do business in the real estate market.

Changes ahead

Some of the most significant transformations to the financial industry the CFPB spearheaded include:

• making mortgage and other financial forms more accessible by abridging them and translating them into plain English;
• receiving and addressing consumer complaints;
• filing dozens of lawsuits against financial companies for harming consumers;
• making and enforcing new consumer financial laws; and
• implementing changes under the Truth in Lending Act (TILA).

But, in keeping with the administration’s stated goals, the CFPB’s newly appointed leadership seeks to turn back the clock.

President Trump recently boasted he has “done more on knocking out regulations than any other president in our history… and we haven’t even started.” As evidence, in July 2017, the Trump administration put a stop to 860 pending regulations, including consumer protections and environmental rules, according to the Los Angeles Times.

Following the administration’s deregulatory agenda, the acting director is gathering information to take the teeth out of the CFPB.

Looking to the future, this anti-regulatory agenda will see a return to the lending environment of the Millennium Boom — think “no doc” loans and zero down payments. It’s very exciting in the moment, when homeownership soars and home prices become untethered from what can be sustained by reasonably qualified buyers. But when the inevitable crash comes, the resulting price plunge and spike in foreclosures will be steep and terrible for housing.

Before any changes are official, the CFPB is requesting public comment on its activities. Comments can be submitted via the Federal Register, with details to be published in the coming weeks. Check back here for links to submit your comments as they become available.

Submit your comments at the Federal Register, here.

Related topics:
consumer financial protection bureau (cfpb), deregulation

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

The Consumer Financial Protection Bureau (CFPB) is announcing updates to its Closing Disclosure timeline when significant revisions are made to the Loan Estimate and Closing Disclosure.

This rule takes effect for all lenders handling mortgage documents beginning June 1, 2018.

Some background:

A Loan Estimate is required to be delivered to the homebuyer within three business days of the lender’s receipt of the mortgage application. [12 Code of Federal Regulations §1026.19(a); see RPI Form 204-5]

The final Closing Disclosure needs to be delivered to the homebuyer at least three business days before closing is scheduled. [12 CFR §1026.19(f)(ii)(A); See RPI Form 402]

Upon receiving the Closing Disclosure, homebuyers are instructed to compare their Loan Estimate with the Closing Disclosure to ensure no significant changes have occurred.

Some small variances may occur from the original Loan Estimate to the Closing Disclosure, such as a change in fee charged by a party to the transaction who is not the lender or homebuyer (e.g. a title insurance provider). [12 CFR §1026.19(e)(3)]

When these variances occur on a large scale, sometimes the lender is able to provide a revised Loan Estimate. [12 CFR §1026.19(e)(3)(iv)]

A Loan Estimate revision may only be given to an applicant when:

• a changed circumstance impacts the homebuyer’s eligibility or the real estate’s value;
• the homebuyer requests a change to the mortgage terms;
• a changed circumstance causes the closing costs to increase by more than 10%;
• the interest rate was not locked when the Loan Estimate was provided, and locking the interest rate causes the points or lender credits to change;
• the consumer indicates they will proceed with the transaction more than ten business days after the Loan Estimate was provided; or
• the settlement for a mortgage on a new construction mortgage is delayed more than 60 calendar days and the original Loan Estimate states the lender may issue a revised disclosure 60 days before closing. [12 CFR §1026.19(e)(3)(iv)]

Lenders may not revise Loan Estimates simply due to technical errors or miscalculations of charges. [12 CFR §1026.19(e)(3)(iv)]

Since a Loan Estimate is used to ensure the estimated costs were made in good faith when compared with the final costs in the Closing Disclosure, the revised Loan Estimate may not be delivered on the same day as, or after the Closing Disclosure. [12 CFR §1026.19(e)(4)(ii)]

Thus, once the Closing Disclosure has been issued, the Loan Estimate may no longer be revised to reflect the changes. Instead, any significant changes that occur require a revised Closing Disclosure.

Under the old system, lenders that issued a revised Closing Disclosure needed to provide it to the homebuyer at least four days prior to closing, and within three days of the lender becoming aware of the changed circumstance. [12 CFR §1026.19(e)(3)-(4)]

This created what is known as the TILA-RESPA “black hole”. Changes triggering a revision to the Closing Disclosure that occurred in the last four days of closing leave a gap which can cause some lenders to avoid charging homebuyers higher rates (when they are valid), simply to avoid delaying closing.

The CFPB’s ruling says this has been damaging to lenders. It claims lenders, rather than move closings, may have charged higher fees or raise their mortgage rates as a result, passing on the unclaimed higher costs they are unable to charge in these special circumstances on to the next homebuyers.

Therefore, the new rule allows the Closing Disclosure to show revised costs, without a restriction on when it is provided in relation to closing.

Example

For example, consider a homebuyer taking out a mortgage and preparing to close on a home. Their lender provides the required Closing Disclosure three days before closing is scheduled.

After the homebuyer receives the Closing Disclosure and before they close, they request closing be pushed back more than seven days.

They also request a change which results in a higher annual percentage rate (APR), increasing closing costs by more than 10%. A change of this magnitude would normally require a revised Loan Estimate be issued, but the lender is prohibited from providing a revised Loan Estimate at the same time or after the Closing Disclosure has been issued. [§1026.19(e)(4)(ii)]

Therefore, the lender’s correct option is to issue a revised Closing Disclosure. But the lender needs to do this both within three days of the requested changes, and within four days before closing is scheduled. [12 CFR §1026.19(e)(4)(i)]

But since the homebuyer requested closing be pushed back more than seven days, under the old system, the lender is unable to comply with the law and provide the homebuyer with a revised Closing Disclosure within four days of closing and within three days of the requested change.

This is the “black hole” issue lenders which previously forced lenders to either:

• refuse to push back closing so the homebuyer can receive the revised Closing Disclosure within the appropriate timeframe; or
• absorb the additional costs beyond the 10% increase over the original Closing Disclosure caused by the higher APR.

This new rule removes the lender’s calculus, and simply says that when a valid reason causes the Closing Disclosure to change, they may provide the revised Closing Disclosure regardless of the timing, and regardless of when the homebuyer receives the revision in relation to closing.

Related topics:
closing disclosures, loan estimate

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

Calif. Civil Code §§2924, 2923.4, 2923.5, 2923.6, 2923.7, 2924.12, 2924.12, 2924.17, 2923.55, 2924.9, 2924.10, 2924.11, 2924.18, 2924.19

Amended and added by S.B. 818

Effective date: January 1, 2018

This bill reenacts many portions of the 2012 California Homeowner Bill of Rights, which expired on January 1, 2018. California’s legislature intends the laws put in place by this bill will take over for the laws which expired January 1, 2018.

When a homeowner becomes delinquent on their mortgage, the lender, mortgage servicer or bank may not record a notice of default (NOD) unless 30 days have passed since contacting or making a diligent effort to contact the homeowner, including mailing a notice and calling at different times of day.

However, when a homeowner makes a written request for the lender to cease communications, the lender is exempt from the telephone contact requirement.

Within five days after recording an NOD, the lender needs to send a written notice to the homeowner regarding any foreclosure prevention alternative it offers, including information on how the homeowner may apply to be considered for these foreclosure prevention alternatives.

The homeowner may submit a complete application for a first lien mortgage modification to the lender. While that application is pending, the lender is prohibited from recording an NOD or notice of trustee’s sale (NOTS), or conducting a trustee’s or foreclosure sale. To qualify for this exclusion, the homeowner’s complete application needs to be submitted at least five business days before the trustee’s sale is scheduled to take place.

To be considered complete, the homeowner’s application for a mortgage modification needs to include all documents required by the lender and be submitted within the reasonable timeframes the lender specifies.

When their application is approved, the homeowner needs to accept the first lien mortgage modification within 14 days of the lender’s offer, otherwise the lender may proceed with the foreclosure process.

Throughout the process, the lender needs to provide the homeowner with a single point of contact.

Once the lender receives the homeowner’s complete application for mortgage modification, it needs to provide the homeowner with written acknowledgment that it has received the application within five days of receipt. At that time, the lender also needs to provide information about the mortgage modification process, including any deadlines the homeowner needs to adhere to in order to be considered for foreclosure prevention.

When a lender approves the mortgage modification application after an NOD has already been recorded, the lender may not complete an NOTS or trustee’s sale as long as the conditions for approval continue to be met. Further, if an NOTS has been issued or a trustee’s sale scheduled, these need to be canceled as long as the conditions for mortgage modification are met.

The lender may not charge a fee for a mortgage modification or other foreclosure alternative on a first lien.

If a mortgage with an approved mortgage modification is transferred to another mortgage servicer, the new servicer needs to honor the agreed-to terms on the modification.

When the lender denies the mortgage modification, it needs to provide the homeowner with a written notice identifying the reasons why the application was denied.

Further, when the homeowner is rejected for a loan modification, the servicer needs to wait at least 31 days after the homeowner is notified before recording an NOD or — if an NOD was already recorded — recording an NOTS.

When the mortgage modification is denied, the homeowner has 30 days to appeal and provide evidence of any errors the lender made in its determination to reject their application for mortgage modification.

During the 30-day appeal period, the lender may not file an NOD. However, if an NOD has already been filed, the lender may not record an NOTS or conduct a trustee’s sale.

California homeowners have the right to sue lenders who do not comply with these laws for up to $50,000. 

Read more:

Read the bill text

Related topics:
notice of default (nod), notice of trustee sale (nots)

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

California’s homeless population has soared in recent years, due in large part to the state’s housing shortage and affordability crisis.

Legislators have been working on various fixes, most notably passing several bills at the end of 2017 aimed at increasing the affordable housing stock and providing funding for more shelters and homeless services.

But this package of bills passed just a few weeks before the 2018 federal tax changes came to light. Buried in the new tax law is a change that reduces the low-income housing tax credit (one of many ways federal legislators chose to pay for some of their hefty tax cuts).

With the reduced tax credit, California will lose $540 million for its low-income housing programs, equivalent to 4,000-5,000 units.

This couldn’t come at a worse time.

Today’s homeless population numbers 134,000 in California, and this population continues to increase each year, according to State Senator Beall’s office. From 2016 to 2017, the state’s homeless population increased 14%.

For an extreme example, consider Los Angeles where the homeless population increased twice as fast as the state — over 30% in the past year alone, amounting to an increase of 13,000 homeless individuals. With shelters overflowing, most of the state’s homeless are literally living on the streets.

The rising tide of homelessness is just one visible reminder of the lack of low- and mid-tier housing available to house California’s growing population. High demand for few units has created today’s runaway home prices, which have kept many out of homeownership, slowing the income stream for real estate professionals.

An attempted fix

State senators are attempting to find a replacement for the missing funding.

Editor’s note — Multiple co-authors are joined together on this effort. Together, they represent various parts of the state: San Jose, Berkeley, San Francisco, Riverside and Santa Barbara.

Their bill, Senate Bill (SB) 912, seeks funding from the 2018-2019 budget to focus on providing services and shelters for vulnerable populations, including:

• the chronically homeless who otherwise may end up incarcerated;
• youth;
• homeless college students;
• families who have previously been homeless;
• survivors of domestic violence;
• veterans; and
• persons who are physically or mentally disabled.

Providing shelter and services to the homeless population actually saves money, as it is much more costly to police and provide emergency care to the homeless than to simply provide shelter that reduces the need for these emergency services. But it does require an upfront investment that many tax-cutting legislators balk at.

Just how much of an investment is California willing to make?

It’s hard to say at this point — the original bill, which has since been amended, called for $5 billion in funding to address the homeless crisis. The amended version of the bill has removed all dollar figures, simply calling for generic “funding.”

While this language provides little guarantee, today’s bunch of state legislators have shown they are serious about doing their part to alleviate California’s housing crisis. We will have to wait and see just how committed they are to fighting homelessness when the final budget is passed later this summer.

Related topics:
homelessness, tax 2018

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

Governor Brown recently approved California’s AB 3194, amending portions of the Housing Accountability Act, also known as the anti-NIMBY (not-in-my-backyard) legislation.

This new law closes loopholes left open by previous laws and adjusts zoning standards. But in a nutshell, AB 3194 makes it easier for developers to build affordable housing developments.

This new law builds on 2017’s AB 1515 which considered housing developments and emergency shelters to fall within a local housing plan — as long as there is substantial evidence leading a reasonable person to conclude that it is, in fact, consistent with the plan. This wording clearly left room for a certain level of subjectivity, which AB 3194 attempts to correct.

Under the new law, proposed housing developments for low- and moderate-income households, including emergency shelters, are considered to meet applicable zoning standards. Previously, the local government may have required re-zoning to occur before approving a proposed housing development.

Further, rather than put the burden on the housing developer to prove it meets local zoning rules, this law requires any local government seeking to reject a proposed housing development to provide written evidence that:

• it has already met its regional need for low- and moderate-income housing;
• the development would have a specific negative impact on the health or safety of residents;
• approving the development would result in a violation of a specific state or federal law;
• the proposed development is situated on and surrounded on at least two sides by agricultural or resource land;
• the proposed site lacks adequate water or wastewater facilities to accommodate the development; or
• the development is inconsistent with both local zoning rules and the general plan at the time of the completed application, and the area has adopted a lawful, revised housing element in compliance with 2015 law to meet statewide housing goals. [Calif. Government Code 65589.5(d)]

The legislative intent of this new law is for local governments to encourage urban infill rather than sprawling development into surrounding agricultural areas that may lack infrastructure. [Gov C §65589.5(c)]

Legislative impacts on affordable housing

This bill is one of many new laws passed in the past year to address the state’s housing crisis. The end result of most of these laws has been to retrieve power from the hands of vocal NIMBYs who seek to limit development in their local communities.

Insufficient new construction of low- and moderate-income housing has left the majority of renters across the state paying close to half their income on rent, and held back the home sales volume recovery.

This new law was sponsored by the California Building Industry Association, which claims the law will stimulate construction, reduce costs for builders and end users, and encourage homeownership. All of this will help grow California’s economy and maintain a healthier housing market.

Expect to see construction of new homes, particularly multi-family units, grow as a result of these combined legislative efforts in the coming years.

Related article:

Legislative steps toward more affordable housing

Related topics:
california zoning

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

California’s teacher shortage continues to worsen, and one major culprit is lack of affordable housing.

Three-quarters of California school districts are experiencing a lack of qualified teachers available to fill openings. This shortage is due to insufficient numbers of new replacement teachers in the pipeline to replace retiring teachers. Further, in high-cost areas, current and potential teachers are simply unable to afford to live where they work. 29% of school districts experiencing teacher shortages cite high costs of living as a major reason, according to a study by the Learning Policy Institute.

For example, just 1% of teachers in San Francisco and 2% of teachers in San Jose can afford to buy a home in the area, according to a Trulia analysis. As a result, the teacher shortage worsens.

A 2018 bill, AB 224, proposes to work with California school districts to provide affordable housing for teachers and other school district employees. In this case, affordable housing means housing for which low- and moderate-income households are qualified to pay.

The bill allows developers and school districts to borrow from the California Housing Finance Agency to build affordable teacher housing. They will not need to begin paying back the loan until tenants move in and begin making rental payments.

This move follows California’s Teacher Housing Act of 2016, which exempted school district housing receiving state funding from the law preventing tenant discrimination based on profession. [Calif. Health & Safety Code §§53570 et seq.]

Failing California’s most essential residents

Critics of Sacramento’s efforts to provide more affordable rental housing specifically for teachers say it takes resources from other low-income households. After all, the housing shortage isn’t limited to teachers. It impacts workers in the health services, retail, emergency services and restaurant industries, among others.

Related article:

California service workers, public employees can’t afford to buy in most metros

Further, the 2016 law and the 2018 bill open the door for more teacher housing, but they don’t ensure it. That’s because they don’t address zoning restrictions that limit dense development in desirable areas where housing costs are highest. Finding developable land is tough for school districts, and using their own land is often met with local opposition who say school district land ought to be devoted solely to schools, according to Mercury News.

As a result of these many obstacles, very few new teacher developments are likely to result from the 2016 law and this bill, even if it is passed. In fact, just 1% of California school districts plan to use some sort of housing incentives to attract teachers to their district, according to the Learning Policy Institute study.

To truly address the problem, California needs to tackle the lack of low- and moderate-income housing head-on.

Some steps are being taken to add to the affordable housing stock at the statewide level, but local efforts need to be pursued, too. These steps will ideally take the form of loosening zoning restrictions to allow for more low- and moderate-income housing in desirable areas. Only then will multi-family construction increase, and rents and prices will cool off and fall closer in line with local incomes.

Related topics:
affordable housing, housing shortage

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

California’s Homeowner Bill of Rights was signed into law in 2012 at the tail-end of the Great Recession and foreclosure crisis that forced many residents out of their homes, some unfairly and unlawfully. Its aim was to give qualified homeowners facing foreclosure a meaningful opportunity to obtain a mortgage modification and keep their homes. [Calif. Civil Code §2923.4]

This Homeowner Bill of Rights was automatically repealed January 1, 2018. A new bill, SB 818, has reinstated many of the provisions of the original bills.

The biggest changes the Homeowner Bill of Rights made were to prevent:

• dual-tracking foreclosure, when a homeowner is simultaneously going through the mortgage modification process and the foreclosure process;
• robo-signing of foreclosure documents, heightening the risk for wrongful foreclosure; and
• more than one point of contact for distressed homeowners in the foreclosure process.

These protections are once again in place for first lien mortgages secured by residential property. The main differences between the original Homeowner Bill of Rights and this new version are new exceptions:

• allowing servicers to be exempt from the provisions in SB 818 when an application for a mortgage modification is received less than five days before a scheduled foreclosure sale; [CC 2924.18(a)] and
• exempting servicers from the telephone contact requirements of SB 818 when the homeowner has notified the servicer in writing to cease and desist all communications. [CC 2923.5(e)(2)(C)(ii)]

When a homeowner requests a foreclosure prevention alternative such as a mortgage modification, the servicer needs to promptly establish a single point of contact for the homeowner. This will prevent confusion and help prevent the homeowner from becoming lost in the shuffle of other homeowners considering foreclosure prevention options. [CC §2923.7(a)]

Mortgage servicers may not record a notice of default (NOD) until:

• at least 30 days have passed after initially contacting the homeowner; or
• if the servicer is unable to contact the homeowner, they have satisfied the due diligence requirements made to reach the homeowner, including mailing a notice and calling at different times of day. [CC 2923.5(a)(1)(A)]

Further, servicers may not record an NOD when a homeowner submits a complete application for a loan modification at least five business days before a scheduled foreclosure sale. Once the servicer provides the homeowner with a written decision on the loan modification, the servicer may proceed with the foreclosure process if necessary. [CC §2923.5(a)(1)(B)]

When the homeowner is rejected for a loan modification, the servicer needs to wait at least 31 days after the homeowner is notified before recording an NOD or — if an NOD was already recorded — recording a notice of trustee’s sale (NOTS). [CC §2923.6(e)]

When the homeowner is approved for a loan modification, the servicer may not proceed with the foreclosure process as long as the homeowner complies with the terms of the modification. [CC §2924.18(a)(2)(A)]

Servicers may not charge homeowners any fees to apply or obtain a mortgage modification or other foreclosure prevention alternative. [CC §2924.11(e)]

The bill gives California the right to sue lenders and banks up to $50,000 for violating the laws. [CC §2924.19(b)]

Looking ahead to the next recession

The original Homeowner Bill of Rights was scheduled to expire in 2018, undoubtedly because the 2012 legislature figured the foreclosure crisis would be well over by now.

They were right — foreclosures reached a healthy level in 2016, and have remained low well into 2018. But the cycle of housing boom and bust continues to roll on, and the next recession is approaching on the horizon.

Experts forecast the next economic recession to arrive in 2020. Leading up to that recession, home sales volume will slow (as it is already in the process of doing) and home prices will flatten and drop off, expected to begin in 2019. This is all precipitated by rising interest rates, which have dampened buyer purchasing power and discouraged homebuyers.

Slowing sales and falling prices inevitably lead to an uptick in foreclosures as fewer homeowners who need to sell are able to. However, the 2020 recession won’t see the same type of foreclosure activity that reached a crisis level in 2008 and the years following. The laws put in place in the recovery years have stemmed the tide of unqualified homeowners, thus more homeowners will be able to continue to pay their mortgage during the coming recession than in 2008.

Still, the common-sense protections provided in the Homeowner Bill of Rights will be needed for those who do face foreclosure in the coming years. Fewer needless foreclosures protects homeowners and the housing market at large, including the real estate professionals who seek to weather the coming recession.

Related topics:
foreclosure, homeowner bill of rights, loan modification

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

Our Proposal: We propose the California Department of Real Estate (DRE) automatically exempt eligible licensees from the required continuing education (CE) using the 70/30 exemption rule.

Why: All California DRE agents and brokers are required to complete 45 hours of continuing education every four years. [Calif. Business and Professions Code §10170.5]

The DRE’s 70/30 continuing education exemption rule exempts licensed agents and brokers from this requirement when:

• the licensee is at least 70 years or older before the expiration of their license’s two-year grace period; and
• their license has been in continuous good standing for at least 30 years. [Bus P & C §10170.8]

Related Article:

Letter to the Editor: How does the 70/30 exemption rule work?

If a licensee qualifies, they need to use the Continuing Education Extension/Exemption Request form (RE 213) to apply for the exemption. The form asks licensees to submit:

• a copy of their birth certificate or driver’s license;
• any other supporting documents showing the number of years licensed; and
• and the date first licensed.

This exemption request is unnecessary since the DRE already holds the information needed to qualify a licensee for the 70/30 exemption. In fact, licensees can learn if they qualify through the DRE’s own website, which provides a public licensee information lookup tool.

In addition, the DRE already requests the applicant’s birthdate on the Salesperson License Application forms (RE 400A and RE 435). This piece of information can even be verified at the time of an applicant’s exam, since a government-issued photo ID is required when taking the state exam.

An agent or broker without a lapse in their license or disciplinary actions has shown they have practiced in good faith for their entire career. Why not return this good faith and automate the 70/30 exemption process? Agents and brokers with such spotless records are entitled to this exemption.

The DRE mails a reminder to licensees 60 days prior to their license’s expiration date as a courtesy. This would be a perfect opportunity to exempt licensees from continuing education requirement or at least notify eligible licensees about the exemption.

By not notifying or automatically exempting eligible licensees, the 70/30 rule often goes unnoticed and underused, costing licensees extra fees and time otherwise not required to maintain an active license.

Cutting unnecessary bureaucracy and costs is especially critical now that most active full-time agents are only generating incomes sufficient to support a minimal subsistence, until sales volume increases around 2019.

What you can do: While waiting for the DRE to streamline the exemption process, renewing licensees can check their eligibility for the 70/30 exemption through the DRE’s website.

The DRE recommends agents and brokers stay current on real estate industry changes by voluntarily taking continuing education every four years, even if exempt. Order your first tuesday continuing education course by phone at 951-781-7300 or online at firsttuesday.us.

Related topics:
70/30 exemption, continuing education (ce), department of real estate (dre), dre, license

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

Our proposal: Mandate sellers disclose to prospective buyers the full cost of owning and operating a single family residence (SFR).

Why: Currently, disclosure of a property’s estimated operating costs are customary for income properties through the Annual Property Operating Data sheet (APOD), but rarely discussed for owner-occupied SFRs. In the context of income property sales, the APOD discloses expected maintenance and operating expenses to help the investor-buyer determine whether the investment is worthwhile.

However, buyers of residential property are not typically provided the same analysis to understand the full scope of their investment as homeowners. Yet, much like an income property, a residential household is a heavy consumer of electricity, gas and other fuel sources. The existence and cost of utilities consumed by a home are material facts a prospective buyer needs sufficient information about to consider before purchasing. Thus, an SFR’s estimated operating and maintenance expenses need to be required as critical information affecting the cost and desirability of the property.

First-time homebuyers transitioning from renting are especially in need of this analysis to understand the full costs of owning and operating a home before committing to a purchase. Utility costs may make a difference for a budget-conscious buyer who is unfamiliar with the costs of maintaining a home.

Further, mandating an operating expense disclosure places little burden on an agent, since operating costs are readily available and providing the disclosure helps an agent meet their duty to a buyer.

What you can do: Though disclosing an SFR’s operating costs is not currently mandated, you can still provide the disclosure as part of the marketing package provided to prospective buyers. Use Form 306 – Property Expense Profile by Realty Publications, Inc. (RPI) to disclose operating costs to buyers. [See RPI Form 306]

The form discloses the costs of:

• utilities, such as gas, water, phone, internet and electricity;
• lawn and gardening;
• homeowner association (HOA) fees;
• property taxes;
• insurance; and
• expected maintenance and repairs.

As a buyer’s agent, discussing the content of the form with your buyer client will provide a more comprehensive analysis of the property and better prepare them for homeownership.

Related topics:
property disclosures, property expense profile

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

Our proposal:  Mandate all sellers of single family residences (SFRs) to disclose to buyers known criminal activity and crime data in the neighborhood for the past two years.

Why:  While sellers and seller’s agents are required to respond truthfully and fully to buyer inquiries about their knowledge of criminal activity, current California law does not require the disclosure of known criminal activity or impose a duty on the seller’s agent to seek out this information by checking local sources.

Yet, criminal activity is a material fact that adversely affects the value and desirability of a property, much like natural hazards, environmental hazards and property defects — all of which are legally-mandated to be disclosed to buyers.

Local crime rates are a major consideration for many homebuyers evaluating properties. In fact, a recent first tuesday poll found, according to agents, low crimes rates topped the list as the most important factor for homebuyers searching for a home, even surpassing quality schools and proximity to work.

Failure to disclose known security conditions and criminal activity on or near a property results in asymmetry of information between the seller and buyer. This lack of transparency leaves the buyer knowing less about the property than the seller and the seller’s agent, preventing the buyer from making an informed offer.

Further, local crime data is readily available through local law enforcement and other online sources, such as CrimeReports, NeighborhoodScout and My Local Crime. Giving notice to prospective buyers requires little effort compared to the value of the service to the public and satisfaction of buyers.

What you can do: In the meantime, real estate agents need to be attentive to buyer concerns regarding local crime rates. As a buyer’s agent, you can request sellers to disclose known information about local criminal activity to reduce the risk of deceitful conduct claims by an ill-informed buyer.  As a seller’s agent, the best practice for complying with licensing duties is to disclose crime information to a prospective buyer by using a form designed for this very purpose.

RPI Form 321 – Seller’s Neighborhood Security Disclosure — Addendum may be used when preparing a marketing package with information addressing security on or about a property listed for sale or lease. [See RPI Form 321]

For the buyer, the Seller’s Neighborhood Security Disclosure is an addendum to the purchase agreement, attached as part of a contingency provision requesting security information from the seller on their property and surrounding area.

Each section on the form contains a separate principle relating to the security of the occupants of the property, which include:

• a statement from the sellerdisclosing any investigative reports on the adequacy of the property’s security arrangements [See RPI Form 321 §2];
• security precautions already undertaken, including steps taken by the seller or prior owner to prevent security breaches [See RPI Form 321 §3];
• conduct on the property which has endangered another person or the property of another [See RPI Form 321 §4]; and
• any other specific criminal activity occurring during the past two years. [See RPI Form 321 §5]

When a buyer’s agent reviews the Seller’s Neighborhood Security Disclosure with their buyer, the buyer’s agent may discuss disclosures or findings they have made with the buyer, along with any costs of providing additional security for their use of the property.

Related topics:
homebuyers, material fact, sellers

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

Our proposal: We propose to require mandatory financial literacy education for California high schoolers. The improved financial readiness will result in better household management, which lends itself to a sounder economy for future generations.

Why: Possessing financial literacy prepares an individual to contribute to society in a financially responsible way. However, California is one of only five states in the nation with no personal finance education requirements, according to the Council of Economic Education.

Students aren’t allowed to graduate entirely ignorant of financial matters, though. Economics is required as a one-semester course in high school, covering a wide range of topics in a short period of time. Topics include macro- and micro-economic concepts, the government’s role in the economy, the impacts of globalization on the U.S. economy and the significance of financial literacy. No specific personal finance topics are required to be covered.

On the other hand, financial literacy education covers a range of necessary skills, from writing a check to saving for retirement and budgeting for a home purchase. The results are beneficial for individuals and the broader economy, as the Council of Economic Education reports students from states with required personal finance courses have higher credit scores and a lower probability of becoming delinquent as young adults.

Further, the connection between financial literacy and the housing market is easy to make. Individuals who know how to save, keep their debt load in check and balance a personal budget are much more likely to become successful homeowners.

What you can do: Other than showing up at the polls, real estate professionals can’t do much to influence state education standards. But agents can make sure their clients are financially informed during their home buying and selling process.

Do this by taking the following steps with homebuyers — especially first-time homebuyers who are completely new to the real estate transaction process:

1. Discuss the need for a down payment and the consequence of mortgage insurance when the down payment is less than 20% of the purchase price.
2. Go over the mortgage financing options available to the homebuyer, which affect their homebuying budget and monthly mortgage payment.
3. Shed light on the effect of other debts on their total debt-to-income ratio (DTI), which influences the amount of home principal for which they qualify. It may make more sense for the homebuyer to pay down some of their other high-interest debt before applying for a mortgage.
4. Discuss the cost of utilities, property taxes, homeowners’ association (HOA) fees and home maintenance that are not included in the mortgage payment. Some homebuyers neglect these costs when planning their home purchase, to their great detriment down the road when they can’t keep up with unexpected costs. This is particularly true of first-time homebuyers who aren’t accustomed to covering maintenance costs themselves.

Related article:

Client Q&A: How do I determine how much home I can afford?

Need inspiration, or feel uncertain yourself about certain financial topics? The Consumer Financial Protection Bureau (CFPB) has a variety of clear and simple publications, covering reverse mortgages, refinancing procedures and the homebuying process. first tuesday also has a number of forms free for download for you to complete with your clients, including a mortgage shopping worksheet which assists homebuyers to easily compare mortgage terms. [See RPI Form 312]

Related topics:
financial literacy

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

Our proposal: We propose to require a statement disclosing the operating expenses a potential homebuyer may expect when purchasing a specific single family residence (SFR).

Why: Prospective homebuyers — especially first-time homebuyers — need to be informed about the full cost of owning and operating a home prior to purchase.

Some dollar amounts are readily available to a homebuyer, such as their potential mortgage payment, taxes, insurance and any homeowners’ association (HOA) fees. But other information is unknowable without the seller’s willingness to share their personal knowledge of the property. This information includes the average costs of:

• monthly utilities in each season;
• landscaping;
• pool maintenance, if applicable;
• water, sewage and trash;
• any bonds or assessments; and
• optional services present in the home, such as:
  • a home security system; or
  • a solar lease. [See RPI Form 306]

Since these costs can vary depending on the property, the true monthly cost of homeownership may affect how much a buyer is willing to pay for the property. In other words, these costs ought to be considered material facts and thus disclosed.

In practice, this disclosure would be similar to the Annual Property Operating Data (APOD) Sheet ubiquitous in transactions for income-producing property. [See RPI Form 352]

We propose this disclosure be delivered to a potential homebuyer as soon as practicable, and at latest upon commencement of negotiations.

Under our proposal, it is the seller’s agent’s role to guide their seller client through the process of collecting this information and filling out the disclosure, as well as ultimately delivering it to the prospective buyer.

While the disclosure of operating costs is not currently mandated, real estate agents and brokers may choose to use RPI Form 306: Property Expense Profile to disclose this information in any transaction. Seller’s agents may elect to include it as part of their marketing package to potential buyers. Alternatively, buyers will find it useful to request the seller fill out a property expense profile in order to get a firmer grasp of the true costs associated with owning a particular home.

Greater transparency will ensure more informed — and more successful — homeowners in the future.

Related article:

California’s hidden homeownership expenses are a tough sell for buyers

Related topics:
homeownership costs, homeowners’ association (hoa)

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

Our proposal: We propose Californian’s legislature create a program to allow future first-time homebuyers to set up savings accounts specifically to be used for down payments.

Why: In the aftermath of the 2008 recession, slow wage growth and high rents have crippled Californians’ ability to save. This is especially true in the state’s most populous coastal cities, where the average renter spends nearly half of their income on rent.

Nationwide, 68% of would-be homebuyers cite saving for a down payment as the biggest obstacle to homeownership, according to Zillow.

Much like a health savings account (HSA) operates, these accounts will:

• accept tax-free income as deposits;
• accrue tax-free interest; and
• have the opportunity for employers to make tax-free contributions.

These types of savings accounts will reduce state tax revenue. But they will promote homeownership for more qualified residents, which is ultimately a boon for a more stable housing market and the state’s economy.

For perspective, California’s homeownership rate is one of the lowest in the nation, averaging below 55% in the decade following the 2008 recession, about ten percentage points below the national average.

Helping renters save up to become homeowners is much preferred to other solutions to California’s low homeownership rate. For example, many first-time homebuyers receive assistance in the form of down payment gifts from relatives. Still others put down as little as 3% of the purchase price on their first home.

These tactics prevent skin-in-the-game, making it more likely for homeowners to fall underwater and default.

But a tax-free down payment savings program allows homebuyers to use their own money. The main difference is that they can grow their savings more quickly so they will be able to put down more money, sooner.

What you can do: Real estate professionals can encourage renters to save for a down payment by using their marketing campaigns to target large rental communities.

Compile a selection of marketing materials aimed specifically at renters and include these rental communities at least once a month on your regular FARM schedule. Unlike current homeowners, renters are essentially “up for grabs” in the real estate world, so becoming known as the local first-time homebuyer expert will steadily increase your clientele in the coming years.

Editor’s note — Members of first tuesday’s CalPaces program for brokers with 16 or more agents have access to the free first-time homebuyer guide, a valuable resource for anyone new to real estate.

Check out first tuesday’s full selection of free, personalized FARM letters here.

Related article:

FARM: Save up for a down payment

Related topics:
down payment, first-time homebuyer, savings

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

Our proposal: Reform zoning regulations to allow for more mixed-use and multifamily housing developments.

Why: California is home to 12% of the U.S. population but only 10% of the U.S. housing stock, according to the U.S. Census. Though the disparity seems relatively small, it translates to hundreds of thousands of missing units needed to meet demand from homeowners and renters.

Strict zoning regulations that limit the amount and type of construction are a significant hindrance to resolving this housing shortage. In California, zoning restrictions result in:

• reduced construction, especially residential;
• failure to meet high demand for housing;
• inflated prices of new and resale homes;
• a diminished quality of life for households as a majority of their income is directed towards excessive housing costs;
• an unstable housing market as home prices rise and incomes are unable to support the housing needs of a growing population; and
• stunted homeownership and home sales.

California now has the second-highest home sale prices in the nation, exceeded only by the District of Columbia, according to Trulia. Further, California’s homeownership rate averaged a low 54.4% in 2017, well below the U.S. average homeownership rate of 64%.

Allowing for more residential construction will help meet excess demand and organically keep rents from escalating beyond the reach of long-term neighborhood residents. Additionally, more residents moving to the area is a boon to local businesses, local tax revenues and commercial startups.

The solution to the inventory shortage is progressive zoning reform to pave the way for increased construction. Zoning amendments need to include:

• higher density and height parameters to allow for larger multi-unit properties;
• more residential zones in urban areas; and
• expansion of mixed-use zoning to promote residential development in close proximity to commercial and retail properties.

Changing zoning ordinances to allow for the construction of high-rise residential properties in city centers will bring both rents and prices down. These changes will further facilitate economic growth as residents are able to live where they work, and gain access to a wide array of services and amenities.

What you can do: Though the solution requires a combined effort from builders and government, one significant factor is the support and opposition from community members. 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 limiting density and building height.

NIMBYs tend to be the only ones who let their voices be heard by attending city council meetings and opposing proposed developments.

Yet, as a real estate professional, you also have a stake in zoning regulations and development in your local community. It is imperative to get involved in making sure NIMBYs are not the only ones heard by:

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

New housing development is needed to revive and sustain California’s housing market — and your success as a real estate licensee. Make sure it doesn’t get blocked by neighborhood residents who have not seen the full picture.

Related topics:
construction, demand, development, homebuyers, housing, housing crisis, housing shortage

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

Our proposal: Mandate use of the Agency Law Disclosure on all property transactions, including the sale of properties with five or more residential units.

Why: In 1988, the California legislature enacted the agency disclosure law to address misconceptions long held by licensees and the public about the duties real estate licensees owe to members of the public, including:

• the general dutiesowed by each broker and their agents to all owners and users in the transaction, requiring them to be honest and avoid deceitful and misleading conduct with those who are not their clients; and
• the special or primary agency dutiesowed by a broker and their agents to their client, known as fiduciary duties.

Real estate agents are now required to provide the Agency Law Disclosure to all participants when listing, selling, buying or leasing for a term greater than one year:

• property containing one-to-four residential units;
• mobilehomes; and
• commercial property. [Calif. Civil Code §§2079.13(j), 2079.14]

The Agency Law Disclosure form restates pre-existing codes and case law on agency relationships of licensees acting on behalf of another person in real estate transactions. [See RPI Form 305]

Further, the disclosure defines and explains the universal words and phrases used in nearly every transaction in the real estate industry to express:

• the agency relationships of brokers to the owner and user in the transaction;
• broker-to-broker relationships; and
• the employment relationship between brokers and their agents.

The real estate agency disclosure law previously applied only to one-to-four unit residential sales and leases. It was expanded to include commercial real estate sales and lease transactions effective January 1, 2015.

However, multi-family apartment sales of five or more units remain outside the agency disclosure law. Yet, agency is an integral component of these transactions and necessitates the same disclosures as residential and commercial sales.

The expansion of agency law disclosures to sales transactions involving multi-family apartments adds a new layer of protection for participants in these excluded transactions.

Use of the Agency Law Disclosure form for all property types ensures a participant in a transaction knows whether the individual agent handling the transaction is a dual agent, their agent exclusively, or the owner’s exclusive agent with no duty to advise or act on the participant’s behalf.

Further, including the Agency Law Disclosure in transactions for all property types – apartments included – works in the best interests of clients and their agents. Written disclosures eliminate later disputes over agency that may arise. More importantly, written disclosures have a far greater effect on agent conduct to better inform clients on other issues.

Related article:

https://journal.firsttuesday.us/agency-law-for-commercial-brokers-shedd…

What you can do: While the Agency Law Disclosure is not required for the sale of multi-family apartments, consider voluntarily providing the disclosure to participants in these transactions to ensure greater transparency. Use of the form will not only keep your clients informed about the agency relationships in their transactions, but will also help eliminate later disputes over agency duties.

Further, ensure you meet your legal duty to provide the Agency Law Disclosure in all covered transactions, including the sale of one-to-four unit residential and commercial properties.

Be aware that failure to provide the Agency Law Disclosure form prior to entering into the listing agreement for the sale or lease of a covered property is a violation of real estate law. As a consequence, your broker stands to lose their fee on a sale or lease when challenged by a client prior to closing, and faces disciplinary action by the California Department of Real Estate (DRE).

Remain compliant with agency disclosure laws through use of RPI (Realty Publications, Inc.) Form 305 – Agency Law Disclosure. To cover the distinctions in terminology between sales and leasing transactions, RPI publishes two different versions of the Agency Law Disclosure form to enhance comprehension.

Each version contains language engineered to best identify the participants involved in the two sets of transactions:

• the sale or exchangeof any real estate [See RPI Form 305]; or
• the lease for a period exceeding one year[See RPI Form 305-1 and 550-2]

Editor’s note —Two identical versions of the Agency Law Disclosure exist for leasing to place the form in both the “disclosure” and “property management” series of RPI forms. Either may be used when negotiating a listing, offer/letter of intent (LOI) or agreement for the lease of real estate for a period greater than one year. [See RPI Form 305-1 and 550-2]

Related topics:
agency law disclosure

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

Our proposal: Amend Proposition 13 (Prop 13) to trigger property reassessment when an entity owning a property transfers at least 20% of the ownership interest in the entity, thereby ensuring commercial property owners and wealthy investment groups pay their equitable share of local taxes.

Why: Prop 13, also known as the People’s Initiative to Limit Property Taxation, was voted into California’s Constitution in 1978. It caps property taxes at 1% of the property’s assessed value and limits annual increases to 2%.

The property is reassessed upon a change in ownership. Here, the county assessor establishes a new base value equal to the value of the property at the time of transfer, which remains with the property until the next transfer.

However, not all transfers trigger reassessment.

One significant exclusion from Prop 13 reassessment is the change of ownership interest in a limited liability company (LLC) — or other legal entity — which does not constitute a change in ownership of the real estate owned by the entity, unless more than 50% of the membership interest is transferred to a single individual or entity. [Calif. Revenue & Tax Code §64]

Thus, an entity vested in title to real estate may strategically divide the sale of its membership interests to successfully transfer ownership of a property for all purposes, except the vesting, outside of the porous radar of Prop 13.

This allows buyers of property vested in corporations, LLCs and partnerships to avoid paying their fair share of property taxes, depriving communities of millions in tax revenue.

In stark contrast to investors of income properties, homebuyers are bound to pay property taxes based on the current value of a home on the date they purchase it. Unlike investors, homeowners are typically unable to fractionalize their acquisition of ownership.

With change of ownership being a key to property reassessment, amending how a change in ownership is defined under Prop 13 is crucial. For the many income property owners (and their attorneys) privy to Prop 13’s ambiguous change-of-ownership rules, Prop 13 merely acts as an assessment pass-through. Owners take title to a property in the name of a tax-free entity in increments of 50% or less to avoid reassessment — the perfect tax haven for those wealthy and primed on how to exploit tax loopholes, while homebuyers continue to foot the property tax bill. Closing the loophole will ensure corporations and investment owners rightfully pay their property taxes, and contribute to their communities.

What you can do: Any changes to California tax law which result in an increase in taxes (of any kind) are required to be passed by a two-thirds majority in both legislative houses. [Calif. Constitution Article XIII Sec. 3(a)]

Thus, to change Prop 13, real estate professionals can support ballot initiatives that propose Prop 13 amendments — whether by signing petitions or engaging in local community meetings. As support for Prop 13 amendments grows within the community, potential for legislative action becomes more likely.

Related topics:
commercial property, income property, investment property, prop 13, property taxes, proposition 13

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

Our proposal: Eliminate the mortgage interest tax deduction (MID) and implement a federal mortgage payment assistance program for low-income homeowners.

Why: The MID provides homeowners an itemized tax deduction on interest paid on a mortgage which:

• funded the purchase price or paid for the cost of improvements to the owner’s principal residence or second home; and
• is secured by either the owner’s principal residence or second home. [Internal Revenue Code §163(h)]

In theory, the MID encourages homeownership by subsidizing low- to middle-income homeowners.

However, in practice, the MID disproportionately benefits the top income earners and is only claimed by 20% of homeowners, according to the Urban Brookings Tax Policy Center.

The unequal distribution of MID benefits occurs because claiming the MID requires a homeowner’s total deductions and income to be high enough to justify itemizing — a tax filing method most often used by high-income homeowners with more assets and expenditures.

In fact, a meager 12% of tax filers with an adjusted gross income (AGI) of less than $50,000 itemize their deductions and benefit from the MID. Meanwhile, 94% of those with an AGI of at least $200,000 itemize, according to the Internal Revenue Service (IRS) and U.S. Census Bureau. With recent tax code changes increasing the standard deduction, low- and middle-income homeowners are even less likely to claim the MID.

The outcome: the size of the MID subsidy directly correlates to the amount of the mortgage, the home’s value and the owner’s supporting income. The wealthier the homeowner, the increased likelihood of claiming the MID and the bigger the tax savings — completely contrary to the MID’s purpose.

Thus, the majority of homebuyers do not benefit from the MID, especially the low-income homeowners the MID was created for. Even when homeowners do claim the deduction, the purported “savings” afforded by the MID are actually paid up front through artificially inflated home prices. This results in the MID primarily increasing profits for:

• builders through increased property prices;
• lenders through larger mortgages; and
• real estate brokers through increased broker’s fees.

Eliminating the MID would recover lost revenue from the wealthiest homeowners who currently disproportionately benefit from the deduction, and avoid the resulting artificial price inflation — all the while having zero negative effect on the low- and middle-income homeowners the MID is intended to benefit.

Further, homeownership subsidies can be more effectively redirected to low-income homeowners through a federal mortgage payment assistance program that partially funds mortgage payments based on income.

Infrastructure for such a program already exists through Section 8 housing subsidies available to low-income renters. Thus, a federal program for homeowners expands Section 8 to include owned housing, providing assistance with monthly mortgage payments and ensuring a minimum standard of living for homeowners.

Subsidizing homeownership through mortgage payment assistance — rather than through the current failed approach of the MID — provides more direct housing subsidies and promotes increased, equitable access to homeownership across all income levels.

What you can do: Rather than deceptively assure homebuyer clients they will unquestionably benefit from the MID, be forthright about how and when the MID can be claimed. Ensure homebuyers understand the MID will only be available to those who itemize their tax deductions.

Further, consider educating your homebuyer clients more broadly on the tax benefits of homeownership and suggest alternative programs they may benefit from in lieu of the MID.

Related topics:
mortgage interest tax deduction (mid)

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

Our proposal: Resurrect the California Department of Real Estate’s (DRE’s) Code of Ethics to standardize and enforce rules for ethical conduct for every licensed broker and sales agent.

Why: As professionals in a position of public trust, real estate brokers and sales agents are held to high ethical standards. Accordingly, in 1979, the DRE adopted Regulation 2785, known as the Ethics and Professional Conduct Code. This Code of Ethics established a set of rules for proper conduct by real estate licensees covering:

• unlawful conduct, related to fraud and dishonest acts prohibited by law;
• unethicalconduct, acts licensees are advised to avoid to maintain a high level of professional integrity; and
• beneficial conduct, regarding practices licensees are encouraged to follow in the best interest of licensees and the public.

The Code of Ethics was repealed in 1996 under Governor Pete Wilson’s Regulatory Reform Project — a spate of legislation that loosened governmental regulations in California.

Since then, the DRE has failed to provide clearer guidance by standardizing a set of conduct rules that encourage ethical practices within the industry and ensure maximum protection of real estate consumers.

In the absence of an official Code of Ethics, guidance for ethical conduct has been obtained from alternative sources. For example, the DRE requires all licensees to complete a three-hour Ethics course every four years as part of their continuing education. Additionally, the California Association of Realtors (CAR) enforces its own code of ethics to address issues of conduct not readily apparent from the statutes controlling real estate practice.

However, ethical guidelines suggested by CAR only apply to those real estate licensees who are members of the trade union, not to all real estate professionals in California. This responsibility lies with the DRE.

Further, while an Ethics course does offer an overview of proper and lawful conduct for real estate licensees, it does not provide a concise, accessible code of ethics that both licensees and consumers can understand to inform their participation in real estate transactions.

It is the purpose of regulatory agencies like the DRE to communicate and enforce state law to the professionals it controls. This is especially true when legal code is notorious for its dense, esoteric language, making it difficult for real estate licensees to easily and fully comprehend the rules controlling their profession.

Further, reestablishing the DRE Code of Ethics provides more than just legal interpretation, but also establishes recommended business practices that improve real estate transactions throughout California.

Today’s real estate professionals need this guidance from the DRE to inform their practice. Licensees and their clients alike will benefit from a transparent, accessible code of ethics that establish high standards for agents and brokers.

A practical source of proper conduct will help maintain professional integrity within the industry and hold licensees accountable to members of the public who depend on licensees to guide them through one of the most significant purchases of their lives.

What you can do: While awaiting the DRE’s reimplementation of an official Code of Ethics, real estate professionals can take special care to stay informed about laws controlling ethical conduct in the industry.

As a sales agent, be sure to properly study your Ethics course material each time you renew your license and refer to this material in practice. As a broker, provide training on ethical practices to your sales agent employees and ensure they are aware of ethical standards they must meet when dealing with members of the public.

In addition to education, you can help reduce unethical conduct in the industry by reporting other licensees. The DRE depends largely on complaints from consumers and licensees to filter out those licensees who participate in unethical and unlawful practices. For this reason, the DRE has created its Enforcement Online Complaint System.

If you have knowledge of another licensee’s violation of the Real Estate Law or misconduct, submit a complaint to the DRE here.

The DRE requests you provide specific details about what occurred, any witnesses present and photocopies of documents that will aid in their investigation of the violation.

Your reporting will allow the DRE to investigate unethical licensees and initiate disciplinary action — such as revocation or suspension of a license — when needed.

Related topics:
code of ethics, department of real estate (dre)

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

Our proposal: Mandate real estate agents and brokers disclose to their client known tax consequences of a transaction that may affect their client’s decision.

Why: Every property transaction involves tax consequences for the client. Some tax aspects may even rise to the level of material facts when they affect how the client will handle the transaction — for example, in a §1031 transaction. Accordingly, an agent has a fiduciary duty to their client to disclose the extent of their knowledge of the transaction’s tax aspects.

A knowledgeable agent is further able to go beyond disclosure of tax information by assisting their client in structuring the sales arrangement to achieve the best tax outcome available.

However, a statutory exception to the tax disclosure duties currently exists on one-to-four unit residential dwellings and commercial properties. A seller’s agent has no duty to disclose their knowledge of possible tax consequences, even when they are known by the agent to affect the client’s decision on how to handle the sale of the property. [Calif. Civil Code §2079.16]

In this case, clients are expected to obtain tax advice from competent professionals other than the real estate brokerage office handling their transaction. [CC §2079.16]

Our proposed legislation would ensure transparency between the agent and client in an effort to combat the wide-spread phenomenon of the “dumb agent” — the agent who, despite their knowledge, is legally allowed to remain silent about consequences known to them in a property sales transaction.

The preprinted, boilerplate advisory to see another professional about the tax aspects of a transaction does not disclose the agent’s knowledge that might affect the client’s decisions. Thus, it is a material fact deceitfully omitted by the agent which disadvantages their client.

Yet, tax aspects are basic to the sale or ownership of any real estate commonly listed and sold by agents. When applicable, they have significant financial impact on sellers and buyers of real estate. Brokers and agents handling the sale of real estate used in the client’s business or held for investment, in particular, will possess an understanding of several fundamental tax concepts affecting the sale, such as:

• the principal residence owner-occupant’s individual $250,000 profit exclusion on a sale;
• the separate income and profit categories for different types of real estate;
• the §1031 profit reporting exemption;
• interest deductions on mortgages;
• depreciation schedules and cost recovery deductions;
• the $25,000 deduction and real-estate-related business adjustments for rental property losses;
• the tracking of rental income/losses separately for each property;
• profit and loss spillover on the sale of a rental property;
• standard and alternative reporting and their tax bracket rates; and
• installment sales with deferred profit reporting.

Thus, as a matter of practice, most real estate licensees have a working knowledge of the tax aspects of a sale. Agents are fully capable of delivering known tax information to clients, even if they do not possess the expertise to provide more comprehensive tax advice.

What you can do: As a professional tool in the hands of brokers and agents, knowledge about income tax law is a valuable asset for assisting clients. Tax knowledge becomes business goodwill, which generates further employment through more and superior listings, repeat clientele and the entrusted handling of large dollar transactions.

To capitalize on the tax knowledge you have spent time acquiring, disclose to clients the extent of your knowledge on the tax results of their transaction, regardless of the type of property involved. Counseling a client on the tax aspects of a sale, purchase or reinvestment early on in an agency relationship typically induces an ongoing tax discussion. It is a material concern to all parties in any real estate transaction.

At the time you take a listing and before entering into a discussion about the tax aspects of a sale, prepare an Individual Tax Analysis (INTAX) form. On it, you may break down the profit taken on a sale into the different types of gains, called batching, to estimate the seller’s tax liability on closing. [RPI Form 351]

During a review of the INTAX form, you will need to discuss methods available to the seller to exclude, exempt or defer profit or taxes on the transaction under consideration.

This evaluation will help the seller consider a §1031 reinvestment plan to acquire a replacement property, or structure the sale as an installment sale. The INTAX form will likely need to be reviewed again when a purchase agreement offer or counteroffer is reviewed for acceptance. The discussion with the seller on each occasion should be limited to the amount of profit on the sale, the batching of different gains and the tax liability due on those gains.

However, beware that a broker or agent who provides tax advice has a duty to not mislead the client by intentional or negligent misapplication of tax rules. [Ziswasser v. Cole & Cowan, Inc. (1985) 164 CA3d 417]

To avoid this dilemma, be sure to disclose to your client:

• the full extent of your tax knowledge regarding the transaction;
• how you acquired this tax knowledge; and
• whether you intend to further investigate the matter or whether the client should seek further advice from other professionals.

You are strongly advised to involve the client’s other advisors, such as their attorney or tax accountant. While you need to maintain your influence over your client’s decisions — your opinions are relevant and important, after all — your input is not necessarily conclusive.

Encouraging a client to discuss the transaction with other advisors available to them results in their greater cooperation with you as their agent or broker. More importantly, it helps eliminate future claims arising from adverse tax consequences said to be due to your client’s reliance on your opinion.

Failure to recognize and coordinate transaction activity with other advisors can produce deleterious results for you. Persuading a client to rely on your advice to the exclusion of contrary (and potentially correct) advice of other professionals will cause you to be liable for any losses suffered by the client due to your unsound advice. It is best to give advice and let your client sort out all the advice they receive and, importantly, make their own decision regarding whose advice to follow. [In re Jogert, Inc. (1991) 950 F2d 1498]

The most effective method for shifting reliance to other qualified professionals or to the client is to insert a further-approval contingency provision in the purchase offer or counteroffer. The provision requires the client to initiate the investigation by obtaining additional tax advice and further approval of the transaction’s tax consequences from an attorney or accountant before allowing escrow to close.

An oral or written warning, or general advice to further investigate — such as the disclaimer statement in the Agency Law Disclosure — is insufficient due to the ill-defined term “legal advice.” Advisory statements do not require the client to act, nor do they explain why their broker or agent believes the client needs to act to protect themselves. A further-approval contingency provision makes the advice an opinion, to be confirmed by the client before closing. [Field v. Century 21 Klowden-Forness Realty (1998) 63 CA4th 18]

Inclusion of the provision mitigates any risks, allowing you to confidently offer your clients the benefit of the full breadth of your acquired tax knowledge and experience.

Related topics:
disclosures, tax advice

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

Calif. Revenue and Taxation Code 194.1

Amended by A.B. 3122

Effective date: January 1, 2019

A property tax reassessment claim a homeowner files after their home is damaged or destroyed in a disaster needs to be filed together with a property tax deferral application.

Deferred taxes as shown on the amended tax bill after a reassessment are now due on the later of:

• December 10 for the first installment or April 10 for the second installment; or
• 30 days after the corrected bill is sent.

When the property is not eligible to be reassessed, the homeowner’s regular property taxes are now due on the later of:

• December 10 for the first installment or April 10 for the second installment; or
• 30 days after the assessor’s notice is sent.

Read the bill text here.

Related topics:
reassessment

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

California’s legislature has been busy coming up with solutions to the state’s widespread housing shortage. Their latest effort involves the growing trend of live/work units.

For someone who hates their commute, live/work units are the dream. In practice, they allow a business owner to live on the same property as their business. This is different from a home office situation, as live/work units involve a client-facing or street front component, while home offices generally limit interacting with clients to the phone or computer.

There are three types of live/work units:

• live-with, when living and working occur in the same space;
• live-near, when living and working are separated by a wall, floor or ceiling; and
• live-nearby, when living and working occur on the same property but not necessarily in the same building, according to architect Thomas Dolan at com.

Due to their multi-purpose nature, regulations for building these units aren’t always clear. For example, do live/work units fall under commercial or residential zoning laws? Further, what sort of building codes apply — residential or commercial?

Recently passed, AB 565 directs California’s Department of Housing and Community Development to clarify portions of the California Building Code to clear up murkiness around constructing live-work units. The Department will need to make these clarifications to the Building Code at their next triennial building standards meeting, on or after January 1, 2019.

Live/work units tend to fall under the nebulous mixed-use zoning regulatory umbrella. Currently, local governments can choose what sort of rules to apply to live/work units. But no rules or building standards specific to live/work units exist at the state level.

This lack of state guidance leaves live/work units at the mercy of local not-in-my-backyard (NIMBY) advocates. The hope is that with these new clarifications, more live/work units will have the opportunity to be constructed in the coming years.

Aside from simply constructing more housing, the aim of new guidance will also be to ensure live/work units are good for all involved. This includes the residents and nearby businesses who suddenly may have to deal with new types of neighbors. For instance, in the case of live/work units being construction in residential neighborhoods, will residents suddenly need to deal with delivery trucks? On the other hand, when a live/work unit goes up in a commercial or industrial district, will current businesses need to observe residential quiet hours?

Without proper guidance, local governments are more likely to simply ban live/work units or look the other way when these types of units pop up, resulting in a less safe and enjoyable environment. Clarifications will lead to more building and, hopefully, fewer commutes.

Related topics:
building code, commercial property, not in my backyard (nimby)

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

Privacy is an important part of the real estate profession. Sensitive information trades hands frequently — particularly for mortgage professionals, who have access to their clients’ most personal financial data.

Privacy laws exist to protect this sensitive information. These laws include rules for when financial institutions can share information, and when they need to notify and receive consent from clients.

Except when otherwise noted, these privacy rules are federal, and therefore apply in California and across the U.S.

Customer or consumer?

These rules limit the consumer information shared by financial institutions, which are any institutions in the business of engaging in financial activities. This includes:

• banks;
• thrifts;
• mortgage loan originators (MLOs);
• real estate settlement service providers;
• mortgage servicers;
• payday lenders; and
• private student loan lenders. [12 Code of Federal Regulations §1016.3(l)(1)-(3)]

The term financial institution does not include:

• most auto dealers;
• brokers or dealers registered under the Security Exchange Act of 1934;
• investment advisors registered by any state or the Securities Exchange Commission;
• investment companies registered under the Investment Company Act of 1940; and
• insurance companies supervised by a state insurance regulator. [12 CFR §1016.3(s)(2)]

Privacy rules vary based on whether the individual is a consumer or customer of the financial institution.

A consumer is a broad term, covering any individual — or that individual’s legal representative — who obtains or has obtained a financial product or service from a financial institution which is used primarily for personal or household purposes. [12 CFR §1016.3(e)(1)]

For example, a consumer includes someone who has applied for personal or household credit from a financial institution, whether or not their application was approved or the loan was originated. [12 CFR §1016.3(e)(2)(i)]

On the other hand, a customer is a type of consumer, an individual with whom the institution has an established customer relationship, which means they:

• have a deposit or investment account with the institution;
• obtain a loan from the institution;
• have a loan which is serviced by the institution;
• purchase insurance from the institution;
• have entered into an agreement with the institution to arrange a mortgage loan;
• lease personal property from the institution; or
• obtain financial or investment advice from the institution for a fee. [12 CFR §1016.3(j)(2)(i)]

A consumer is no longer a customer if the financial institution originating a loan later sells the loan, no longer retaining the rights to service the loan. [12 CFR §1016.3(j)(2)(ii)(B)]

A consumer is also not considered a customer when they obtain one-time property appraisal services from an institution. [12 CFR §1016.3(j)(2)(ii)(D)]

Opting out

Financial institutions may wish to share nonpublic information collected from consumers with third parties.

When financial institutions share this type of information with third parties, they need to first notify consumers and give them the chance to opt out of their information being shared. [12 CFR §1016.10(a)(iii)]

The opt-out rules apply whether or not the financial institution has established a customer relationship with the consumer. [12 CFR §1016.10(b)]

The consumer may opt out by responding within a reasonable time of:

• at least 30 days after mailing a printed notice giving the consumer an opportunity to opt out; or
• at least 30 days after acknowledging receipt of electronic communications giving the consumer an opportunity to opt out. [12 CFR §1016.10(a)(3)]

If the consumer does not respond within these reasonable time frames, the financial institution may share their nonpublic information with third parties. [12 CFR §1016.10(a)(iii)-(iv)]

Financial institutions also may give consumers the option to opt out of having only part of their information shared, or for the institution to share their information only with certain parties. [12 CFR §1016.10(c)]

Exceptions to the opt-out rules

Financial institutions are exempt from the rules requiring them to give consumers the chance to opt out of sharing information with third parties when the shared information is between the institution and a third party which performs services for the institution or functions on the institution’s behalf, as long as the institution:

• delivers their initial privacy notice to the consumer; and
• signs an agreement with the third party that the third party will not use the nonpublic shared information in any other way than that agreed to with the institution. [12 CFR §1016.13(a)(1)]

For example, the third party may use the shared nonpublic information for joint marketing purposes, when the third party markets the financial institution’s services or services offered jointly between the institution and third party. [12 CFR §1016.13(a)(2)-(b)]

Further, these institutions are exempt from nonpublic information sharing rules when the information is shared when necessary to administer, initiate or enforce a transaction in connection with:

• the servicing or processing of a financial product requested or authorized by the consumer;
• maintaining or servicing the consumer’s account; or
• the securitization or secondary market sale (such as the sale of servicing rights) of the consumer’s transaction. [12 CFR §1016.14(a)]

For instance, a mortgage holder may share nonpublic information about a consumer with a third party who will be servicing the loan — as long as the information is only used to service the loan. [12 CFR §1016.14(a); §1016.11(a)]

Other cases when financial institutions are exempt from requiring consumers to opt out of information sharing with third parties include situations when:

• the consumer consents or directs the financial institution to do so;
• it is required to protect the confidentiality or security of the institution’s records on the consumer, service, product or transaction;
• it is required to prevent fraud or unauthorized transactions;
• it is needed to resolve a consumer dispute or inquiry; or
• it is with a person with a legal or beneficial interest relating to the consumer, or who is acting as their representative. [12 CFR §1016.15(a)(1); (2)]

It is also permissible for a financial institution to share nonpublic information without receiving prior approval from the consumer when doing so is required to comply with federal, state or local laws, including investigations. [12 CFR §1016.15(a)(7)]

Financial institutions are also exempt from the opt-out requirements when sharing information with a consumer reporting agency, or sharing information from a consumer report reported by a consumer reporting agency.  [12 CFR §1016.15(a)(5)]

For example, a financial institution does not need to follow the opt-out rules when a consumer who has applied to the institution for a mortgage consents for the institution to share their nonpublic information with a homeowners insurance company. [12 CFR §1016.15(b)]

Privacy policies

Financial institutions are required to send current customers an annual notice describing their privacy policy. [12 CFR §1016.5(a)(1); (b)(1)]

The annual privacy policy notice needs to be delivered in writing, or electronically when the customer has agreed to receive electronic communications. [12 CFR §1016.9]

Financial institutions may not share a customer’s account or access number for use in marketing, unless it is to market the institution’s own services to the customer. [12 CFR §1016.12]

Annual privacy policies need to contain the following information:

• the categories of nonpublic personal information collected;
• the categories of nonpublic personal information disclosed;
• the categories of third parties who the nonpublic personal information is disclosed to, except for those third parties which qualify for certain exceptions to the privacy and opt out rules;
• the categories of nonpublic personal information about former customers disclosed and the categories of third parties to whom nonpublic personal information from former customers is disclosed, except for those third parties which qualify for certain exceptions to the privacy and opt out rules;
• when nonpublic personal information is disclosed to a nonaffiliated third party, a separate statement of the categories of information disclosed and the categories of third parties with whom the institution has contracted;
• an explanation of the consumer’s right to opt out of the disclosure of nonpublic personal information to nonaffiliated third parties, including how the consumer may opt out;
• any notices regarding the ability to opt out of the sharing of nonpublic information among affiliated third parties;
• the financial institution’s policies and practices for protecting the confidentiality and security of nonpublic personal information; and
• any nonaffiliated third parties who are excepted from privacy rules. [12 CFR §1016.6(a)-(b)]

A model privacy form can be found here. [Appendix to 12 CFR §1016]

Exemptions to privacy policy notice rules

In some cases, financial institutions are exempt from sending out annual notices about their privacy policies.

For example, when a financial institution which grants a loan (other than a credit union) does not have a customer relationship with a consumer, it is not required to send out annual privacy notices. [12 CFR §1016.5(c)]

Further, beginning September 17, 2018, financial institutions are exempt from providing annual privacy policy notices when they:

• limit the nonpublic personal information shared with other parties to those allowed under the exceptions for providing opt-out notices; and
• have not changed their privacy policies or practices since they last delivered their privacy policy. [12 CFR 1016.5(e)]

California-specific privacy rules

When a state law provides greater protection to consumers than the federal law, the state law applies. [12 CFR §1016.17(b)]

In California, the California Financial Privacy Act requires a financial institution to obtain a consumer’s consent before sharing or selling their nonpublic, personal information. [Calif. Financial Code §4050 et seq.]

California’s financial privacy laws mostly mirror federal laws, with slight differences.

For example, in California a financial institution is only exempt from the opt out requirements when sharing personal, nonpublic information with a third party who is providing business or professional services (such as marketing services, data analysis or customer surveys) when:

• the services are lawfully able to be performed by the institution;
• the institution and third party agree the third party will only use the nonpublic information to carry out the agreed-to services;
• the nonpublic information is only what is necessary for the third party to perform the agreed-to services; and
• the institution doesn’t receive payment from the third party in connection with sharing the nonpublic information. [Fin C §4056(b)(9)]

Financial institutions and third parties that violate these California privacy laws may be fined up to $2,500 per violation, and in the case of multiple violations may be fined up to $500,000. [Fin C §4057(a); (b)]

Related topics:
consumer financial protection bureau (cfpb), mortgage loan originator (mlo)

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

DRE delays disciplinary action cleansing option

The California Department of Real Estate (DRE) has postponed its plan to implement a process to allow licensees who received disciplinary action to petition for removal of the action from the DRE’s public records. This highly visible documentation of a licensee’s misconduct can have a detrimental impact on a licensee’s ability to solicit new clients and successfully conduct their business.

The DRE is required to report each licensee’s record of disciplinary action taken by DRE online. This online database allows a buyer or seller (or other licensee) to view a licensee’s history, including:

• notes about misconduct; and
• disciplinary actions taken by the DRE against the licensee. [Calif. Business & Professions Code §10083.2]

The petition process is scheduled to become available no sooner than July 1, 2018. DRE had previously announced an implementation date of Jan. 1, 2018.

Related reading:

DRE licensees may petition for removal of disciplinary actions

When the new procedure is in place, a DRE licensee who received disciplinary action may petition the DRE for removal of the disciplinary action when:

• the disciplinary action has been posted for at least ten years;
• the licensee provides the DRE with proof they no longer pose a risk to the public; and
• the licensee pays a fee to the DRE with the petition, in an amount to be determined by DRE Regulations. [Bus & P C §10083.2]

The Real Estate Commissioner proposes to include this section in the real estate law, and to set the fee required to be paid with the petition to remove a disciplinary action.

When licensees go astray

Hundreds of real estate agents, brokers and applicants receive disciplinary action from the DRE every year. Prior to the petition process to purge old claims, these negative comments would haunt a licensee for perpetuity.

What are the most common mistakes licensees make? Many individuals who were disciplined broke multiple regulations, such as  failing to:

• obtain a mortgage loan originator (MLO) endorsementbefore they accepted a consumer mortgage application or arranged a consumer mortgage secured by a one-to-four unit residential property;
• obtain a real estate licensebefore performing licensed real estate activity;
• keep proper trust fund recordsfor the required three years;
• provide proper supervision of salespersons, as required by employing brokers [GipsonsDavis Realty Company (1963) 215 CA2d 190];
• authorize and add any fictitious business name to their license before conducting any licensed activity under that name; and
• notify DRE of past criminal convictions, as DRE requires the disclosure of:
  • any misdemeanor or felony criminal convictions, including military and foreign convictions;
  • all pending criminal charges;
  • pending disciplinary actions taken against a business, professional or occupational license currently held by the applicant; and
  • whether the applicant has had a license in California or any other state denied, suspended, restricted or revoked. [DRE Form 229: Avoid Potential Denial of Your License Application]

The penalties varied, with the most common being loss of license outright.

The DRE’s plan to create a means of clearing the record when a licensee has corrected their transgression represents an effort to offer justice. However, the best course is to recall the famous question attributed to former U.S. Secretary of Labor Ray Donovan, “Where do I go to get my reputation back?” In other words, avoid the delinquent conduct altogether.

Related topics:
department of real estate (dre)

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

This article is an in-depth look at the laws and regulations regarding telemarketing campaigns an MLO might engage in — and the consequences of not following the rules.

An introduction to the Telemarketing and Consumer Fraud and Abuse Prevention Act

Real estate agents and mortgage loan originators (MLOs) are subject to the Telemarketing and Consumer Fraud and Abuse Prevention Act (TCFAPA) and its associated regulation, the Telemarketing Sales Rule. [15 United States Code §§6101 et seq.; 16 Code of Federal Regulations §§310 et seq.]

The TCFAPA, originally signed into law in 1994, required the Federal Trade Commission (FTC) to introduce a series of rules and prohibitions for companies which engage in telemarketing. The aim of the TCFAPA is to curb the unethical or fraudulent practices of some businesses hoping to market their products and services (such as mortgages) to new customers by phone. Congress initially enacted the TCFAPA based on findings that:

• telemarketing has extreme mobility, and may be carried out across state lines without any consumer contact;
• the FTC did not have adequate resources to handle the frequency of telemarketing fraud;
• telemarketing fraud costs consumers and others an estimated $40 billion a year; and
• consumers are frequently targeted by other forms of telemarketing abuse such as deceptive marketing. [15 USC §6101]

Thus, the TCFAPA gives the FTC authority to impose rules prohibiting or restricting unethical and abusive telemarketing practices. These rules:

• prohibit a pattern of unsolicited calls “which the reasonable consumer would consider coercive or abusive” of a right to privacy;
• prohibit making telemarketing calls at unreasonable hours; and
• require telemarketers (including telemarketers who solicit charitable contributions) to promptly and clearly disclose the intention of the call, along with other FTC-mandated disclosures. [15 USC §6102(a)(3)]

The TCFAPA has been substantially altered a number of times, first in 2001 as part of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act, which updated the provisions of the TCFAPA to include protections for consumers who might be susceptible to solicitations for charitable contributions.

The TCFAPA was further changed in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to give more authority to the FTC to create and enforce telemarketing rules in the aftermath of the Great Recession, when deception and abuse by mortgage lenders was rampant.

With the guidelines set forth by the TCFAPA and the Telemarketing Sales Rule, the FTC imposed a series of more specific rules to govern telemarketing practices which may be considered deceptive or abusive.

When are MLOs considered telemarketers?

A telemarketer is defined as any person who initiates or receives telephone calls to or from a customer or donor in relation to telemarketing. Telemarketing includes a plan or campaign to induce the purchase of goods or services — such as marketing mortgage services and other sales calls — by use of one or more telephones and involves two or more out-of-state phone calls. [16 CFR §310.2(ff), (gg)]

Does this mean MLOs who only make in-state phone calls are exempt from the TCFAPA?

No. In-state phone calls are covered under the Telephone Consumer Protection Act. The Telephone Consumer Protection Act contains provisions similar to the TCFAPA, but is instead regulated by the Federal Communications Commission (FCC). [47 USC §227 et seq.]

So, what do MLOs need to know about following the TCFAPA? Read on for more information.

Related article:

Do-not-call rules for MLOs

Violation by deception

No telemarketer may misrepresent or fail to disclose:

• the cost and quantity of the offered goods or services;
• all limitations and conditions regarding the offer;
• any policy concerning refunds, cancellations, exchanges or repurchases;
• in a prize promotion, the odds of winning the prize, and that no purchase is necessary to participate;
• any conditions regarding receiving a prize;
• for credit card protection services, the limits of the consumer’s liability for unauthorized use of a credit card;
• the terms and conditions of a “negative option feature,” i.e., when a customer will be charged unless they take action to avoid the charge; and
• for debt relief services, the conditions and limitations of that service, including time necessary to achieve the results of the service. [16 CFR §310.3(a)(1)-(2)]

A telemarketer also may not misrepresent:

• any aspect of the performance, efficacy, nature or central characteristics of the subject of the offer;
• material aspects of an investment opportunity;
• the telemarketer’s affiliation with any person or entity; and
• whether a consumer already has protections provided by the offer. [16 CFR §310.3(a)(2)]

Further, no billing information may be submitted for payment without the customer’s explicit written or recorded oral authorization. [16 CFR §310.3(a)(3)]

Also, no telemarketer may make any false or misleading statement in order to induce a person to accept the telemarketer’s offer. [16 CFR §310.3(a)(4)]

Accessory to a violation

But it is not enough to simply abide by the rules set forth by the FTC for ethical telemarketing practices — any person who knowingly supports or facilitates a violation of these rules is also considered in violation. [16 CFR §310.3(b)]

Consider a company which makes telemarketing calls to solicit donations on behalf of charitable organizations. Some telemarketers working for this company, at the outset of their calls, claim they are not seeking donations from the consumers they are calling.

After making this claim, the telemarketers ask the consumers to deliver materials requesting donations to their friends and family. Then telemarketers then ask the consumers if they would themselves like to donate.

Is this company in violation of the FTC telemarketing rules, and by extension the TCFAPA?

Yes! Current FTC regulations explicitly state telemarketers may not fail to promptly disclose the purpose of their call. Had the company not known about specific telemarketers engaging in this practice, they would still be in violation of the rule for facilitating deceptive telemarketing practices. [United States v. Infocision FTC File Number 162 3021]

While this case specifically concerns a solicitation for charitable donations, the same principle applies to all unsolicited calls — including for real estate or mortgage services. When cold calling a consumer to solicit them to make any purchase or donation, the telemarketer needs to promptly and explicitly state their intention. Doing otherwise may result in a violation of the FTC’s regulations.

Deception in practice

Now, consider a mortgage broker who makes calls to consumers and places advertisements online and in newspapers claiming they can offer fixed rate mortgages (FRMs) to refinance existing mortgages at the lowest possible rates and no cost. The broker also claims the loan amount cannot and will not increase.

The broker then informs consumers they will need to apply for more than one mortgage, one at a competitive interest rate and one at much higher rate. They claim the mortgage broker will receive a premium from the mortgage holder on the higher-than-market rate mortgage to pay the fees for the low-rate mortgage.

The broker then claims the low-interest mortgage then will be used to pay off the higher-interest mortgage, leaving the consumer with no fees and low interest.

However, in practice, the mortgage broker leaves consumers with just the high-interest mortgages, often at much higher interest rates than the mortgages the consumers wanted to refinance in the first place. Some consumers, believing they did not have to pay interest on the high-interest mortgages, found their credit reports severely impacted.

Is this a violation of the FTC’s telemarketing sales rules, and thus the TCFAPA?

Yes! The broker misrepresented both the effectiveness of the refinancing they offered, as well as the real interest rates of the mortgages consumers were actually responsible for. The broker also failed to disclose that the consumers would, in fact, be responsible for paying all of the loans for which they applied, not just the promised low-interest mortgages. [FTC v. Ranney Civil Action Number 04-f-1065 (MJW)]

But this case is not only deceptive, it is abusive — the broker requests fees up front, without demonstrating the efficacy of their offer.

Who’s on the National Do Not Call Registry

The FTC maintains a registry of numbers for consumers who have elected to be placed on a registry inaccessible to sales calls. Telemarketers are prohibited from calling any number on the Do Not Call Registry for sales purposes.

Agents and MLOs who telemarket need to check the Do Not Call Registry before making any telemarketing calls. [16 CFR §310.8(a)]

Telemarketers need to pay an annual fee to access the Do Not Call Registry. The fee is $62 per area code, beyond the first five area codes accessed. Thus, when a telemarketer needs to call potential clients within a single area code (or up to five), they won’t need to pay a fee. But when they cold call clients spanning six area codes, they need to pay $62 for the sixth area code and each area code following, up to a maximum of $17,021. [16 CFR §310.8(c)]

Those who pay for access to the Do Not Call Registry may not share their access to this registry with any other person. [16 CFR §310.8(c)]

Exceptions exist. Telemarketers do not need to check the Do Not Call Registry when:

• the prospective applicant has given them express, signed permission to call a specified telephone number; or
• the MLO can demonstrate an established business relationship with the prospective applicant and the prospective applicant has not indicated they do not wish to receive telephone calls from the MLO. [16 CFR 310.4(b)(1)]

Consider a company which offers credit card debt reduction services. The company places calls to consumers — some of whom are on the Do Not Call Registry — with a prerecorded message verifying that the consumers are interested in debt relief services.

When a consumer confirms they are interested, they are transferred to a telemarketer promising very low interest rates on the consumer’s credit cards. Telemarketers representing the company often imply they are representatives of government agencies. The company also charges up-front fees for their services.

The company does not follow through on its promises, often refusing to refund its customers, citing a “no cancellation” policy.

The company’s conduct is in violation of FTC regulations and the TCFAPA on multiple levels, including:

• contacting consumers with prerecorded messages;
• contacting consumers on the Do Not Call Registry;
• misrepresenting the company’s affiliation with government agencies;
• charging fees before actually providing any debt relief services; and
• failing to disclose the company’s “no cancellation” policy. [FTC Ambrosia Web Design Civil Action Number CV-12-2248-PHX-FJM]

Thus, the company qualifies under the TCFAPA and the FTC telemarketing sales rules as both abusive and deceptive — all behaviors the TCFAPA was designed to curb.

Call rules

Whether or not a phone number is listed in the Do Not Call Registry, the Telemarketing Sales Rule regulates certain aspects of the phone call.

MLOs need to:

• restrict calls to between 8am and 9pm local time unless the prospective applicant has given permission to call at other times;
• allow the phone to ring at least four times or 15 seconds before disconnecting;
• avoid abusive telephone conduct, like:
  • repeatedly or continuously calling a prospective applicant with the intent to harass or annoy; and
  • using profanity or threatening language;
• respect requests to not call back without requiring persons to:
  • listen to a sales pitch;
  • pay a fee;
  • call a different number to honor the request; or
  • identify the MLO making the call;
• disclose truthfully and promptly the:
  • identity of the caller;
  • purpose of the call, which is to sell a good or service; and
  • the nature of the good or service. [16 CFR §§310.4 et seq.]

MLOs may not request or receive money in advance of arranging a loan or any other extension of credit when they have guaranteed or given a high likelihood of success in obtaining or arranging a loan for the person being called. [16 CFR §310.4(a)(4)]

Further, MLOs may not receive a fee for any debt relief service until and unless:

• the MLO has renegotiated, settled or altered the terms of at least one debt of the prospective applicant called;
• the prospective applicant has made at least one payment pursuant to that debt relief service; and
• the fee is either:
  • of a proportional relationship to the total fee required to alter the prospective applicant’s debt; or
  • is a consistent percentage of the amount saved through the debt relief services. [16 CFR §310.4(a)(5)]

MLOs need to receive express and informed permission to charge a person for a good or service. When the MLO is using pre-acquired account information, before using this account to charge the person, the MLO needs to:

• obtain the last four digits of the account number to be charged;
• obtain the person’s express agreement to be charged the identified amount using the identified account; and
• make and keep an audio recording of the entire transaction. [16 CFR §310.4(a)(7)]

Violation by abuse

Other acts the FTC prohibits as abusive include:

• requesting or receiving payment for recovering money or other valuables a person acquired in a previous transaction until seven business days after that person has received the money or other item;
• disclosing or receiving account numbers for telemarketing purposes (not including receiving billing information for payment);
• submitting billing information for payment without explicit consent of the consumer;
• restricting the number of the telemarketing service from displaying on a caller ID;
• creating a remotely created payment order as payment for goods or services;
• accepting a cash-to-cash money transfer or cash reload mechanism as payment for goods or services;
• interfering with a person’s right to not receive calls from the seller or to be placed on the FTC’s Do Not Call Registry;
• calling anyone who has elected not to receive calls from the seller or who is on the FTC’s Do Not Call Registry; and
• initiating outbound calls with a prerecorded message, unless the consumer has explicitly agreed to receive prerecorded calls from the seller. [16 CFR §310.4(a)-(c)]

Consider a mortgage broker who makes cold calls to homeowners who are behind on their mortgage payments. The broker claims they can stave off foreclosure, promising to attain loan modifications to make the homeowners’ mortgages more affordable. This claim includes the promise of a full refund if the broker fails in achieving the desired loan modification.

The broker even makes these promises to homeowners who have already failed to receive modifications, or are currently facing immediate foreclosure. The broker leads the homeowners to believe that the broker is affiliated with the homeowners’ mortgage holders.

The broker demands a fee up front, and after being paid, tells the homeowners not to contact their mortgage holders or make any more mortgage payments. The broker then leaves homeowners in the lurch, typically rendering them in default on their mortgages.

This is a clearly abusive violation of the FTC’s telemarketing sales rules — the broker not only misrepresented their affiliation with the homeowners’ mortgage holders, but also misrepresented their ability and intention to assist homeowners with their mortgages.

In addition, the broker also demanded and received a fee prior to actually performing any services — an obvious violation of the FTC’s regulations. [FTC v. US Mortgage Funding Civil Action Number 11-Civ-80155]

Recordkeeping requirements

Any individual or entity engaging in telemarketing needs to keep records of the following subjects for at least 2 years from the date the record is produced:

• advertising materials such as brochures, telemarketing scripts and promotional materials;
• the name and address of every consumer who purchased anything from the telemarketer, and all records related to that transaction;
• the name, address, and phone number of all current and former employees; and
• all records of consumer consent or agreement required by FTC regulations. [16 CFR §310.5]

Penalties

When an MLO does not follow the TCFAPA, they put themselves at risk of legal action from the FTC.

To date, the FTC has brought legal action against over 100 telemarketers and companies for violating the TCFAPA. The largest penalty was paid by Mortgage Investors Corporation for repeated violations of the Telemarketing Sales Rule.

The corporation cold called several million numbers on the Do Not Call Registry, targeting current and former US military servicemembers with offers of mortgage refinancing. The corporation implied servicemembers would receive low-interest FRMs at no cost, and that it was associated with the Department of Veterans Affairs (VA).

In actuality, the corporation saddled consumers with rising-interest adjustable rate mortgages (ARMs), hindering their ability to handle the loans.

Not only did this corporation violate the provisions of the Telemarketing Sales Rule by illegally calling numbers listed on the Do Not Call Registry, it also misrepresented its affiliation with the VA, as well as the nature of the services it was offering. Taking the scale of this case into account, the FTC levied a fine of $7.5 million against the corporation.

Related topics:
tcfapa

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

Ten years since the Great Recession and U.S. lawmakers are ready to forget the mistakes that led to the financial crisis and housing crash — and make some more.

Their latest effort to loosen up rules designed to prevent another financial crash is the rollback of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Dodd-Frank was passed in 2010 in answer to the financial crisis and 2008 Great Recession. Its main role has been to police Big Banks in an effort to prevent another financial crisis, and to protect consumers from being taken advantage of by financial institutions.

To that end, Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which since 2011 has collected penalties from several banks and other institutions for fraudulent practices. It has also made financial products and choices more transparent by creating new forms and consumer guidance.

But that was all under the old administration. The Republican-controlled government (with some support from Democrats) has now passed legislation to defang Dodd-Frank and the CFPB.

In May 2018, the president signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act.

Some key features of the Act include:

• exempting certain “small” banks from the Volcker rule, which prohibits banks from making certain types of risky investments;
• exempting smaller banks and credit unions from providing mortgage applicant data to the government under the Home Mortgage Disclosure Act (HMDA) — a change which opens the door for these banks to discriminate against minority applicants;
• exempting several “small” banks (such as American Express, BB&T and SunTrust Banks) from the stress test required of Big Banks to ensure they have enough assets available to survive a financial crash;
• reinstituting the Protecting Tenants at Foreclosure Act, which protects certain residential tenants during foreclosure; and
• exempting certain smaller banks and credit unions (with less than $10 billion in assets) from the ability-to-repay and qualified mortgage (QM) rules when the bank or credit union keeps the mortgage loan in its portfolio.

The Act also allows mortgage loan originators (MLOs) who are licensed in one state who have submitted an application to be an approved MLO in a separate state to be granted the temporary ability to work as an MLO in that other state while they wait a decision on their submitted application.

History repeats itself

Does any of this sound familiar to you?

It probably should — the cycle of tightening regulation followed by deregulation regularly occurs within the circle of economic booms and busts. Efforts to deregulate the market and grow the economy, like the president’s Act to phase out Dodd-Frank, are common in the buildup to a recession.

The thing is — even while the president and other lawmakers are focusing on growing the economy, the Federal Reserve (the Fed) is working on pulling in the reigns. The Fed’s aim is to prevent the economy from becoming overheated and induce a normal business recession (unlike the huge crash that occurred in 2007-2008 — oversized due to the bubble heights the deregulated economy was allowed to reach before the inevitable crash).

The Fed will get its recession one way or another. The real question is: how well will consumers and banks be able to stand when the recession arrives?

The Act which defangs Dodd-Frank opens the door for more risk in the market and increases the potential for more bank failures down the road. All of this is concerning to hardworking consumers and taxpayers, who rely on the government to keep everyone financially sound during recessions.

The aim of the Act is to increase lending and grow the economy, and it certainly has the potential to do that. But at what future cost to consumers?

Related topics:
dodd-frank wall street reform and consumer protection act, mortgage loan originator (mlo)

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

Campidoglio LLC v. Wells Fargo & Company

Facts: A borrower obtains a mortgage from a lender. The lender is acquired by a second lender which notifies its primary regulator of its intent to substitute the cost of savings index (COSI) used to calculate the mortgage’s interest rate to another. The primary regulator allows 30 days to lapse without objecting. The mortgage’s interest rate is calculated based on the new COSI.

Claim: The borrower seeks to have their mortgage’s interest rate calculated based on the first lender’s COSI, claiming the second lender used unapproved indexes to calculate their mortgage’s interest rate since the regulator did not affirmatively approve the COSI substitution.

Counterclaim: The second lender seeks to continue calculating the mortgage’s interest rate based on the new COSI, claiming the substitution was approved since approval only requires their regulator not object within 30 days of a lender’s notice.

Holding: A California court of appeals holds the second lender may continue calculating the mortgage’s interest rate based on the new COSI since their regulator approved the substitution by allowing 30 days to lapse without objecting. [Campidoglio LLC v. Wells Fargo & Company (September 12, 2017)_CA5th_]

Read the case text.

Related topics:
lender, mortgage, mortgage interest rates

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

Day v. Lupo Vine Street, L.P.

Facts: A commercial landlord leases space to a tenant operating a health club. The tenant does not maintain an AED on the premises. A client of the health club suffers a fatal cardiac arrest while exercising on the premises.

Claim: The client’s family seeks money losses from the landlord, claiming wrongful death of the client since the landlord failed to maintain an AED required on the premises of a health club.

Counterclaim: The landlord claims it owes no duty to ensure an AED is maintained on the premises since the definition of a health club does not include a landlord and such a requirement would impose an unreasonable duty.

Holding: A California court of appeals holds the landlord owes no duty to ensure an AED is maintained at the site of the tenant’s health club since the landlord is out of possession of the premises and such a requirement would impose an unreasonable duty on the landlord. [Day v. Lupo Vine Street, L.P. (April 11, 2018)_CA5th_]

Read the case text.

Related topics:
cramdowns

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

Urgent Care Medical Services v. City of Pasadena

Facts: Several medical marijuana dispensaries operate in a city. The city’s municipal code contains a permissive zoning scheme stating land uses not listed in the city’s zoning scheme are prohibited and therefore a nuisance.

Claim: The city seeks to close the medical marijuana dispensaries, claiming they are prohibited since any land use not listed as permitted by the permissive zoning scheme is branded a nuisance.

Counterclaim: The owners of the dispensaries seek to continue operating, claiming medical marijuana dispensaries are not prohibited as a nuisance since the city’s permissive zoning scheme does not explicitly define a medical marijuana dispensary as a nuisance.

Holding: A California court of appeals holds the city may close the dispensaries since a permissive zoning scheme constitutes an explicit declaration of prohibited uses and is sufficient to establish medical marijuana dispensaries as a nuisance. [Urgent Care Medical Services v. City of Pasadena (March 5, 2018)_CA5th_]

Editor’s note — first tuesday has previously reported similar cases where two lower courts came to opposite conclusions on the same issue of medical marijuana dispensaries and zoning. The courts’ handling of this issue has been inconsistent across California, leaving unresolved the issue of whether local or state laws should take precedence in executing the will of the people.

Read the case text.

Related topics:
nuisance, zoning

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

Deutsche Bank National Trust v. Pyle

Facts: A property owner obtains a mortgage secured by a trust deed on their property. The owner later defaults on the mortgage. The property is sold at a trustee’s sale and a trustee’s deed is recorded. The owner files a court action to set aside the trustee’s deed and obtains a default judgment. The mortgage holder then obtains a judgment to void the owner’s default judgment. During the mortgage holder’s court action, the owner sells the property to a buyer without disclosing the actions affecting title to the property.

Claim: The mortgage holder seeks to quiet title to the property, claiming the buyer does not hold title as a bona fide purchaser since the voided default judgment nullifies any transfers of title.

Counter claim: The buyer claims they are protected from a title challenge as a bona fide purchaser since the owner’s default judgment quieted title to the property prior to the mortgage holder’s voided default judgment.

Holding: A California court of appeals holds the buyer is not a bona fide purchaser and the mortgage holder may quiet title to the property since the voided default judgment — not a quiet title judgment, as claimed by the buyer — nullifies any transfer and does not pass title free of liens subject to the judgment, which the buyer had record notice of due to the trustee’s deed remaining in the chain of title. [Deutsche Bank National Trust v. Pyle (July 13, 2017)_CA4th_]

Read the case here.

Related topics:
quiet title

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

Harrington v. City of Davis

Facts: The owner of a residential property obtains a conditional use permit to use the property as a commercial space. When the permit expires, the owner reverts the property back to residential use but no certificate of occupancy is issued. The property is later sold and the new owner also applies for the same permit. The city’s building code requires compliance with accessible parking regulations when there is a change in occupancy. The owner does not provide accessible parking and the city approves the permit application.

Claim: A neighbor seeks to block issuance of the conditional use permit, claiming the new permit constitutes a change in occupancy from the residential use of the previous owner, triggering the accessible parking requirements since the permit would change the property’s classification from residential back to business.

Counterclaim: The city seeks to issue the property owner’s permit, claiming it does not result in a change in occupancy or require compliance with accessible parking requirements since a building official did not issue a certificate of occupancy when the previous owner’s conditional use permit expired and, thus, the property remained classified as a business.

Holding: A California court of appeals holds the city may issue the owner a conditional use permit and the owner is not required to provide accessible parking since issuance of the permit does not constitute a change in occupancy as a certificate of occupancy was not issued when the previous owner reverted the property’s use back to residential. [Harrington v. City of Davis (October 20, 2017)_CA5th_]

Read the case text.

Related topics:
building code

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

City and County of San Francisco v. Post

Facts: A city’s ordinance prohibits landlords from discriminating against Section 8 tenants. Meanwhile, Fair Employment and Housing Act (FEHA) protections are expanded to include a tenant’s source of income, which does not include government rent subsidies. A landlord posts advertisements for rental units, stipulating the landlord will not rent to Section 8 tenants.

Claim: The city seeks to prohibit the landlord from discriminating against Section 8 tenants, claiming the landlord violated the city ordinance prohibiting discrimination based on a tenant’s source of income since considering Section 8 participation constitutes income-based discrimination.

Counterclaim: The landlord seeks to continue rejecting Section 8 tenants, claiming FEHA, whose narrow definition for source of income does not include Section 8 rent subsidies, preempts the city ordinance since FEHA’s preemption clause indicates FEHA controls over local ordinances covering the same housing discrimination.

Holding: A California court of appeals holds the landlord cannot continue declining to rent to Section 8 tenants as FEHA does not preempt the city’s local ordinance since FEHA’s narrow statutory language does not cover the same broader protections provided by the city ordinance. [City and County of San Francisco v. Post (April 11, 2018)_CA5th_]

Read the case text.

Related topics:
discrimination, income, section 8

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

Three federal agencies that govern and regulate U.S. banks and other financial institutions are seeking to increase the appraisal exemption threshold from the current threshold of $250,000 to $400,000. The agencies seeking the change are:

• the Federal Reserve (the Fed), which supervises member state-chartered banks;
• the Federal Deposit Insurance Corporation (FDIC), which supervises state-chartered banks which are not members of the Federal Reserve system; and
• the Office of the Comptroller of the Currency (OCC), which supervises national banks.

Today’s threshold was set in 1994, when home prices were significantly lower. The agencies claim increasing the threshold will remove some of the burden on buyers of low-priced real estate, while maintaining the integrity of financial institutions.

Instead of requiring an appraisal, the agencies propose that homes purchased for less than $400,000 will need an evaluation to estimate the home’s fair market value (FMV). This evaluation will not need to be completed by a licensed appraiser, and will be less detailed and therefore less costly.

The agencies are asking for public comment on the proposal. Comments need to be received by February 5, 2019 to be considered. Comments may be submitted:

• online at the Federal Register;
• by email to comments@occ.treas.gov; or
• by mail to:

Legislative and Regulatory Activities Division
Office of the Comptroller of the Currency
400 7^th Street SW
Suite 3E-218
Washington, DC 20219

The dangers of fewer appraisals

Appraisals are conducted mainly to protect the interests of lenders, and ultimately the interests of the entities to which lenders bundle and sell their mortgages, such as Fannie Mae and Freddie Mac. But appraisals also protect the interests of homebuyers, who, caught up in a rapidly rising market, may end up paying more for a home than it’s worth. This results in underwater homeowners, a situation that may increase the likelihood of foreclosure.

In California, the current threshold of $250,000 leaves nearly all home sales unaffected and requiring an appraisal. But under the proposed change, more low-tier sales will fall under the exemption. For reference, this is the segment of the market that is the most volatile, and the most susceptible to large swings in home values, evidenced by the 2009 foreclosure crisis.

Increasing the appraisal requirement threshold will mean fewer appraisals are conducted, decreasing the protection for homeowners, lenders and government agencies alike.

Related topics:
fair market value (fmv), federal reserve (the fed)

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

California Public and Resources Code §21081.3

Amended by A.B. 2341

Effective: January 1, 2019

A project which involves the refurbishment, conversion, repurposing or replacement of an existing building and meets the following requirements does not require a California Environmental Quality Act (CEQA) agency to evaluate its aesthetic impacts:

• the current building is abandoned, dilapidated or has sat vacant for more than one year;
• the building site is immediately adjacent to parcels developed with qualified urban uses;
• the project involves the construction of housing;
• any new structure doesn’t substantially exceed the height of the current structure; and
• the new structure will not create a new source of substantial light.

Projects which may impact an official state scenic highway or a historic or cultural resource are still required to undergo CEQA review for aesthetic impacts.

Editor’s note — California’s CEQA laws have long been a burden on builders in the Golden State. CEQA adds time and money to the permitting process, making new housing more costly for builders and end users alike. While this law does not institute any sweeping changes to CEQA, it is a step in the right direction to make it easier for builders to construct needed housing in California.

Read more:

Developers beat the CEQA with ballot measures

Cost of home building materials rising rapidly

Related topics:
california environmental quality act (ceqa)

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

For real estate agents, FSBO can be the most repellant four-letter word.

Nationally, 6.2% of homes for sale are for-sale-by-owners (FSBOs) as of the third quarter (Q3) of 2017, according to Trulia.

In an FSBO transaction, sellers choose to forego the myriad advantages that come with listing with a licensed agent and instead represent themselves, avoiding the 3% fee due to a seller’s agent. In some cases, FSBO sellers also refuse to work with a buyer’s agent —skipping the additional 3% fee owed to the buyer’s agent.

Fortunately for California real estate professionals, there are fewer FSBOs here. In the Golden State, FSBOs are a bit of an oddity, consisting of just:

• 2.8% of homes listed in San Diego;
• 2.9% of homes in Oakland;
• 3.0% of homes listed in Sacramento;
• 3.3% of homes in Los Angeles;
• 3.3% of homes in Riverside;
• 3.4% of homes in Anaheim;
• 3.5% of homes in San Jose;
• 3.9% of homes in San Francisco;
• 4.1% of homes in Fresno; and
• 5.0% of homes in Bakersfield.

Even in Bakersfield, which see the most FSBOs in any California metro, there are fewer FSBOs than the U.S. average.

Why does California — a state of rugged individualism — buck the national trend? This is likely due to the relatively rapid price increases experienced across the state relative to the nation.

When homeowners are catapulted out of near-negative equity as quickly as occurs in California due to the inertia of rising home values alone, they don’t need to worry about pinching pennies when it comes time to sell. Thus, California reaps the benefits of licensee representation.

The costs of FSBOs

A seller can save some money by listing themselves, but at what cost?

Nationally, FSBOs tend to be listed an average of 2% higher than their fair market value (FMV). As a result of this and other contributing factors, FSBOs sit on the market an average of one month longer than homes listed by a licensed agent.

However — and this is big — in California’s most populous metros, FSBO sellers are actually doing the opposite and listing well below FMV. Thus, the few FSBOs that exist in California sell significantly faster than in other states.

What is the reasoning behind listing below FMV? As sellers don’t have to pay the 3% (or in some cases 6%) agent fees, they can afford to list their home below FMV as an inducement to garner more buyer interest. Further, since homes have appreciated so quickly in California, there is more wiggle room for sellers to still make a profit.

But there are some notable drawbacks to listing as an FSBO, including:

• not being listed on the local multiple listing service (MLS);
• the absence of critical marketing by the seller’s agent;
• buyers looking past FSBOs due to the uncomfortable nature of dealing directly with a seller; and (perhaps most importantly)
• the lack of professional guidance and experience that only comes with listing with a competent agent.

Further, some buyer’s agents deliberately avoid FSBOs, knowing they will have to essentially do double the work. Most unrepresented sellers have no idea what forms or mandated disclosures are necessary, so the buyer’s agent ends up holding the buyer’s and seller’s hands through the process to ensure the transaction stays on track and the deal timely closes.

But real estate agents know all of this — clearly, some sellers do not.

Real estate agents: how do you encourage your seller clients thinking of listing their home as an FSBO to use your services instead? And how do you work with FSBO sellers as a buyer’s agent? Share your experiences with other agents in the comments below!

Related article:

8 things your real estate clients want you to know

Related topics:
buyers agent, sellers agent

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

This article examines the presence of Fannie Mae and Freddie Mac in the housing industry, yesterday, today and the changes ahead.

Fannie and Freddie: a history

Fannie Mae and Freddie Mac, also known as the government-sponsored enterprises (GSEs), are the backbone of U.S. homeownership. They’ve stood the test of time, but talk of reform puts their future in question.

Fannie Mae (short for the Federal National Mortgage Association) was founded in 1938 as part of the New Deal, FDR’s solution to the Great Depression. Prior to Fannie Mae’s existence, homeownership was reserved for the wealthy, or those able to put down 50% or more as down payment. Back then, the mortgage market had no guarantors. Lenders originating a home loan were on the hook for losses when the homeowner defaulted on their mortgage. Therefore, higher credit standards and mortgage terms with bigger cushions were required.

Enter the secondary mortgage market. Under this structure, lenders were able to loosen the reigns and allow more homebuyers to qualify at lower interest rates.

Here’s how the secondary mortgage market and Fannie Mae and Freddie Mac work:

When a homebuyer takes out a mortgage, the lender who originates the mortgage chooses to sell it to Fannie Mae or Freddie Mac about 60% of the time. All the mortgages sold to Fannie Mae and Freddie Mac are bundled together into mortgage-backed securities. Fannie Mae and Freddie Mac sell these securities to investors in the secondary mortgage market, who profit.

This system increases the pool of money available for lenders to issue mortgages. Without it, there may be less money to go around, making homeownership less accessible for homebuyers reliant on mortgage financing.

But there is some risk involved — if a homeowner defaults (or if many default, as occurred during the 2008 financial crisis and following recession), the mortgage-backed security decreases in value. Fannie Mae and Freddie Mac suffered huge losses when this occurred during the recent recession, which landed them in big financial trouble.

The federal government had two choices: let Fannie Mae and Freddie Mac fail — and likely see the end of the American Dream of homeownership — or bail them out.

The government chose to step in and bail them out, taking over operations. In 2008, Fannie Mae and Freddie Mac were placed under conservatorship of the U.S. government. The Federal Housing Finance Administration (FHFA) has authority over the GSEs and has the final say on critical matters.

GSEs face reform

U.S. Treasury Secretary Mnuchin names 2018 as the year for GSE reform. According to Bloomberg, Secretary Mnuchin does not believe the GSEs will be released from government control just yet. But an overhaul is likely.

What’s wrong with the current way Fannie Mae and Freddie Mac run under the FHFA?

One major pitfall comes to mind with the way the GSEs are currently set up, as they are, to spell it out, government-sponsored enterprises. Taxpayers are responsible for any losses the GSEs incur, as, even though the GSEs are still technically owned by private shareholders, the government is ultimately on the hook. Further, beginning in late-2017, the GSEs were given the go-ahead to keep some of their profits earned. The saying “private profits, social losses” comes to mind.

Another aspect of the GSEs that bothers conservatives in particular is the government authority over privately-owned entities.

One way reform might occur is for conservatorship to rollback, allowing Fannie Mae and Freddie Mac to return to their former setup where they had more autonomy.

Inching Fannie and Freddie out from under their governmental umbrella will have the positive effect of the GSEs focusing more on cost-saving measures and taking on more of the risks associated with mortgages. For example, GSE expenses increased 36% from 2012 through 2016, as they have little incentive to retain profits since all profits (until very recently) have been sent straight to the Treasury.

On the other hand, pushing the GSEs out from under the umbrella too quickly will have the opposite effect, leaving homebuyers (who are also taxpayers) high and dry. That’s because, without some semblance of government guarantee, Fannie Mae and Freddie Mac will likely lean away from the purchase of 30-year fixed rate mortgages (FRMs), returning to early-20^th Century mortgage norms when private lenders held all the risk.

The impact of GSE reform

Without knowing what type of reforms Congress has in mind, it’s hard to say what impact GSE reform will have on the housing market, if any.

We do know that Fannie Mae, and in 1970, Freddie Mac, together helped boost California’s average homeownership rate from 44% in the 1930s to the current homeownership rate of 54%. Historically, the GSEs have made homeownership more attainable across the U.S.

But there might be a way to satisfy both homebuyers, who want the low rates and stable mortgage products made more prevalent by the GSEs’ existence, and taxpayers, who don’t want to be stuck with the $200 billion bill (the amount the U.S. Treasury committed to the GSEs in 2008) the next time the housing market crashes.

One potential reform under consideration at the FHFA is to replace the GSEs with several private guarantors.

Then, it’s up to lawmakers whether they want to stipulate any housing goals for the private guarantors. For instance, they may require the private guarantors to guarantee a number of affordable housing loans — or they may simply provide incentives for doing so.

Another matter to consider is whether they will require the private guarantors to serve all markets, as Fannie Mae and Freddie Mac are currently obligated to, or allow them to serve whichever markets are in their best interests.

Under the current administration’s hands-off approach to financial markets, the most likely move will be away from government regulation and towards self-regulation of private companies. But the details are anyone’s guess.

Interested in how GSE reform will play out in 2018? first tuesday will continue to post updates as they occur.

Related topics:
fannie mae, freddie mac

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

50 years after the U.S. Department of Housing and Urban Development (HUD) began carrying out the Fair Housing Act, it’s quietly moving away from its fair housing mission.

HUD Secretary Ben Carson, who took over HUD in March 2017, is considering removing the “fair housing for all” and “free from discrimination” portions from HUD’s mission statement, replacing it with the goal of “self-sufficiency” for the populations it serves. This proposed change — which is not final at the time of this writing — has most housing organizations shaking their heads, according to HousingWire.

What is fair housing?

HUD is responsible for enforcing the Fair Housing Act, which directs HUD to administer all of its programs in a way that complies with fair housing laws.

Some of HUD’s hallmark programs include:

• the Federal Housing Administration (FHA);
• public housing;
• Government National Mortgage Association (Ginnie Mae); and
• various Community Development and Planning Block Grants.

Fair housing prohibits discrimination in real estate transactions, zoning and land use laws. [42 United States Code §3601 et seq.]

Discrimination in a real estate transaction occurs when someone refuses to sell or rent — or negotiate to sell or rent — a residence due to an individual’s:

• race;
• color
• religion;
• sex;
• familial status (presence of children);
• disability status; or
• national origin. [42 USC §3604(a)]

Further, it is unlawful to advertise real estate in such a way that indicates discrimination against the protected groups mentioned above. [42 USC §3604(c)]

Editor’s note — To the list above, California’s Unruh Civil Rights Act also provides statewide protection against discrimination due to an individual’s age, ancestry, disability, genetic information, marital status, medical condition, gender identity, expression or sexual orientation. [Calif. Civil Code §51(e)]

What’s behind the shift

Following the backlash from the housing community, Carson asserts HUD will continue its commitment to fair housing, despite proposing language to remove “fair housing” from its mission statement. But then why remove fair housing in the first place?

HUD’s about-face is predictable considering the administration’s hands-off, anti-regulatory agenda. In fact, their change in mission is a mere formality, as HUD has already taken several steps back from HUD’s fair housing goals present under previous administrations.

During Carson’s past 14 months at HUD, it has:

• attempted to delay the expansion of Section 8 housing coverage;
• withdrawn a survey on homeless lesbian, gay, bisexual, transgender and queer (LGBTQ) individuals;
• removed publications on preventing violence against transgender people in homeless shelters; and
• halted many pre-Carson, high-priority investigations into housing discrimination, as detailed in a recent Vox article.

Some of their changes have met legal challenges.

The State of New York and the National Fair Housing Alliance recently sued HUD over their indefinite delay of an Obama-era fair housing assessment tool for local governments. HUD’s reasoning was it didn’t have the funds available to meet the technical aspects of the program, according to HousingWire.

But, according to supporters of the withdrawn tool, removing the tool allows local governments to continue to receive billions of dollars in federal funding without substantial checks in place to monitor that they are following fair housing rules.

Most recently, Carson has proposed to increase rent on public housing recipients, increasing their rent-to-income ratio from 30% to 35%. Democratic lawmakers — including Representative Waters, who represents California’s 43^rd Congressional district, encompassing part of Los Angeles County — oppose the increase, claiming it has the potential to cause homelessness for 1.7 million current public housing residents.

What’s at stake

HUD’s mission is immensely important in California, where only 67 low-income units exist for every 100 low-income households, according to the Low Income Housing Coalition.

The good news is California will remain somewhat isolated from federal changes at HUD, since its progressive politics generally result in more assistance for low-income residents.

For instance, while housing protections for immigrants and LGBTQ individuals are unlikely to be put in place during Carson’s tenure at HUD, they are firmly in place here in California.

But loose reins on other HUD programs are still cause for concern. For example, FHA-insured mortgages make up a huge share of the loans used by first-time homebuyers. As we move into the next housing boom — expected around 2020-2021 — first-time homebuyers will become more active and will rely on fair access to these loans.

On the other end of the age spectrum, retiring Baby Boomers are increasingly selling their oversized suburban homes in favor of more conveniently-located and accessible homes. This means access to handicap-accessible housing, which falls under HUD’s fair housing mission, will become more important in the coming years.

Real estate professionals’ duty

Fortunately, even if HUD abandons certain segments of the population, homebuyers and renters of all types have real estate agents in their corner.

Real estate professionals need to inform their clients of their fair housing rights and keep an eye out for abuses by real estate agents, lenders, landlords and other real estate players.

What does a real estate agent need to watch out for?

If the agent is ever in doubt, they can remember this: different treatment is discriminatory treatment.

Different treatment is often the result of implicit discrimination. A decades’ long HUD study demonstrated real estate agents:

• show fewer properties; and
• give less information to minority clients.

This may not be explicit discrimination, but it negatively impacts the choices minority homebuyers make.

In addition to agent actions, real estate agents can watch lenders, who may hinder homebuyer access to credit. Predatory lending of minority applicants during the Millennium Boom resulted in the disproportionate loss of wealth in non-White populations.

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

• ask the same questions of all applicants — for example, landlords may ask about matters that will actually impact tenancy like pets or water beds, but never ask about a protected status like race, religion, sexual orientation, pregnancy, etc.; and
• keep records of client interactions — while a client is unlikely to pursue legal charges for discrimination, it’s best practice for an agent to keep track of all client interactions and property tours for several reasons, including identifying and preventing any unintentional biases.

Related article:

The impact of low-income housing on nearby home values

Related topics:
department of housing and urban development (hud), unruh civil rights act

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

Property insurance laws in California are undergoing some changes in 2018 and the coming years. In particular, four laws recently passed which help homeowners:

• find homeowners insurance; and
• get full use of their insurance when disaster strikes.

Read on for an overview of the changes.

AB 1875: CA Home Insurance Finder

AB 1875 requires the Department of Insurance to establish the California Home Insurance Finder, an online tool for homeowners unable to find insurance through normal means to connect with potential insurers. [Calif. Insurance Code §10095.7(a)]

Each year, the Department will survey insurance agents and brokers licensed in California for inclusion in the Finder tool. [Ins C §10095.7(a)(1)]

The Department has until July 1, 2020 to update the Finder with the names, addresses, phone numbers and websites of the licensed insurance brokers and agents to be included. The brokers will be searchable on the Finder by zip code and by languages spoken. This information will need to be updated annually. [Ins C §10095.7(a)(2)]

Beginning July 1, 2020, insurers need to provide information about the Finder to any homeowner applicants who are denied insurance coverage in California. [Ins C §10095.7(b)]

Further, to make all homeowners aware of the Finder, the Department will publicize the tool on social media and by other means in English and other commonly-used languages in California. [Ins C §10095.7(a)(3)]

SB 894: Policy continuance after a disaster

SB 894 increases the length of time a property insurer is required to continue a policy following the total loss of a property in a disaster or state of emergency.

Previously, when the total loss of an insured property was due to a disaster (rather than the homeowner’s negligence) the insurer was required to renew the policy at least once. Going forward, under these circumstances an insurer is required to offer to renew the policy for the longer of at least:

• the next two annual renewal periods; or
• 24 months. [Ins C 675.1(a)(3); (c)]

Further, when the loss is related to a declared state of emergency in California, the policy needs to cover additional living expenses for no less than 24 months from the date of the loss. However, when a delay in reconstruction occurs beyond the homeowner’s control, the insurer is required to extend the coverage for up to 12 additional months for a total of 36 months total. On top of this initial extension, insurers are to provide additional six-month extensions when unavoidable construction delays occur, such as due to a lack of available labor or materials. [Ins C §2051.5(b)(2)]

AB 1797: Replacement cost coverage

AB 1797 will require property insurance providers that offer replacement cost coverage to provide the owner of residential property with an estimate of the cost to replace the property, including any extra costs the insurer will pay to bring the property up to existing codes or regulations. The insurer will need to give this updated information every other year at the time of renewal.

Insurers will be exempt from this requirement if within the previous two years the owner has increased their insurance coverage to be higher than the previous limits they had selected.

This bill will take effect on July 1, 2019.

AB 1772: Declared state of emergency

When a homeowner makes a claim for the destruction or loss of their property and they are insured for the full replacement cost, they have a limited amount of time to collect on the full insured amount. The insurer pays for the repairs or replacement until the property is fully repaired or replaced, which sometimes may exceed the time limit.

When the loss is related to a declared state of emergency, the time limit to collect is currently 24 months from the first payment made by the insurance company to fix or replace the property. AB 1772 will increase this limit to 36 months for the date of the first insurance payment.

Insurance policy forms will need to be updated to reflect this change by July 1, 2019. However, policy changes take effect immediately.

Related article:

New property insurance bills set to assist homeowners affected by wildfires

Related topics:
insurance

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

President Trump recently proposed another tax cut — this one for homeowners of expensive property.

Currently, the principal residence profit exclusion allows home sellers who have lived in their home for at least two of the last five years to exclude up to $250,000 (single-filers) or $500,000 (married, filing jointly) of the profit from a home sale from being taxed. The remainder is taxed at the capital gains rate. [26 United States Code §121]

For most homeowners, this tax rate is currently limited to 15% of the portion of the gain exceeding the threshold. For homeowners with incomes over $418,400 (single-filers) or $470,700 (married, filed jointly), the maximum capital gains rate is 20%. Homeowners in the 10% and 15% tax bracket pay no tax on any gain exceeding the threshold.

However, the capital gains ceiling of $250,000/$500,000 has been criticized, since the ceiling remains the same from year-to-year, despite home price increases. Thus, as prices continue to increase, sellers’ profits increase. The result of higher profits is more capital gains tax.

Editor’s note — Read more about the many rules and exemptions on capital gains at the IRS website.

Prime beneficiaries of the proposal

Unsurprisingly, California homeowners stand to benefit the most from this proposal due to our state’s infamously high home values.

Zillow analyzed the impact such a proposal would have on homeowners in the largest 225 cities across the U.S. Half of the cities where the average home seller would benefit were located in California.

Consider a typical home seller who has owned their home for 20 years. When selling in 2018, if the capital gains rate was indexed to inflation rather than static as it is today, the typical seller would save of their tax bill:

• $49,500 in Palo Alto;
• $46,400 in Newport Beach;
• $43,100 in Cupertino; and
• $32,200 in Redwood City, according to Zillow.

These are large dollar amounts. But considering the average home sale price in these cities averages $2-$3 million, the numbers are slightly less impressive.

The really big impact is actually found outside of the housing market, as this proposal isn’t only to do with helping out homeowners in expensive states like California.

The proposed change is to account for inflation in determining profit on all capital gains. This includes other investment income like stocks, bonds and other assets. Thus, the proposal won’t just impact the occasional home sale, which for most homeowners occurs just a couple times in a lifetime. Far beyond the average homeowner, the vast majority of the change will impact very wealthy investors.

In fact, 63% of the money saved due to indexing capital gains will benefit the top 0.1% of income earners. This translates to a $102 billion loss in federal tax revenue in the next ten years, according to Bloomberg News. Put another way, this would mean an additional $62+ billion in the pockets of the 0.1% in the coming decade alone.

If legislators wanted to focus on helping homeowners, they might consider limiting their increase to the capital gain ceiling to home sales. But that proposal is not on the table.

How likely is it that Trump’s proposal will become law?

It’s hard to say. Trump has claimed he’s exploring ways to skip congressional approval and simply issue a new regulation that will index capital gains to inflation. But this will undoubtedly be challenged by detractors. Stay tuned as the situation develops.

Related topics:
capital gains, inflation

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

Calif. Civil Code §1954

Calif. Health and Safety Code §17973

Amended by S.B. 721

Effective date: January 1, 2019

Exterior elevated elements in buildings with three or more multifamily residences that include load-bearing components, like balconies, decks or any structure that extends beyond the walls of a building and has a walking surface elevated more than six feet above the ground, need to be inspected every six years.

Inspections need to be performed by a licensed architect, licensed civil or structural engineer, building contractor holding “A,” “B,” and/or “C-5” license classifications with at least five years’ experience in constructing multistory wood frame buildings, certified building inspector or building official from a recognized state, national, or international association. Inspectors may not be employed by the local jurisdiction while performing these inspections.

The owner of the building needs to hire the inspector.

The inspection needs to determine whether exterior elevated elements and their waterproofing elements are safe, in working order, and free from hazardous conditions caused by fungus, deterioration, decay, and improper alteration.

The inspector’s report, presented to the owner within 45 days of the completion of the inspection, needs to include:

• the current condition of the exterior elevated elements;
• expectations of future performance and projected service life; and
• recommendations of any further inspections.

To comply with this new law, an initial inspection needs to be completed by January 1, 2025 and every six years thereafter. Buildings whose permit applications are submitted after January 1, 2019 need to be inspected no later than six years after the certificate of occupation has been issued.

When a building has been inspected within three years prior to January 1, 2025 and the report finds the building poses no health and safety risks, no new inspection will be required until January 1, 2025.

When an inspector finds a deficiency, the owner of the building needs to correct it. Recommended repairs cannot be performed by the inspector. Instead, they need to be done by a qualified and licensed contractor who complies with:

• the inspector’s recommendations;
• any applicable manufacturer’s specifications;
• the California Building Standards Code; and
• all local jurisdictional requirements.

When an inspector finds an exterior elevated element poses an immediate safety threat or emergency condition, the owner needs to perform the required preventative measures immediately. Those repairs need to be inspected and reported to the local enforcement agency.

When an inspector identifies a deficiency in an exterior elevated element not constituting an emergency condition, the owner needs to apply for a permit within 120 days to correct it unless granted an extension by the local enforcement agency.

When the owner does not comply with repair requirements within 180 days, the inspector needs to notify the owner and the local enforcement agency. When the owner does not complete repairs within 30 days of that notice, the owner will be assessed a civil penalty between $100 and $500 per day until the repairs are completed unless an extension is granted by the local enforcement agency.

When a civil penalty is assessed, a building safety lien may be recorded with the force, effect, and priority of a judgement lien. The lien may be foreclosed by an action brought by the appropriate local jurisdiction for a money judgement.

The county recorder may charge the city for processing and recording the lien and providing notice to the owner. The city may recover from the owner costs related to processing and recording the lien and providing notice as part of its foreclosure in enforcing the lien.

Local law enforcement agencies may recover enforcement costs associated with these requirements.

The inspection of buildings proposed for conversion to condominiums to be sold after January 1, 2019 needs to be conducted before the first close of escrow of a separate interest in the project. Common interest developments are exempt from this inspection requirement.

On advance notice to the tenant, the landlord has the right to access the property with an inspector to comply with these inspection requirements.

Read the bill text here.

Related topics:
inspection, multi-family housing

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

Calif. Business and Professions Code § 11319
Amended by S. B. 70
Effective date: January 1, 2019

Until January 1, 2020, licensed real estate appraisers do not need to comply with provisions of the Uniform Standards of Professional Appraisal Practice (USPAP) preventing individuals other than the client from accessing a restricted appraisal report, as long as the appraiser obtains the client’s consent in advance of the report. To be eligible for this exemption:

• the subject property needs to be unrelated to a federally-related real estate transaction or the purchase or refinance of a one-to-four unit residence;
• the transaction may not involve a mortgage secured by a lien on real estate or a business opportunity;
• the report needs to clearly identify all intended users;
• the report needs to state that opinions and conclusions in the report may require additional information from the appraiser’s workfile to be understood; and
• the report needs to state that assumptions the appraiser has not verified may impact the appraised value of the report’s subject.

Editor’s note — Typically, real estate appraisers do not need to abide by USPAP in non-federally-related transactions — meaning transactions that do not involve mortgages made, guaranteed or insured by federally supervised institutions. However, appraisers licensed by the California Bureau of Real Estate Appraisers are bound by these standards, even in non-federally-related transactions which use restricted appraisal reports. Restricted reports do not contain as much information as standard appraisal reports — including details about the appraiser’s analysis — but are far less costly. The intention of the law is merely to broaden access to this lower-cost option.

Read more:

Read the bill text.

Related topics:

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

Conroy v. Wells Fargo Bank, N.A.

Facts:  After refinancing a residential mortgage secured by a deed of trust, a borrower experiences a substantial drop in income and defaults on their mortgage. The borrower applies for a mortgage modification multiple times. During the modification application process, the borrower speaks with several representatives who handle the borrower’s application paperwork. Each request to modify the mortgage is rejected by the mortgage holder and foreclosure proceedings begin.

Claim: The borrower seeks to prevent foreclosure, claiming the mortgage holder was negligent and misrepresented the mortgage terms since it failed to provide the borrower with a single point of contact during the application process.

Counterclaim: The mortgage holder claims it was not required to provide a single point of contact since the borrower did not specifically request it.

Holding: A California court of appeals holds the mortgage holder was not negligent by failing to provide the borrower a single point of contact since the statute requires a borrower to explicitly request a single point of contact for mortgage servicing. [Conroy v. Wells Fargo Bank, N.A., (August 1, 2017)_CA4th__]

Read the text here.

Related topics:
loan modification, mortgage modification

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

In re Brace

Facts: A married couple purchases several residential properties, taking title as joint tenants. One spouse transfers their interest in the properties into a trust, naming the other spouse as the only beneficiary. Later, the spouse who created the trust files for Chapter 7 bankruptcy.

Claim: The bankruptcy estate seeks possession of the couple’s properties, claiming the transfer of interest was fraudulent since marital property is presumed to be community property and one spouse cannot separate out their interest in the properties.

Counter claim: The spouse claims the properties are not property of the bankruptcy estate, and the couple’s interests in the properties are separate since they took title to the properties as joint tenants.

Holding: A bankruptcy appellate panel holds the bankruptcy estate may take possession of the properties since they are presumed to be community property acquired during marriage, and thus one spouse cannot separate out their interest in the properties. [In re Brace (March 15, 2017) 566 BR 13]

Read the case text.

Related topics:
chapter 7 bankruptcy, community property, joint tenancy

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

Calif. Business and Professions Code §11319
Added and amended by A. B. 2413
Effective date: January 1, 2019

Lease provisions may not limit a tenant’s right to request emergency assistance in response to an incident of domestic abuse, sexual assault or other emergency. Landlords may not penalize tenants who request such emergency assistance by charging fees or altering or terminating the tenant’s lease or rental agreement in response.

When a landlord penalizes a tenant for requesting emergency assistance and files an unlawful detainer (UD) action against the tenant, the tenant may raise the penalty as an affirmative defense against the eviction, and the UD action will fail when the tenant’s claim is credible.

When the UD action references the tenant’s call for emergency assistance within 30 days of the call taking place, the affirmative defense is assumed. The landlord may rebut the presumption by citing a different reason for the UD action.

A tenant is not required to document proof of the necessity of a call for emergency services, but when documentation is provided, the landlord may not evict the tenant or fail to renew the tenancy in response. The documentation may be signed by a sexual assault counselor, domestic violence counselor or human trafficking caseworker, provided the documentation displays the letterhead of their employing organization.

A landlord may not disclose any information contained in a tenant’s documentation of an emergency unless:

• the tenant consents in writing to the disclosure; or
• the disclosure is required by law or court order.

Government agencies may not require a penalty against a landlord or tenant requesting emergency assistance. When a local agency does authorize or require a penalty, a tenant or landlord may obtain a court order mandating that the agency not authorize or require the penalty.

Read more:

Read the bill text

Related topics:
landlords and tenants, lease agreement, rental agreement, unlawful detainer (ud)

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

California’s housing crisis has reached a tipping point, and lawmakers are beginning to take notice. For tenants, the following bills are currently being considered in California:

AB 2343 — Expanded tenant protections

If passed, AB 2343 will:

• increase protection from landlord retaliation against a tenant who has exercised their rights to move back into a dwelling after providing notice of a bed bug infestation or other condition making the unit uninhabitable;
• increase the notice period for unlawful detainer actions a landlord is required to follow when evicting a tenant;
• increase the response time for a tenant responding to a summons when the landlord is seeking to gain possession of the leased property;
• reduce the number of days allowed for an individual to comply with a subpoena and hand over business records when a case deals with the possession of leased property; and
• waive certain fees currently paid by tenants and landlords to subpoena government employees as witnesses in cases to obtain possession of leased property.

SB 1182 — Increased renter tax credit

If passed, beginning in the 2018 tax year SB 1182 will double the renter tax credit from:

• $60 to $120 for qualified individuals; and
• $120 to $240 for qualified joint filers, heads of households and surviving spouses.

Currently, to qualify for the tax credit the renter’s adjusted gross income (AGI) can be no higher than:

• $40,078 for individuals; and
• $80,156 for couples filing jointly.

These AGI limits are adjusted annually for inflation, but the last time these tax credits themselves were increased was 1979, according to Mercury News.

Renters need all the help they can get

Financial gurus recommend individuals limit their housing costs to 31% of their income. But this almost never happens in California — especially for renters, who regularly spend around half of their income on rent alone.

Compared to the historical average — between 1980 and 2000 — California tenants at the end of 2017 spent on average:

• 48% of their income in Los Angeles, up from the historical average of 36%;
• 42% of their income inSan Francisco, up from the historical average of 30%;
• 42% of their income in San Diego, up from the historical average of 34%;
• 38% of their income in San Jose, up from the historical average of 26%;
• 37% of their income in Riverside, up from the historical average of 32%; and
• 32% of their income in Sacramento, up from the historical average of 31%, according to Zillow.

Overburdened renters are spending the bulk of their paycheck on rent and are unable to save. This lack of savings ultimately holds renters back from homeownership. The evidence is in the state’s rock bottom homeownership rate, just 54% in 2017, well below the 64% national average.

These pro-tenant bills don’t address rents head on, but they do attempt to alleviate some of the burden on renters.

The permanent solution?

More rental housing needs to be built, especially in places where rents are highest — California’s coastal cities. The good news is the state legislature is well aware of the crisis facing renters and has made some strides in the past year to help that effort along.

Expect residential construction to pick up in 2018, peaking around 2020. This will benefit the housing market by slowing rent increases, allowing incomes to catch up and savings to rise.

Related article:

The slowing trend in California construction starts

Related topics:
california rents, landlords and tenants

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

Question: What kind of tenant rights does a landlord need to be aware of regarding a service or support animal?

Answer: Landlords are prohibited from discriminating against a disabled tenant who uses a service dog.

California landlords may not refuse to rent a unit to a tenant on the basis that they are disabled and use:

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

Disabled tenants with a specially-trained dog are required to keep the dog leashed and licensed by an identification tag issued by the county clerk, animal control department or other authorized agency. [CC §54.2(b)]

Landlords may not charge additional rent or security deposit to tenants with authorized service, guide or signal dogs. The tenant is liable for the cost to repair any damages the dog may cause on the property. [CC §54.2(a)]

Tenants with emotional support animals do not have the same level of rights as do tenants with service, guide and signal dogs in California.

However, under the Fair Housing Act, landlords are required to make reasonable accommodations to allow a tenant to have an equal opportunity to use and enjoy the unit. [42 United States Code §3604(f)(3)(B)]

A landlord may be required to make reasonable accommodation to allow a tenant an emotional support animal. For example, when a tenant is prescribed an emotional support animal by their doctor and the tenant’s lease explicitly states that pets may not be brought onto the property without the landlord’s prior consent, the landlord’s consent is considered a reasonable accommodation under the Fair Housing Act. [U.S. Department of Housing and Urban Development Office of Fair Housing and Equal Opportunity Notice 09-14-0267-8]

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

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

City of West Hollywood v. Kihagi

Facts: A residential landlord evicts their tenants and removes the property from the rental market. The landlord later rents a unit on the property to a new tenant without first offering it to the previous tenant, as forbidden by the Ellis Act provisions of the city’s rent stabilization ordinance.

Claim: The city seeks to prohibit the landlord from re-renting units on the property for ten years, claiming the landlord is violating a local rent stabilization ordinance since they re-rented a previously vacated unit without first offering it to the previous tenant.

Counterclaim: The landlord claims a ten-year ban on re-renting the units is unenforceable since it violates the Ellis Act.

Holding: A California court of appeals holds the city may prohibit the landlord from re-renting the unit for ten years without first offering it to the previous tenant since the landlord violated the rent stabilization ordinance by not complying with the Ellis Act. [City of West Hollywood v. Kihagi (September 29, 2017)_CA5th_]

Editor’s note — The city rent stabilization ordinance’s Ellis Act provisions prohibit a landlord from evicting a tenant to re-rent the unit at higher market rate by requiring them to first offer the unit to the previous tenant when re-renting. While the city may not entirely ban the owner from re-renting for ten years, the owner may not re-rent the units without complying with these provisions.

Read the case text.

Related topics:
landlord, landlords and tenants, tenant

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

California’s legislature is always looking for new ways to add more housing and catch up to the state’s rapid population growth. A recently proposed bill attempts to do just that — with a twist.

Senate Bill (SB) 827 wants to add a “transit rich housing bonus” to the state’s planning and zoning code. This would give builders incentives or concessions when building within:

• one-quarter mile radius of a single bus route with a service frequency of 15 minutes or less during morning and afternoon commute times; or
• one-half mile radius of a major transit stop, defined as:
  • a rail station stop;
  • a ferry terminal serviced by a bus or rail line; or
  • an intersection of at least two bus routes with a service frequency of 15 minutes or less during morning and afternoon commute times. [Calif. Public Resources Code 21064.3]

This bonus would exempt the builder from following several ordinary building requirements, including:

• density controls;
• parking requirements; and
• height limitations.

Will it pass?

It’s doubtful the bill will pass as it currently stands. Local not-in-my-backyard (NIMBY) advocates won’t let anything altering their neighborhoods occur without intervention, therefore — if the bill gets passed at all — the density and height limitations will likely be clawed back. The elimination of parking requirements makes more sense and will be easier to swallow, since living near transit means homeowners and renters won’t need as many personal vehicles to get around.

But even if the whole bill is passed, it’s not necessarily a win for housing. As Redfin’s chief economist points out regarding the bill, “… builders may choose to develop luxury homes near highly demanded transit-friendly locations. Unfortunately, building without guidelines hasn’t historically created affordable housing.”

What they are referring to is California’s extreme shortage of housing within reach of low- and moderate-income households. Homeowners and renters are increasingly paying a bigger share of their paychecks on housing. This has worsened in recent years as the population continues to grow, and new construction has failed to keep pace.

Further, with the cost of land so high in California — due primarily to low-density zoning restrictions — builders are focusing the majority of their efforts on high-tier housing that will produce the greatest profit.

This bill is a step in the right direction. But it’s no guarantee for California’s overburdened renters and homebuyers.

Related article:

California worst in the nation for new affordable construction

Related topics:
california zoning, not in my backyard (nimby), transportation

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

Calif. Civil Code §§4040, 4360

Amended by S.B. 261

Effective date: January 1, 2019

A homeowners’ association (HOA) needs to provide general notice of a proposed rule change at least 28 days in advance, reduced from 30 days.

When an HOA is required to deliver a document by “individual delivery” or “individual notice,” the document may now be delivered by email, in addition to the previously allowable methods of writing, facsimile, or other electronic means.

Read more:

Read the bill text

Related topics:

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

California Government Code §6539.5

Amended by A.B. 448

Effective: January 1, 2019

This bill creates the Orange County Housing Finance Trust. The purpose of this trust is to fund permanent, supportive housing for homeless and low-income individuals within Orange County.

Funding for the Trust will be received through private and public financing and funds. The Trust does not have the authority to levy taxes or adjust zoning rules.

Editor’s note — California’s homeless population has increased rapidly in the past couple of years, rising 14% statewide from 2016 to 2017. In Orange County, the unsheltered homeless population has increased 53% since 2013. The creation of the Orange County Housing Finance Trust is a positive step toward reducing the rising rates of homelessness in Orange County.

Read more:

High cost of housing worsens homelessness in Orange County

California bill seeks to fill gap left by federal tax changes to help homeless population

Related topics:

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

SB 2923, which will give affordable housing near BART stations a boost, is headed for the governor’s desk.

Bay Area Rapid Transit (BART) connects San Francisco, Oakland, Fremont, Richmond and Berkeley, among other cities. Serving over 400,000 riders a day, BART is an integral part of the Bay Area’s success as a major center of jobs, culture and living. Now, legislators are directing it to help out with the area’s housing shortage.

The bill requires BART’s board to adopt transit-oriented development (TOD) standards aimed at increasing housing near BART stations by July 1, 2020. Specifically, BART will need to develop new zoning rules on BART-owned land near its stations for minimum:

• building height;
• density;
• parking requirements; and
• floor-area ratio.

Local governments will be required to adopt zoning rules consistent with BART’s new standards by 2022. If a local government fails to adopt new standards that conform with BART’s zoning changes by 2022, BART’s zoning changes will be adopted in full by the local government for those areas near BART stations.

Further, certain projects which meet BART’s standards will receive streamlined approval, shortening the lengthy building process.

The bill requires 20% of the new housing to be affordable for low- and very-low income households, though BART’s self-set goals are for 35% of its housing to be affordable.

Most of this new housing will be created by building on top of existing parking lots for BART customers. While BART is directed to replace these parking lots when it builds, research by BART shows less parking is needed for residents located near transit stations anyway. For example, nearly 60% of households located within half-a-mile of a BART station own one or zero cars, compared with 20% of Contra Costa County as a whole.

Just how much new housing will this bill put in motion?

The answer lies almost solely in the hands of BART, but may be as high as 20,000 new units in the coming years, depending on how much of the 250 acres BART currently owns near its stations it decides to develop.

Have local governments lost their chance at zoning?

TODs are not a new idea. In fact, BART already oversees 13 existing TODs on BART property, plus seven projects still in the development process.

Close proximity to transit is a valuable commodity in the Bay Area. Housing already located within half a mile of a BART station enjoys property values 15%-18% higher than similar homes located further from BART, and office space located near BART also commands higher rents.

BART is able to capitalize on the high rents and property values from its existing TODs to reinvest in itself, improving and expanding transit projects, seemingly making TODs a win-win for BART and residents alike.

But some are concerned about giving BART authority to create its own zoning rules. Typically, local governments have direct authority over zoning decisions. But this move is part of a larger statewide trend towards seizing control over zoning issues away from local governments, and members of those local governments aren’t happy.

In fact, most of the cities directly affected by the bill have officially opposed it, as has the California chapter of the American Planning Association.

But, as the saying goes, drastic times call for drastic measures. California’s housing shortage hit its tipping point a long way back, hitting low-income residents particularly hard. Local governments have zoned too tightly, making it too difficult for developers to build in desirable areas. As a result of the lack of construction, the state’s homeless population has increased rapidly and the number of people moving to other states is rising.

More residential construction is needed in the Bay Area and across the state. This bill is a positive step in the direction needed to alleviate California’s housing crisis.

Related article:

The slowing trend in California construction starts

Related topics:
residential construction, zoning

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

Of all the water used in urban California each year, half is used outdoors, mostly for landscaping purposes, according to the California Legislature. Given the state’s propensity towards drought, updating rules on landscape irrigation is important to limit water waste.

California law requires a home inspector’s written report to clearly identify and describe the inspected systems, structures or components of a dwelling, including any material defects and recommendations. [See RPI Form 130]

California Assembly Bill (AB) 2371 now also encourages a home inspection report of a residential property containing an in-ground landscape irrigation system under exclusive operation by the homeowner (in contrast to homeowners’ association (HOA)-operated irrigation systems, which do not fall under the new rule) to include certain facts regarding the system’s operation. This report may be prepared by a regular home inspector or a certified landscape irrigation auditor. [Calif. Business & Professions Code §7195.5(a)]

This report is to include information regarding the system’s:

• controller;
• individual zones or circuits;
• irrigation valves;
• visible piping; and
• sprinkler heads and stems. [Bus & P C 7195.5(a)(1); (2)]

The report is to detail if, during the inspection, the inspector noticed:

• any spray landing on hardscape;
• any water leaving the irrigated area as runoff;
• ponding of water; and
• whether the landscape irrigation system inspection was hindered due to snow, ice or other impeding conditions. [Bus & P C 7195.5(a)(3)]

The home inspector is encouraged to also provide information on water-efficient landscaping in the inspection report. [Bus & P C §7195.5(c)]

Of note: home inspectors are encouraged to inspect the irrigation system as part of their regular home inspection and not required by the new law. The bill’s initial draft required home inspectors to inspect irrigation systems, but this was met with backlash from California home inspector groups. This slight wording change makes a world of difference, and whether or not a home inspector ultimately includes an evaluation of the property’s irrigation system in their report will greatly depend on the client’s level of persistence.

The Department of Water Resources will gather whatever pertinent information that becomes available from home inspection reports, including information on in-ground landscape irrigation systems, to help make updates to the California Water Plan. [Bus & P C §7195.5(d); Calif. Government Code §65596(n)]

This bill also requires the Director of Water Resources to convene a working group to gather and evaluate certain landscaping and water-use practices by no later than January 1, 2020. By this date and every three years following, the department will need to consider and propose changes to these practices as needed. [Gov Code §65596.5(b)]

As changes are made to landscaping and water-use practices, landscaping contractor education will need to adjust. Thus, the Contractors’ State License Board — a part of the California Department of Consumer Affairs — will be required to review new information to decide whether any updates or changes are needed to the landscaping contractor examination to reflect new water-efficiency practices in landscape irrigation. [Bus & P C §7065.06(a)]

These new rules and recommendations take effect beginning January 1, 2019.

Related topics:
drought, home inspection report (hir)

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

California’s housing crisis has reached a turning point, and legislators are finally paying attention. Dozens of new laws have passed since 2017 to encourage new home construction.

However, local governments have found ways to circumvent the 2017 laws to hinder housing growth in favor of the low density neighborhoods favorable in California’s most desirable areas. 2018’s legislative session has seen some effort to close these loopholes and reverse the housing shortage.

More accurate regional housing need

One of these law changes, enacted by SB 828, pushes local governments to increase production to meet regional housing need.

This new bill follows up on progress made in 2017 by SB 166, which required local governments to determine regional housing needs and loosen zoning to meet those needs. But the 2017 law left a loophole open which may have allowed a local government to justify a reduced share of housing required to meet their housing need by using old numbers from when the region was already under-producing new housing. [Calif. Government Code §65584.04(f)(2)]

The new law prohibits prior under-production of housing from calculating into the area’s calculus on regional housing need. Instead, each region needs to strike a balance between the number of low-wage jobs present alongside the number of housing units available to low-income workers. [Gov C §65584(d)(3)]

Additionally, each region needs to strive for a healthy rental vacancy rate, which the new law defines as no less than 5%. [Gov C §65584.01(b)(1)(E)]

The share of cost-burdened households in California is significantly higher than average, especially in the state’s expensive and highly-populated coastal cities. For example, to purchase a median-priced home in Los Angeles, the average household would have to spend 45% of their income each month on their mortgage payment, according to Zillow.

In contrast, this bill defines cost burden as the rate of households paying more than 30% of their income on housing costs. It requires local governments to consider cost burden when making their plans. Each region needs to strive to meet the national average of households which are cost burdened. [Gov C §65584.01(b)(1)(H)]

Modified building codes for low-income housing

Also recently passed, SB 765 attacks the housing shortage by tightening existing exemptions that allow developments to receive streamlined approval when they include housing to lower-income households.

For example, in order to receive the streamlined approval process granted to certain low- and moderate-income housing developments, before the first building permit is granted the developer needs to commit to setting aside units for lower-income households for at least:

• 55 years for rented units; and
• 45 years for owned units. [Gov C §65913.4(a)(3)(A)]

This prevents landlords from taking advantage of the law to receive streamlined approval without committing to helping low-income households over the long term.

Further, while previous law was open-ended on the issue, homeless shelters funded by, leased by or constructed on land owned by a city or county are now specifically exempt from the California Environmental Quality Act (CEQA). [Gov C §8698.4(a)(4)]

All of these changes ought to help increase construction of housing for low-income households and to keep more individuals off the street and in shelters.

The only cure for the housing crisis is more housing. Since2007, construction levels have performed far below their historical average, even as the state’s population has steadily continued to grow. For construction to return to the levels needed to keep up with rising demand for housing, adjustments will need to continue to zoning laws across California.

Related topics:
construction, zoning

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

Assembly Bill (AB) 1289 recently made several changes to real estate disclosure requirements. These changes are effective January 1, 2019.

One decidedly positive change the new law has made is to move legislative language away from the more antiquated terms, “selling agent” and “listing agent” in favor of the clearer and more universally recognized “buyer’s agent” and “seller’s agent.” This will unify the language of the law with common language spoken by principals.

Further, the definition of buyer’s agent has been simplified to simply cover any agent who represents a buyer in a real property transaction. Previously, the definition went into more detail about the agent’s relationships and duties. [Calif. Civil Code §2079.13(n)]

This more easily comprehensible language is also being incorporated in the Agency Law Disclosure. Further, the disclosure will now be more detailed, providing additional instructive information to buyers and sellers. It will also be mandatory for transactions concerning raw land (something which was not previously targeted).  [See RPI Form 305]

Editor’s note — Real Estate Publications (RPI), Inc. publishes real estate forms free and legal to use in California. RPI forms will be updated to reflect these changes prior to the effective date. See first tuesday’s RPI Forms page for more information.

Disclosure regarding agency relationship

AB 1289 adds some language to the statutorily required Disclosure Regarding Real Estate Agency Relationship, also known as the Agency Law Disclosure. This form is required for all real property transactions involving a real estate licensee acting as an agent for a buyer or seller. [See RPI Form 305]

A new section entitled Seller and Buyer Responsibilities is added, which now adds:

Either the purchase agreement or a separate document will contain a confirmation of which agent is representing you and whether that agent is representing you exclusively in the transaction or acting as a dual agent. Please pay attention to that confirmation to make sure it accurately reflects your understanding of your agent’s role.

The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect his or her own interests. You should carefully read all agreements to assure that they adequately express your understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.  

If you are a Buyer, you have the duty to exercise reasonable care to protect yourself, including as to those facts about the property which are known to you or within your diligent attention and observation.

Both Sellers and Buyers should strongly consider obtaining tax advice from a competent professional because the federal and state tax consequences of a transaction can be complex and subject to change.  

Throughout your real property transaction you may receive more than one disclosure form, depending upon the number of agents assisting in the transaction. The law requires each agent with whom you have more than a casual relationship to present you with this disclosure form. You should read its contents each time it is presented to you, considering the relationship between you and the real estate agent in your specific transaction.  [CC §2079.16]

The seller’s agent and buyer’s agent need to obtain a signed acknowledgment that the buyer and seller each received the disclosure. [CC §2079.14]

The seller’s agent needs to provide the Agency Law Disclosure to the seller before entering into a listing agreement. [CC §2079.14(a)]

Previously, the buyer’s agent was required to give this disclosure to the seller as well as the buyer. Under the changes, the buyer’s agent is only required to give the Agency Law Disclosure to the buyer. [CC §2079.14(b)]

The sale of raw land has also been added to the types of transactions which require the Agency Law Disclosure. [CC §§2079.13(j); 2079.14]

Changes to the NHD Statement

The statutorily required Natural Hazard Disclosure (NHD) Statement has been amended to clarify language. [CC §1103.2; See RPI Form 314]

The NHD is used by a seller’s agent to disclose natural hazards affecting a property to prospective buyers for their review on commencement of negotiations.

Similar to the adoption of more common language in the Agency Law Disclosure, the terms “the transferor and the transferor’s agent” has been replaced with the more conversant “the seller and the seller’s agent.” Likewise, the term “transferees” has been replaced with “buyers.”

These changes will clear up any confusion caused by the archaic legalese, helping clients focus on the actual information the NHD provides rather than stumbling over uncommon terms.

Requirements for late disclosures

When any disclosure or significant change to any disclosure is made after the purchase agreement is executed, the homebuyer will have the following periods of time to terminate their offer:

• within three days when the dilatory disclosure was provided in person; or
• within five days when the dilatory disclosure was provided by mail or when the buyer and seller have agreed to conduct the transaction by electronic means. [CC 1103.3(c)]

Previously, the timeline for electronic delivery was absent. Since using online programs to conduct transactions is becoming more common, this clarification will become increasingly more pertinent.

Dual agency prohibitions

Previously, dual agents representing both buyer and seller were specifically prohibited from disclosing to the homebuyer that the seller is willing to accept a lower price than offered or listed. Vice-versa, the dual agent was prohibited from revealing to the seller that the buyer is willing to pay a higher price without the express written consent of the seller or buyer.

This prohibition is now eliminated. Instead, a blanket provision is put in place. Dual agents are now prohibited from disclosing any confidential information to the buyer or seller without their express permission. This includes facts about their clients’ financial positions, motivations or bargaining positions. [CC §2079.16(b)]

While dual agents wear multiple hats and juggle twice as many responsibilities — for the reward of a higher fee — this blanket prohibition on sharing confidential information expands protection for both clients, encouraging a level playing field for buyer and seller both.

Confirming agency

An agent or their broker needs to disclose as soon as practicable which party they represent in the transaction, and any dual agency that may exist. This disclosure may be confirmed in the contract to purchase or sell property, or in a separate form provided at the same time as the purchase contract. [CC §2079.17(a); (b)]

This format of the ubiquitous confirmation provision now needs to be structured as follows:

(Name of Seller’s Agent, Brokerage firm and license number)is the broker of (check one):

[ ] the seller; or

[ ] both the buyer and seller. (dual agent) 

(Name of Seller’s Agent and license number) is (check one):

[ ] is the Seller’s Agent. (salesperson or broker associate)

[ ] is both the Buyer’s and Seller’s Agent. (dual agent)

Editor’s note – Astute readers will note the repetition of the word “is.” This is not replicated in the RPI handling of the confirmation provision. 

(Name of Buyer’s Agent, Brokerage firm and license number) is the broker of (check one):

[ ] the buyer; or

[ ] both the buyer and seller. (dual agent)

(Name of Buyer’s Agent and license number) is (check one):

[ ] the Buyer’s Agent. (salesperson or broker associate)

[ ] both the Buyer’s and Seller’s Agent. (dual agent) [CC §2079.17(c)]

This change makes more explicit who the broker  – and separately the agent – represent in the transaction.

Notification of sex offender registry

The notice of sex offender registry which needs to accompany each lease, rental or purchase agreement for property consisting of one-to-four residential units now also needs to be delivered for the lease of a unit in a multi-family property with more than four dwelling units. [CC §2079.10a(a)]

Related topics:
agency law disclosure, dual agency

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

Updated November 18, 2018. Updates in red.

Property insurance is important to protect your clients’ homes, and always required when a homebuyer takes out a mortgage. Here in California, the property insurance laws may soon be getting a facelift.

Several news insurance-related bills have been introduced so far in 2018, all on their way toward becoming laws.

The reason for the update has a lot to do with the tangle of insurance quandaries created by 2017’s destructive fire season. Insurance companies are still processing over a $1 billion in insurance claims, and homeowners have been feeling the pain of delays and thinly stretched insurers, according to Mercury News.

These insurance updates will help relieve some of this burden, including directing insurance companies to extend the amount of time they will pay out for insurance claims when they are related to states of emergency in AB 1772. Another bill sets up an appeal process for homeowners who receive adverse decisions from insurers in connection to wildfire claims. Yet another directs insurers to update homeowners on replacement cost coverage, important as the majority of homeowners who lost their homes to fire were underinsured.

Read on for the full details and check in with first tuesday for updates as these bills progress through the legislature in the coming months.

AB 1797: Replacement cost coverage

Passed August 27, 2018.

AB 1797 will require property insurance providers that offer replacement cost coverage to provide the owner of residential property with an estimate of the cost to replace the property, including any extra costs the insurer will pay to bring the property up to existing codes or regulations. The insurer will need to give this updated information every other year at the time of renewal.

Insurers will be exempt from this requirement if within the previous two years the owner has increased their insurance coverage to be higher than the previous limits they had selected.

This bill will take effect on July 1, 2019.

AB 1875: Online insurance finder

Passed September 21, 2018.

AB 1875 will require the California Department of Insurance to establish an online tool to help homeowners find residential insurance brokers and agents. This tool will be called the California Home Insurance Finder.

The Department will also need to:

• survey insurance brokers for inclusion in the online tool;
• make the search tool and/or similar materials available in multiple languages;
• promote the search tool; and
• develop a pamphlet on how to accurately estimate replacement costs.

Further, when an agent will not offer extended replacement cost coverage of at least 50% above the policy limits for the dwelling, structures, contents and additional living expenses, they need to disclose to the homeowner that other providers may offer this type of coverage for the property. Until the search tool is available — no later than July 1, 2020 — this agent will need to provide the homeowner with contact information for an independent insurance agent in the property’s zip code.

AB 1923: Wildfire debris removal

Certain areas of California have consolidated debris removal programs, which cleans up debris from wildfires on a large scale. In some cases, when the governor declares a State of Emergency, these programs can be activated.

When a consolidated debris removal program is activated, AB 1923 will allow local governments to collect money from the insurance companies of covered homes in the area to pay for the clean up.

The county or agency operating the debris removal program will use a right of entry form to gain permission to clean up the homeowner’s property. The right of entry will also include a provision assigning the insurance benefits for debris removal to the county or agency.

AB 2611: Appealing wildfire insurance decisions

When a homeowner disagrees with an insurer about a determination of insurance issuance or premium amount made using a wildfire risk model, AB 2611 establishes an appeal process.

The insurer will need to respond to the appeal within 30 calendar days. During this time, the insurer may not cancel, increase the premium, fail to renew or make any other adverse underwriting decision toward the homeowner.

If the appeal results in an adverse decision by the insurer, they will need to provide factual evidence for their decision. They will also inform the homeowner of their right to appeal the insurer’s decision with the Department of Insurance, and provide contact information for doing so.

AB 3166: FAIR Insurance plans

The Fair Access to Insurance Requirements (FAIR) Plan Association makes available basic home insurance plans to provide coverage for homeowners who are otherwise unable to procure insurance. These plans are made available through mainstream insurers, though some homeowners facing a hard time qualifying for insurance may be unaware these basic plans are available.

AB 3166 will require insurers to inform homeowners about these FAIR Plan Association policies so homeowners know their full range of insurance options.

AB 1772: Extending insurance collection times

Passed September 21, 2018.

When a homeowner makes a claim for the destruction or loss of their property and they are insured for the full replacement cost, they have a limited amount of time to collect on the full insured amount. The insurer pays for the repairs or replacement until the property is fully repaired or replaced, which sometimes may exceed the time limit.

When the loss is related to a declared state of emergency, the time limit to collect is currently 24 months from the first payment made by the insurance company to fix or replace the property. AB 1772 will increase this limit to 36 months for the date of the first insurance payment.

Insurance policy forms will need to be updated to reflect this change by July 1, 2019. However, policy changes take effect immediately.

Related article:

Legislative Gossip

Related topics:
homeowners insurance, insurance

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

Calif. Streets and Highways Code §5900, 5901, 5913, 5914, 5922, 5923, 5924, 5925, 5926, 5940, 5954
Added by S. B. 242
Effective date: January 1, 2018

The Property Assessed Clean Energy (PACE) program allows for the financing of renewable energy sources and water efficiency improvements which are permanently affixed to real estate.

For one-to-four unit residential properties, before a property owner executes a PACE contract, and when the public agency overseeing the contract uses a program administrator, the program administrator will verbally confirm that the property owner has a copy of contract assessment documents, and the key terms of the contract. The verbal confirmation will include:

• that the property owner may have other persons present on the call;
• that the property owner should review the assessment contract, financing estimate and disclosure form with all other property owners;
• that the improvement is being financed by a PACE assessment;
• the total estimated annual costs the property owner will have to pay under the assessment contract;
• the total estimated average monthly amount the property owner would have to save in order to pay the annual costs under the PACE assessment;
• that the county annual secured property tax bill, including the installment of the PACE lien, will be mailed by the county tax collector no later than November 1, and that when the lien is recorded after the fiscal year closes but before the bill is mailed, the first installment may not appear on the county tax bill until the following year;
• the term of the assessment contract;
• that payments on the assessment contract will be made through an additional annual assessment on the property and paid either directly to the county tax collector’s office as part of the total annual secured property tax bill, or through the property owner’s mortgage impound account, and that when the property owner pays their taxes through an impound account they should notify their mortgage lender to discuss adjusting their monthly mortgage payment by the estimated monthly cost of the PACE assessment;
• that the property will be subject to a lien during the term of the assessment contract and that the obligations under the assessment contract may be required to be paid in full before the property owner sells or refinances the property;
• whether the property owner has disclosed whether the property has received or is seeking additional PACE assessments;
• that any potential utility savings are not guaranteed, and will not reduce the assessment payments or total assessment amount;
• that the program administrator and contractor do not provide tax advice, and that the property owner should seek professional tax advice when required;
• that when the property tax payment is delinquent within the fiscal year, the county tax collector will assess a 10% penalty and may assess related costs, as required by state law. A delinquent payment also subjects the property to foreclosure. When the delinquent payment continues past June 30 of a given year and defaults, the county tax collector will assess penalties at the rate of 1.5% per month (18% per year), and the property will continue to be subject to foreclosure and may become subject to the county tax collector’s right to sell the property at auction; and
• that the property owner has a three-business day right to cancel the assessment contract.

The program administrator will record the verbal confirmation and retain that recording for at least five years. The confirmation may be conducted in a language other than English when the property owner desires. The PACE assessment will not proceed when the property owner requests a language other than English and an interpreter for that language is not available.

Beginning January 1, 2019, when a property owner prefers a language other than English, and when that language is Spanish, Chinese, Tagalog, Vietnamese or Korean, all disclosures for the PACE contract will be delivered in writing, before the execution of any contract.

A property owner’s first payment on an assessment contract will be due on the fiscal year following the year in which the installation of the PACE improvement was created, and may not be waived or deferred in the first year.

Third parties, including contractors, may not advertise the availability of PACE assessment contracts unless the third party maintains the relevant licenses and bond and insurance coverage necessary for operating in its jurisdiction, and the program administrator obtains a written agreement from the third party that the third party will adhere to relevant advertising laws and regulations.

The administrator will not provide any payment to a contractor beyond what the contractor charges the property owner for the installation of an improvement. The administrator will also not reimburse the contractor for advertising expenses. The agency may reimburse the contractor for training expenses related to PACE financing when:

• the training expenses are actually incurred;
• the reimbursement does not exceed $100 per each person who participated in the training; and
• the reimbursement is paid directly to the contractor.

Any representation a contractor makes as to the tax deductibility of a PACE assessment contract needs to be consistent with representations made by the Internal Revenue Service (IRS).

The administrator may not disclose to a contractor the amount of funds for which a property owner is eligible under a PACE assessment or the amount of equity in a property.

A contractor will not provide a different price for a PACE-financed project than they would if paid in cash by the property owner.

When a property owner enters into an improvement contract on the reasonable belief that the work will be covered by the PACE program, and the property owner applies for, accepts and cancels PACE financing within the right to cancel period, work under the improvement contract may not continue and the contract will be unenforceable.

When work continues under these circumstances, the contractor is not entitled to compensation, is required to restore the property to its original condition at no cost to the owner and will return all money, property and consideration, or the fair market value thereof, to the property owner. If the contractor delivered any property to the property owner under these circumstances, the property owner will make the property available to the contractor for return within 90 days of the execution of the contract, when it is practical to do so without damaging the property owner’s property.

The property owner may waive requirements for cancelling the contract when:

• the contract is executed in connection with emergency repairs necessary to protect people or property;
• the property owner initiates the contract for emergency repair; and
• the property owner provides a statement handwritten in ink describing the emergency situation, acknowledging the contractor has informed them of their right to cancel and waiving that right.

The improvement contract will not be invalidated in the event that a property owner cancels their PACE financing after waiving their right to cancel.

For each PACE program administered, the program administrator will submit a report to its agency on or before February 1 for activity which occurred between July 1 and December 31 of the previous year, and another report on or before August 1 for activity which occurred between January 1 and June 30 of that year. The report will contain:

• the number of funded PACE assessments;
• the aggregate dollar amount of funded PACE assessments;
• the average dollar amount of funded PACE assessments;
• the categories of installed improvements, and the percentage of PACE assessments represented by each category on a number and dollar basis;
• the definition of default used by the program administrator;
• for delinquent assessments:
  • the total delinquent amount;
  • the number and dates of missed payments; and
  • the ZIP Code, city and county in which the relevant property is located;
• for defaulted assessments:
  • the total defaulted amount;
  • the number and dates of missed payments;
  • the ZIP Code, city and county in which the relevant property is located;
  • the percentage the defaults represent of the total assessments within each ZIP Code; and
  • the total number of parcels defaulted and the number of years in default for each property.
• the estimated total amount of energy saved, and the estimated total dollar value of those savings;
• the total number of energy saving improvements, and the number of improvements which qualify for the EPA’s Energy Star program, including the overall average efficiency rating of installed units for each product type;
• the estimated total amount of renewable energy produced;
• the total number of renewable energy installations, including the average and median system size;
• the estimated total amount of water saved, and the estimated dollar value of those savings;
• the total number of water savings improvements, and the number of improvements which qualify for the EPA’s WaterSense program, including the overall average efficiency rating of installed units for each product type;
• the estimated amount of greenhouse gas emissions reductions;
• the estimated number of jobs created;
• the average and median amount of annual and total PACE assessments based on ZIP Code; and
• the number and percentage of homeowners over 60 years old.

These reports will not contain any nonpublic personal information, and an agency receiving these reports will make them available on its website.

Read the bill text.

Related topics:
property assessed clean energy (pace)

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

Related topics:
property taxes, proposition 13 (prop 13)

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

November 8, 2018 update — Voters rejected Proposition 10 at the ballot box, though local efforts to rollback Costa Hawkins continue.

November is swiftly approaching, bringing with it some tough decisions voters will need to make at the ballot.

In particular, in November 2018 voters will vote yes or no on Proposition (Prop) 10. The text voters will vote on states:

A YES vote on this measure means: State law would not limit the kinds of rent control laws cities and counties could have.

A NO vote on this measure means: State law would continue to limit the kinds of rent control laws cities and counties could have.

The question may seem simple enough at first glance — but what are the impacts of a yes or no decision on the housing market and the broader economy? To answer this question, a deeper look at the issue of rent control in California is needed.

Current statewide rent control laws

Rent control is meant to keep rents on certain units from rising beyond the financial abilities of long-term tenants. This is especially important here in California, where housing cost increases regularly exceed income increases. In theory, this creates more stable neighborhoods since tenants won’t be forced out in the face of gentrification.

However, there are several disadvantages to rent control. This system gives less incentive to landlords to maintain and improve properties. It also encourages landlords to push out tenants whenever possible, since they are able to collect higher rents whenever a new tenant moves in due to a controversial workaround produced by Costa Hawkins.

If passed, Prop 10 will repeal Costa Hawkins, the controversial law which resets rent-controlled apartments to market rate whenever a tenant moves out. It also institutes a ban on rent control measures for new construction units and single family residences (SFRs). [Calif. Civil Code §§1954.50-535]

Since Costa Hawkins was enacted in 1995, rent control units have been limited to old apartments built prior to 1995. Thus, as multi-family units continue to be constructed across California (even at their current slow pace), the number of rent-controlled units remains flat, meaning the share of rent-controlled units has fallen, even as the need for these units has soared in the face of today’s housing shortage.

Court rulings require a fair rate of return for landlords, enabling landlords to increase rents to receive at least some profit off of rent-controlled units. Prop 10 would not change this rule, and in fact would codify this measure, so that while local governments may pass their own rent control laws, they may not be so strict as to remove landlords’ fair rate of return.

Rent control laws under Prop 10

If Prop 10 passes, instead of the sweeping state laws on rent control to which cities adapt their local laws, each locale will be able to fully design its own rent control system. What will these new systems look like?

The anticipated impact of passing Prop 10 is that most cities and counties will enact stricter rent control laws, in favor of lower long-term rents for tenants.

This is because Costa Hawkins currently resets rent-controlled units to market rate whenever a tenant vacates the premises. However, under vacancy control laws repealed by Costa Hawkins, the rent-controlled units would remain at their same lower level (plus an inflation factor), regardless of whether it was vacated and passed on to the next tenant.

The result of removing vacancy controls has been significantly higher rents on rent-controlled units. For example, at the end of 2017 the average rent-controlled, one-bedroom apartment was just over $1,900 a month in Santa Monica. If the same vacancy controls had remained in place before Costa Hawkins went into effect, the average rent-controlled one-bedroom apartment would be renting for closer to $1,000 a month, according to an analysis by Mercury News.

Clearly, allowing cities to reinstate vacancy controls will have a positive impact on renters. But what about landlords?

Landlords of rent-controlled units will ultimately suffer, with many who claim they will simply sell and look for more profitable investments.

For instance, if the old vacancy controls had remained in place, landlords in Berkeley would be collecting one-third less rent than they currently charge, according to the same Mercury News analysis.

Prop 10 was put on the ballot via a joint effort by the:

• AIDS Healthcare Foundation;
• Alliance of Californians for Community Empowerment Action; and
• Eviction Defense Network.

When Costa Hawkins was enacted back in 1995, it was endorsed by California’s landlord lobby.

The impacts to keep in mind when voting on Prop 10

Besides the blatant pro-tenant (yes) vote versus pro-landlord (no) vote, what other impacts will ripple throughout the state if Prop 10 passes?

California’s Legislative Analysts’ Office claims Prop 10 will result in reduced government revenue, ranging from very little to tens of millions of dollars per year — depending on how local governments choose to implement their rent control laws. Revenue will fall due to an expected decrease in property taxes as rent-controlled property values fall. Property values will decline since landlord profits will fall, making this type of property less valuable.

However, reduced government revenue from lower property taxes may be offset by more sales taxes collected through increased economic activity from tenants, who will be spending less on rent. Tenants in California regularly pay half or more of their income on rent.

Lower rents are all very well and good for tenants. But the decline in rent-controlled property values, along with the new potential for rent controls on new construction, may discourage new rental construction. Less construction would be hugely negative for California’s housing shortage. There are already 1.5 million fewer homes than needed to keep up with the population of low-income residents in the affordable housing inventory, according to the Low Income Housing Coalition.

Real estate professionals: How are you voting on Prop 10 in November? Share your thoughts with other readers in the comments! 

Related article:

Rent control versus gentrification in California

Related topics:
rent control

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

Calif. Revenue and Taxation Code §§214, 214.19
Added and amended by S. B. 1115
Effective date: January 1, 2019

Rental housing owned by charitable organizations is partly exempt from property taxes, provided at least 90% of the occupants are low-income households whose rent is below a previously established threshold. The maximum assessed value qualifying a property for the exemption is raised from $10,000,000 to $20,000,000.

To comply with the current exemption limit, a county will cancel any property tax imposed between January 1, 2017 and January 1, 2019 on qualified property valued up to $20,000,000.

Read more:

Read the bill text.

Related topics:
affordable housing, low-income housing

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

Calif. Civil Code 1947.6

Amended by A.B. 1796

Effective date: January 1, 2019

Beginning January 1, 2019, landlords of residential rent-controlled rental properties will be required to approve a tenant’s written request to install an electric vehicle charging station at a parking spot allotted to the tenant.

Read the bill text here.

Related topics:
landlord, rent control, rental, tenant

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

Calif. Government Code §§16180–16186, 16182, 16210

Calif. Revenue and Taxation Code §§2514, 20503, 20505, 20583, 20585, 20586, 20640.2, 20639, 20639.13

Amended by S.B. 1130

Effective date: July 1, 2019

The Senior Citizens Mobilehome Property Tax Postponement Law is repealed and replaced by the Senior Citizens Manufactured Home Property Tax Postponement Law, which establishes procedures for senior and disabled mobilehome owners to postpone property tax payments.

To qualify, homeowners need to:

• be at least 62 years of age, or blind or disabled;
• own and occupy the property as their primary place of residence;
• have a total household income of $35,000 or less;
• have at least 40% equity in the property; and
• not have a reverse mortgage on the property.

Eligible mobilehome owners may defer payment of their property taxes by requesting the State Controller pay the deferred amount to the county, to be repaid by the owner with interest. The deferred amount is secured by a lien in favor of the state when the claimant is the owner, or a security agreement when the claimant is not the owner.

The amount is due with interest upon the property’s sale, transfer of title or when the homeowner dies or moves.

When the claimant is not the owner of the mobilehome, the form and contents of the security agreement will include:

• the names of all registered owners of the mobilehome;
•  a description of the mobilehome; and
• the identification number of the security agreement assigned by the Controller.

Read the bill text here.

Related topics:
mobilehome, property taxes

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

Calif. Revenue and Taxation Code §3707

Added and amended by A.B. 2746

Effective date: January 1, 2019

A property owner’s right to redeem a tax-defaulted property expires on the business day prior to the date the tax sale begins, regardless of the outcome of the sale or the date the sale ends. The owner loses all interest in the property during the auction period.

When the tax collector fails to receive full payment for the property, this right of redemption is revived.

Read more:

Read the bill text.

Related topics:

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

Zoning laws preserve a city’s character and order, but are they also keeping out people and businesses?

Strict zoning laws stifle the creative and productive spirit of desirable urban areas. Places where zoning laws restrict growth see less construction and thus a less vibrant housing market. Instead of creating opportunities for new wealth, limiting real estate to its current housing stock effectively results in wealth transfer from new buyers to property owners.

This is the argument made in a new book, The Captured Economy. The authors argue our economy is rife with arrangements like restrictive zoning policies that merely transfer wealth rather than create it.

Wealth transfer slows down economic growth because it does not result in new goods or services.

California’s restrictive zoning policies

Across California, zoning restrictions have resulted in:

• reduced construction;
• failure to meet high demand for housing;
• inflated prices of new and resale homes;
• an unstable housing market as home prices rise faster than incomes can keep up; and
• stunted homeownership and home sales volume.

These factors are keeping many would-be homebuyers out of the market entirely, forcing them to remain renters.

California is in desperate need of affordable multi-family residences, yet strict zoning laws prevent builders form meeting this demand because of vocal not-in-my-backyard (NIMBY) advocates maintaining the status quo. Low density, building height, and parking restrictions are the biggest offenders.

The Captured Economy’s claims echo first tuesday’s reporting on restrictive zoning laws. Historically, excessively rigid zoning has driven up home prices and caused a slowdown in new construction. In California, new housing has lagged behind population growth for several years because of outdated zoning policies.

There simply aren’t enough units to house our state’s residents — restrictive zoning limitations need to be lifted across California, especially in cities where the most job growth is happening.

Golden-gated community

For example, construction in San Francisco is especially hampered by restrictive zoning laws, particularly those controlling multi-family units. Only 193 new housing units were added for every 1,000 new arrivals in 2015, according to Zillow.

This example of insufficient new construction is partly thanks to the city’s long approval and permitting process. But the biggest problem lies with outdated zoning laws on building height and unit density. San Francisco’s preference for low-density zoning restricts builders from meeting demand, which impairs turnover and job growth in the process.

The biggest benefit loosening restrictive zoning laws will have is stability for the housing market.

Does more construction sound like a good idea to you? Real estate professionals can attend local council meetings and discuss the need for zoning changes with other professionals in the industry to reinvigorate the housing market in California’s most desirable areas.

Related topics:
housing, land use regulation, multi-family construction, new construction, nimby, san francisco, zoning

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

April is fair housing month, reminding us that 50 years after the Fair Housing Act was passed in 1968, some renters and homebuyers still face discrimination, and have little legal recourse.

The federal Fair Housing Act prohibits housing discrimination due to an individual’s:

• race;
• color;
• national origin;
• religion;
• sex;
• disability status; or
• familial status (presence of children in the household). [42 United States Code 3604]

Notably absent from this list are:

• sexual orientation; and
• gender identity.

Therefore, at the federal level at least, landlords and real estate agents may discriminate against individuals based on sexual orientation or gender identity without legal recourse.

But California has additional protections in place through the Unruh Civil Rights Act, which prohibits discrimination based on gender identity or sexual orientation. [Calif. Civil Code §51(e)]

The level of fair housing protection varies from state-to-state, begging the question: where else are gender identity and sexual orientation protected from housing discrimination?

Trulia clears up the confusion

For non-gender-conforming individuals and for individuals who are lesbian, gay, bi-sexual or transgender (LGBT), this question is more than just a curiosity. It can be necessary to making a living and having a place to live.

The newest version of Trulia’s home search app includes a Local Legal Protections feature, which answers the question:

Do legal protections exist for the LGBT community in ______?

The app answers the question based on whether anti-discrimination laws exist for:

• housing;
• employment; and
• public accommodations.

Trulia estimates about 55% of U.S. housing units are covered by anti-discrimination laws for LGBT individuals.

The Local Legal Protections feature is found in every home search, on the app and on its website. Home searchers who click on a home to view its details can expand the feature to see the results.

For California home searchers, the app feature is useful for out-of-state searchers, or for those who currently live in California and are making a move to another state.

It also sheds light on the laws that protect LGBT renters and homeowners, which are not always clear.

Related article:

Fair housing 101 for landlords

Related topics:
housing discrimination

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

Regulations for the use of land — zoning laws — are an inextricable piece of the fabric of our society. After all, without zoning our neighborhoods would become rife with crime and our business districts would be pure confusion. Zoning is necessary and our society is better for it.

Right?

No, not really. Zoning can’t create the perfect city, neatly separating spaces for living, retail, business and industrial activities — at least, not without significant consequences for its residents.

Here’s what zoning actually does in its present form across the U.S., particularly in California:

1. Zoning restricts the amount of construction, especially residential construction.
2. As a result, not enough new construction is built to accommodate demand for housing.
3. Due to insufficient construction, the prices of new and resale homes rise considerably.
4. Higher home prices reduce the quality of life for residents as less income is available to be spent in other economic sectors.
5. An unstable housing market emerges, as home prices, while supported by a growing population relative to new construction, unable to be supported by an equal rise in income.
6. Homeownership is stunted and home sales lag.

A brief history of zoning laws

Land use laws didn’t always exist in the U.S. In fact, the idea of officials telling a property owner how to use their land was seen as tyrannical, an overreach of the government. But this resistance to zoning gradually began to diminish at the start of the 20^th century.

The first noticeable instance of zoning regulations in the U.S. occurred in New York City in 1916. Zoning was later allowed on a broad scale by the U.S. Supreme Court in 1926, allowing neighborhoods to restrict building types to single uses. Prior to this decision, it was unclear whether zoning hindered the rights of residents to use their private property as they saw fit. [Village of Euclid, Ohio v. Ambler Realty Co. (1926) 272 U.S. 365]

But according to the Brookings Institution, zoning didn’t have any significant impact on local building trends until the 1970s. Until that point, construction mostly kept up with population growth, ensuring prices rose at a steady clip. Then, Baby Boomers started buying homes.

The largest generation to walk the earth (at the time), the Baby Boomers shaped our economy as we currently know it, including the housing industry. In fact, in many ways housing was unprepared for the convergence of Boomers on the market in the 1970s and 1980s. Demand for the American Dream propelled homeownership to the forefront of the Boomer imagination, and builders couldn’t keep up.

But builders weren’t held back due to a lack of lumber or workers or even enough land on which to build. Rather, land use regulations prevented builders from building in places where Boomers desired to live.

Undeniably, demand is highest for housing nearest to all the things that increase our quality of life, including:

• high-paying jobs;
• easy access to transportation;
• cultural amenities;
• high-quality schools; and
• superior infrastructure improvements.

But the proximity to these amenities needs to be balanced with the desire for space. That’s because zoning regulations hold down density, limiting the number of units built in desirable areas. Space became a high commodity in urban centers, with the high cost to show for it.

As the Baby Boomers looked to settle down, the only place with the right combination of space and location was the suburbs. Suburban sprawl became a regular feature of the U.S. landscape. Isolated bedroom communities spread like parts of an island chain connected by congested highways and long commutes.

Zoning in California

Here in California, the lack of appropriate zoning has led to historically low construction numbers.

For example, between 1981 and 2017 household growth exceeded new construction by 335,000 households. Thus, as demand from our state’s ever-growing population continues to rise each year, construction fails to keep up.

Put another way, California is home to 12% of the U.S. population, but only 10% of the nation’s housing stock. Again, this translates to hundreds of thousands of missing housing units from the state’s inventory.

As a direct result, California has the second-highest home sale prices in the nation in 2018, exceeded only by the District of Columbia, according to Trulia. For comparison, in 1960, California was home to the seventh-highest home prices in the nation, according to the U.S. Census.

Another result of low construction and high home prices is the state’s low homeownership rate. During 2017, California’s homeownership rate averaged a low 54.4%. The U.S. average homeownership rate was ten percentage points higher, at 64%.

But some progress is being made to reverse these past several decades of destructive zoning.

For example, new laws to encourage accessory dwelling units (ADUs) were enacted statewide in late-2016. The effect was immediate, as construction permits for ADUs jumped in 2017, from:

• 90 in 2015 to 1,980 in 2017 in Los Angeles;
• 0 in 2015 to 42 in 2017 in Long Beach;
• 33 in 2015 to 247 in 2017 in Oakland;
• 17 in 2015 to 34 in 2017 in Sacramento;
• 16 in 2015 to 64 in 2017 in San Diego;
• 41 in 2015 to 593 in 2017 San Francisco; and
• 28 in 2015 to 166 in 2017 in San Jose, according to University of California Berkeley’s Terner Center for Housing Innovation.

Related article:

Granny flats get a boost in California legislature

This jump in ADU creation was not due to any builder incentives or government-funded program. It cost taxpayers nothing except for the time paid to legislators who changed the law through their regular course of work. The jump was due entirely to progressive zoning changes.

Future zoning strides

California’s government is increasingly being made aware of the state’s housing crisis, and is reacting with new legislation designed to increase construction. Specifically, they are trying to find ways to increase the housing stock of units within reach of low- and moderate-income households.

In 2017, California passed a package of affordable housing bills. The changes in these bills included money to assist local governments in:

• reforming zoning codes to make housing production more efficient;
• reducing environmental analysis for affordable housing projects;
• streamlining the permitting process for affordable housing projects;
• constructing homeless shelters; and
• providing assistance to transition members of the homeless population.

Related article:

Real estate professionals need to know: new affordable housing laws

But local efforts to enact these changes are met by vocal not-in-my-backyard (NIMBY) advocates. These individuals are interested in preserving their neighborhood’s “character” by limiting density and building height. NIMBYs are twisting the original aim of zoning for their own isolationist demands.

But the problem for local city council members who enact the state’s affordable housing agenda is this: NIMBYs tend to be the only ones who let their voices be heard. NIMBY advocates actually attend city council meetings to complain about proposed developments and changes. That’s because they have more of an apparent stake in any changes.

But real estate professionals have a stake, too. If more housing is not built to accommodate the state’s ever-growing population, prices will continue to rise out of reach. The first-time homebuyer population — the solid base of a healthy and growing housing market — will shrink. Today’s currently low home sales volume will continue for years.

This is why it’s imperative real estate professionals get involved in making sure NIMBYs are not the only ones heard. New housing development is needed to revive and sustain California’s housing market. Make sure it doesn’t get blocked by neighborhood residents who have not seen the full picture.

Related topics:
accessory dwelling unit, california zoning, construction

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

Related topics:
department of real estate (dre), guest opinions and articles

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

President Trump has been in office for a little more than a year now. As such, we thought now would be a good time to look back on the actions his administration has taken during his first year in office that have affected housing here in California and across the nation.

Tax plan changes

Probably the biggest “win” for Trump’s presidency in 2017 was the passage of the 2018 Republican tax plan.

The changes were many, but the big headlines for housing include:

• nearly doubling the standard deduction, causing fewer people to itemize beginning in tax year 2018;
• limiting state and local (SALT) taxes to $10,000 per tax return;
• lowering the mortgage interest deduction (MID) from mortgage amounts of $1 million to $750,000;
• removing the deductibility from home equity loans (HELOCs) unless they HELOC is only used to fund home improvements;
• removing the deductibility of moving expenses except for members of the military; and
• doubling the threshold for the estate tax from $5.6 million to $11.2 million for individuals.

In California, the changes to SALT taxes and the MID will have the most tangible impacts for you and your real estate clients.

Since home values are so high here — after Hawaii, the highest in the nation — property tax amounts are likewise high. That means homeowners with large property tax (and state income tax) bills won’t be able to deduct as much off their income as in previous years.

California’s high home values also mean jumbo mortgages are more common, and so the lower ceiling on the MID will impact more than a few homeowners. This is especially true in California’s most costly coastal cities where million dollar homes are the norm (we’re looking at you, San Francisco).

In fact, one-third of U.S. homebuyers who answered a Redfin survey in late-2017 said they would consider moving to another state when tax reform passed. This great exodus is clearly not occurring, but it does indicate the stress the new tax rules will have on some homeowners’ wallets.

How will these tax changes impact the housing market in 2018 and the years following?

The new tax rules themselves will have little real impact on housing. That’s because demand for homes is rarely dictated by taxes. Rather, taxes are most often an afterthought of homebuyers.

CFPB shake-ups

One of the hallmarks of Trump’s agenda has been deregulation. The agendas of both Trump and the Republican Party include this item high on their list of market-boosting tactics.  In other words, those in charge believe the economy does better when there are fewer rules guiding the behavior of banks, lenders, appraisers and other major players.

Trump has stated time and again his intentions to either roll back or do away entirely with regulations put in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

One of the big players set up by Dodd-Frank is the Consumer Financial Protection Bureau (CFPB). This Bureau’s purpose is to:

• collect consumer complaints of financial fraud;
• educate consumers about major financial decisions;
• issue guidance and regulations for financial industries; and
• fine or otherwise prosecute financial institutions for practices that harm consumers.

Trump was finally able to make some major strides in pulling back the CFPB’s regulatory power in late-2017, when the former director resigned. Trump was able to appoint his own pick to oversee the CFPB and this new director is reviewing financial regulations and educational materials. Under Trump’s guidance, the CFPB is now most likely to begin rolling back regulations and consumer protections.

Related article:

CFPB takes first steps to rollback regulations

How is this likely to affect housing?

Looser consumer-financial protections means the housing and lending industries will start to look more like the old days — before the housing crash. Deregulation was the name of the game during the Millennium Boom when all a homebuyer needed was to walk into the nearest bank and be handed a zero-doc, zero-ability-to-pay mortgage. This activity added up to the default and foreclosure on hundreds of thousands of California homes.

Proactive agents can prepare by keeping watch for predatory lending and by encouraging homebuyer counseling, especially for first-time homebuyers who may be in over their head.

Recession on the way?

One thing Trump did not promise if he took office was a recession. And while a recession is never due to one person, it’s important to look ahead to the next recession, and prepare.

Looking at the broader financial health of the market, yields on the 10-year Treasury Note are escalating thus far in 2018. This means investors are demanding lower prices on the 10-year in return for higher rates. On the surface, this is a positive reflection on the market since investors are showing less demand for the safety of Treasuries and are instead investing their money in other, riskier instruments.

But since the government is now shelling out higher yields — interest rates — to draw investors, interest rates will also rise on other, non-government investment products. This includes fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). For example, on February 1, 2018, interest rates averaged:

• 4.22% for the 30-year FRM rate, up from 3.95% a month earlier;
• 3.68% for the 15-year FRM rate, up from 3.38% a month earlier; and
• 3.53% for the 5/1 ARM rate, up from 3.45% a month earlier, according to Freddie Mac.

The 10-year Treasury Note is not the same thing as the Federal Reserve’s (the Fed’s) benchmark interest rate, the Federal Funds rate. This short-term rate is also on the rise in 2018, but unlike the 10-year, which is controlled by demand from bond market investors, the Federal Funds rate is directly controlled by the Fed. The Fed increases this benchmark rate to slow down the economy to prevent a bubble.

Higher interest rates, while reflective of current economic strength, also portend a future slowdown. In the housing market, higher interest rates reduce homebuyer purchasing power. This means mortgaged homebuyers are collectively unable to pay the same high prices that sellers have become accustomed to receiving.

The inevitable result is a slowdown in home sales volume and home prices.

Further, when the recession does take hold — likely around 2019 — Trump’s administration will be at the reigns to act. The good news is the coming recession will more than likely be more like a regular business recession than the last Great Recession of 2008. Factors which might alter the next recession include:

• any financial shocks due to the presently unstable stock market;
• a geopolitical crisis, such as war; and
• shifting Fed policy due to a new Fed chair.

This last factor really is a wild card, since Trump recently chose not to keep former Fed Chair Janet Yellen on at the Fed for a second term. She is the first Fed chair not to receive a second term since the 1970s, as Fed chairs tend to stick around even when new administrations move into the White House.

The new Fed Chair, Jerome Powell, lacks a background in Economics — another first for a Fed chair since the 1970s. However, his experience at the Fed makes him likely to continue Yellen’s gradual rate increases for now, but it’s unclear how he will respond to the next economic slowdown.

Agents: How have your clients reacted to rising interest rates? Is it slowing them down or are they undaunted? Share your experiences in the comments below.

Related topics:
federal reserve (the fed), tax aspects

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

Calif. Government Code §65583.2
Amended by A. B. 1397
Effective date: January 1, 2018

Parcels included in a city’s inventory of sites suitable for residential development need to have sufficient water, sewer and dry utilities available and accessible to support housing development, or be included in a current plan to provide those utilities.

The inventory needs to specify how many units may realistically be accommodated on each site, and what income-level housing the site will accommodate. Nonvacant sites identified in a previous housing element and vacant sites included in two or more consecutive planning periods without being approved will not accommodate lower income households for the current housing element planning period, unless the sites:

• are capable of being developed at high densities; and
• require rezoning within three years of the beginning of the planning period to allow residential use for housing developments in which at least 20% of the units are affordable to lower income households.

Unincorporated cities in nonmetropolitan areas are exempt from these requirements.

The number of units based on an established minimum density for a site will now be adjusted based on:

• the realistic development capacity of the site;
• typical densities of developments on similar sites; and
• availability of water, sewer and dry utilities.

A site may be presumed realistic for the development of low-income housing if such a development has been approved when the housing element is adopted. A local government needs to demonstrate that a site smaller than half an acre or larger than 10 acres can accommodate low-income housing before identifying the site in its housing inventory.

When determining residential housing development potential of existing sites, a city needs to take into account:

• the city’s past experience converting existing uses into high-density residential developments;
• the current market demand for the existing use; and
• an analysis of existing leases which would perpetuate the existing use or prevent redevelopment of the site.

When a city relies on nonvacant sites to accommodate 50% or more of its low-income housing need, the methodology needs to demonstrate existing uses do not impede additional residential development.

Current residential uses subject to rent control ordinance or occupied by low-income households will be subject to a policy requiring that the units be replaced with units of the same or lower income level as a condition of development of the site.

Read more:

Read the bill text.

Related article:

Updates to California Planning and Zoning Law

Related topics:
low-income housing, zoning

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

Calif. Government Code §65400, 65583, 65700, Health and Safety Code §50456
Amended by A. B. 879
Effective date: January 1, 2018

A city, county or charter city is now required to include in its housing element annual report to the Department of Housing and Community Development (HCD):

• the number of housing development applications received in the prior year;
• the number of units included in all development applications in the prior year;
• the number of units approved and disapproved in the prior year;
• a list of sites rezoned to accommodate the portion of the city’s or county’s share of the regional housing need for each income level that is not currently accommodated by existing zoning;
• the number of new housing units that have been issued a completed entitlement, building permit or certificate of occupancy, and the income category each unit of housing satisfies, including a unique site identifier for each entitlement, building permit or certificate of occupancy; and
• for developments which meet the standards for streamlined applications not requiring a conditional use permit:
  • the number of development applications submitted;
  • the number and location of development applications approved;
  • the number of building permits issued; and
  • the number of units constructed.

The report is required to be prepared in accordance with HCD standards. HCD will post the submitted reports on its website.

The assessment of housing needs and inventory of resources and constraints contained in in the housing element will now include:

• an analysis of any locally adopted ordinances that directly impact the cost and supply of residential development; and
• an analysis of nongovernmental constraints — such as requests to develop housing at below-anticipated densities, and the length of time between receiving approval for a housing development and submittal of an application for building permits for that housing development that obstruct the construction of a locality’s share of the regional housing need — including local efforts to remove nongovernmental constraints obstructing the development of housing for all income levels.

Programs established to create a schedule of actions for housing development are required to remove nongovernmental constraints to maintenance, improvement and development of housing for individuals with disabilities when possible.

By June 20, 2019, HCD will complete a study evaluating the reasonableness of local fees charged to new developments, including findings and recommendations regarding potential fee reductions.

Read more:

Read the bill text.

Related article:

Updated requirements for land and housing inventory

Related topics:
california zoning